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Konrad Yakabuski

Besides being islands, Puerto Rico and Newfoundland don't have a lot in common. After all, one is a tropical paradise with an average year-round temperature of 28 C., while the other is known to report snow in June, a month sometimes referred to by locals as Juneuary.

Yet, Canada's easternmost province and the U.S. territory in the Caribbean do share one distinction. Both are broke and deeply in hock. Puerto Rico is currently closer to the brink than Newfoundland and Labrador, as the island and its mainland possession are officially known. But the Rock is sitting on a far more explosive demographic time-bomb that will not be easily defused.

Puerto Rico has already missed payments on more than $70-billion (U.S.) worth of bonds and an oversight board appointed by the U.S. Congress has given the territory until May 1 to come to agreement with its creditors or enter a form of bankruptcy proceedings.

Whatever happens, the island's 3.4 million residents face years of deteriorating services, shrinking incomes and lower pensions.

Can Newfoundland avoid becoming Puerto Rico North? Even the province's Liberal Finance Minister Cathy Bennett has evoked the b-word, only to insist her government's tough fiscal medicine would cure the patient before that happens.

"Without the measures taken, our province would have faced serious challenges with rating agencies and banks. Some believed that it could have even led to bankruptcy," Ms. Bennett said last week on tabling the 2017-18 budget. "We are on a path to gain control of our finances and strike the balance of better spending controls and valuable investments in communities, people and the economy."

Let's hope so. Ms. Bennett actually eased up on the austerity pedal, promising to cancel by Dec. 1 all but four cents of the 16.5-cent gas tax introduced in last year's budget. And the vow to eliminate the deficit by 2023 will depend on higher oil prices and tight-fisted settlements in the public service. Outright wage and pension cuts might even be needed.

That's because Newfoundland has a spending problem. In an all-too-familiar story among resource-dependent provinces, Newfoundland's previous Progressive Conservative government banked on seemingly limitless resource revenue to ramp up spending during the oil boom. The boom enabled the province to end its dependence on federal equalization payments. But it also left Newfoundland with the highest per capita program spending among Canadian provinces and, now that boom has gone bust, a massive structural deficit that has the province careening toward a debt wall.

Program spending is set to clock in at around $13,500 per capita this year, down from just over $14,000 last year. But that is still about $1,000 more than the next two most spendthrift provinces, Alberta and Saskatchewan, and almost $5,000 more than the $8,650 Quebec spends on programs.

Even worse, Newfoundland has overtaken Quebec as Canada's most indebted province, with a net debt-to-GDP ratio of 49.9 per cent (and rising) compared with 46 per cent (and falling) in Quebec. The second-biggest item in the Newfoundland budget after health care is interest on the provincial debt, at 14 per cent of total spending.

There is little likelihood that Newfoundland will be able to count on another oil-revenue gusher any time soon. Meanwhile, once the stimulus provided by construction of the massively over-budget Muskrat Falls hydroelectric project winds down, Newfoundlanders will be left with a legacy of debt – federally guaranteed, mind you – that will drain their pockets for decades to come.

And there will be fewer of them around to pay it off. Statistics Canada projects that, even under a high-growth scenario, the province's population will decline to 480,000 by 2038, from about 530,000. Under the federal agency's low-growth scenario, the population will slide to 437,000 two decades from now.

More than a third of Newfoundlanders will be over 65 by then, compared with 17 per cent now. Health-care costs will explode while the number of Newfoundlanders in the labour market plummets.

As it is, barely 50 per cent of working-age Newfoundlanders had jobs in March, compared with a national average of 61.5 per cent. Although the province's labour market participation rate is the country's lowest at 59.4 per cent, its unemployment rate is the highest at 14.9 per cent and could be pushing 20 per cent once Muskrat Falls and the Hebron offshore oil platform are through the building phase.

Even a resumption of equalization payments might not be enough to save the Rock from sinking.