Alberta gets credit rating warnings
• Credit rating agencies blasted Alberta’s rising debt and continued deficits Friday, and said the government’s plan to bring the budget back to balance hinges on a dramatic oil price recovery.
While Moody’s Investor Service did not immediately downgrade the province’s credit, the ratings agency issued a release Friday showing it was reviewing the province’s credit profile following the NDP government’s budget announcement.
“Alberta’s rapidly rising debt burden, protracted deficits and above- inflation expense growth continue to put significant pressure on its rating,” Moody’s assistant vice- president Adam Hardi said in the release.
“The province’s plan to issue an additional $ 38 billion in debt over the next three years to finance its operating deficits and capital plans will contribute to a rising debt burden that may approach 150 per cent of revenues by 2019- 2020,” he said.
Similarly, DBRS Ltd. analysts said Alberta’s debt may exceed acceptable levels for its current rating “in the absence of meaningful action to address the budget deficit and slow debt growth.”
Reporters asked Finance Minister Joe Ceci whether he was worried about a downgrade after he unveiled his government’s budget Thursday, which showed a $ 10.3 billion deficit for the coming year and that Alberta’s debt would rise to $71.1 billion by 2020, but the minister would only say, “My overarching concern is Albertans.”
The province’s deficit for the coming year is $200 million higher than the government forecast at last year’s budget announcement. Similarly, the fiscal plan shows next year’s budget deficit will be $ 9.7 billion, compared with the previous estimate of $8.4 billion.
The budget also shows the province’s debt-to- GDP ratio roughly doubling from current levels of 10.6 per cent to 19.5 per cent in 2020.
“While DBRS takes comfort in Alberta’s currently low debt burden and expected economic recovery, the fiscal plan demonstrates a lack of willingness to contain debt growth, which may exhaust flexibility within the province’s current ratings in the near to medium term,” the ratings agency said.
Premier Rachel Notley said Friday she knows Albertans are worried about the growing size of the debt, but it is “absolutely manageable.”
DBRS said the government’s plan to keep the annual rate of expense growth below the rate of population growth and inflation is “a challenging task in light of past spending increases and the major labour agreements that are up for renewal, including those for teachers, nurses and general government employees.”
Moody’s said the deficit reduction “is based largely on its expectation of a material recovery in oil prices and rising bitumen royalties.”
The agency said there was “material risk” to the budget assumptions if the oil price recovery doesn’t happen.