Manitoba Finance: April 2018

Province of Manitoba

1

Economic, Fiscal and Borrowing

Update

Manitoba’s Economy

One of ten Canadian provinces (fifth-largest in population)

Centrally located in North America with a comprehensive transportation and communication network

Total area 650,000 km2

Population: 1.34 million, the fastest growing province in the last three years

Capital: Winnipeg, Pop. 849,500

Extensive natural resources (minerals, forests, fertile soil, freshwater lakes)

Sound credit rating: Moody’s: Aa2 (stable) and S&P: A+ (stable)

2

Manitoba Economy: Consistent Growth

Diversified economy, with a majority of medium-sized industries.

Economic activity and jobs are not focused on one particular sector or area, as a result, long-term progress is balanced by growth across different sectors.

Manitoba’s 10-year average annual real GDP growth has been relatively stable over the last 15 years, while the national average has declined.

3

2.4 2.2

3.5

1.6

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

2002 2004 2006 2008 2010 2012 2014 2016

Manitoba Canada

10-Year Average Annual Growth in Real GDP: Manitoba and Canada, 2002 - 2016 (Compounded Average Annual Per Cent)

Source: Statistics Canada

Diversified Industries

Sources: Statistics Canada and Manitoba Finance

Note: Excludes imputed rent

Agriculture, Forestry and Fishing 3.6%

Mining, Oil and Gas 5.0%

Utilities 3.1%

Construction 7.7%

Manufacturing 9.7%

Wholesale 6.2%

Retail 5.7%

Transportation and Warehousing 6.5%

Finance and Insurance 5.9%

Real Estate, Rental and Leasing 3.7%

Information, Culture, Administration and

Management of Companies 4.9%

Professional and Scientific 3.1%

Accommodation, Food, Arts and Entertainment and Other Services 4.6%

Public Administration 7.7%

Health and Social Services 8.0%

Education Services 5.5%

GDP By Industry Shares, 2016

Commercial Services

Goods-Producing

Non-Commercial Services

4

Grains, Oilseeds and Livestock

Aerospace Components and Service

Transit and Inter-City Buses

Processed Food Products

Machinery and Equipment

Mining and Oil Extraction

Electricity (Mostly Hydro)

Industrial Chemicals

Pharmaceuticals

Manitoba’s Broad Export Base

5

Relatively Lower U.S. Exposure

United States 64.7%

China 10.1%

Japan 5.9%

European Union 4.3%

Other 15.0%

Manitoba International Exports, 2017

6

United States 75.2%

China 4.5%

United Kingdom

3.4%

European Union

7.7% Other 9.2%

Canada International Exports, 2017

Source: Statistics Canada

Manitoba: 35% Non-U.S Exports Canada: 25% Non-U.S Exports

Growing Population – Resilient Labour Market

7

Historical Average

0.8%

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

2000 2004 2008 2012 2016

Annual Population Growth, 2000 – 2017 (Per Cent)

Fastest population growth among provinces over the past three years, while maintaining the second lowest unemployment rate.

Source: Statistics Canada

5.1 5.4 6.0 6.1 6.3 6.3

7.8 8.1 8.4

9.8

14.8

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

BC MB ON QC SK CAN AB NB NS PE NL

Unemployment Rate, 2017 (Per Cent)

0

100

200

300

400

500

600

700

800

2006 2008 2010 2012 2014 2016 2018i

Adding Value and Jobs at Home

8

Acceleration of capital spending on value-added processing within Canada

Capital Investment In Manufacturing, 2006-2018i (In Millions of Dollars) Increasing farm diversification and

employment, especially in rural areas.

Broadening Manitoba’s export base and

improving agriculture competitiveness

and profitability.

• HyLife is expanding its Integrated

Pork Production and Processing

System. Adding more processing

capacity and up to four finisher sites.

• Roquette is building the world’s

largest pea-protein processing facility

in Manitoba.

