Alberta's credit rating remains solid, but with some warnings

Credit-rating agency DBRS Limited has deemed Alberta worthy of maintaining its coveted AAA status and its R-1 rating for short-term debt.

Agency sees risks on the horizon, but says budget plan is manageable for now

Alberta Finance Minister Joe Ceci presenting the budget in the legislature. Credit-rating agency DBRS Ltd. has maintained the province's top rating, but with some warnings. (Topher Seguin/Canadian Press )

Credit-rating agency DBRS Limited has deemed Alberta worthy of maintaining its coveted AAA status and its R-1 rating for short-term debt.

Those stable ratings, however, come with some warnings.

In a statement, the agency says although deterioration in oil prices and its impact on income and debt is manageable at this point in time, "Further erosion in the fiscal outlook, leading to potentially higher debt than currently projected, would be cause for concern for DBRS."

Citing the recent budget and highlighting the planned deficits that are forecast to return to surplus in 2019-20, DBRS calculates the combined yearly deficits to be "roughly" 2.7 per cent to 0.8 per cent of GDP.

"The current plan is based on a recovery in oil prices and containing spending, which has yet to be proven," it warns.

Debt is calculated to rise by almost 25 per cent based on budget estimates, according to the agency, which will increase the debt-to-GDP ratio to 9.8 per cent for 2015-16 — up from 7.1 per cent in 2014-15 — and peak at just under 15 per cent "in the outer two years of the fiscal plan."

"As was first noted by DBRS in 2013, continued worsening of the debt outlook to the point where the debt-to-GDP ratio could remain above 15 per cent for an extended period would put downward pressure on the ratings," read the agency's statement. 

"This could arise from a combination of factors, including oil prices remaining near their current level without any offsetting fiscal measures, difficulty in achieving slower expenditure growth, unforeseen economic shocks or a combination of any of the above. "

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