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(Adds Wildrose Party comment)
By Nia Williams
CALGARY, Alberta, Aug 23 (Reuters) - The Alberta government raised its 2016-17 budget deficit forecast to C$10.9 billion ($8.44 billion) on Tuesday, largely because of a massive wildfire that ripped through the province's oil sands hub of Fort McMurray in May.
In a first-quarter fiscal update, the Canadian province's New Democratic Party government said the net impact of the wildfire would be an estimated C$500 million. With other changes, that will increase the projected deficit by C$527 million from April's budget, the government said. The 2016-17 fiscal year ends on March 31.
Finance Minister Joe Ceci said Alberta's gross domestic product was expected to shrink by 2.7 percent in 2016, a steeper decline than forecast in April. He attributed 0.6 percentage point of that directly to the wildfire. GDP contracted by 3.7 percent last year in Canada's leading oil-producing province.
More than 88,000 people fled Fort McMurray as wildfires raged in and around the city, destroying 1,500 commercial and residential structures and forcing oil sands producers in the region to halt output as a precaution.
Alberta said as much as 1.5 million barrels per day of oil sands production was suspended at the height of the fires, and at least 40 million barrels in total, equivalent to 110,000 bpd annually, were likely shut in over a two-month period.
The wildfire disruption came on top of two years of low oil prices that have roiled Alberta's once-booming economy, pushing the unemployment rate to 8.6 percent in July and prompting energy companies to slash investment.
"The oil price collapse continues to reverberate through the economy, and the wildfire has added considerably to the economic impact, reducing revenues and royalties to government," Ceci said.
Alberta expects a mild recovery in 2017 with GDP growth of 2.4 percent, supported by reconstruction in Fort McMurray and rebounding oil production, and said it would stick with its plan to maintain spending in public services while investing in infrastructure to stimulate growth.
Direct borrowing to fund the fiscal plan was forecast to be C$7.1 billion, up from C$5.4 billion in the April budget, because of lower than expected final 2015-16 results.
"It's clear the NDP plan isn't working," said opposition Wildrose Party leader Brian Jean. "We need to reverse course on the NDP's risky economic agenda, start saving pennies on every dollar spent across government."
In a rare bright spot, Alberta said revenue forecasts had increased by C$708 million, partly due to its raising the forecast for the benchmark U.S. oil price to $45 a barrel from $42 a barrel. ($1 = 1.2911 Canadian dollars) (Reporting by Nia Williams; Editing by Steve Orlofsky and Peter Cooney)