(Adds Alberta government comment)
CALGARY, Alberta May 26 Ratings agency Standard
& Poor's downgraded the Canadian crude-producing province of
Alberta two notches to 'A+' from 'AA' on Friday, citing high
budget deficits and growing levels of debt as the province
struggles with depressed global oil prices.
Alberta is home to Canada's vast oil sands but has been
hammered by the 50 percent drop in crude prices since mid-2014
as government revenues shrank and the budget deficit ballooned
to C$10.3 billion ($7.66 billion).
In recent months international oil majors have sold off
around $22.5 billion in oil sands assets to domestic producers,
adding to underlying concerns about the province's energy
industry, which makes up a fifth of economy.
The Alberta government is trying to stimulate economic
growth through infrastructure spending, a move that is expected
to result in a rapidly growing debt burden, S&P said in a
"It appears to us that the government is partly looking to a
recovery in oil prices to improve its fiscal position," the
ratings agency wrote.
Alberta Finance Minister Joe Ceci defended the left-leaning
NDP government's spending plans and said the provincial economy
is poised to grow 2.6 percent this year.
"Had we made deep cuts that might have satisfied some bond
raters, it would have resulted in a much deeper and longer
recession," Ceci said in a statement.
Oil prices have been trading around $50 a barrel for much of
this year and are not expected to rise significantly because of
resurgent U.S. shale production that is offsetting output cuts
from producer-group OPEC.
S&P expects Alberta capital spending will result in budget
deficits exceeding 26 percent of its total revenues for the next
two years. That in turn will boost government borrowing to
around C$94 billion, more than 180 percent of forecast operating
revenues, by the end of the 2020 fiscal year.
"Alberta's financial results are more volatile than those of
other Canadian provinces because of the strong correlation of
provincial revenues, especially non-renewable resource revenues,
with oil and natural gas prices," S&P added.
The downgrade takes the agency's assessment of Alberta's
capacity to repay debt from "very strong" to "strong."
($1 = 1.3454 Canadian dollars)
(Reporting by Nia Williams; Editing by Mary Milliken)