Wednesday, August 5, 2020

Fitch Downgrades Alberta Credit Rating

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FILE PHOTO: The offices of the Fitch Ratings building appear empty in Canary Wharf, after the outbreak of coronavirus disease (COVID-19), London, Great Britain, May 27, 2020. REUTERS / Dylan Martinez / File Photo

Dylan Martinez / Reuters

Alberta’s credit rating was down Tuesday, hours after the province released a multi-billion dollar economic stimulus package to try to get out of the economic wreckage caused by the COVID-19 pandemic and the collapse of world oil prices.

Fitch Ratings downgraded Alberta to double A minus double A, citing higher provincial borrowing during the economic crisis caused by the pandemic and a debt-to-GDP burden that is “incompatible” with a double A rating .

The New York-based agency also pointed to the government’s lack of detail on the extent of the damage to Alberta’s bottom line, and the fact that the province has no planned path to economic recovery.

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Tuesday’s downgrade is the third for Alberta since December, when Moody’s Investors Service changed the province’s rating to Aa2 from Aa1, citing continued weakness in the provincial economy and its dependence on non-renewable resources . In March, DBRS Morningstar demoted Alberta to double A (weak) from double A.

Last week, Fitch also downgraded Canada’s credit rating from double A-plus to triple A. The agency said the move had no impact on Alberta’s credit rating. , but recognized that factors affecting the credit quality of Canada – including a significant increase in the forecast federal debt – could also affect the credit quality of each province.

Alberta Finance Minister Travis Toews said in a statement Tuesday that his government “remains committed to the responsible management” of provincial finances and will release an economic and fiscal update in August.

He said the province’s stimulus package, released on Monday, will put Alberta on the path to a “sustainable and accelerated” economic recovery.

Fitch said he was considering this plan in his rating, but the package did not contain any details on how the strategy would affect income, spending and debt. In addition, the report said, “more political responses will be needed as the province goes through the recession.”

Franco Terrazzano, Director of the Canadian Taxpayers Federation of Alberta, said that the demotion sends a clear signal that the united Conservative government must “redefine the priorities of its debt and its spending problem”.

“Albertans are already losing billions of dollars in interest payments each year, and credit cuts can increase the interest costs Albertans have to pay when politicians borrow, so it’s very important to government to control your finances before the situation. getting worse, “he told The Globe and Mail.

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He said he was also concerned about how Albertans would foot the bill for an economic stimulus strategy that would include “increased spending on infrastructure and spending on corporate well-being that will only increase the debt ”.

Like other recent Alberta credit downgrades, Fitch noted that the province’s continued dependence on volatile natural resource revenues was a concern. The agency also feared that budgetary risks would not be sufficiently taken into account by political actions before 2025.

Fitch said the provincial government’s goal of balancing spending will be “difficult” given the high demand for services and the magnitude of the current downturn.

Provincial debt sustainability has been cut from a single A to double A, citing increased borrowing after the deep oil recession in 2015 and 2016. Fitch predicts provincial debt will increase to $ 133 billion d ” in fiscal year 2025 due to a deficit in 2021, the equity contribution of $ 1.5 billion to finance the construction of the Keystone XL pipeline and the pursuit of annual deficits.

In a silver environment, Fitch expects the Alberta economy to develop, starting in 2022, after rising incomes from non-renewable resources.

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