Provincial Updates

November 30, 2023 | 16:45

Alberta FY23/24 Mid-Year Fiscal Update

Economist

Robert Kavcic

Senior Economist and Director
Economics

Robert has been with BMO Capital Markets since 2006. He plays a key role... (Read more)

Robert Kavcic

Senior Economist and Director
Economics

Robert has been with BMO Capital Markets since 2006. He plays a key role... (Read more)

The Province of Alberta is looking at a larger FY23/24 budget surplus, now pegged at $5.5 billion (just over 1% of GDP) compared to $2.4 billion estimated in the Q1 update and 2023 budget. While this year's surplus is down from the massive $11.6 billion windfall last fiscal year, the province continues to run the budget in the black.

The medium-term projection is also updated in this document, but there is only modest improvement to the forecast of small surpluses through FY25/26 as both revenues and spending track higher.

There are no major new policy announcements in this update.

Revenues are now tracking a hefty $3.7 billion higher than the budget plan. Strength was fairly widespread, with bitumen royalties running $1.8 billion higher, while personal (+$945 million) and corporate (+$889 million) income tax receipts were also revised up.

This update is based on an unchanged assumption of $79 for WTI; $17 for the light-heavy differential (down from $19.50); and $74.1 US cents for the loonie (down from 76.2 US cents). While WTI has held as expected, a tighter differential and weaker currency is a favourable combination for the province. More broadly, the detachment of the loonie from oil prices (i.e., a weak currency relative to oil) has been a significant revenue tailwind. At the same time, Alberta's royalty structure gets more favourable for the province as more oilsands projects reach ‘payout’ status.

Economic assumptions have been only tweaked, with real GDP growth pegged at 2.8% this year (unchanged from the budget) and 2.6% in 2024. Nominal growth is on track to decline 2.3% before rebounding 3.9% next year. These are pretty solid growth numbers considering the stagnation we're seeing in national growth. And, while our current outlook for Alberta's real GDP growth in 2023 and 2024 (1.6% and 1.1%) is weaker than the province assumes, we remain steadfast in our view that Alberta will top the provincial growth ranking in both years.

Meantime, spending is now running $481 million above the budget plan for FY23/24. Debt service costs are drifting higher (up $309 million), and the province drew down almost all of the $1.5 billion spending contingency to address support for wildfires and drought conditions.

Alberta didn't officially update the borrowing program in this release, but net debt continues to track a lower path. The net debt-to-GDP ratio is now just 9.1% for FY23/24, the lowest in Canada by a wide margin and a full percentage point lower than expected in the 2023 budget.

All told, Alberta continues to hold onto a solid fiscal position with some further incremental improvements in this update. On a relative basis, the gap between Alberta and some of its peers (not to name names, but see British Columbia) seems to be widening. That said, it always comes back to oil; while assumptions for this year and, more importantly, next year ($76) are perfectly reasonable, the market can move quickly. Today's post-OPEC selloff, although modest, is a reminder.