November 24, 2020 | 18:42
Alberta FY20/21 Fiscal Update (Mid-year)
The Province of Alberta is projecting a $21.3 billion deficit for FY20/21 (7.1% of GDP), or $2.8 billion smaller than expected in the Q1 (August) update. After Ontario and Quebec posted updates that held the line on their deficit projections, this modest improvement adds to the evidence that forecasted provincial budget shortfalls might have seen their worst.
Alberta's revenues are still expected to plunge by more than 10% from last fiscal year, but they were revised up by more than 7% from just a few months ago. The upward revision was broad based across revenue categories, not just a jump in resource revenues on the back of higher oil prices. In fact, the WTI assumption remains modest at $36.40 (revised up by less than $1), while the Canadian dollar assumption was raised (which eats into revenues). The biggest gain comes from a $1.4 billion upward revision to federal transfer revenues, mainly from the Safe Restart Agreement--all provinces will book this benefit as updates continue to roll out.
The economy is also tracking slightly less bad than feared, with real GDP expected to contract 8.1% this year before rebounding 4.4% in 2021. It was assumed in the prior update that the economy would contract 8.8%, and the forecast continues to build in a below-consensus assumption on this front for added prudence. Note that Alberta is also ramping up COVID-related restrictions today, including an extended elementary-school break and capacity restrictions on dining in major centres.
Total spending is pegged at $62.7 billion, a very modest upward revision from the prior update, while the capital plan is little changed. There's a $750 million contingency built into the spending figure.
Total borrowing requirements will continue to run at just over $28 billion this fiscal year, with almost 80% of the program completed to date.
The Province is also publishing an estimate of how the deficit might progress beyond FY20/21. The shortfall is expected (more of a target at this point) to narrow to $15.5 billion in FY21/22, and then $9.9 billion by FY22/23 with $55 WTI. The latter would be just under 3% of GDP. This pace of reduction is within consistent with the range set by other provinces so far.
The Bottom Line: Alberta's deficit figure is still massive, but it's looking like we've seen the worst. And, the latter theme will likely permeate across most of the provinces as updates continue to roll out. We're also starting to see a consistent theme on the pace of future deficit reduction. That is, it will be slow...