Alberta risks another downgrade, warns credit agency

Credit rating agency DBRS says without measures to rein in its finances, Alberta is at risk for another downgrade.

In July, the agency changed its long-term outlook for the province from stable to negative while maintaining Alberta’s ‘AA (high)’ credit rating.

But DBRS warns following the absence of a plan in this week’s first quarter fiscal update, a one notch downgrade over the next year is likely “in an absence of a sustained effort to address the budgetary shortfall and slow debt growth.”

The news doesn’t surprise Ron Kneebone, an economist at the University of Calgary’s School of Public Policy. 

“No one’s talking about draconian cuts to spending. It’s not necessary. But it is necessary to start looking carefully at your spending and maybe admitting to yourself that it’s quite unlikely that it’s true that every dollar the government spends is a dollar well spent,” he said.

Moderate growth in resource revenues

DBRS is also concerned about the moderate growth in resource revenues the province is projecting through 2019.

The Alberta government has recently revised downward the price of oil used to forecast this year’s budget revenues from $55 to $49 US a barrel due to lower prices since the start of the fiscal year.

The government still anticipates Alberta will have a $10.5 billion deficit at the end of the fiscal year. The debt is expected to hit $43.3 billion instead of the $45.1 billion figure projected in the March budget.

Kneebone says it wouldn’t take much to satisfy DBRS.

“Rather than allowing spending to increase by three or four per cent a year, you can then have it increase by two or three per cent a year. That relatively small change doesn’t sound like much but it has a substantial effect on the size of your deficit over five or six years.”

Kneebone notes each year of deficits in the $10-billion range adds an additional $300 to $400 million that goes toward interest payments, rather than health care or social services.

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