Budget Bulletin Debt Retirement

first_img establishing a debt retirement contingency in fiscal year 2004-05 that will be required to reach $106 million by fiscal year 2007-08; creating a fund for debt retirement using a portion of the interest earned on investments; and enacting legislation that commits extraordinary revenues to the province, as well as money from the sale of provincially owned assets, to the debt retirement fund. The province of Nova Scotia continues to make progress inmanaging its long-term debt. Three successive balanced budgets,steady reduction in net debt to GDP ratio, and continuedreduction in foreign currency exposure have contributed tofinancial recovery and prosperity for the province. The government announced a debt retirement plan in June 2003. Bylowering the debt, annual interest charges will be reduced,making the province more attractive in financial markets. The plan’s three components are: The debt retirement plan focuses on net direct debt (NDD) as thetarget measure of the province’s debt. Despite balanced budgets,annual spending on tangible capital assets (TCA) such as roads,schools, and other public infrastructure, has been adding to thedebt. To address this challenge, a $250 million annual capitalspending TCA allocation was established. This will controlprovincial spending while prudent investment in capitalinfrastructure will support steady economic growth. Net direct debt to gross domestic product (GDP) compares what theprovince owes with what it produces, thereby measuring theability of the province to manage its debt. NDD:GDP RATIO2002-03 45.0 per cent2003-04 44.1 per cent2004-05 (estimated) 43.1 per cent Reducing the amount of debt that is in foreign currencies reducesthe province’s vulnerability to sudden changes in foreigncurrency markets. By law, Nova Scotia’s foreign debt had to belowered to under 20 per cent. FOREIGN CURRENCY EXPOSURE1994-95 72.2 per cent2001-02 28.9 per cent2002-03 18.1 per cent2003-04 16.9 per cent The benefits of the above actions can be seen in debt servicingcosts. In fiscal year 2003-04, debt servicing costs were down by$25.3 million compared to the budget estimate. This, despite theinclusion of $30.5 million in interest on post-employmentbenefits in 2003-04 debt servicing costs. Without that change inaccounting policy, debt servicing costs would have been down$55.8 million. In part, decline in debt servicing costs was dueto the improvement in the Canadian dollar and the continuation oflow short-term interest rates. Debt servicing costs in 2004-05 are up slightly compared to the2003-04 forecast. However, the increase is due to interest onpension and other obligations totalling about $10 million. -30-last_img read more