07/10/2015 02:57 EDT | Updated 07/10/2016 05:59 EDT

Moody's downgrades Manitoba government's credit rating, cites growing debt

WINNIPEG - An international agency cut the Manitoba government's credit rating Friday in a move that will likely lead to higher interest payments on the province's growing debt.

Moody's Investors Service dropped the province's long-term rating to AA-2 from AA-1, citing a fast-growing debt load and a failure to meet balanced-budget targets. It is the first Moody's downgrade for Manitoba in more than two decades.

"The downgrade ... reflects the deterioration in Manitoba's financial metrics leading to an increased debt burden and our expectation that the province will face significant challenges in achieving fiscal balance by 2018-19," Moody's analyst Kathrin Heitmann said in a written statement.

"The stabilization of Manitoba's debt burden will depend on the political willingness to rein in spending."

The NDP government started running deficits in the 2009-10 fiscal year, and promised to be balanced by 2015. Instead, that target was pushed back twice — first to 2017 and now to 2019. Along with the latest delay, the government also said it will only balance its core operations and not the full public budget that includes Crown corporations, universities and other bodies.

In the meantime, Moody's noted, the provincial debt is growing quickly — from 116 per cent of government revenues in 2011 to an estimated 143 per cent this year. In raw numbers, the net debt has gone from $12.5 billion to $20.4 billion in five years.

Credit downgrades normally lead to higher interest rates. The province already pays almost $900 million a year to service its debt load.

The NDP government has defended its decision to continue with deficits. Much of the money is being used to fund infrastructure work on roads and bridges, which the government says is an important way to boost the economy during uncertain economic times.

"We take the ratings by Moody's and other agencies seriously, but we need to stay focused on creating jobs by growing Manitoba's economy and not make short-sighted cuts that could cause job losses among national and international economic uncertainty," Finance Minister Greg Dewar said in a written statement Friday.

But the Opposition Progressive Conservatives have said the government has been unable to control spending. They say the government continues to run up deficits every year despite first broadening the provincial sales tax in 2012, then raising it by one percentage point the following year.

Manitoba is not the only province to face a credit-rating cut. Ontario saw a downgrade from Standard and Poor's earlier this week due to what that agency called a very high debt burden.