Alberta’s financial footing has taken another hit, this time by credit rating agency Standard & Poor’s.
S&P reported Friday it was lowering the province’s rating by two notches from AA to A+, citing budgetary performance deterioration, growing debt and depending on oil prices to rebound.
“Our expectation is that this will lead to further rapid growth in the province’s debt burden,” the agency said.
“Without material fiscal reforms in place to address budgetary shortfalls and by stimulating the economy with increased infrastructure spending, Alberta will continue to post, on average, significant after-capital deficits in excess of 23 per cent of total adjusted revenue.”
The news comes the same month Finance Minister Joe Ceci met with several agencies a few weeks ago, telling reporters he had been given no indication of any possible changes.
Following S&P’s downgrade, he said in a release the decision overlooks many positives, including Moody’s affirming its existing rating.
“Had we made deep cuts that might have satisfied some bond raters, it would have resulted in a much deeper and longer recession,” Ceci said. “We take a longer-term view of Alberta’s economy. That’s why our measures are aimed at supporting growth, creating jobs and protecting Alberta’s families.
“It’s starting to pay off. After emerging from one of the worst recessions in the province’s history, Alberta’s economy is poised to grow by 2.6 per cent this year, the highest rate in the country.”
S&P reported Alberta has strong tax advantages that “could be tapped,” but Ceci also said they won’t raise taxes or make reckless spending cuts.
The opposition has pounced on the news with Wildrose Leader Brian Jean saying the NDP is imposing disastrous budgets and policies at a time the province can’t afford it.
“These ongoing downgrades will mean millions more in debt servicing costs coming out of the pockets of everyday Albertans,” Jean said in a release. “This is totally unacceptable for a province that once led the world in fiscal prudence.”
Credit downgrades increase the cost for governments to borrow and S&P’s move now puts Alberta’s rating next to those of Quebec, Ontario, New Brunswick and Nova Scotia.
Interim PC Leader Ric McIver said the NDP is showing complete and total mismanagement.
“In the two short years since the NDP took office, this government has destroyed our sterling AAA credit rating, taken us from a $1.1 billion surplus to an $11 billion deficit, and put Alberta on track to owe an astonishing $94 billion by 2020,” McIver said in a release. “Standard & Poor’s has again told Finance Minister Joe Ceci that kicking the can down the road is not a viable fiscal plan.”
University of Calgary Economist and Research Fellow at the School of Public Policy, Trevor Tombe, said the downgrade doesn’t come as a surprise and said the path of future deficit is the key reason, since S&P also pointed out many strong points about the overall Alberta economy.
“Lots of fiscal capacity exists in the province, that we just choose not to tap and instead we are betting that oil prices will rise, S&P disagrees,” Tombe said. “It’s a reflection of their view that the political will doesn’t exist to tackle the deep budget challenges that we face.”
Tombe added the downgrade could’ve not occurred had the province outlined a longer path to recovery.
“Clearly we need to take such long-term (10 year) forecasts with a grain of salt, but I think what would have prevented the downgrade is a clear path out of deficit over multiple years, nothing drastic, but a clear plan to balance, that was not done.”