Rating Report

Government of Nunavut
Travis Shaw Paul Le Bane
+1 416 597 7582 +1 416 597 7478
Rating tshaw@dbrs.com plebane@dbrs.com

Debt Rating Rating Action Trend

Issuer Rating AA (low) New Rating Stable

Rating Rationale
DBRS Limited (DBRS) assigned an Issuer Rating of AA (low) For the year ended March 31, 2018, Nunavut reported a surplus
with a Stable trend to the Government of Nunavut (Nunavut or of $160.8 million. DBRS makes adjustments to recognize capi-
the Territory). The strong institutional framework is founda- tal spending as incurred rather than as amortized and to remove
tional to the credit profile. Enshrined in federal legislation, the non-recurring items. This results in a DBRS-adjusted surplus of
institutional framework decouples the government’s finances $7.2 million, or 0.3% of GDP. For 2018–19, the budget (non-con-
from a weak underlying economy and results in stable govern- solidated) points to an operating deficit of $54.3 million (includ-
ment finances and a low debt burden. The Stable trend reflects ing net results of revolving funds). On a DBRS-adjusted basis,
DBRS’s view that the framework is unlikely to fundamentally before contingencies, this equates to a deficit of $27.8 million,
change through the medium term. As such, DBRS expects bud- or 0.9% of GDP. Nunavut also prepares a multi-year forecast
getary results to remain strong and the debt burden low. (excluding Qulliq Energy Corporation (QEC) and the revolving
funds), which forecasts modest surpluses for 2018–19 through
Canadian territories are created by the federal government 2020–21.
through legislation. Under the framework, territories are del-
egated powers similar to those granted to provinces by the Nunavut has a small, volatile economy that is dominated by the
Constitution. The federal government retains significant control public sector. The economy has grown strongly over the past
and influence over the territories, both financially and operation- decade (5.5% p.a.), with growth exceeding the national average
ally. The federal government (1) can disallow any law passed by in most years. Growth is volatile, however, as private- and pub-
the territorial legislature within one year of its passage by simple lic-sector investment projects are often lumpy and have a pro-
order in council, (2) imposes limits and requirements on finan- nounced impact on the small economy. The economy is gradually
cial management practices (e.g., debt limit, Canada’s Auditor beginning to diversify, with mining accounting for an increasing
General is the territorial auditor, etc.) and (3) effectively con- share of economic activity. The industry now accounts for 21.5%
trols the overall size of the government through its Territorial of economic activity, up from 3.9% a decade ago. The increasing
Formula Financing (TFF). The federal government also plays a amount of mining and construction activity, however, has given
greater role in service delivery in areas that would typically be rise to greater volatility in nominal GDP.
a provincial or territorial jurisdiction (e.g., health care). This
framework has resulted in a history of strong fiscal performance
and limits the likelihood that leverage will grow excessively.  Continued on P.2

For the year ended March 31

Financial Information Budget
(all financial figures are DBRS-adjusted) 2018-19 2017-18 2016-17 2015-16 2014-15
Debt/GDP 1 15.4% 16.1% 13.7% 12.9% 10.9%
Surplus (deficit)/GDP (0.9%) 0.3% 1.3% 4.2% 4.7%
Federal transfers/total revenues 2 80.0% 79.6% 80.0% 79.8% 79.9%
Interest expense/total revenues 2 0.5% 0.5% 0.4% 0.4% 0.5%
Real GDP growth 4.4% 9.8% 3.8% (0.3%) (1.2%)
1 Tax-supported debt + unfunded pension liabilities. GDP based on calendar year. B = budget. 2 DBRS estimate on a consolidated basis for 2018-19B.

Issuer Description
Nunavut is one of Canada’s three northern territories. Created through federal legislation and partitioned from the eastern portion
of the Northwest Territories, Nunavut covers approximately 20% of Canada’s land mass, with a population of approximately 38,000
and nominal GDP of roughly $2.8 billion.

Public Finance: Provinces and Municipalities December 6, 2018

 Rating Report | Government of Nunavut DBRS.COM 2

Rating Rationale (CONTINUED)

Economic growth is expected to remain strong though volatile
through the medium term. Strong population growth, increased
public infrastructure and continued investment in the resource
sector will support steady growth in economic output. Economic
forecasts by the Conference Board of Canada point to real GDP
growth of 4.4% in 2018 and 9.1% in 2019. Nominal GDP is pro-
jected to rise by 6.7% in 2018.
Nunavut’s total debt, as measured by DBRS, is low but has been
rising. At March 31, 2018, total debt was $457.4 million, up from
$345.2 million a year earlier. The majority of Nunavut’s debt is
composed of long-term debt used to finance the QEC and the
public-private partnership (P3) liability related to the Iqaluit
International Airport Improvement Project. Under the Nunavut
Act, the federal government has set the Territory’s maxi-
mum amount of borrowings at $650 million. With no material
borrowing requirements in the near term, the Territory’s debt
burden is likely to fall modestly as debt amortizes. Over the next
two years, DBRS projects the debt-to-GDP ratio will fall modest-
ly to 13.5%. However, the Territory has significant infrastructure
requirements, as infrastructure is a priority for the government.
Over the medium to longer term, DBRS believes these require-
ments could lead to more borrowing, though the institutional
framework will limit overall leverage.
Rating Drivers
No rating action is likely in the near to medium term. Downward
rating pressure could arise from a weakening of the institutional
framework, while positive rating action would require further
economic diversification, a broadening of the tax base and con-
tinuation of strong fiscal performance.

