The prominent credit rating agency Moody's Investors Service has downgraded B.C.'s financial outlook, lowering the province's debt rating from stable to negative.

Moody's says the downgrade reflects B.C.'s worsening financial situation.

Recent drops in royalties from resources like coal and natural gas have led to a spike in the deficit, and investors worry about the government's ability to avoid increasing the overall debt even further.

The province's second quarterly financial report last month indicated the province's annual deficit was projected to reach $1.47 billion, up from an earlier forecast of $1.1 billion.

Given the change in Moody’s rating, the B.C. NDP’s Bruce Ralston said he wonders how Finance Minister Mike de Jong can still claim to be on track to balancing the books.

"This kind of view of the budget-making process, I think, means it will be increasingly difficult for Mr. de Jong to be taken seriously in his boasts that he's going to balance the budget."

De Jong was not available to comment late Wednesday, but in a statement the finance ministry points out that Moody's has not downgraded B.C.’s overall AAA credit rating, but applies only to the debt rating category.

Attorney General Shirley Bond, who is also the vice-chair of the Treasury Board, said the downgrade will inspire the provincial government to strengthen spending controls.

Bond says the province will have to demonstrate even more discipline to control spending — while continuing to fund health care, education and critical infrastructure.

Moody's Assistant Vice President Jennifer Wong said the province is working to hit its fiscal targets and if it's able to do that the credit rating could be raised back to stable.

Forestry to push B.C.'s economy

The forecast comes as a separate RBC Economics Provincial Outlook suggests B.C.'s economy will be tugged in opposite directions in 2013 — but growth should stay at about the same level as this year.

RBC projects provincial growth at about 2.3 per cent in 2013, only slightly above the 2.1 per cent forecast for this year, and close to the national average of 2.4 per cent.

Cooling of Metro Vancouver's sizzling housing market and slower population growth get the blame for putting the brakes on growth, but a stronger U.S. housing market is expected to keep B.C.'s forest sector healthy, pushing B.C.'s economy forward.

RBC economists also predict that foreign investment in the province's commodity and transportation sectors will form the backbone for development of B.C.'s remote regions in 2013, and for years to come.

With files from the CBC's Stephen Smart and The Canadian Press