As British Columbia’s economic rating continues to slide off the deep end, Alberta’s takes a step in the other direction.
Alberta’s long-term credit rating has been upgraded from AA- to AA. The inverse occurred in British Columbia, where the province’s credit rating was downgraded from AA to AA- in April, marking the third time that S&P Global Ratings downgraded B.C.’s provincial credit rating.
The upgrade by Fitch Rating to Alberta’s long-term credit rating was similar to upgrades last year by Moody’s Investor Service, DBRS Morningstar, and S&P Global.
“This upgrade confirms that Alberta is on the right path, as one of only two Canadian provinces to balance their budget this year. Our economy is growing rapidly across a variety of sectors, and with new added pipeline capacity, we will only see that continue,” said Alberta’s Finance Minister Nate Horner in a press release.
Alberta’s most recent budget showed the province with a $367 million surplus. Conversely, British Columbia posted a record-setting $7.9 billion deficit. Alberta’s other provincial neighbour, Saskatchewan, had a deficit of $273 million.
While British Columbia is at risk of its credit rating falling further if it continues on its current fiscal trajectory, Fitch Rating’s outlook for Alberta is considered “stable.”
Alberta committed to growing the Alberta Heritage Savings Trust Fund to between $250 billion and $400 billion by 2050, ensuring that the province remains prosperous for future decades.
The Canadian Taxpayers Federation applauded Alberta for its fiscal discipline, resulting in a credit rating increase.
“Alberta is one of the only provinces in Canada with a balanced budget, and it shows with this credit upgrade,” said Kris Sims, Alberta Director of the Canadian Taxpayers Federation. “Paying down the debt, restraining spending, and saving for the future were very good moves by this government.”
Sims added that a province’s credit rating is important because it affects how expensive it is to pay down debt. Alberta expects to pay $3.2 billion in 2023-24 and $3.4 billion in 2024-25 in debt servicing costs, paying down interest.
Fitch Ratings upgraded Alberta’s long-term foreign and local currency issuer default ratings and the long-term ratings on senior unsecured bonds from AA- to AA. Fitch Ratings also affirmed Alberta’s short-term issuer default rating as F1+.
“The rapid decline in debt and adherence to spending restraint in recent budgets have been complement (sic) with last year’s introduction of a fiscal framework requiring balanced budgets, annual contingencies, and using surpluses for debt repayment, savings or one-time investment, is likely to bolster future-resilience, despite Alberta’s continuing vulnerability to oil price shocks and budgetary cyclicality,” said Fitch Ratings in the report.
Fitch Ratings applauded Alberta for using its economic rebound to accelerate fiscal improvements and lower debt to $57.5 billion in 2024 from $74.6 billion in 2022.
For the key rating drivers affecting Alberta’s credit rating, the province received above-average scores in most categories.
For example, Alberta’s score in expenditure adjustability was “stronger” thanks to a goal of lowering per-capita spending to the average of large Canadian provinces, emphasized by a fiscal framework that limits spending growth to population plus inflation.
Fitch Ratings suggested in its report that the province’s budgetary measures will likely bolster future resilience despite Alberta’s vulnerability to oil price shocks and budgetary cyclicality.
As Alberta’s fiscal discipline earns accolades, B.C. faces mounting pressure to address its financial woes and restore its credit rating.