Rating Considerations
Assuming modest growth in nominal GDP, DBRS estimates that
Strengths
Nunavut’s debt-to-GDP ratio will trend downwards, approaching
roughly 14% by 2020–21. The federal government limits Nunavut’s
1. Strong institutional framework gross debt to $650 million, which is equivalent to approximately
Nunavut is a creation of federal legislation, and the federal govern- 21% of GDP.
ment retains significant control over it and the other territories,
both financially and operationally. The federal government can 4. Young, growing population
disallow any law passed by the territorial legislature, imposes ad- Nunavut has the youngest population in Canada, with a median
ditional limits on the Territory (e.g., debt limit, Canada’s Auditor age of 26.0 years compared with a national average of 40.6 years.
General) and controls the overall size of the government through As a result, the Territory also has a high fertility rate, which has
its TFF. Federal transfers account for roughly 80% of Nunavut’s contributed to above-average population growth of 1.9% over the
revenue base. This is largely driven by TFF payments, which are past decade. Strong population growth will support economic
meant to act as a gap-filling formula between Nunavut’s gross ex- growth in the future.
penditures and the small portion of revenues derived from the tax
base. This framework provides a high degree of stability and pre- Challenges
dictability to the revenue outlook and, by design, supports respon-
sible fiscal management and consistent results. 1. Small economy that exhibits considerable volatility
The Territory has the smallest economy among Canada’s prov-
2. Economic growth potential inces and territories. Total output was $2.8 billion in 2017, or
Nunavut’s economic growth is expected to exceed the national 0.1% of total Canadian output. The small economy lacks diver-
average over the medium to longer term. Persistent population sity and is heavily influenced by a large public sector, although
growth, increasing investment in the mining industry and an mining has accounted for an increasing share of economic ac-
expanding public sector will support economic growth in the tivity over the last decade. Since its establishment in 1999, aver-
coming years. age GDP growth in Nunavut has exceeded the national average
but exhibits considerable volatility, contracting five times in 18
3. Low debt burden years, and increased exposure to resource extraction and com-
Nunavut’s debt burden is low, and debt growth is limited by the fed- modity prices will only add to Nunavut’s economic volatility in
eral government. Its debt consists of loans and mortgages for QEC the coming years.
and Nunavut Housing Corporation (NHC) and for P3 obligations.
At March 31, 2018, DBRS-adjusted debt totalled $457.4 million, or 2. Geographically dispersed population
16.6% of GDP. The QEC has substantial infrastructure needs and With a population of approximately 38,000 — just 0.1% of
will be the primary driver of Nunavut’s consolidated debt needs Canada’s total population — spread across an area accounting
over the medium term. However, existing loans, mortgages and for roughly 20% of Canada’s land mass, Nunavut has the low-
P3 obligations continue to amortize, providing a partial offset. est population density of any province or territory. Few of the

Public Finance: Provinces and Municipalities December 6, 2018

 Rating Report | Government of Nunavut DBRS.COM 3

Rating Considerations (CONTINUED)

Territory’s communities are connected by roads. As a result,
the cost of providing services to the Territory’s 25 isolated com-
munities is considerably higher than elsewhere in the country.
DBRS estimates per-capital spending in Nunavut to be approxi-
mately $55,000 compared with an average of $12,500 per capita
for Canadian provinces.
There is significant demand for government programming,
though the ability of the government to respond is constrained by
the size of federal transfers and the practical realities of deliver-
ing services to isolated, northern communities. The persistence
of these factors will weigh on future economic growth potential.

3. Socioeconomic challenges
Nunavut has systemic socioeconomic challenges that are not
easily addressed. The Territory faces chronic housing shortag-
es, high living costs, poor health outcomes, high rates of suicide
and substance abuse, and lower levels of educational attainment.

Institutional Framework and Fiscal Performance

Institutional Framework
The Canadian Constitution provides for two orders of govern-
ment: the federal government and provincial governments.
Canadian territories are not provinces. They are created by fed-
eral legislation and are delegated powers similar to those granted
to provinces by the Constitution. The federal government retains
significant control and influence over the territories, both finan-
cially and operationally. The federal government can disallow
any law passed by the territorial legislature within one year of
its passage by simple order in council (i.e., Cabinet decision),
imposes limits and requirements on financial management prac-
tices (e.g., debt limit, Canada’s Auditor General is the territorial
auditor, etc.), and effectively control the overall size of the gov-
ernment through its TFF.
generate own-source revenues. Furthermore, the TFF is adjusted
annually to recognize changes in relative population growth be-
tween the Territory and the Canadian average, providing a degree
of predictability to future revenue growth, although this is also a
key risk, as population estimates can be subject to significant re-
visions at times. The calculation of Nunavut’s Gross Expenditure
Base — a key determinant for TFF payments — is based on his-
torical costs for program delivery in the western territories and
does not account for high service cost growth in Nunavut and in-
frastructure deficiencies that existed prior to Nunavut’s creation
in 1999. The TFF incents territories to raise taxes and expand
their tax bases. The calculation of TFF excludes 30% of their
deemed revenue capacity from the calculation.

The TFF provides a high degree of stability to Nunavut’s revenue Nunavut also receives Canadian Health Transfer and Canadian
base, as it acts as a gap-filling mechanism based on the difference Social Transfer payments, based on the per capita allocation,
between a territory’s gross expenditure base and its capacity to consistent with provincial governments.

Division of Responsibilities:

Government of Canada Government of Nunavut Nunavut Tunngavik Incorporated

• Nunavut Act (1999)
• Territorial Formula Financing
• Debt limit ($650 million)
• Financial audit through the OAG
• Stewards of Crown lands
• Devolution
• Province-like responsiblities for
health, education, social services,
justice and municipal government
• Devolution
• Represents interest of Inuit es-
tablished under the Nunavut Land
Claims Agreement (1993)
• Active in cultural and land/water/
wildlife management
• Stewards of Inuit-owned land
• Devolution

Public Finance: Provinces and Municipalities December 6, 2018

 Rating Report | Government of Nunavut DBRS.COM 4

Institutional Framework and Fiscal Performance (CONTINUED)

