Premier Jason Kenney. (Government of Alberta)

By David Opinko

S&P downgrades Alberta’s credit rating to “A”

May 18, 2021 | 2:18 PM

LETHBRIDGE, AB – The province’s credit rating is taking a hit.

Bond-rating agency S&P Global says the “fiscal shock” from the COVID-19 pandemic has further worsened Alberta’s finances, which has still not yet recovered from the slump in oil prices that began in 2014.

“Reflecting the province’s large after-capital deficits, which will average more than 25% of total revenues during fiscal 2020-2024, we have lowered Alberta’s stand-alone credit profile (SACP) by one notch. Accordingly, we are lowering our long-term issuer credit and senior unsecured debt ratings on the Province of Alberta to ‘A’ from ‘A+’ and affirming our short-term rating at ‘A-1’.”

According to S&P, Alberta entered the pandemic already in a state of “relative fiscal weakness.”

They say the government’s operating and after-capital deficits are the largest of any local or regional government in the country this fiscal year and last.

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In light of this, the Canadian Taxpayer’s Federation (CTF) is calling on the province to cut spending.

“The downgrade is a clear signal that it’s time for Premier Jason Kenney to take the province’s debt problem serious and find savings,” says CTF Alberta Director Franco Terrazzano. “The Blue Ribbon Panel made it clear that Alberta has a huge spending problem, but so far we’ve seen a lack of effort from this government to find savings.”

Terrazzano notes that credit downgrades often push up interest rates when governments borrow money.

Budget 2021 projects the Alberta government’s deficit will reach $116 billion in the current fiscal year with interest payments costing $2.8 billion.

READ MORE: 2021 Alberta budget revealed with “record” health spending, no new taxes

“It was important for the government to find savings before COVID-19, and it’s even more important now that the government’s debt has passed the $100-billion mark,” said Terrazzano. “The credit agency singles out the big deficit and that’s a problem this government needs to take very seriously.”

S&P adds that the government did not establish a timeline for when they hope to balance the books, although they plan to do so after the effects of the pandemic have passed.

Looking ahead, however, it is not all bad news.

Alberta’s real GDP contracted by 5.4 per cent in 2020 but is set to rebound by 2021.

“We expect the economy will reach pre-pandemic levels by the end of this year when the national unemployment rate should be 7.6%,” predicts S&P.

For May 2021, 9.1 per cent of Albertans were unemployed, including 8.7 per cent of the potential workforce in the Lethbridge-Medicine Hat region.

READ MORE: Lethbridge-Medicine Hat unemployment at 8.7 per cent in April, down from 9.5 in March

Oil prices have rebounded in recent months with S&P forecasting West Texas Intermediate being around $55/barrel US for the remainder of 2021 and 2022. This should boost recourse revenues by about 45 per cent.