The report compares the government’s current debt forecast to two other periods of rapid debt growth: the post-2008/09 global financial crisis era and the COVID-19 pandemic.
The report’s findings indicate that B.C.’s government expects an addition of $5,315 per person in net debt over its current three-year fiscal plan. This increase is substantially higher than the increases during the COVID-19 pandemic and after the 2008 financial crisis, which saw rises of $1,680 and $3,438 per person, respectively.
Unlike previous periods, the current debt growth is set against a backdrop of higher interest rates, leading to a 36.7 percent increase in interest payments on B.C.’s debt over just three years, the report predicts.
According to the report, B.C.’s current fiscal forecast portrays an operating deficit of $6.7 billion for the fiscal year 2023/24, surpassing the nominal deficit recorded during the peak of the COVID-19 pandemic. This increase in spending marks a stark departure from the prolonged period of spending restraint B.C. maintained from 2000/01 until 2016/17.
“A crucial fiscal policy development in the province has been the British Columbia government’s recent dramatic increase in spending, which began in 2017 and coincided with the election of John Horgan’s New Democratic government,” says the report.
The shift in spending practices has now positioned B.C. at a critical juncture, facing one of the most significant increases in debt burden in recent history.
“Over the next three fiscal years, British Columbia’s government forecasts a rapid increase in provincial net debt,” the report states.
Despite the alarming figures, the province’s debt-to-GDP ratio, a key indicator of fiscal health, is forecasted to climb by 8.2 percentage points over the next three fiscal years, marking the highest in provincial history.
The report emphasizes that this unprecedented growth in debt accumulation in B.C. will have lasting effects on the province’s fiscal health and capacity to manage future economic downturns or crises. The report notes that the projected increase in debt and associated interest costs highlight the need for careful consideration of fiscal policies and spending decisions to mitigate long-term financial risks.
This surge in debt accumulation is not only more severe than previous crises but also occurs in an environment of rising interest costs, unlike the low or falling interest rates during past debt growth periods.
According to the report, “Unlike the two historical reference periods, the current forecasted increase will trigger a significant increase in interest payments in the years ahead.”
