Alberta Increases Borrowing as Budget Deficit Soars on Wildfires

  • Shortfall for fiscal 2016-2017 estimated at C$10.9 billion
  • Borrowing requirements are expected to jump to C$15.8 billion

Alberta will increase its borrowing to C$15.8 billion ($12 billion) this year to finance a record budget deficit sparked by a plunge in oil prices and costs from wildfires that swept through the province in May.

Alberta plans to borrow C$1.7 billion more than originally forecast in April to cover the deficit and other cash adjustments, according to Warren Lovely, managing director and head of public sector research and strategy at National Bank Financial in Toronto. The province has already done about C$6.5 billion of its borrowing for the year and plans to do more than 30 percent of its bond sales in international markets, he said in a note Tuesday.

Canada’s major oil-producing province is expected to see its 2016-2017 deficit widen to C$10.9 billion, or C$500 million more than its budget forecast. The gap will be equal to 3.5 percent of gross domestic product, according to a fiscal update released by the provincial government in Edmonton Tuesday.

Alberta Finance Minister Joe Ceci expects the economy to contract 2.7 percent in 2016, almost double the 1.4 percent drop forecast in the April budget. He predicts a 2.4 percent expansion next year.

The wildfires that devastated Alberta in May took out 1 million barrels per day of crude production and forced about 88,000 people to flee their homes in Fort McMurray. The damage will cost insurers about C$3.58 billion in claims, the most costly insured natural disaster in Canada’s history, according to the Insurance Bureau of Canada.

Alberta bonds have returned 5.6 percent this year, trailing the 6 percent gain for the Bank of America Merrill Lynch Canadian Provincial & Municipal Index. The average spread, or relative yield, on an Alberta government bond is 86 basis points over federal government benchmarks. That’s wider than the index average of 78 basis points for the provincial bond index.

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