Credit-rating agency lowers Alberta’s outlook to negative
Ceci disputes warning from DBRS that debt will exceed 15% of GDP
Finance Minister Joe Ceci insists he won’t make a bad situation worse with deep spending cuts as a new credit-rating agency report downgraded the province’s economic trend to negative and warned a credit downgrade is likely without significant action.
The DBRS report released Thursday maintains the agency’s triple-A credit rating for Alberta, but altered its trend to negative from stable because of high debt and sub-US $30 oil prices that have battered the provincial economy.
“We will continue our work to find efficiencies, but these savings will not come at the expense of programs and services that Albertans need. That would only make a bad situation worse,” Ceci said.
While DBRS said the province’s short-term debt rating is R-1 (high) with a stable trend, the long-term debt obligation has changed to negative from stable.
The negative outlook is blamed on an “erosion in the province’s performance and accumulation of debt,” the agency said in a statement.
The agency warned a credit downgrade is likely without sufficient action.
“Without a material improvement in the fiscal and debt outlook supported by a credible multi-year fiscal plan, a one-notch downgrade to the rating is likely,” it said.
The agency says it expects Alberta’s debt to exceed 15 per cent of GDP as early as fiscal 2016-17.
Ceci rejected with that assessment, saying the government recently passed a law limiting debt to 15 per cent of nominal GDP.
“We don’t agree. What we’re working with is four per cent now ... and that rises, for sure, but we show ourselves staying under that debt limit for the fiscal plan that we have started to create for budget 2016,” the finance minister said.
The gloomy economic outlook is the latest in a string of negative projections for the province.
Moody’s, a bond rating agency, announced Monday it is shifting its outlook for Alberta to negative from stable while retaining the province’s triple-A rating. In December, the rating agency Standard and Poors downgraded Alberta’s rating to double-A-plus from triple-A. The outlooks affect the credit-worthiness of a borrower and can make it more expensive to take on loans.
The 2015 provincial budget, revealed last October, calls for a deficit of $6.1 billion. That plan promises hiring freezes where possible, but avoids deep cuts in front-line services.
Ceci said the government is focused on job creation and economic diversification, touting small business investments and a $34-billion infrastructure building plan.
The budget projects a heavy debt load that’s expected to exceed $47 billion by 2020.
Wildrose Leader Brian Jean said the province’s plan to continue to take on debt — even borrowing to pay for operations rather than just capital projects — “borders on serious negligence.”
With yet another negative outlook from a credit agency this week, the government must do more to restore confidence, he said.
A Trend Research survey of 300 Edmonton Chamber of Commerce members released Thursday found roughly two-thirds believe business conditions are worse now than the same time last year and 45 per cent expect the situation to get worse.
Earlier this week, the Wildrose leader called on the government to launch a jobs summit to examine the effect of the government policies on the economy and employment in Alberta.
The government has already begun taking steps to rein in spending. Late last year, Ceci announced that more than $400 million in new program spending to be launched in this spring’s budget will be delayed or drawn out.
The government has also frozen the salaries for a quarter of its employees — those not in unions — for two years.