- Province has first S&P cut since 1992; was AAA since 2002
- Debt burden seen staying moderate despite 2016-2018 increases
Alberta lost its top credit rating at Standard & Poor’s after plunging oil and natural gas prices eroded government revenue and pushed the Canadian province into recession.
S&P lowered Alberta’s long-term rating to AA+ from AAA, the province’s first downgrade by the rating company since 1992. Alberta has held the top rating since 2002, according to data compiled by Bloomberg.
“The downgrade reflects our assessment of Alberta’s now-average economic prospects resulting from low oil prices; projected weak budgetary performances in the next two years; and moderate, but rapidly rising, tax-supported debt burden,” S&P said in a statement Friday.
The lowered rating is the latest blow to a provincial government that has grappled with a persistent oil price slump since taking power in May. Premier Rachel Notley’s New Democratic Party has raised corporate and personal income taxes and pledged to take on more debt to help offset declining revenue from the energy industry and pay for investments in schools, hospitals and transportation projects. In October, the government predicted the budget deficit would reach a record C$6.1 billion ($4.1 billion) this fiscal year.
The rating action wasn’t unexpected and will have little impact on the government’s cost of borrowing because bondholders have already factored in lower oil prices, Alberta Finance Minister Joe Ceci told reporters on a conference call.
“The markets have already reacted to this reality,” Ceci said. “The steep drop in the price of oil is hitting Alberta hard, including our provincial finances.”
U.S. crude futures slid to the lowest level in more than six years Friday, closing at $34.73 a barrel on the New York Mercantile Exchange. It was the lowest settlement since February 2009.
British Columbia and Saskatchewan are the only remaining provinces with AAA ratings at S&P.