• Simplot plans to more than double its

food processing capacity for frozen

french fries and formed potatoes.

i – Capital spending intention for 2018 Source: Statistics Canada

Real GDP Growth, 2013 – 2019f (Per Cent)

Economic Growth Rate

9

2.5

2.9

1.0

1.4

3.0

2.3

1.8

2.8

2.0

1.3

1.7

2.2 2.0

1.6

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2013 2014 2015 2016 2017 2018f 2019f

Canada

Manitoba

Following a recovery from a commodity price shock, growth expected to moderate in the near-term

Forecast

f – Forecast based on Manitoba Finance Survey of Economic Forecasts Sources: Statistics Canada, Manitoba Bureau of Statistics and Manitoba Finance Survey of Economic Forecasts

f – Forecast based on Manitoba Finance Survey of Economic Forecasts Source: Manitoba Finance Survey of Economic Forecasts

Economic Outlook, 2018f-2019f

Manitoba Finance Survey of Economic Forecasts (As at April 2018)

10

2018f 2019f

Manitoba Canada Manitoba Canada

Percent Growth Unless Noted

Real GDP 2.0 2.3 1.6 1.8

Nominal GDP 3.8 4.1 3.5 3.8

Employment 0.8 1.4 0.5 0.9

Unemployment Rate (%) 5.3 5.9 5.3 5.8

Consumer Prices 2.1 2.0 2.1 2.0

Province of Manitoba: Fiscal Update

11

Building Budgets that Focus on Outcomes

Bending the Cost Curve

Streamlining collective bargaining agreement and establishing sustainable

salary expectations.

Reducing core government management by 15%.

Return on investment test for capital spending.

Transformation Management Office to oversee health care spending.

Spending below budget levels for the past two years – the first time this has

been done in almost 15 years.

Manitoba’s Competitive Tax Disadvantage

Bringing Manitoba’s tax regime in line with other provinces.

Supporting the Economy

Commitment to annually spend at least $1 billion on strategic infrastructure.

The level of investment in 2018/19 is over $1.6 billion, exceeding the

commitment.

12

Budget 2018

Source: Manitoba Finance

Health 38.7%

Education 25.6%

Families 12.3%

Community, Economic and

Resource Development

8.3%

Justice and Other 9.2%

Debt Servicing 5.9%

Revenues Expenses

Income Taxes 24.1%

All Other Taxes 28.6% Fees and Other

Revenue 13.9%

Net Income of Government

Business Enterprise

5.0%

Federal Transfers

26.8%

Sinking Funds and Other Earnings

1.6%

13

Gaining Credibility

f – forecast Source: Manitoba Finance 14

Budget (438)

Budget (460)

Budget (518)

Budget (357)

Budget (422)

Actual (764)

Forecast (726)

Actual (1,001)

Actual (560)

Actual (522)

Actual (430)

Actual (839)

Budget (911)

Budget (840)

-1,200

-1,000

-800

-600

-400

-200

0

200 (Previously missing budget commitments

Budget vs. Actual/Forecast Annual Surplus (Deficit), 2011-12 to 2017-18f (In Millions of Dollars)

New administration

Responsible Path Forward

f – forecast, b – budget and p – projection Source: Manitoba Finance

Actual (764)

Forecast (726)

Budget (521)

Projection (388)

Projection (280)

Projection (142)

-1,000

-800

-600

-400

-200

0

200

15

Budget 2018 provides an improved trajectory from

Budget 2017

Annual Surplus (Deficit), 2016-17 to 2021-22p (In Millions of Dollars)

New administration

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

50.0

AB BC SK PE MB CAN NS ON NB QC NL

Net Debt to GDP Ratio, 2017 – 2018f (Per Cent)

Comparable Among Peers

16

Average among provincial peers

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

AB SK BC MB PE NB CAN NS ON QC NL

Below average among provincial peers

Interest on Debt to Revenue, 2017 – 2018f (Cents/Revenue)

f – forecast Sources: Provincial and federal budgetary documents and Manitoba Finance calculations

Competitive Business Environment

Manitoba’s small business tax rate is currently at 0% on income up to $450,000, increasing to $500,000 in 2019.

Manitoba’s general corporate income tax rate of 12% remains below the Canadian provincial average.

The combined Manitoba and federal general corporate income tax rate of 27% is comparable to the median of our ten largest U.S. state trading partners.

Manitoba has a number of targeted corporate and community development tax credits to support economic growth in the province.

• Manufacturing Investment Tax Credit for plant and equipment investment for first-time use in manufacturing or processing.

• Manitoba Research & Development Tax Credit for scientific research and experimental development.

• Manitoba Film and Video Production Tax Credit for eligible production expenditures including eligible labour expenses.

• Co-operative Development Tax Credit for cooperatives and credit unions that make financial contributions towards cooperative development.

