Alberta’s Plan to Balance Its Books Is Running Ahead of Schedule

(Bloomberg) -- Alberta’s efforts to balance its books are running ahead of schedule, with the budget deficit in the current fiscal year projected to be 14% lower than the government forecast in October.

The deficit in the fiscal year ending in March will be C$7.5 billion ($5.6 billion), down from an estimate of C$8.7 billion the government provided last year. While that’s wider than the previous fiscal year’s shortfall, the province expects the gap to narrow in the year that runs through March 2021, to C$6.8 billion, according to a budget release Thursday.

The budget shows Premier Jason Kenney, a conservative who ousted the center-left government in April, is on track to keep a campaign promise of balancing the budget within his first term despite headwinds facing the oil-dependent province. The government on Thursday projected that it will run a C$700 million surplus by the 2022-2023 fiscal year.

“Getting to a balanced budget will provide a solid fiscal foundation from which Albertans can confidently face the future and seize its opportunities,” Finance Minister Travis Toews said in a prepared version of his budget address. “A balanced budget means that millions – and then billions – of dollars in interest payments to bankers and bondholders can be diverted to the services Albertans need.”

The government projected that the lower-than-expected deficit in the current fiscal year will save C$35 million in debt-servicing costs.

The narrower-than-projected deficit is due largely to a 36% increase in investment income over last year’s projections, which would bring the total from that source of revenue to C$3.53 billion. Revenue from bitumen royalties is expected to be little changed from the government’s forecasts last year, while revenue from other natural resources will rise 6.4% from last year’s projections, to C$1.96 billion.

Revenue may take a hit in the budget year that ends in March 2021. The government is projecting a 32% drop in bitumen royalty revenue to C$3.2 billion. That figure assumes West Texas Intermediate prices of $58 a barrel and Western Canadian Select traded at Hardisty, Alberta, of C$51.20. Raw bitumen production may increase 4.5% to 3.25 million barrels a day, while conventional oil output will be little changed at 488,000 barrels a day.

Those projections would require oil prices to rebound substantially from current levels. Fears that the coronavirus will reduce economic activity sent WTI prices below $47 a barrel on Thursday. While Toews expressed confidence in those forecasts on Thursday, saying they were “credible, but cautious,” he noted that they were finalized a few weeks ago, when concerns about the coronavirus weren’t as widespread.

“Ultimately, we can’t predict where the coronavirus and the economic effects will end,” Toews said during a news conference. The province will focus on managing the variables it can control, he said.

Partly making up for the drop in resource revenue is a projected increase in income and other taxes, which the province expects will rise 4.9% to C$22.9 billion. Total revenue is projected to slip 1.9% to about C$50 billion. Total expenses in the 2020-2021 budget year will drop 2.9% to C$56.8 billion, driven by reductions in operating costs.

The province is projecting real gross domestic product growth of 2.5% in the next fiscal year, accelerating from a 0.3% increase in the current budget year, driven by population growth and increased oil production.

Other highlights from the 2020-2021 budget:

• Total borrowing requirements of C$15.8 billion
• Debt-servicing costs of C$2.51 billion
• Total debt increasing 11% to C$95.6 billion
• A net-financial-debt-to-nominal-GDP ratio of 12.1%

To contact the reporter on this story: Kevin Orland in Calgary at korland@bloomberg.net

To contact the editors responsible for this story: Derek Decloet at ddecloet@bloomberg.net, Carlos Caminada

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