07:49 AM EST, 12/02/2024 (MT Newswires) -- Despite last year's surprise surplus, the Canadian province of Saskatchewan faces significant spending pressure, leading to a projected deeper deficit of C$744 million or 0.6% of gross domestic product for FY25, said Scotiabank.

The impact of dry growing conditions over the summer, although milder than last year, adds C$385 million to crop insurance claims, straining the province's finances, noted the bank. Non-renewable resource revenue is down by C$102 million, primarily due to potash price pressures, partially offset by an increase in revenue from the oil and natural gas and uranium sectors.

With the deeper projected deficit, the province's net debt is expected to increase as a share of GDP to 13.9%, although from a lower starting point due to last year's better-than-expected results -- the second lowest among provinces, exceeding only that of Alberta.

Net debt decreased by C$379 million versus Budget to C$16.0 billion for FY25. As a share of nominal output, net debt is now expected to rise from 12.6% in FY24 to 13.9% in FY25, stated Scotiabank.

The real GDP growth forecast is incrementally lifted from 1.0% to 1.4% for 2024 but nudged down from 1.8% to 1.7% for 2025. Nominal GDP projection raised over the horizon from 2.1% to 3.7% for this year and from 3.2% to 3.4% for 2025.

WTI price projections were revised down slightly to $76.5/barrel in FY25 from $77.0/barrel projected in Budget 2024. The light-heavy differential projection narrowed from $14.5/barrel to $12.3/barrel.

Borrowing requirements are estimated at C$4.7 billion for FY25 -- up C$333 million from Budget 2024.

Saskatchewan is grappling with another year of weather-related fiscal challenges, as adverse conditions have led to an overshoot in agriculture expenses, tripling the size of the deficit projected in March, added the bank.

Despite these headwinds, the province remains resilient, benefiting from a low debt burden, strong credit ratings, and disciplined spending. Robust growth momentum should continue supporting these fiscal advantages, however, a soft commodity price outlook could pose downside risks to Saskatchewan's fiscal stance, according to Scotiabank.