An oil pump jack pumps oil in a field near Calgary. Bond-rating service DBRS Inc. predicts that Alberta, Saskatchewan and Newfoundland will see resource revenues ‘modestly lower than planned.’TODD KOROL/Reuters
Lower crude prices could shave billions of dollars off provincial revenues in Alberta in the coming years while hammering the fiscal plans of both Saskatchewan and Newfoundland, DBRS Inc. bond-rating service said on Thursday.
The provincial governments are forecasting crude prices to reach roughly $68 (U.S.) a barrel by 2020 but, based on what it calls a consensus forecast, DBRS said it expects oil to trade in the $50 to $55 range through 2019, given the vast productive capacity of OPEC, Russia and the U.S. tight oil fields.
If that low-price scenario pans out, Alberta would see its resource revenue fall by roughly $3-billion (Canadian) annually from what it is now forecasting; Saskatchewan would lose $150-million and Newfoundland and Labrador would come up $300-million short. Alberta expects resource revenues will make up 13 per cent of its budget in 2019-20, while Saskatchewan pegs that figure at 11 per cent and Newfoundland, at 17 per cent.
The current price outlook suggests resource revenue in the three provinces will be "modestly lower than planned" in the current year, DBRS said in a report released on Thursday. "Over the medium term, however, the challenges appear more pronounced as the price outlook is now meaningfully lower than budget forecasts," the Toronto-based rating service said.
It warned that Alberta is headed for another downgrade unless the provincial government takes action to address its current deficit, which is expected to hit $10.5-billion this fiscal year. The New Democratic Party government is counting on economic growth, slower spending growth and rising commodity prices to reduce that shortfall in the coming years.
"Our view is that, at some point, some measures have to be adopted, and that current levels of deficit spending isn't sustainable," Paul LeBane, DBRS's assistant vice-president for public finance, said in an interview. "If we don't see more substantial measures in the coming months – and if oil doesn't recover – we probably would take a negative rating action."
Mr. LeBane noted that the NDP government has boosted spending in an effort to offset the impacts of low oil prices and a slumping economy, which recently has begun to rebound somewhat. In contrast, Saskatchewan and Newfoundland introduced tough budgets that focused on deficit reduction – though governments in both provinces faced a backlash from citizens over tax increases and spending cuts.
In a quarterly update issued this week, Alberta Finance Minister Joe Ceci said provincial revenues are now expected to be $648-million lower than forecast in the spring budget, and that the government would respond by using half of a $500-million contingency reserve and reducing planned spending by $200-million.
Mr. Ceci shrugged off warnings that the province could face a downgrade on its debt if it does not take more urgent action to reduce the deficit.
"I can't control what others do. But I can tell you that a credit-rating agency wanted us to find $3.5-billion dollars, either through cuts or tax increases. And we are not going to do that," he told reporters this week. "We're going to get ourselves through this recession into recovery by providing the necessary programs and services Albertans require."
With a report from Carrie Tait in Calgary