DBRS sounds alarm bells on Alberta borrowing says limits to be blown this year

EDMONTON -- An internationally recognized credit rating agency is sounding alarm bells on Alberta's debt situation. The Toronto-based agency DBRS, in a report issued Thursday, says with oil prices so low and the government's borrowing plans so high, Alberta will exceed its own self-imposed legislated debt limits this fiscal year.

EDMONTON — An internationally recognized credit rating agency is sounding alarm bells on Alberta’s debt situation.

The Toronto-based agency DBRS, in a report issued Thursday, says with oil prices so low and the government’s borrowing plans so high, Alberta will exceed its own self-imposed legislated debt limits this fiscal year.

The agency confirmed Alberta’s top-drawer triple-A credit rating, but said the future is grim.

“The negative trend reflects DBRS’s expectation that the continued weakness in oil prices will contribute to a material erosion in the province’s fiscal performance and accumulation of debt,” said the DBRS report.

“DBRS believes that the fiscal response is unlikely to be adequate to maintain credit metrics consistent with the AAA rating, in particular maintaining a DBRS-adjusted debt burden below 15 per cent of GDP,” it added.

“Debt is now expected to exceed 15 per cent of GDP as early as (fiscal) 2016-17.”

Alberta, under a law passed last year by Premier Rachel Notley’s NDP government, cannot borrow so much money that the total exceeds 15 per cent of its gross domestic product.

Finance Minister Joe Ceci has said that 15 per cent limit is critical to ensure that future generations of Albertans are not saddled with crippling debt payments.

But he has noted other provinces take on as much as 30 per cent.

Notley’s government, in its first budget last October, ramped up infrastructure spending to $34 billion over the next five years despite the low price of oil.

When that is coupled with interest charges and borrowing to pay for day-do-day operations, Alberta’s debt is expected to reach almost $48 billion by the end of the decade.

However those debt projections are based on benchmark oil averaging US$50 a barrel this year and US$61 a barrel in the upcoming fiscal year that starts April 1.

That benchmark, West Texas Intermediate, started the year under US$40 a barrel and is now under US$30 a barrel.

Each $1 drop in the average price of oil over the course of a year siphons $170 million out of the province’s bank account — although some of those losses are offset by a low Canadian dollar.

DBRS also downgraded the fiscal outlook for the province from stable to negative. Last week, the credit rater Moody’s Investors Service issued the same downgrade.

Last month, the agency Standard and Poor’s dropped its triple-A rating for Alberta down to double-A plus.

At that time, Standard and Poors rated Alberta’s financial management “very strong” but it’s budgeting performance “weak.”

A drop in rating reflects a loss of confidence in debt management and leads to higher borrowing costs.

This is the second time in less than two months that DBRS has weighed in on Alberta’s economy.

In its last report, issued on Nov. 30, 2015, DBRS affirmed Alberta’s triple-A rating and said the NDP budget plan was “manageable,” but warned that continued deterioration in oil prices “would be cause for concern.”

Ceci, in a statement, said the province is sticking with the long-term plan introduced in the October budget.

“Our government will work to find efficiencies, but we will not make reckless cuts that would simply make a bad situation worse,” said Ceci.

The NDP plans to continue to modestly hike spending in key areas like health and education in the upcoming years. Hiring restrictions are in place, but Ceci says he won’t engage in widespread cuts to front-line services.

The infrastructure spending is to help spur economic growth and create jobs while taking advantage of low interest rates to catch up on Alberta’s infrastructure deficit.

Notley’s team has also launched numerous programs and plans to diversify the economy.

Just Posted

Mayor Rick Bonnett. (Screenshot)
WATCH: Ponoka council calls on gov’t to support rural small businesses

Ponoka council is calling on the provincial government to increase funding to… Continue reading

Pumpjacks draw oil out of the ground near Olds, Alta., Thursday, July 16, 2020. A new report suggests the economic impact of the pandemic led to a massive increase in federal aid to Canada's oil patch. THE CANADIAN PRESS/Jeff McIntosh
Alberta economy ‘still reeling,’ says ATB Financial

Alberta’s economy is still feeling the impact of the COVID-19 pandemic and… Continue reading

Ella Stoner, five, is ready to cut off her hair and donate it to A Child’s Voice Foundation. (Photo by Lauren Stoner Photography)
Central Alberta girl to donate her ‘princess hair’ to A Child’s Voice Foundation

