06:47 AM EDT, 03/25/2026 (MT Newswires) -- Manitoba's provincial budgetary position deteriorated over 2025-26 as drought conditions reduced revenues and the wildfire response increased costs, said National Bank of Canada.

What was originally thought to be a $794 million deficit in last year's budget grew to a $1.67 billion deficit, or 1.7% of gross domestic product, in Tuesday's latest update, noted the bank.

While Manitoba will remain in the red in 2026-27, there will be substantial progress made on the deficit, as a $498 million shortfall, or 0.5% of GDP, has been penciled in. The province's time in deficit may stop there, though, as tiny surpluses are being projected for 2027-28 and 2028-29, pointed out National Bank.

The timing of the return to balance is unchanged from last year's budget, so a weaker 2025-26 didn't leave a permanent scar, stated the bank. Budget new measures key in on "responsible investments in what matters most" -- health care and education among the larger ticketed items, similar to programs seen from other provinces.

Manitoba will make investments aimed at bolstering the province's economic future, most notably in Churchill Plus, while staying committed to the relative affordability of the province by eliminating PST on all groceries, among other initiatives.

The larger deficit in 2025-26 did contribute to more net debt and the province's debt burden is seen ending the year at 37.9%, a full percentage point higher than expected, added National Bank. That will creep up a bit further in 2026-27 to 38.2% of GDP, but will decline after.

Thanks to a large jump in revenues, the province's interest bite will moderate in 2026-27. Manitoba has borrowed $5.6 billion in the 2025-26 fiscal year to date, and thanks to pre-funding, the gross borrowing requirement will step down in the upcoming fiscal year to $4.2 billion, before averaging about $6.5 billion in the outer two years of the projection horizon.

Manitoba will continue to diversify its funding program and investor base through foreign currency transactions -- an inaugural euro (EUR) deal in the outgoing fiscal year was particularly well absorbed -- while maintaining a focus on domestic, longer-dated benchmarks to ensure efficiency and secondary market liquidity, according to the bank.