Canadian provinces to borrow 22% more this year as deficits rise

Canadian provinces are set to issue more debt than they did last year as they look to plug budget shortfalls, according to National Bank of Canada’s financial markets unit.

Borrowing needs from provinces facing growing deficits and maturing debt are estimated to be $130 billion for the fiscal year starting April 1, the highest in four years, data compiled by the division showed. That’s a 21.5 per cent jump from $107 billion for the prior fiscal year.

The growing financing requirements come as borrowing costs have stayed elevated because of persistent inflation. While that doesn’t bode well for issuers, it could be a boon for investors looking to lock in higher yields before central banks in Canada and across the world cut interest rates. On Tuesday, traders upped their bets on a June rate cut by the Bank of Canada as inflation slowed in February.

“A fairly sizable aggregate borrowing requirement and a still uncertain economic and financial backdrop means the provinces are going to be motivated to get funding in the door when they have an opportunity to do so,” said Warren Lovely, chief rates and public sector strategist at the National Bank of Canada Financial Markets.