NDP in a state of denial as credit rating takes another hit
The NDP almost got through the Stampede Parade without being forced to duck a fiscal cow pie. Not quite, though.
The Dominion Bond Rating Service chose Friday morning to downgrade the outlook on Alberta’s long-term debt from stable to negative.
The agency also said last year’s 2016-17 deficit was not $10.8 billion, as the government claims, but $12.8 billion.
While the parade was still on, Finance Minister Joe Ceci fired out a news release noting that DBRS at least held the province’s basic credit rating at AA, or high.
Ceci also listed a string of positives, from jobs growth to falling unemployment and rising exports.
That much was accurate, but he entirely neglected to mention the change in long-term status from stable to negative. Nor did he deal with the higher deficit number.
Ceci declined to be interviewed Friday. His statement would speak for itself, an aide said.
It’s always puzzled me why they politicians do that — endlessly parrot their talking points without admitting why they’re talking in the first place. It eats away at credibility.
The DBRS statement comes with many dire warnings, starting with the fact that Alberta is “continuing to erode its low debt advantage through sustained deficit spending.”
“Moreover, the province has yet to provide a credible plan to restore balance.
“While Alberta’s debt burden is low and the economy is showing signs of recovery, the fiscal plan demonstrates a lack of willingness to contain debt growth, which is likely to lead to a one-notch downgrade of the long-term ratings.”
Downgrades, or even the threat of them, always tend to raise borrowing costs.
DBRS actually expected the deficit to be higher than $12.8 billion.
It was “somewhat better than expected because of lower-thananticipated capital spending.” Even so, it was “sizable at 4.2 per cent of gross domestic product.”
The agency notes “the economy appears to have turned a corner and has been supported by the modest recovery in oil prices.”
DBRS doesn’t mention that this year’s price forecast — $55 US per barrel for West Texas crude — is $10 higher than the current market. In some areas, the report is almost gentle.
But the new 2017-18 budget, says DBRS, “fails to demonstrate meaningful action by the government to address its substantial budgetary gap.”
The province forecasts a deficit of $10.3 billion in the current fiscal year. DBRS calculates that shortfall at $13.6 billion.
Debt is expected to reach 24 per cent of provincial GDP by 2019-20. DBRS believes “the debt burden could exceed this level, given the uncertain outlook for oil prices and Alberta’s track record of weak fiscal discipline.”
The final judgment is worrisome:
“The government has articulated a desire to return to balance by 2024. However, given their reluctance to use additional tax room and the continued focus on maintaining services and funding growth, this objective is highly uncertain, since it relies on a sustained recovery in economic activity buoyed by higher oil prices.”
Ratings agencies are talking to lenders. They tend to dislike spending and like taxes. They take no account of social needs, infrastructure gaps, public health, tax burdens, or anything else that doesn’t start with a dollar sign.
Still, DBRS is close to the truth of what’s going on. The NDP’s path simply isn’t sustainable.
Premier Rachel Notley and her ministers seem to know that. Time after time, I hear that the government will move toward restraint by next year, hoping to show serious progress on cutting deficits and reducing debt.
But they aren’t talking about that yet. For now they ride in the parade, and duck when necessary.