CALGARY, Alberta (Reuters) - Ratings agency DBRS downgraded the Canadian oil-producing province of Alberta one notch to AA (high) on Friday, a day after the provincial government forecast a budget deficit of C$10.4 billion ($8.10 billion) this fiscal year.
The province has seen its economy hammered by the global crude oil price slump and DBRS placed Alberta on a negative outlook in January, citing mounting debt and poor fiscal performance as a result of weak oil prices.
In a statement, the ratings agency said the 2016-17 budget confirmed a significant fiscal shortfall, magnified by the government’s reluctance to rein in spending or adjust taxation levels and a sizeable capital plan.
“While DBRS acknowledges that the pace of debt growth is somewhat slower than what was anticipated in January 2016, the debt burden is still expected to rise beyond a level considered acceptable for the previous AAA rating,” the agency said.
Alberta’s left-leaning NDP government expects the once-booming province to be C$57.6 billion in debt by 2019, while finance minister Joe Ceci said Alberta could run deficits until 2024.
Ceci described the DBRS downgrade as a “disappointment” but reiterated the government’s commitment to maintaining funding for public services and infrastructure spending to spur growth.
The province is home to Canada’s vast oil sands and is the No. 1 exporter of crude to the United States but the government expects oil and gas revenues this year to be almost 90 percent lower than 2014.
Earlier this month the Canadian Association of Petroleum Producers said capital investment in the industry has dropped C$50 billion in two years and more than 100,000 oil and gas workers have been laid off.
Moody’s ratings agency maintained its ‘Aaa negative’ rating for Alberta following the budget, but warned the projected debt burden was high for an oil-dependent regional government.
“The significant upcoming deficits, reflecting Alberta’s weakened fiscal circumstances, and rising debt levels are credit negative for the province and will exert growing pressure on its rating,” said Adam Hardi, lead analyst for Alberta.
The opposition Wildrose party said the DBRS downgrade and Moody’s warning were a sign the NDP government should reverse its spending plans.
($1 = 1.2840 Canadian dollars)
Editing by G Crosse, Clive McKeef