Fraser Institute: B.C. government’s land deals with First Nations threaten its ability to borrow money

Like any borrower, for the provincial government to borrow money there must be an investor willing to lend. The lending side has two groups—bond rating agencies and the actual lenders. Rating agencies analyze the sustainability of government debt to help lenders determine credit worthiness and the level of interest they should charge given the financial strength and creditworthiness of governments.

There are already worrying signs, with five downgrades of B.C.’s provincial debt by rating agencies in recent years. And there’s a real possibility that lenders will be increasingly reluctant—or potentially outright refuse—to provide debt financing to the B.C. government as its debt grows and the reality of bilateral agreements, related court cases and provincial legislation regarding Aboriginal title become clearer. This is not hyperbole. Lenders refused to provide financing to the governments of Nova Scotia and Saskatchewan in the 1990s and to Greece from 2009 to 2018. And in the early 1990s, lenders were increasingly worried about Ottawa’s debt level, causing marked increases in interest rates.

For the B.C. government (and thus, B.C. taxpayers), the financial risks linked with these agreements and court cases could result in marked increases in the interest payments lenders demand to compensate them for increased risks. Indeed, a one-percentage point increase in interest costs on the government’s existing debt would equal roughly an additional $1.9 billion this year alone. That means even more borrowing as the deficit increases.

And Victoria has racked up an almost unimaginable amount of debt in recent years, and the scale of the increase is unprecedented. Coming out of COVID in 2020/21, total provincial government debt stood at $87.1 billion and is expected to reach $183.4 billion this year (2026/27) and $234.6 billion by 2028/29, which is a total increase of 169.3 per cent in just eight years.