Notley says downgrade of Alberta credit rating unlikely amid debt fears

Share

A day after Alberta's NDP government unveiled a $34-billion stimulus package that relies heavily on borrowing, Premier Rachel Notley dismissed concerns that the province's pristine credit rating could be downgraded due to new debt.

Two ratings agencies, Moody's and DBRS, warned on Wednesday that years of deep budget deficits and an ambitious construction program will push Alberta close to the limits of its current AAA-stable credit rating. A downgrade of Alberta's credit rating would make borrowing more expensive, increasing the cost of the NDP's new infrastructure agenda.

Speaking at a site in Calgary where an $830-million cancer centre will be built, Ms. Notley said that a downgrade of the province's credit rating was unlikely. "At the end of the day, I can't control what different bond-rating agencies will do or say. But what I will say is that the fundamentals are very, very strong," she said.

"Our plan is not based on outrageous projections. It's not based on outrageous cuts. It's based on a clear understanding of what we can manage," said Ms. Notley, who added that her government's spending would act as a shock absorber for a struggling provincial economy.

Alberta will run a $6.1-billion deficit this year, emptying much of the province's rainy-day fund. By the end of the decade, Albertans will be on the hook for $47.4-billion in government debt. That's an about-face for the province, where many still remember then-premier Ralph Klein announcing in 2004 that Alberta's debt was paid off.

Much of Alberta's current trouble stems from a collapse in oil and natural gas prices, which together have reduced provincial energy royalties to a fraction of what they were last year and have led to mass layoffs. The problems extend beyond that. A decade of fast-growing costs in health care and education has left Alberta with a public sector that is far more costly than the province's low taxes can afford.

"At current oil prices, the lack of significant expenditure controls will maintain the province's structural imbalances in the near-term and will result in a deterioration of provincial debt and liquidity metrics over the next few years, which is credit negative," wrote Moody's assistant vice-president Kathrin Heitmann in a statement.

The provincial debt burden will rise to around 80 per cent of government revenue by 2018, surpassing Moody's expectations according to Ms. Heitmann.

"Borrowing billions of dollars for both capital and program spending is definitely going to have a negative impact on the province's credit rating," wrote Edmonton Chamber of Commerce head Janet Riopel. "The undeniable message here is that the revenue and spending balance in Alberta needs to be addressed in the very near future before the province's deficit and debt become a burden on future generations."