A five-year-old girl from Rimbey has never had a haircut before. Now,… Continue reading

Asymptomatic testing will now be available for "priority groups" who are most likely to spread the COVID-19 virus to vulnerable or at-risk populations. File photo by THE CANADIAN PRESS
Alberta adds 1,195 new COVID-19 cases Saturday

Red Deer has dropped to 760 active cases

Lacombe-Ponoka MLA Ron Orr
Central Alberta MLAs comment on UCP members kicked out of caucus

A pair of central Alberta MLAs have commented on the two United… Continue reading

New York Islanders' Kyle Palmieri (21) returns to the bench after scoring during the first period in Game 1 of an NHL hockey Stanley Cup first-round playoff series against the Pittsburgh Penguins in Pittsburgh, Sunday, May 16, 2021. (AP Photo/Gene J. Puskar)
Palmieri’s OT winner lifts Isles by Penguins 4-3 in Game 1

PITTSBURGH (AP) — The New York Islanders brought Kyle Palmieri home at… Continue reading

Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, speaks during a Senate Health, Education, Labor, and Pensions hearing to examine an update from Federal officials on efforts to combat COVID-19, Tuesday, May 11, 2021 on Capitol Hill in Washington. (Jim Lo Scalzo/Pool via AP)
Fauci says pandemic exposed ‘undeniable effects of racism’

ATLANTA (AP) — The immunologist who leads the COVID-19 response in the… Continue reading

Maj.-Gen. Dany Fortin, vice-president of logistics and operations at the Public Health Agency of Canada, participates in a news conference on the COVID-19 pandemic in Ottawa, on Friday, Jan. 15, 2021. THE CANADIAN PRESS/Justin Tang
Feds face growing calls for answers after general overseeing vaccine effort sidelined

OTTAWA — The federal Liberal government is facing growing calls for answers… Continue reading

Conservative MP Ron Liepert rises during Question Period on Parliament Hill, Friday, March 10, 2017 in Ottawa. Ron Liepert says these days, the phone calls and emails from people wanting to talk about his party's climate plan have slowed. THE CANADIAN PRESS/Justin Tang
Alberta MP pitches Conservative carbon price with a 24-pack of Pilsner

OTTAWA — Ron Liepert says these days, the phone calls and emails… Continue reading

A sign marks Stairs Place in the Hydrostone district in the North end of Halifax on Thursday, May 13, 2021. The street was named for William Grant Stairs, a Canadian explorer from Halifax who helped lead some of the most controversial expeditions through the African continent. THE CANADIAN PRESS/Andrew Vaughan
Where the streets have explorers’ names, some Halifax residents call for change

HALIFAX — When builders created Halifax’s distinctive Hydrostone neighbourhood more than a… Continue reading

Riley Oldford, 16, suffers from cerebral palsy. He was the first youth in the Northwest Territories to get a COVID-19 vaccine. Here he receives the needle from nurse practitioner Janie Neudorf in Yellowknife on Thursday May 6, 2021. THE CANADIAN PRESS/Bill Braden
People with disabilities even more alone during pandemic: cerebral palsy spokeswoman

YELLOWKNIFE — Riley Oldford is usually out playing sledge hockey or hanging… Continue reading

Poached trees that were taken recently on Vancouver Island in the Mount Prevost area near Cowichan, B.C. are shown on Sunday, May 10, 2021. Big trees, small trees, dead trees, softwoods and hardwoods have all become valuable targets of tree poachers in British Columbia as timber prices hit record levels. THE CANADIAN PRESS/Jen Osborne.
Tree poaching from public forests increasing in B.C. as lumber hits record prices

VICTORIA — Big trees, small trees, dead trees, softwoods and hardwoods have… Continue reading

Washington Capitals left wing Alex Ovechkin (8) comes in to celebrate with right wing Tom Wilson (43), right wing T.J. Oshie (77) and defenseman Justin Schultz (2), after Oshie's overtime goal in Game 1 of an NHL hockey Stanley Cup first-round playoff series against the Boston Bruins, Saturday, May 15, 2021, in Washington. The Capitals won 3-2. (AP Photo/Alex Brandon)
Nic Dowd scores in OT, Capitals beat Bruins 3-2 in Game 1

Capitals 3 Bruins 2 (OT) (Washington leads series 1-0) WASHINGTON (AP) —… Continue reading

Most Read