Oil prices boost Alberta's bottom line, provincial deficit still nearing $8B
Higher-than-anticipated energy prices will help carve out some of the province's deficit — which now sits at $7.8 billion, about $10.5 billion lower than forecast in Budget 2020 — but a resurgence of COVID-19 could derail Alberta's recovery.
That's according to the Alberta government's first quarter update, delivered by Finance Minister Travis Toews Tuesday morning.
"After a historically challenging year, Alberta’s economy is already witnessing signs of recovery and growth," Toews said.
"While this indicates Alberta’s recovery plan is working, we know there is still more to do to create jobs and restore Alberta’s place as the economic driver of the nation."
Alberta's revenue for 2021-22 is now forecast to reach $55 billion, helped mostly by natural resource revenue that is $6.9 billion higher than anticipated in the budget. Income tax revenue is also expected to climb $1.2 billion more than forecast and federal transfers will jump by $1.5 billion.
The global price of West Texas Intermediate (WTI) soared in the first quarter of the fiscal year before slowing slightly. Still, the province's fiscal outlook is now forecasting WTI to hover around US$65.50 per barrel for the year, $19 higher than what was forecast in Alberta's Budget 2020.
Bitumen royalties alone are forecast to net Alberta $7.1 billion in the fiscal year, $5.6 billion higher than the budget. Crude oil and natural gas royalties are on track to bring in $1.2 billion each.
According to the provincial government, Alberta added 73,000 jobs since the start of the year and about 90 per cent of the jobs lost due to the pandemic have been recovered.
COVID COSTS AND FUTURE RISK
The direct costs of the pandemic will continue to impact the province's fiscal situation through 2021-22, and the momentum created in the first quarter could be thwarted if the virus continues to spread in the province and beyond, according to the report.
Alberta is spending $5.4 billion to combat COVID-19 and recover from the economic hardships caused by the pandemic, about $1.5 billion higher than anticipated in the budget.
Much of that money is for operating expenses and the costs of vaccine deployment, testing, relaunch grants and jobs programs.
Despite the positive energy prices, the pandemic is still very much happening and could cause significant changes to Alberta's fiscal situation.
"The rapid spread of the Delta variant could dampen the global recovery and lead to a sharper pullback in commodity prices and demand, including oil," Alberta's fiscal report reads.
"A stronger-than- expected increase in OPEC+ or U.S. production could also weigh on oil prices. At the same time, a resurgence in COVID-19 infections in Alberta could also derail the recovery in the second half of the year."