Another day, another Alberta credit downgrade
On Wednesday, ratings agency DBRS downgraded the Government of Alberta’s credit rating from AA (high) to AA, maintaining a negative outlook for the provincial government’s finances.
It seems that the Notley government’s slightly revised $10.3 billion deficit projection (down from $10.5 billion) for this fiscal year unveiled in the Second Quarter Fiscal Update the day before didn’t impress the ratings agency
If this story sounds familiar, it is. Alberta has suffered a number of credit downgrades over the past few years. And the statement from DBRS was essentially the same as the previous warnings:
“DBRS is concerned that the plan to return to balance relies on a recovery in resource revenues, rather than fundamental adjustments to the budget. As a result, debt will continue to rise and there is no clarity as to when the credit profile will stabilize.”
In other words, there’s no concrete credible plan to balance the budget other than waiting and hoping for another energy boom. While it’s possible that will happen under the Notley government’s watch, it’s at least as likely that it won’t. And even if it did, it’s important to remember that the government has been running nearly uninterrupted deficits since 2008/09—even through the height of the oil boom.
It’s no wonder the ratings agencies are worried.
Of course, Finance Minister Joe Ceci has repeatedly pledged to balance the budget by 2023/24—15 years after the run of deficits started—but that will require concrete fiscal actions, which have yet to begin.
The longer the finance minister waits to reduce and reform spending, the more difficult it will be. Delaying the tough choices is a risky strategy, especially given that there’s always a chance of another painful economic shock between now and then. Minister Ceci’s recently expressed hope to avoid salary increases for public servants in upcoming collective bargaining agreements is a start. But more urgency is required if he’s serious about meeting his own timeline for balancing the budget.