The institutional framework is further supported by the Nunavut • Inuunivut – Strengthen Nunavut as a distinct territory in
Land Claims Agreement (NLCA), whereby the Inuit exchanged Canada and the world.
Aboriginal title to all their traditional lands in the Nunavut • Katujjiqatigiinnivut – Work in partnership to advance goals
Settlement Area for the rights and benefits set out in the NLCA. and aspirations of Nunavummiut (people of Nunavut).
The NLCA necessitates cooperation between all parties, the
Government of Canada, Government of Nunavut and Nunavut
Tunngavik Incorporated (NTI). Fiscal Performance
The budget development process and budget documents are
Progress toward Devolution not as sophisticated as in the provinces, though fiscal policy has
Devolution has been an ongoing process over many decades to been conservative and prudent. Faced with a binding revenue
devolve powers and responsibilities from the federal govern- constraint and limited capacity to raise own-source revenue,
ment to territorial governments. Current talks around devolution Nunavut has generally sought to pay for its operating and capi-
are focused on giving territories more responsibility over lands, tal requirements from current revenue. As a result, much of the
water and resources, just like provinces have now. Devolution debt results from larger one-time projects (e.g., airport) or from
of resource development has already occurred in Canada’s two the ongoing operations of government businesses (e.g., energy)
other northern territories: the Yukon in 2003 and the Northwest and not from core government operations. This has resulted in a
Territories in 2014. track record of strong budget results.

Devolution would provide increased powers and responsibilities Nunavut’s revenues are composed primarily of federal govern-
to Nunavut, including resource policy and legislation, land use ment transfers through the TFF program, modest tax revenue
planning and permitting, water quality testing and mine inspec- and earnings from territorial corporations and revolving funds
tions. This would entail increased costs for new personnel, train- (see Exhibit 1).
ing, program delivery and infrastructure.
Exhibit 1: Revenues (2017–18: $2.3 billion) Ex
Currently, all stakeholders are working toward reaching an
Agreement in Principle (AiP) which is expected to outline any Taxes
5.0%
potential one-time funding to support Nunavut in the transi-
tional phase while it prepares for a negotiated effective date of Other own-source
15.4%
devolution and additional ongoing funding to be provided as
part of TFF following the effective date. This would also include TFF
66.9%
an arrangement with Canada to share resource royalties from
Other federal transfers
Crown lands. An AiP is not expected to be reached until 2019 at 12.7%
the earliest.
(
Governance
Nunavut has a consensus style of government without politi- (
cal parties. Following a general election, elected Members of
the Legislative Assembly (MLAs) select a premier, speaker and Source: Government of Nunavut and DBRS. So
cabinet ministers. Elected MLAs then come together to establish
priorities for the coming five-year mandate, which are expected
to persist regardless of a change in premier or cabinet members.Federal transfers account for approximately 80% of revenue and
The current Premier of Nunavut is Joe Savikataaq, who was se- have grown by an average of 4.1% (DBRS-adjusted) over the past
five years. Specifically, the TFF has grown by an average of 3.7%
lected in June 2018 following a loss of confidence in the previous
premier. The current mandate (known as Turaaqtavut) has five over the past five years. As growth in the TFF is, in part, influ-
priority areas: enced by the average growth rate in provincial spending, which
• Inuusivut – Work toward the well being and self-reliance of has slowed, this has reduced growth in the TFF, and it is not ex-
our people and our communities. pected to accelerate over the near term. The federal government
recently completed a five-year renewal of the TFF through to
• Pivaallirutivut – Develop our infrastructure and economy in 2023–24, which did not include any meaningful changes in the
ways that support a positive future for our people, our com- formula.
munities, and our land.
• Sivummuaqpalliajjutivut – Provide education and training Taxes make up 5.0% of revenue and have been growing steadily
that prepares children, youth and adults for positive contribu- over the past five years. Personal income tax (PIT), corporate
tions to society and for meaningful employment. income tax (CIT), payroll tax and tobacco tax are the primary

Public Finance: Provinces and Municipalities December 6, 2018

 Rating Report | Government of Nunavut DBRS.COM 5

Institutional Framework and Fiscal Performance (CONTINUED)

sources of tax revenue, though fuel tax and property tax receipts
have been growing strongly in recent years. Nunavut does not
levy a sales tax. Carbon and cannabis taxes will provide modest
uplift to tax revenue in the coming years. The government is ex-
ploring ways to increase tax revenue, though there is little appe-
tite for a territorial sales tax or HST.
Growth in Nunavut’s tax revenue is likely to remain modest in the
coming years despite the increased activity in the mining sector.
These projects employ a significant share of non-resident labour
and usually benefit from provisions in the tax code that incentiv-
ize resource exploration and development, thus generating little
additional PIT or CIT. Any revenue gains as result of resource
projects are largely recognized through increased payroll taxes.
Nunavut does not collect any resource royalties. Until devolution
occurs, royalties will accrue to the federal government for proj-
ects on Crown lands and to NTI on the lands that were granted to
it through the NLCA. Currently, all active and prospective proj-
ects are located on Inuit-owned lands. As such, the potential for
resource royalties will be limited for the foreseeable future.
Other own-source revenues include those of revolving funds
(petroleum products and liquor), QEC gross revenues, housing
recoveries and various other revenues. Together, these com-
prise approximately 15.0% of total revenue. Overall, growth in
own-source revenues is expected to outpace growth in federal
transfers given the incentives within the TFF framework, which
excludes 30% of deemed revenue capacity from the calculation.
Nunavut’s expenditure is similar to that of provinces, primarily
social services and educational spending. Health spending repre-
Exhibit
sents 1: Revenues
a smaller share of spending thanbillion)
(2017–18: $2.3 at the provincial level at just
21.0%, in part due to a large Inuit population wherein the federal
government plays are larger role in service delivery. Nevertheless,
Taxes
a growing5.0%
population spread across 25 disparate and unconnected
Otherand
communities own-source
the high costs of medical transportation in the
15.4%
north have resulted in health-care spending growing at a faster
pace thanTFFother program areas. The government is taking steps to
66.9%
improve the availability of health-care services in individual com-
Other federal transfers
munities 12.7%
to help contain costs, but rising health-care costs will
continue to present a considerable challenge.
is significant public-sector involvement in the housing mar-
ket. Both the federal and territorial governments are involved
in providing subsidized housing to their employees, while the
Territory also provides social housing to the general population.
The needs for social housing are expected to grow in the coming
years given the demographic outlook and slow pace of bringing
on new supply.
On an expenditure-by-type basis, employee compensation and
benefits account for about 30% of spending and are an impor-
tant determinant of cost growth. The latest agreement with the
Nunavut Employees Union — the largest labour group — expired
in September 2018 and is up for renewal. Agreements are in
place for teachers and the QEC, and negotiated increases have
followed trends seen elsewhere across the country and have
been in the range of 1% to 2%.
Medium-term Outlook
Nunavut does not prepare a consolidated budget. The key differ-
ences between the budget and public accounts relates to the QEC
and the petroleum products division, both of which are not fully
captured in the budget estimates. For 2018–19, the budget points
to an operating deficit of $54.3 million (including net results of
revolving funds). On a DBRS-adjusted basis, before contingen-
cies, this equates to a deficit of $27.8 million, or 0.9% of GDP.
Nunavut also prepares a multi-year forecast (excluding QEC and
the revolving funds), which forecasts a surplus of $8.6 million in
2018–19, rising to $47.3 million and $105.1 million in 2019–20 and
2020–21, respectively. This includes contingencies of $30.0 million
in 2018–19, rising to $35.0 million for the subsequent two years.
Exhibit 2: DBRS-Adjusted Surplus (Deficit)-to-GDP
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%