• Community Enterprise Development Tax Credit assists community-based enterprise development projects to raise local equity capital.

17

“The government’s commitment to deficit reduction now appears increasingly credible with

two years of budget outperformance and an ongoing focus on spending discipline.”

Commentary – March 13, 2018, DBRS

“At the same time, the province extended its fiscal outlook to four years (from three), a change

that provides improved visibility into its fiscal planning.” Issuer Comment – March 13, 2018, Moody’s Investor Services

Manitoba – Credit Ratings Profile

Sources: Moody’s Investor Services and Standard and Poor’s Rating Services 18

Aa3

Aa2

Aa2

Aa2

Aa2

Aa2

Aa2

Aa1

Aaa

Aaa

NL

PE

NB

NS

ON

QC

MB

AB

SK

BC

Moody’s Credit Ratings

A

A

A +

A +

A +

A +

A +

AA -

AA

AAA

NL

PE

NB

ON

AB

MB

NS

QC

SK

BC

S&P Credit Ratings

97.5% of electricity generation is

hydro, 2.3% is wind and 0.2% is

thermal.

Roughly 1/4 of the electricity

generated is exported outside

of Manitoba (U.S., Canada).

Manitoba Hydro’s current

generation capacity is 5,680

MW, with an additional 4,400

MW more of potential

generation identified.

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Min

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Wis

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On

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Cali

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0

2

4

6

8

10

12

14

16

18

20 Retail Price of Electricity (Cents/kWh $C)

Source: Manitoba Hydro, 2016/2017 Annual Report

North America’s Clean Energy Leader

19

20

Manitoba Hydro Capital Initiatives

Keeyask Hydro Generating Station Project

Design Capacity:

695 MW

Anticipated Completion: 2021-22

Anticipated Cost: $8.7B

Manitoba Hydro is currently investing in both a major generation project and

transmission project.

Source: Manitoba Hydro

Bipole III Transmission Line Project

Design Capacity:

1,364 km

Anticipated Completion: 2018-19

Anticipated Cost: $5.0B

20

Budget 2018 was tabled on March 12, 2018.

Expected borrowing requirements for fiscal year 2018-19 are C$6.4 billion.

Planned funding through both domestic and international capital markets.

To date, we have funded $0.6 billion, 21% of our needs for fiscal 2018-2019.

$635M General Programs

$527M Other Crowns & Org.

$371M Capital Investments

New Cash Requirements

$4.1 billion Refunding Maturing Debt

$2.3 billion

Borrowing Requirements

C$6.4 billion

$2,600M Manitoba Hydro

Source: Manitoba Finance 21

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

2012/2013 2013/2014 2014/2015 2015/2016 2016/2017 2017/2018f 2018/2019f

(C$ Billion) Future Expectations International Domestic

Borrowing Program

b – budget Source: Manitoba Finance 22

Funding Sources (Apr 1, 2012 – Apr 27, 2018)

MTN 11% CAD Public

Debentures 49%

AUD MTN 5%

U.S. Global 18%

FRN 6%

EMTN 10%

Savings Bonds 1%

(discontinued in 2016)

GBP, JPY, HKD & EURO

Source: Manitoba Finance 23

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2018

2020

2022

2024

2026

2028

2030

2032

2034

2036

2038

204

0

204

2

204

4

204

6

204

8

2050

2052

2054

2056

2058

206

0

206

2

206

4

206

6

206

8

(C$ Billion) Manitoba conducts prudent debt management practices and

has achieved a stable level of debt maturity profile over the

intermediate term.

As of April 27, 2018. Excludes short-term debt and other liabilities, and the incremental impact of future financing. Net of sinking fund maturities.

Debt Maturity Profile

24

f – forecast. All figures for Core Government debt Source: Manitoba Finance

Fixed 90%

Floating 10%

March 31, 2017 March 31, 2018f

Debt Portfolio – Fixed/Floating Ratio

Floating 10%

Fixed 90%

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Latest Economic and Financial Reports are available online:

Manitoba Finance: http://www.gov.mb.ca/finance/

Economic Highlights: http://www.gov.mb.ca/finance/pubs/highlights.pdf

Economic Statistics: http://www.gov.mb.ca/finance/pubs/statistics.pdf

Manitoba Provincial Budget: https://www.gov.mb.ca/budget2017/index.html

26 Thank you!