Can a province really go bankrupt?

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Canada has an obligation to Save Newfoundland and Labrador Now

It is hard to believe that in a prosperous country like Canada, a province could go bankrupt. Sadly, this is not the case. Due to combinations of circumstances – economic downturns, fiscal mismanagement, demographic changes, and in some cases, unfair deals from other governments – provinces can, and do, fail to meet their debt obligations. This was the case in Saskatchewan in the early 1990’s.

In article published in the Globe and Mail former Premier Roy Romanow reveals how the federal government stepped in when the province was on the verge of insolvency. The year was 1993, and the recently-elected NDP government in Saskatchewan had to deliver the provincial budget. After racking up deficits for a decade, Saskatchewan was in dire financial straits.  Credit rating agencies cut its rating, and the province could no longer finance maturing debt, or even borrow to fund their deficit. And the story was getting out.

“I think the Globe and Mail ran a story on the front page of one of its editions around that time about an unnamed province being rumoured to be on the verge of bankruptcy,” Mr. Romanow told the paper. “The Bank of Canada was very chilled by this, as was the federal government. At that time, it was Mr. Mulroney’s [Progressive Conservative] government. We had one budget in which we just simply–and this is going to be in my memoirs if I ever write my memoirs–where the cabinet and caucus [were] gridlocked in ideology and coming to the cliff in making some of these decisions.”

“And I must pay a little tribute to Mr. Mulroney here, because he was able, through his minister of finance, to grease some payment from the federal government to the Province of Saskatchewan.”

According to Mr. Romanow, Saskatchewan Finance Minister Janice MacKinnon flew to Ottawa and met in secret with her federal counterpart, Donald Mazankowski, to try to explain the province’s dangerous fiscal position and how the province was close to defaulting on its debt payments on more than $15-billion.

“She was able to meet with Mazankowski to help us put the [1993] budget together and help us get over this little crisis.

“It would have been quite an embarrassment for Canada – let alone Saskatchewan – had that ever taken place. It’s just a little inside story about how grave it was.”

In 1993, governments of differing political stripes came together to devise a non-partisan solution to Saskatchewan’s debt crisis, because everyone realized that letting the province fail would be a disaster both for it and for Canada. Fast forward to 2019, and Newfoundland and Labrador is facing a similar situation.

Whoever wins this election needs to do the same for NL as was done for Saskatchewan. Canada has an obligation and a precedent that requires it to step up – and save Newfoundland now.

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