(1.0%)
In education, cost escalation has been more manageable, ris-
ing by 2.6% on average over the past four years, but improv- (2.0%)
2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19B
ing outcomes will continue to be challenging. Despite its young
population, Nunavut’s
Source: Government student
of Nunavut population exhibits poor atten-
and DBRS. Source: Government of Nunavut and DBRS. B = budget (non-consolidated).
dance, and high school graduation rates are the lowest in the
country. The Department of Education is working closely with 2017–18 Results
individual communities to train more local educators, as find- For the year ended March 31, 2018, Nunavut reported a surplus
ing qualified staff presents challenges, which is compounded of $160.8 million. DBRS makes adjustments to recognize capi-
by fast population growth. tal spending as incurred rather than as amortized and to remove
non-recurring items. This results in a DBRS-adjusted surplus of
Housing remains another key expense driver, as a growing pop- $7.2 million, or 0.3% of GDP.
ulation and scarcity of affordable housing has meant that there

Public Finance: Provinces and Municipalities December 6, 2018

 Rating Report | Government of Nunavut DBRS.COM 6

Institutional Framework and Fiscal Performance (CONTINUED)

Total revenues grew by 3.3% in 2017–18 driven by an increase in
federal transfers and gains in tax receipts and other own-source
revenues. Federal transfers grew by 10.0%, although DBRS
notes that this includes a $74.1 million substantial completion
payment for the Iqaluit Airport, which DBRS has treated as
one-time. Absent this payment, federal transfers grew by 5.7%.
TFF funding was up by a relatively modest 2.8%. Tax revenues
grew by 7.1%, which reflects an increase in CIT, payroll tax and
fuel tax, offset by a decline in PIT driven in part by a combination
of prior-year adjustments, lower projected tax yields and lower per-
sonal income. Growth in other own-source revenues was driven
by higher insurance proceeds.
Total DBRS-adjusted spending rose by 7.6%, largely driven by in-
creased health-care costs, finance costs and economic development
and transportation. Like other provinces and territories, containing
growth in health-care costs remains a significant challenge, which
is further affected by the substantial portion of out-of-territory
health care that is required. Other departmental expenditures, in-
cluding those for community and government services, educa-
tion and housing, rose by less than 3.0%. Capital spending totalled
$232.3 million, up by 44.5% from the previous year and includes an
approximately $50.0 million contribution to the Iqaluit Airport
project. Interest costs amounted to just $11.7 million, or a very low
0.5% of total revenues.

Debt and Liquidity

Nunavut’s total debt, as measured by DBRS, is low compared with Exhibit 3: DBRS-Adjusted Debt-to-GDP Ex
Canadian provinces, but it has been rising. At March 31, 2018,
18.0%
total debt was $457.4 million, up from $345.2 million a year ear- 16.0%
lier. Long-term debt used to finance the QEC ($163.3 million) 14.0%
12.0%
and the P3 liability related to the Iqaluit International Airport 10.0%
Improvement Project ($156.7 million) account for the majority of 8.0%
the territory’s debt. There are also modest amounts included for 6.0%
4.0%
NHC, capital lease obligations, a QEC bank overdraft facility and 2.0%
unfunded pension obligations. 0.0%
2011-12

2012-13

2013-14

2014-15

2015-16

2016-17

2017-18

2018-19F

2019-20F

2020-21F
The government expects QEC’s debt to be serviced by its com-
(
mercial operations. However, DBRS does not treat QEC’s debt as
self-supporting for three reasons: (
Other Debt Obligations Capital Leases P3 Obligations
1. Nunavut does not account for QEC as a government business
enterprise, because of its lack of operational and financial in- Source: Government of Nunavut and DBRS. F = forecast. So
dependence from the government. As a result, Nunavut con-
solidates QEC on a line-by-line basis.
2. QEC’s rates are not set by an independent regulator. Final rate Nunavut maintains a prudent debt structure with a relatively
decisions rest with the minister responsible for QEC. smooth maturity profile, with no more than 8%, or $39 million,
of the debt stock maturing in any of the next five years. As a
3. DBRS believes there is limited opportunity to monetize the as- share of total debt, exposure to interest rate reset risk represents
sets of QEC in a stress scenario. 26.0% of the debt stock as of March 31, 2018, composed of three
floating-rate loan facilities. However, the debt burden is low, and
The federal government imposes a debt limit on the terri- Nunavut’s substantial cash position should generate increased
tory. Under the Nunavut Act, the Governor in Council may, on investment returns in an environment of rising rates. In addition,
the recommendation of the Minister of Finance, set the maxi- there is no exposure to unhedged foreign currency debt.
mum amount of all borrowings. The limit is currently set at
$650 million and includes all loans and mortgages, P3 obligations, Nunavut has substantial cash on hand, well in excess of out-
capital leases and bank overdraft facilities. This is equivalent to standing debt obligations. As of March 31, 2018, unrestricted
approximately 21% of GDP. This definition of debt differs from cash and investments totalled more than $860 million and have
DBRS’s definition of debt in that it does not include pension obli- been steadily rising. In addition, regular monthly TFF install-
gations. At March 31, 2018, Nunavut had $209.0 million in unused ments of roughly equal size and federal administration of the tax
debt capacity under the federal limit. Nunavut is not seeking to system with regular installment payments results in a high de-
change the debt limit. The Territory’s borrowing program is very gree of predictability for cash inflows, while monthly outflows
narrow, limited to domestic markets and funded largely through are largely predictable given the nature of the expense base.
bank financing or Canada Mortgage and Housing Corporation.
Unfunded pension liabilities are very low and are being ad-
dressed by offsetting investment set aside in the government’s
Consolidated Revenue Fund. The majority of government

