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FILE PHOTO: The offices of Fitch Ratings building appears empty in Canary Wharf, following the outbreak of the coronavirus disease (COVID-19), London, Britain, May 27, 2020. REUTERS/Dylan Martinez/File photo

Dylan Martinez/Reuters

Alberta’s credit rating was downgraded Tuesday, hours after the province released a multibillion-dollar economic recovery plan in an attempt to climb out of the economic wreckage caused by the COVID-19 pandemic and a collapse in world oil prices.

Fitch Ratings downgraded Alberta to a double-A-minus from double-A, citing higher provincial borrowing during the pandemic-driven economic crisis and a debt burden relative to GDP that is “incompatible” with a double-A rating.

The New York-based agency also pointed to the lack of details from the government about the extent of damage to Alberta’s bottom line, and the fact the province has no planned path toward economic recovery.

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Tuesday’s downgrade is the third for Alberta since December, when Moody’s Investors Service changed the province’s rating to Aa2 from Aa1, citing continued weakness in the provincial economy and its reliance on non-renewable resources. In March, DBRS Morningstar downgraded Alberta to double-A (low) from double-A.

Fitch also downgraded Canada’s credit rating last week to double-A-plus from triple-A. The agency said that move did not impact Alberta’s rating, but acknowledged factors affecting Canada’s credit quality – including a significant increase in expected federal government debt – may also affect the credit quality of individual provinces.

Alberta Finance Minister Travis Toews said in a statement Tuesday his government “remains committed to the responsible management” of provincial finances, and will release an economic and fiscal update in August.

He said the province’s stimulus plan, unveiled Monday, will put Alberta on a path to “sustainable and expedited” economic recovery.

Fitch said while it considered that plan in its rating, the package came with no details about how the strategy would affect revenues, expenditures and debt. As well, it said, “additional policy responses will be necessary as the province navigates the recession.”

Franco Terrazzano, Alberta director of the Canadian Taxpayers Federation, said the downgrade sends a clear signal that the United Conservative government needs to “reprioritize its debt and spending problem.”

“Albertans are already losing billions of dollars through interest payments each year, and credit downgrades can increase the interest charges that Albertans need to fork over when politicians borrow, so it’s very important for the government to get a handle on its finances now before the situation gets any worse,” he told The Globe and Mail.

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He said he’s also worried about how Albertans will foot the bill for an economic recovery strategy that includes “soaring infrastructure spending and corporate welfare spending that will only increase the debt.”

Much like Alberta’s other recent credit downgrades, Fitch pointed to the province’s continued reliance on volatile natural resource revenues as cause for concern. The agency also worried that fiscal risks won’t be sufficiently addressed by policy actions before 2025.

Fitch said the provincial government’s goal to balance spending will be “challenging” given high service demands and the depth of the current downturn.

The province’s debt sustainability was lowered to a single-A from double-A, citing increased borrowing after the deep oil-linked recession in 2015 and 2016. Fitch forecasts provincial debt will increase to $133-billion by the 2025 financial year owing to an expected deficit in 2021, the $1.5-billion equity contribution to fund construction of the Keystone XL pipeline, and continued annual deficits.

In a silver lining, Fitch expects Alberta’s economy to grow, beginning in 2022, after an uptick in non-renewable resource revenues.

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