Update expected to show fiscal plan on course
The Saskatchewan government will release an updated look at the province’s finances on Thursday, and it is expected Finance Minister Donna Harpauer will show that the plan to get those finances back to balance remains on schedule.
In its first-quarter fiscal update, released in August, the Ministry of Finance projected higher-thanexpected revenues were more than offsetting a rise in spending, allowing the 2018-19 deficit forecast to fall $59 million to $306 million.
But unpredictable resource prices and costs of looming public sector contracts continue to cause concern the province won’t be able to entirely slay the shrinking deficit on schedule.
At last update, total government revenue was expected to be $14.4 billion, up $172 million from budget time. The majority of that increase was based on higher oil and potash price projections.
Since August, potash prices have continued to do well, with the province predicting a consecutive year of record-breaking sales driven by continued international demand.
Oil prices have been less predictable. The province forecasted a barrel of WTI oil to sell at an average of US$58.18 over the fiscal year. Since March, the average price has often been somewhat above that: the average spot price of WTI has been US$68.36 per barrel over that time period.
WTI oil prices are currently forecast to average US$68.03 per barrel in 2018-19, up US$9.85 from budget.
A Us$1-per-barrel change in the average WTI oil price over a fiscal year results in a roughly $16-million swing in oil revenue flowing into government coffers.
The widening differential between light and heavy crude (forecasted to be 22.1 per cent in the spring budget) is cause of major concern for the province, in part because provincial coffers are reduced roughly $10 million for every percentage-point increase in the annual average light-heavy WTI differential.
For several months, that percentage point difference has been around 60 per cent.
According to a report released Wednesday by credit rating agency DBRS Ltd., this is putting pressure on cash flows and credit metrics for Canadian oil and gas companies, meaning a reduced ability to access credit to fund future growth.
While some international trade pressures have been alleviated since August, most notably due to the signing of a new North American free trade deal, the effects of that agreement are still largely to be determined.
On the public sector contract front, there are still about 51,200 public sector workers representing more than 30 employer groups without a contract.
While the province has publicly backed away from its original target of achieving $250 million in savings by reducing public sector wages by 3.5 per cent, unions charge the unpopular measure remains on the table.
Each one-per-cent increase in wages across the public sector represents roughly an additional $75 million in cost to the provincial government.
Harpauer has maintained confidence she will be able to keep the government’s promise of balancing the budget next March; but the cost of the outstanding contracts could threaten her ability to do so.