Public Finance: Provinces and Municipalities December 6, 2018

 Rating Report | Government of Nunavut DBRS.COM 7

Debt and Liquidity (CONTINUED)

employees participate in the Public Service Pension Plan — a substantial infrastructure needs as it continues with plans to
defined benefit plan sponsored by the Government of Canada. replace and refurbish electricity generation and distribution in-
As a result, the Government of Nunavut is only responsible for frastructure to improve system reliability and serve the needs of
employer contributions and has no responsibility for any po- a growing population. As a result, the QEC will be the primary
tential unfunded obligations. Nunavut sponsors two defined driver of Nunavut’s consolidated debt needs. However, this is
benefit pension plans for members of the legislative assembly: forecast to be offset by the amortization of existing loans, mort-
the Legislative Assembly Retiring Allowances Fund (LARAF) gages and P3 obligations. The capital program is expected to
and the Supplementary Retiring Allowances Fund (SRAF). The average approximately $200 million annually, with core spend-
LARAF is fully funded, although an unfunded liability was re- ing to be funded by cash on hand, cash from operations and fed-
ported for the SRAF. At March 31, 2018, unfunded pension eral government contributions. As a result, DBRS projects that
liabilities amounted to $16.4 million. Nunavut has set aside des- Nunavut’s debt-to-GDP ratio will trend downward in the coming
ignated investments within the Consolidated Revenue Fund to years and approach 13.5% by 2020–21.
meet SRAF benefit obligations, which amounted to $17.5 million
at March 31, 2018. Infrastructure is a priority for the government, and DBRS believes
this could lead to more borrowing over the medium to longer
Outlook term. Given the strong institutional framework, low debt burden
Nunavut’s gross debt is expected to peak in 2018–19, before and capacity to afford additional debt financing, there is ample
gradually moderating in the following two years. The QEC has room within the assigned rating to withstand an increase in debt.

Economic Structure

Exhibit 4: Economic Growth Exhibit 5: Age Distribution 2017

100 years and over
95 to 99 years Males Females
15.0% 90 to 94 years
85 to 89 years
Real GDP Growth (%)

80 to 84 years
10.0% 75 to 79 years
70 to 74 years
65 to 69 years
60 to 64 years
5.0% 55 to 59 years
50 to 54 years
45 to 49 years
0.0% 40 to 44 years
35 to 39 years
30 to 34 years
25 to 29 years
(5.0%) 20 to 24 years
15 to 19 years
10 to 14 years
(10.0%) 5 to 9 years
0 to 4 years
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018F
2019F

7.0% 5.0% 3.0% 1.0% 1.0% 3.0% 5.0% 7.0%

Nunavut Canada
Source: Statistics Canada and Conference Board of Canada. Source: Statistics Canada.

Nunavut’s economy is heavily influenced by a large public sector,
although the relative size of the public sector has been declining
over the past decade as mining’s share of economic activity has
increased. In 2017, the public sector (proxied by public admin-
istration, education, health and social assistance) accounted for
33.4% of nominal GDP, down from 43.4% a decade earlier. Over
the same period, mining grew from 3.9% to 21.5% of the economy
with the opening of three new mining operations. The construc-
tion industry is the third-largest contributor to GDP at 14.2%
in 2017 and is heavily influenced by both the public sector and
resource development. Traditional land use activities, primarily
fishing and hunting, are culturally important but do not account
for a meaningful share of employment or GDP.
Since its establishment in 1999, GDP growth in Nunavut has ex-
ceeded the national average and been considerably more volatile,
contracting five times in 18 years. Over the last decade, growth
has averaged 5.5%, including an estimated 9.8% in 2017. Nominal
GDP is heavily influenced by commodity prices and has averaged
8.3% over the past ten years, including 13.3% in 2017.
Commodity prices will continue to influence resource development
in the territory. Nunavut currently has three producing mines:
• Meadowbank gold mine – Operated by Agnico Eagle, the
mine opened in 2010, employs close to 700 people and pro-
duced approximately 350,000 ounces of gold in 2017. The mine
is scheduled to close in 2019, but the processing facility will be
used to process ore from a new satellite deposit, Amaruq, start-
ing in late 2019.

Public Finance: Provinces and Municipalities December 6, 2018

 Rating Report | Government of Nunavut DBRS.COM 8

Economic Structure (CONTINUED)

• Mary River iron ore mine – Owned by Baffinland/Arcelor rental subsidies for government employees and the provision
Mittal, the mine commenced operations in 2015 and employs of social housing to the broader population. Difficulty securing
approximately 450 people. housing remains a concern for many households, which has con-
• Hope Bay gold mine – Operated by TMAC Resources, the tributed to overcrowding in public housing units.
mine opened in 2017 with close to 400 employees.
Nunavut has the youngest population in Canada, with a me-
dian age of 26.0 years compared with a national average of
There are several additional mining projects at various stag- 40.6 years. As a result, the Territory also has a high fertility rate,
es of development, including the Amaruq gold deposit near which has contributed to above-average population growth of
Meadowbank, the Meliadine gold deposit and the Back River 1.9% over the past decade. The Inuit population accounts for
Project, among others. However, as commodity prices have been approximately 85% of total population and is the primary con-
generally trending downwards since 2012, this has slowed the tributor to population growth. The strong population growth
pace of development of many projects. adds to GDP growth potential.

