Alberta’s credit rating downgraded amid mounting debt

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DBRS Ltd. downgraded Alberta's credit rating on Friday, a day after the province tabled a budget heavy with deficits that will require $57.6-billion of borrowing by 2019.

The credit-rating agency warned that the province's debt levels are expected to increase beyond the acceptable level for a triple-A rating. The province was downgraded one notch to double-A high. The agency cited the government's reluctance to increase taxes or cut spending as a concern.

Finance Minister Joe Ceci called the downgrade a disappointment. While his budget forecasts a deficit of $10.4-billion this year, before falling slightly to $10.1-billion next year, Mr. Ceci said all oil-rich areas were facing downgrades.

"Today's credit-rating downgrade is a disappointment. In the current environment, all jurisdictions engaged in petroleum production are facing ratings downgrades," he said in a statement.

The downgrade will increase Alberta's borrowing costs at a time when the province is preparing to go to markets for debt to finance government operations and a $34-billion infrastructure blitz. Mr. Ceci will be meeting with financial institutions later this month.

Earlier in the day, Moody's Investors Service maintained Alberta's pristine credit rating, but warned that the rating was under threat due to the increasing debt load. According to current projections, the once debt-free jurisdiction could have the third-highest debt of all Canadian provinces by the end of the decade.

"The significant upcoming deficits, reflecting Alberta's weakened fiscal circumstances, and rising debt levels are credit negative for the province," wrote Moody's assistant vice-president Adam Hardi.

While Alberta has a six-month-old law that caps debt at 15 per cent of gross domestic product, Mr. Ceci said on Thursday that he plans on repealing the rule. He said Alberta will no longer have a debt cap.

Mr. Hardi raised that move as a concern. "The elimination of the debt ceiling removes an important self-imposed constraint on the level of Alberta's debt burden," he said.

Speaking in Edmonton on Friday afternoon, Premier Rachel Notley said her government has no intention of retaining a debt cap. Instead, she says she was expecting the downgrade and added that she believes Alberta's debt level is sustainable. "We have the best fundamentals in the country."

Mr. Ceci said on Thursday that he does not expect Alberta to balance its books before 2024.

At the start of a tour to promote the budget, Ms. Notley said that by not cutting spending as the province struggles through recession, her government is helping Albertans rebuild.

Trevor Tombe, an assistant professor of economics at the University of Calgary, warned that the DBRS downgrade is probably the first of more to come. "We have no credible plan to get out of deficit. It isn't that Alberta's current situation presents a risk to credits, it's the lack of any notion of how we'll get out of deficit that is the real problem."