Moody’s downgrades Alberta’s credit rating, citing deficit and rising debt

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Another major credit rating agency has downgraded Alberta's debt, citing the $10.4-billion deficit, rising debt and the NDP government's long road back to a balanced budget.

Moody's Investors Service Inc. slashed Alberta's debt one notch below the top Triple A investment grade rating, the second downgrade in two weeks.

"The downgrade of Alberta's credit rating, along with our negative outlook, reflects the province's growing and unconstrained debt burden," Moody's said in a statement announcing the downgrade.

Alberta's budget will require billions of dollars in borrowing over the next few years, a strategy designed to help stimulate an economy that has been hit hard by the plunge in oil prices.

The Moody's downgrade came as Alberta Finance Minister Joe Ceci made the rounds in Toronto to sell the NDP government's fiscal plan to Moody's, other rating agencies and the province's major lenders.

However, the Moody's decision was announced before Mr. Ceci's meeting with the credit agency, surprising the Alberta government.

"The government is disappointed that Moody's didn't wait to meet with Minister Ceci or Alberta finance officials before they released the downgrade," a spokeswoman for Mr. Ceci said. "The minister was aware Moody's credit committee was meeting today, yet it was unclear what the outcome would be or when it would be made public," she said.

Mr. Ceci expressed disappointment with the second downgrade in two weeks after a similar move from rating agency DBRS Ltd., and defended his budget.

"The bottom line is that we had a choice. We could have raised taxes, fired teachers and nurses and made reckless cuts to social services," he said in an e-mailed statement. "But Albertans need jobs," he said.

Mr. Ceci delivered his budget earlier this month, estimating another deficit over $10-billion for the following year, driven largely by a steep drop in energy revenues.

Meanwhile, the government is borrowing up to $34.8-billion for spending on infrastructure such as schools, roads and hospitals over five years as a way to bolster employment after more than a year of heavy layoffs in the construction sector. As oil and gas prices remain low, however, the government is also borrowing to fund a portion of operational spending as well, starting with $5.4-billion this year.

The downgrade will likely increase the province's borrowing costs just as Mr. Ceci is preparing to tap markets for more financing.

Mr. Ceci also removed a six-month-old, self-imposed ceiling on debt at 15 per cent of gross domestic product. The provincial debt is forecast to climb to 15.5 per cent of GDP in 2018-19.

The government does not expect to balance the budget until 2024. Moody's questioned Alberta's deficit-reduction plan and said there is a risk the province will not be able to achieve "the necessary expenditure controls."

On top of the fiscal problems, Moody's said the government's oil price forecasts were higher than its own assumptions. The NDP budget is forecasting crude prices to increase to $64 (U.S.) a barrel from $42 over the next three years. Meanwhile, Moody's is expecting oil to trade around $43 a barrel by 2018.

With a report from from Jeffrey Jones