According to Statistics Canada’s survey of investment intentions,
non-residential construction, machinery and equipment spend-
ing is forecast to grow by 17.7% in 2018, surpassing the growth
rate of all other provinces and territories. This largely reflects
ongoing investment in existing and new mining projects and
public infrastructure investments, including the Iqaluit Port
Development Project — a four-year project to develop a deep-
sea port that will allow for faster offloading and an extend-
ed shipping season.
Primary household income in Nunavut is just below the national
average, while average weekly earnings are well above the na-
tional average exceeding all provinces and second only to the
Northwest Territories. Despite strong incomes, income inequal-
ity is a significant concern while the high costs of travel and
transportation in the north and scarcity of adequate housing
contribute to a high cost of living. Food prices are high, even with
food subsidies for certain products, and food security is a con-
cern. Furthermore, the majority of housing in Iqaluit is not mar-
ket based, and the public sector plays a significant role through
While strong population growth has contributed to above-
average labour force growth, unemployment remains high.
In 2017, the unemployment rate was 14.6%, surpassed only by
Newfoundland and Labrador. Low high school graduation rates
result in a lower-skilled workforce. The Government of Nunavut
and other large employers (e.g., mining companies) have set goals
for a representative workforce but remain highly dependent on
imported skilled labour for many roles. As a consequence, Inuit
are significantly underrepresented in the workforce, and struc-
tural unemployment persists.
Outlook
Overall, the outlook is for strong, though volatile, economic
growth through the medium term. Economic forecasts are based
on estimates provided by the Conference Board of Canada,
which point to real GDP growth of 4.4% in 2018 and 9.1% in 2019.
Nominal GDP is projected to rise by 6.7% in 2018. Economic ac-
tivity will continue to be heavily influenced by commodity prices
and future developments in the resource sector along with fluc-
tuations in government spending.

Public Finance: Provinces and Municipalities December 6, 2018

 Rating Report | Government of Nunavut DBRS.COM 9

For the year ended December 31

Budget Budget

Economic Statistics 2019 2018 2017 2016 2015 2014 2013

Nominal GDP ($millions) 3,201 3,037 2,846 2,513 2,422 2,383 2,294
Nominal GDP growth 5.4% 6.7% 13.3% 3.8% 1.6% 3.9% 4.4%
Real GDP growth 9.1% 4.4% 9.8% 3.8% (0.3%) (1.2%) 9.6%
Population (as of July 1) n/a 38,396 37,552 36,975 36,488 35,971 35,337
Population growth n/a 2.2% 1.6% 1.3% 1.4% 1.8% 1.9%
Employment (thousands) n/a n/a 13.4 13.5 12.7 12.3 12.7
Unemployment rate n/a n/a 14.6% 14.9% 15.9% 13.8% 14.0%
Retail sales ($millions) n/a n/a 442 432 401 358 354
Inflation rate 2.1% 1.6% 2.5% 1.9% 1.3% 1.1%
Primary household income per capita ($) n/a n/a n/a 36,349 35,710 35,167 33,817
Primary hhld income/national average n/a n/a n/a 97% 95% 97% 96%
Average weekly earnings ($) 1,333 1,277 1,256 1,238 1,178
AWE/national average 137% 134% 132% 132% 129%
Source: Statistics Canada, Government of Nunavut and DBRS estimates.
n/a = not available

For the year ended March 31

Budget Summary Budget

($ millions) 2018-19 1 2017-18 2016-17 2015-16 2014-15 2013-14
Total revenues 2,176.5 2,286.4 2,150.8 2,164.0 2,109.5 2,006.0
Program expenditures 2,192.3 2,267.6 2,109.6 2,053.7 1,988.4 1,897.1
Interest costs 12.0 11.7 8.8 9.4 9.6 10.9
DBRS-Adjusted Surplus (Deficit) (27.8) 7.2 32.4 101.0 111.6 98.0
Non-recurring revenues - 74.1 - - - -
Net capital adjustment 3.5 79.5 51.6 43.6 69.9 55.9
Less: contingencies (30.0) - - - - -
Surplus (Deficit) as Reported (54.3) 160.8 84.0 144.6 181.5 154.0
DBRS-Adjusted Debt Burden 2 466.6 457.4 345.2 312.9 258.9 233.8

Selected Financial Indicators (DBRS-adjusted)

Debt* as % of GDP 15.4% 16.1% 13.7% 12.9% 10.9% 10.2%
Surplus (deficit) as % of GDP (0.9%) 0.3% 1.3% 4.2% 4.7% 4.3%
Interest costs as % of revenue 0.6% 0.5% 0.4% 0.4% 0.5% 0.5%
Total tax revenue as % of revenue 5.5% 5.0% 5.0% 5.0% 4.6% 4.6%
Federal transfers as % of revenue 89.4% 79.6% 80.0% 79.8% 79.9% 80.0%
Total expenditure % of revenue 101.3% 99.7% 98.5% 95.3% 94.7% 95.1%
Health spending as % of total expenditures 17.8% 22.2% 21.1% 20.3% 19.4% 19.7%
Total revenue growth n.m. 6.3% (0.6%) 2.6% 5.2% 6.9%
Total expenditure growth n.m. 7.6% 2.7% 3.3% 4.7% 7.1%
1 Nunavut’s budget is not presented on a fully consolidated basis and is not comparable with public accounts. 2 Includes pension liabilities.
n.m. = not meaningful

Political Background Information

Premier: Joe Savikataaq Last election: October 2017
Consensus model of government: (no political parties) Next election: October 2021

