The government of Alberta said Wednesday that the provincial deficit will be $2.2 billion wider than predicted in its latest budget, largely due to the lingering effects of the global recession.

The deficit for 2009-2010 is forecast at $6.9 billion, more than $2 billion higher than forecast due mainly to weaker-than-forecast natural gas prices, a higher Canadian dollar and other declining revenue.

“Global economic turmoil is deeper and more sustained and natural gas prices remain far lower than originally forecast, and the result is a higher deficit than we predicted,” said Finance and Enterprise Minister, Iris Evans.

In the budget, the government committed to finding $215 million in cost savings this year. Now, due to the larger deficit, it has doubled that target to $430 million. As part of its cost savings plans, government has instituted a hiring freeze and is cutting discretionary and low-priority spending, it said.

It will also draw on the province’s $17 billion Sustainability Fund to offset the higher-than-expected deficit. The fund was created to protect the government’s program and infrastructure spending plans from unexpected drops in revenue and from the costs of emergencies and disasters.

“It will take time for our fiscal situation to recover,” Evans said. “But with savings to draw upon, and one of the most tax-competitive regimes in North America, Alberta remains in a better position than other jurisdictions through this period of global economic weakness.”

Revenue in the year is forecast to be $29.6 billion, a $2.1 billion decrease from budget, primarily due to lower royalties from natural gas and a $532 million drop in personal income taxes. Expenses are forecast to be $72 million higher than budget, due mainly to increased disaster and emergency funding for fighting forest fires, municipal wildfire assistance and combating mountain pine beetles; and to higher capital grants, partially offset by federal transfers.

Alberta’s economy is expected to contract 2.5% in 2009, the government said. This is weaker than the 2% forecast in the budget, due mainly to significantly weaker housing starts and consumer spending in the first half of the year. The economic recovery is expected to be stronger in 2010, with anticipated growth of 2.2%, compared to the budget forecast of 1.8%.

Economists at BMO Capital Markets note that Alberta’s economy remains under pressure. “While oil prices have rebounded, natural gas prices continue to slide, leaving drilling activity at decade-low levels. The unemployment rate topped 7% in July for the first time since 1996, while retail sales, manufacturing sales and housing starts are still down sharply from year ago levels. Still, Alberta is poised for a slightly better-than-average rebound in 2010.”

IE