Sluggish oil prices continue to plague Alberta’s bottom line: finance minister
The province has built up a huge deficit as oil prices struggle below $50 per barrel. The government is looking to cut costs to adjust to the new normal
EDMONTON—Sluggish oil prices are forcing Alberta to dip into its reserve fund and look for more in-house savings to keep its $10.5-billion deficit from sliding further into the red.
In his first-quarter fiscal update, Finance Minister Joe Ceci said the province had expected the West Texas Intermediate benchmark oil price to average out at US$55 a barrel this year.
Instead, it’s hovering below US$49 a barrel and isn’t expected to rise much in the near term.
“The forecast (at budget) in March was based on the best private sector forecasts available. The same is true of the updated forecast,” Ceci said Wednesday. “What it speaks to is a tremendous volatility in world oil markets.”
The province had hoped to bring in $2.5 billion in oilsands royalties this year, but now expects to take in $563 million less.
Ceci said the government will use half of its $500-million contingency fund to keep this year’s deficit from growing.
It also aims to double the amount of money spent on department operations to $400 million from $200 million. The government will continue to consolidate services, streamline IT, reduce travel and maintain hiring restraints while avoiding civil service layoffs.
About $120 million has already been found, he said.
“It’s an ongoing exercise and I know my colleagues in different ministries are up for it.”
Ric McIver, the United Conservative Party finance critic, said taxpayers deserve more details on the savings.
“The minister gave himself a pat on the back for doubling the in-year savings projections, but can’t tell us where these savings are coming from, or why he’s so confident in his double projection,” said McIver.
“One could at least wonder whether the second $200 million wasn’t concocted to make today’s media conference go better for the minister.”
Ceci noted there are bright signs on the horizon. The province expects the economy to grow by 3.1 per cent in 2017, up from the March budget forecast of 2.6 per cent. Employment is also expected to rise by 1.3 per cent, higher than the 0.9 per cent forecast in the budget.
Alberta has been struggling for years with a prolonged trough in oil prices, draining billions of dollars from its bottom line and throwing thousands of people out of work.
Despite the downturn, Premier Rachel Notley’s government has committed to ramped up capital spending and to stay away from deep cuts to operational spending. Notley has said it’s the best approach to catch up on infrastructure and to help keep the economy going in tough times.
“For the time being, we’re going to keep delivering the programs and services Albertans rely on, and for the time being we’re going to keep up the pressure on finding … savings because those are some of the things we can control,” Ceci said Wednesday.
The province has been hit with multiple credit warnings and downgrades in the last two years. The accumulated debt by year’s end is forecast to be $43.3 billion and debt servicing costs will rise slightly to $1.4 billion.
Opposition politicians have said the government needs to do a better job reining in spending to avoid saddling future generations with debilitating debt-interest payments.
“The NDP’s record level of borrowing and debt is seriously concerning, especially without a credible plan to pay it back,” said Liberal Leader David Khan.
“We need to concentrate on controlling operational costs and focus on smart investments in infrastructure instead of borrowing to keep the lights on.”
Alberta Party Leader Greg Clark said the NDP doesn’t have a plan to keep spending in check.
“This government is continuing to cross their fingers and hope the price of oil goes up,” he said. “Hope is not a strategy.”