Public Finance: Provinces and Municipalities December 6, 2018

 Rating Report | Government of Nunavut DBRS.COM 10

Consolidated Statement of Operations For the year ended March 31

Revenues Budget
($ millions) 2018-19 1 2017-18 2016-17 2015-16 2014-15 2013-14
Personal income tax 33.4 23.5 33.3 30.1 28.3 29.7
Corporate income tax 17.9 18.4 13.1 19.0 14.9 14.1
Payroll tax 29.8 29.4 25.8 25.5 25.2 23.5
Tobacco tax 21.0 21.4 17.8 16.8 16.4 16.1
Fuel tax 8.6 14.0 9.3 9.0 5.5 4.7
Property tax 6.9 6.6 6.3 5.5 4.4 3.0
Insurance tax 2.1 1.9 1.9 1.8 1.7 1.3
Total Taxes 119.7 115.2 107.5 107.8 96.4 92.4
Petroleum products division 129.8 137.5 145.6 150.7 141.3
Liquor revenue 9.9 5.8 6.0 5.9 6.0
Nunavut Development Corporation 3.4 3.0 2.6 3.8 5.2
Qulliq Energy Corporation 65.0 66.0 70.7 74.6 61.1
Revolving funds (net of COGS) 1 35.0
Staff housing recoveries 19.6 19.4 19.3 18.9 18.9 18.5
Other 40.5 113.4 75.4 69.2 60.2 66.8
Recoveries 15.0 10.6 14.8 15.9 12.8 9.3
Total Own-Source Revenues 229.8 466.7 429.4 436.7 423.3 400.6
Territorial Formula Financing 1,578.8 1,529.9 1,488.6 1,454.2 1,409.1 1,350.4
Transfers under third-party agreements 275.8 147.6 124.7 121.7 126.2 137.2
Other 2 92.1 142.1 108.1 151.4 150.8 117.7
Total Federal Government Transfers 1,946.7 1,819.7 1,721.4 1,727.3 1,686.2 1,605.3
DBRS-Adjusted Revenues 2,176.5 2,286.4 2,150.8 2,164.0 2,109.5 2,006.0
Non-recurring revenues 2 - 74.1 - - - -
Total Revenues (as reported) 2,176.5 2,360.5 2,150.8 2,164.0 2,109.5 2,006.0

Expenditures
Health 392.7 505.4 446.8 419.1 388.6 376.1
Community and Government Services 251.6 434.7 429.3 444.9 439.8 421.5
Education 251.2 272.3 272.7 261.9 246.7 245.5
Housing 201.1 279.2 272.2 265.8 253.4 241.8
Finance 88.3 195.9 165.0 174.2 157.7 141.2
Family Services 153.2 145.9 144.3 128.8 124.3 117.5
Justice 121.7 126.5 125.4 121.6 117.1 110.2
Environment, Culture, Economic Development and Transportation 140.0 174.1 150.1 141.5 142.5 144.0
Other 55.0 54.0 52.2 52.3 48.3 43.3
Net acquisition of tangible capital assets 226.5 79.5 51.6 43.6 69.9 55.9
311.1
Program Expenditures 2,192.3 2,267.6 2,109.6 2,053.7 1,988.4 1,897.1
Interest costs 12.0 11.7 8.8 9.4 9.6 10.9
DBRS-adjusted Total Expenditures 2,204.3 2,279.2 2,118.4 2,063.0 1,997.9 1,907.9

DBRS-Adjusted Surplus (Deficit) (27.8) 7.2 32.4 101.0 111.6 98.0

Non-recurring revenues - 74.1 - - - -
Net capital adjustments 226.5 79.5 51.6 43.6 69.9 55.9
Budgeted capital expense and capital transfers (223.0)
Less: contingencies (30.0) - - - - -
Surplus (Deficit) as Reported (54.3) 160.8 84.0 144.6 181.5 154.0
1 Nunavut’s budget is not presented on a fully consolidated basis and is not comparable with public accounts. The key differences relate to the presentation of revolving funds (net of
COGS in budget) and QEC.
2 In 2017–18 Nunavut received a $74.1 million payment from PPP Canada for the Iqaluit Airport project. DBRS treated this as non-recurring.

Public Finance: Provinces and Municipalities December 6, 2018

 Rating Report | Government of Nunavut DBRS.COM 11

Government of Nunavut
Consolidated Statement of Financial Position
($ millions) As at March 31 As at March 31
Assets 2018 2017 2016 Liabilities 2018 2017 2016
Cash and cash equivalents 739.0 707.8 637.5 Accounts payable 345.7 335.9 353.5
Portfolio and other investments 148.8 133.4 131.8 Deferred revenues 127.4 110.1 68.8
Accounts receivable 239.3 134.8 120.4 Contaminated sites 9.4 9.3 8.4
Inventories for resale 87.9 114.4 161.4 Post employment benefits 74.0 75.9 66.0
Loans receivable 22.6 26.8 23.1 Long term debt 180.2 154.8 147.8
Tangible capital assets 2,409.5 2,230.7 2,140.1 Airport P3 156.7 134.3 100.1
Other non-financial assets 47.4 53.5 36.3 Capital leases 92.9 33.7 42.3
Total assets 3,694.5 3,401.5 3,250.4 Total Liabilities 986.2 854.0 787.0
Net Assets 2,708.3 2,547.5 2,463.5

Public Sector Debt Forecast

($ millions) 2018-19 2017-18 2016-17 2015-16 2014-15 2013-14 2012-13 2011-12
Loans and mortgages payable 197.4 180.2 154.8 147.8 132.8 119.0 113.0 99.9
Iqaluit International Airport Improvement Project (P3) 155.3 156.7 134.3 100.1 53.5 31.9 - -
Capital lease obligations 86.4 92.9 33.7 42.3 50.4 59.1 69.5 79.6
Qulliq Energy Corporation bank overdraft liability 1 11.2 11.2 8.4 10.9 13.4 14.7 4.1 1.9
Nunavut Development Corporation bank overdraft liability - - - - - 0.3 0.5 0.7
Unfunded pension liabilities 1, 2 16.4 16.4 14.0 11.8 8.8 8.9 7.8 6.8

