New Brunswick's fall fiscal update under the newly elected provincial Liberal government forecasts a small budget deficit for the current fiscal year, said Scotiabank.

The Q2 fiscal update now projects a budget deficit of C$92.1 million, or 0.2% of nominal gross domestic product, for FY25, versus a surplus of C$40.9 million, or 0.1% of GDP in the Spring Budget, which would be the province's first deficit since the fiscal year 2016-17, noted the bank.

This comes on the tailwinds of a greater-than-expected budget surplus where the final figure for FY24 came in at C$500.8 million, owing to higher-than-expected revenues that more than offset the marginally higher program spending, stated Scotiabank.

Incremental improvements in the economic outlook and still strong population growth for 2024 are contributing factors to the C$119 million upward revisions to projected total revenue in FY25. The fall update now projects real GDP growth of 1.3%, up from 0.7% previously, for the province in Canada.

Meanwhile, population growth is now expected to increase by 2.7%, up from 2.0%, and employment levels to increase by 3%, versus 1.2% previously. Own source revenues from personal and corporate income taxes in FY25 were increased by C$24.0 million and C$20.9 million respectively.

While total expenditure was revised up by C$252 million in FY25, program spending across most departments largely held the line, pointed out the bank. The majority of new spending relative to the Spring budget is towards healthcare, which is the largest departmental expense, now expected to be C$192.9 million (+5.1%) above the previous estimate primarily due to higher operating and personnel costs.

The increase in other program spending is expected to be partially offset by lower debt servicing costs that are now projected to be C$583 million in FY25, C$25 million lower relative to the previous forecast, owing to higher projections of short-term interest earnings.

Net debt as a percent of nominal GDP has been revised to 25% in FY25, versus 26.7% in the Budget owing to an improved handoff, added Scotiabank. The net debt-to-GDP ratio is expected to be mostly unchanged from a lower starting point of 25.1% in the final FY24 estimates, where net debt levels ended the fiscal year at C$11.8 billion, down from the Budget 2024-25 estimate of C$12.4 billion.

Total provincial borrowing requirements for FY25 are kept unchanged at C$1.7 billion, with C$1.1 billion having been completed and C$574 million remaining for the fiscal year as of June 21, 2024.