Alberta's debt tops $11.9B with annual debt service cost of 714M: report
Just a decade after Ralph Klein proclaimed Alberta debt free, the province has racked up debt at a pace that could affect its triple-A credit rating, Moody’s Investors Service says in its July report.
The report says Alberta’s debt burden could double this year from around 30 per cent of revenues to 60 per cent if the province continues to invest heavily in infrastructure.
Assistant vice-president analyst Kathrin Heitmann said Moody’s will be closely watching how much the new government borrows and the increase in its debt burden.
“We currently expect the debt could even double up to 60 per cent over the next few years if they go ahead with infrastructure spending, and revenues remain low,” she said. “Of course, that’s something we’ll evaluate … once the budget is released and implemented.”
The report — which compares the ability of Alberta and Alaska to cope with low oil prices — says an increase in Alberta’s debt to above 50 per cent to 60 per cent of revenue, combined with a long-term erosion of its liquidity assets, would put “negative pressure” on Alberta’s credit profile.
“The absence of a credible plan to restore fiscal balance in the next few years, rebuild reserve funds and contain debt accumulation could erode the credit profiles of both entities,” the report says.
Moody’s says Alberta has the edge over Alaska in riding out the collapse in oil prices because of its larger economy and lower reliance on oil revenues. Alaska has no income tax or sales tax.
“A failure by Alberta to contain debt growth and protect its long-term investment fund — the Heritage Fund — would erode its slender advantage,” says the report.
Alberta’s debt climbed by more than $3 billion in 2014-15 — to $11.9 billion from $8.7 billion — and that boosted annual debt service costs to $714 million from $590-million.
Finance Minister Joe Ceci said Friday that Alberta’s finances remain among the strongest in the country.
“I recognize there are challenges ahead and we need to closely watch our debt situation as we make future plans to invest in infrastructure,” he said. “We’ve committed to returning to balance in four years, 2018-19, and we’re going to live up to that commitment.”
He noted that unlike other provinces, Alberta doesn’t borrow to cover operating expenses.
Ceci said the NDP, which he noted was referred to erroneously as the National Democratic Party in the report, is following through on it campaign commitments to invest in Alberta’s priorities.
To do that in a way that makes Alberta stronger, his government has sought the advice of financial expert David Dodge, to assess the province’s capacity for infrastructure borrowing, he said.
“But I also look forward to hearing from Albertans in the weeks and months ahead about how best we should proceed with our fiscal plan that will be coming later in the fall,” Ceci said.
The finance minister said he plans to solicit the advice of Albertans on a road tour though several large and medium-sized communities this summer.
Advice he receives from Dodge, along with input from Albertans, will shape the capital borrowing plan the government will announce in the budget in the fall, Ceci said.
Over the past decade, Alberta’s debt servicing costs have nearly tripled. In 2005-06, the year after Klein claimed the province was debt free, Alberta was still paying $248 million to service its debt.
The province has always borrowed — using its triple-A credit rating — to provide loans through government agencies to municipalities and farmers. When that borrowing is included in the borrowing for infrastructure, Alberta’s debt last year tops out at nearly $36.6 billion.
Opposition critics warned that borrowing significant amounts at this time could be perilous.
“It’s too great a temptation for politicians to be able to borrow and not live with the political consequences of having to either raise taxes or cut spending,” said Wildrose finance critic Derek Fildebrandt. “It’s an easy way out that simply punts tough decisions down the road for future generations to make.”
He noted Alberta will soon be paying $1 billion a year in annual debt costs — “That’s $1 billion that will not pay for a single doctor or nurse or build a single bridge or road.”
PC Leader Ric McIver said his party’s plan, introduced in Jim Prentice’s March budget, set out new borrowing for infrastructure with a plan to pay it back in 10 years.
“That’s the important point for this government to remember: if you borrow money, it has to be paid back,” said McIver. “I haven’t seen anything from them that looks like a plan to pay it back.”
Liberal Leader David Swann also expressed concerns about borrowing.
“The Alberta Liberals have supported the use of debt as a means of tackling our massive infrastructure deficit,” he said in a statement. “However, this new government has a responsibility to outline its capital projects priorities list, and provide Albertans with a debt repayment plan so that we know how and when this borrowing will be paid off.”
Alberta Party Leader Greg Clark also complained about the lack of a payback plan.
“Spending this money without a plan leaves the question of whether we’re getting good value for the dollars we spend,” he said.
Alberta’s debt tops $11.9B with annual debt service cost of 714M: report | Calgary Herald