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Alberta Govt says economy up, budget deficit down but DBRS downgrades credit anyway

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Alberta Premier Rachel Notley, left, riding in the Calgary Stampede parade with Finance government Minister Joe Ceci. Photo: Rachel Notley/Facebook

Province extending salary freeze 18 months for management, non-union employees

The Alberta government now forecasts the economy will grow by four per cent in 2017, up from the 2.6 per cent forecast at budget and 3.1 per cent at first quarter, according to an Alberta government press release. But credit agency DBRS announced Wednesday that it’s downgrading the province’s credit rating to AA from AA (high) and has maintained the Negative trend.

DBRS says the downgrade reflects large operating deficits and rapid debt accumulation.

“DBRS has maintained the Negative trend because the Province has yet to demonstrate any real willingness to address the weakest budget outlook among all provinces, despite high levels of per capita spending and the lowest tax burden in the country,” the agency said in a note.

“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.”

Alberta Finance Minister Joe Ceci says the NDP plans to stay the course with its fiscal plan.

“Alberta’s credit rating remains among the highest in the country and our balance sheet is the strongest among provinces, with the lowest debt-to-GDP ratio,” he said in a statement.

DBRS says the government’s expense measure are insufficient to meaningfully address the fiscal imbalance.

“The Minister of Finance reiterated his commitment to protect frontline services and fund volume pressures in health and education, while signalling that modest expense measures are to be implemented, including hiring restraint, achieving affordable labour agreements and other efficiencies,” the agency said.

DBRS says it could revise the trend to “Stable” if Alberta introduces a “credible plan” that stabilizes the debt-to-GDP ratio around current levels: “While a further rating action is not anticipated in the near term given that there is some flexibility within the current rating category, Alberta’s fiscal outlook remains the weakest among all provinces and risks remain tilted to the downside.”

According to independent forecasters, Alberta is on pace to lead all provinces in economic growth in 2017, with recovery in nearly every sector. The Conference Board of Canada says that Alberta will have 6.7 per cent growth this year.

Among economic highlights, Alberta has added more than 70,000 full-time jobs since mid-2016, mostly in the private sector.

The number of drilling rigs has doubled over 2016 levels for much of the year and retail sales have recovered to pre-recession levels, the government claims.

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“For the second time this year, we are upgrading our economic growth projections for 2017. With the recession behind us, Alberta’s economy has returned to growth,” said Joe Ceci, president of Treasury Board and minister of finance.

“As we look ahead to Budget 2018, I look forward to hearing Albertans’ thoughts on how we can continue to make life better for Albertans while compassionately tightening our belt and returning responsibly and carefully to balance without extreme and risky cuts.”

Government has achieved $300 million towards its goal of $400 million of savings in 2017-18 from administrative efficiencies such as managing vacancies and discretionary costs, program demand adjustments and one-time savings around capital grants, according to Ceci.

The province is also extending a salary freeze, which began in early 2016, for management and non-union employees for an additional 18 months to Sept. 30, 2019.

The Alberta Public Service will also be frozen in size by strengthening the hiring restraint.

As a result of cost controls and using half of the risk adjustment, government is reducing this year’s deficit and addressing cost pressures, says the press release.

The 2017-18 deficit is forecast to be $10.3 billion, $183 million less than forecast at Budget 2017. Total expense is forecast at $54.7 billion, $180 million lower than budget.

The government is maintaining the forecast West Texas Intermediate (WTI) price at US$49/bbl, the same as at first quarter.

Fiscal year-to-date prices (Nov. 24) have averaged US$49.42. Government is maintaining the risk adjustment at $250 million as a prudent measure against any oil price volatility.

For the next two months, government will consult Albertans on Budget 2018 and the path to a balanced budget.

Albertans will be asked for their priorities for controlling costs and to identify services and programs that should be protected by completing a survey online at budget.alberta.ca or by participating in two telephone town halls in late Jan.

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Posted in: Jude on Alberta

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