DBRS-adjusted debt 466.6 457.4 345.2 312.9 258.9 233.8 194.9 189.0

Authorized borrowing limit 650.0 650.0 650.0 650.0 400.0 400.0 400.0 400.0
Available borrowing capacity 1 199.7 209.0 318.8 348.9 149.9 175.0 212.9 217.8

DBRS-adjusted debt-to-GDP 15.4% 16.1% 13.7% 12.9% 10.9% 10.2% 8.9% 9.3%

Debt breakdown by currency

Canadian dollar debt n/a 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Unhedged foreign currency debt n/a 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Debt breakdown by fixed/floating-rate

Fixed rate n/a 74.0% 75.7% 78.3% 79.2% 86.0% 89.9% 100.0%
Floating rate 3 n/a 26.0% 24.3% 21.7% 20.8% 14.0% 10.1% 0.0%
1 DBRS assumed constant for 2018–19. 2 DBRS includes pension liabilities in its calculation of debt, but these are not considered debt under the authorized debt limit and do not reduce
available borrowing capacity. 3 Captures all floating-rate debt tranches as a share of total DBRS-adjusted debt. DBRS does not include debt maturing within 12 months, as it is assumed
it will not need to be refinanced.
n/a = not available.

Debt Maturity Profile For the year ended March 31

($ millions) Loans and mortgages P3 and capital leases Total
2018-19 16.5 17.6 34.2 7.2%
2019-20 16.9 14.0 30.9 6.5%
2020-21 17.7 8.6 26.4 5.5%
2021-22 29.9 9.0 38.9 8.2%
2022-23 17.5 9.2 26.7 5.6%
2024-28 4 45.8 45.8 9.6%
Thereafter 4 81.5 191.2 272.7 57.3%
Total 180.2 295.4 475.6 100.0%
4 Maturity breakdown not available for loans and mortgages between five and ten years, included in remaining $81.5M.

Public Finance: Provinces and Municipalities December 6, 2018

 Rating Report | Government of Nunavut DBRS.COM 12

Rating History
Current 2017 2016 2015 2014 2013
Issuer Rating AA (low) NR NR NR NR NR

Related Research
• Rating Canadian Provincial Governments, May 7, 2018.
• Corporate Risk Assessment Scorecard for Canadian Provincial and Territorial Governments, December 6, 2018.
• DBRS 2018 Provincial and Territorial Government Fact Sheet, December 6, 2018.

Authorized Borrowing Limit

• $650 million.

Notes:
All figures are in Canadian dollars unless otherwise noted.

For the definition of Issuer Rating, please refer to Rating Definitions under Rating Policy on www.dbrs.com.

Generally, Issuer Ratings apply to all senior unsecured obligations of an applicable issuer, except when an issuer has a significant or unique level of secured debt.

The DBRS group of companies consists of DBRS, Inc. (Delaware, U.S.)(NRSRO, DRO affiliate); DBRS Limited (Ontario, Canada)(DRO, NRSRO affiliate); DBRS Ratings Limited (England and Wales)
(CRA, NRSRO affiliate, DRO affiliate); and DBRS Ratings México, Institución Calificadora de Valores S.A. de C.V. (Mexico)(CRA, NRSRO affiliate, DRO affiliate). Please note that DBRS Ratings Limited
was registered as an NRSRO affiliate on July 14, 2017. For more information on regulatory registrations, recognitions and approvals, please see: http://www.dbrs.com/research/225752/highlights.pdf.

© 2018, DBRS. All rights reserved. The information upon which DBRS ratings and other types of credit opinions and reports are based is obtained by DBRS from sources DBRS believes to be
reliable. DBRS does not audit the information it receives in connection with the analytical process, and it does not and cannot independently verify that information in every instance. The extent of any
factual investigation or independent verification depends on facts and circumstances. DBRS ratings, other types of credit opinions, reports and any other information provided by DBRS are provided
“as is” and without representation or warranty of any kind. DBRS hereby disclaims any representation or warranty, express or implied, as to the accuracy, timeliness, completeness, merchantability,
fitness for any particular purpose or non-infringement of any of such information. In no event shall DBRS or its directors, officers, employees, independent contractors, agents and representatives
(collectively, DBRS Representatives) be liable (1) for any inaccuracy, delay, loss of data, interruption in service, error or omission or for any damages resulting therefrom, or (2) for any direct, indirect,
incidental, special, compensatory or consequential damages arising from any use of ratings and rating reports or arising from any error (negligent or otherwise) or other circumstance or contingency
within or outside the control of DBRS or any DBRS Representative, in connection with or related to obtaining, collecting, compiling, analyzing, interpreting, communicating, publishing or delivering
any such information. Ratings and other types of credit opinions issued by DBRS are, and must be construed solely as, statements of opinion and not statements of fact as to credit worthiness
or recommendations to purchase, sell or hold any securities. A report with respect to a DBRS rating or other credit opinion is neither a prospectus nor a substitute for the information assembled,
verified and presented to investors by the issuer and its agents in connection with the sale of the securities. DBRS may receive compensation for its ratings and other credit opinions from, among
others, issuers, insurers, guarantors and/or underwriters of debt securities. DBRS is not responsible for the content or operation of third party websites accessed through hypertext or other computer
links and DBRS shall have no liability to any person or entity for the use of such third party websites. This publication may not be reproduced, retransmitted or distributed in any form without the
prior written consent of DBRS. ALL DBRS RATINGS AND OTHER TYPES OF CREDIT OPINIONS ARE SUBJECT TO DISCLAIMERS AND CERTAIN LIMITATIONS. PLEASE READ THESE
DISCLAIMERS AND LIMITATIONS AT http://www.dbrs.com/about/disclaimer. ADDITIONAL INFORMATION REGARDING DBRS RATINGS AND OTHER TYPES OF CREDIT OPINIONS,
INCLUDING DEFINITIONS, POLICIES AND METHODOLOGIES, ARE AVAILABLE ON http://www.dbrs.com.

Public Finance: Provinces and Municipalities December 6, 2018