The impact of oil prices is starting to show up in provincial budgets, with the oil-producing provinces facing fiscal challenges and oil consuming regions heading toward budgetary health, says Moody’s Investors Service in a report published on Monday.
The latest round of provincial budgets reveals the “diverging credit challenges” facing the provinces, the report says. “While the majority of non-oil producing provinces continue to move towards balanced budgets, the oil-producing provinces – notably Alberta andNewfoundland and Labrador — face significant fiscalheadwinds,” it adds.
For example oil royalties are expected to come in at just $989 million for Alberta in 2015-2016, down from $7.3 billion in 2014-2015, according to the report. As well, Newfoundland is expected to see only $485 million in oil royalties, down from $1.6 billion. “This loss of revenue, combined with the inability to lower spending quickly enough, has led to expected deficits for both provinces,” the report says.
In other regions, the weakness of the Canadian dollar is boosting tourism and exports; and, a strengthening U.S. economy, is having a greater impact, the report notes . As a result, British Columbia, Québec, and Nova Scotia are forecasting balanced budgets in 2016-2017. Ontario, Saskatchewan, and Prince Edward Island are forecast to return to balance too in 2017-2018.
“Although the budgets for many provinces show a declining debt burden,absolute debt levels will remain elevated and could continue to grow asimportant capital infrastructure spending is financed using debt,” the report says. “Some provinces are also planning on reducing their respective tax burdens,which were increased in recent years, which will put downward pressureon revenue growth.”
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