Alberta budget 'a pipeline dream,' credit-rating agency says

Credit-rating agencies DBRS Limited and Moody's Investors Service don't like what they see in Alberta's 2018 budget.

DBRS Limited and Moody's both concerned over province's debt burden

Alberta Finance Minister Joe Ceci delivers the budget in Edmonton on Thursday. (Jason Franson/The Canadian Press)

The Alberta government's plan to balance its books by 2023-24 is only a "pipeline dream," credit-rating agency DBRS Limited said Friday.

"The 2018 budget marks Alberta's first step in articulating a path back to balance by 2023–24 and is a yard stick with which future progress can be measured," Toronto-based DBRS Limited said in a news release.

"However, instead of outlining concrete and meaningful measures to tackle the structural deficit, the Province will continue relying on a sustained economic recovery, rising oil prices and additional pipeline capacity to drive the improvement in the bottom line."

Last November, the agency downgraded the province's long-term debt from AA (high) to AA with a negative outlook, which still holds after Thursday's budget.

The five-year plan unveiled by Finance Minister Joe Ceci will see Alberta's accumulated debt climbing from $54 billion in the coming year to $96 billion by 2023. The plan rests on the assumption the controversial Trans Mountain pipeline expansion from Edmonton to Burnaby will get built, even though it faces opposition in B.C.

DBRS and Moody's Investors Service both issued opinions on the budget Friday.

Toronto-based Moody's said the province's debt burden will continue to rise "as debt is needed to finance both fiscal deficits and capital expenditures, a credit negative."

Moody's said Alberta's forecasted average annual prices for West Texas Intermediate crude oil — $59 US per barrel for the coming fiscal year rising to an average $63 US. in 2020-21 — are in line with its own estimates.

"Nevertheless, Moody's notes that should prices not materialize, the budget forecasts are at risk."

DBRS said it recognizes the difficulty of accurately forecasting Alberta's fiscal outlook beyond a few years, partly because of the inherent volatility in commodity prices.

The 'budget is concerning'

"As a result, this budget is concerning in that little effort is being made to address the budget deficit in the near term," the company's analysts said.

"Much of the improvement comes in the outer years of the forecast and depends greatly on rising resource royalties and increased oil export capacity. Moreover, budget contingencies are absent after 2020–21, which further reduces flexibility within the fiscal plan to absorb shocks without affecting the bottom line."

The agency said it sees "no willingness" on the government's part to raise taxes, despite "ample capacity."

The government's spending plan is "ambitious" and highly dependent on containing growth in public-sector pay, but scaling back on capital spending will help to contain debt growth, DBRS said.