EDMONTON, Alberta (Reuters) - Alberta, Canada’s main oil-producing province, on Thursday forecast a lower budget deficit for the 2020-21 fiscal year, helped by an expected pick-up in economic growth and recovery in the price of oil from current depressed levels.
The province estimates oil will average $58 a barrel in 2020-21, maintaining its October forecast, and projected the economy will grow 2.5% in 2020, after almost no growth in 2019.
Alberta, which holds the world’s third-largest crude reserves, has suffered from lower crude prices and pipeline congestions. The price of oil CLc1 has fallen by more than 20% from its January peak on concern about the coronavirus outbreak.
Alberta’s deficit is forecast at C$6.8 billion for the 2020-21 fiscal year, including a C$0.8 billion cushion for emergencies. For the current fiscal year, which ends on March 31, the deficit is estimated at C$7.5 billion, which is C$1.2 billion lower than was seen in October when the United Conservative Party government tabled its first budget.
The party was elected last April with promises to cut spending and revive the economy. It continues to forecast a return to surplus in 2022-23, anticipating that non-renewable resource revenue will rise nearly 70% from the level it projects for the upcoming fiscal year.
Growth is seen boosted by a cut in corporate taxes and higher oil production, as government-imposed production cuts end this year, but will also widen the discount for Canadian heavy crude.
Alberta is assuming an average discount of $19.10 per barrel for Canadian heavy crude in 2020-21, compared to an estimated $14.70 in the current fiscal year. But the discount is expected to narrow by 2022-23 on increased pipeline capacity.
Alberta has run deficits every year since 2015 when it was badly hit by falling global crude prices, with economic recovery hampered by delays in building new export pipelines and falling capital investment.
Overall revenue is seen falling to C$50 billion in 2020-21 from an estimated C$50.9 billion in the current fiscal year, with expenses seen falling by 2.9% to C$56.8 billion after a C$1.3 billion provision was made in 2019-20 to exit crude-by-rail contracts.
The province is looking to cut the cost of public sector staffing by 2.1% over three years, which could help ease the faster pace of debt accumulation in recent years. It pays more to borrow in the bond market than some other provinces, such as Ontario and Quebec, that have higher debt-to-GDP ratios.
Reporting by Fergal Smith; Editing by Chris Reese and Tom Brown