Province of Alberta. June, Stephen J Thompson Executive Director Capital Markets, Treasury Board and Finance. and

Size: px

Start display at page:

Download "Province of Alberta. June, Stephen J Thompson Executive Director Capital Markets, Treasury Board and Finance. and"

Jacob O’Connor’
6 years ago
Views:

1 Province of Alberta US Investor Meetings June, 2017 Stephen J Thompson Executive Director Capital Markets, Treasury Board and Finance and Catherine Rothrock Chief Economist & Executive Director, Treasury Board and Finance

Canada Federal-provincial fiscal relations 10th largest economy and 9th least risky country in the world (1) Federal Government, 10 Provinces and 3 Territories Westminster parliamentary system Direct

2 Canada Federal-provincial fiscal relations 10th largest economy and 9th least risky country in the world (1) Federal Government, 10 Provinces and 3 Territories Westminster parliamentary system Direct and indirect taxing powers Provinces have significant autonomy Provincial ownership of natural resources Responsible for health care and education Direct taxing powers include personal income, corporate income, mining taxes and royalties, value added/sales, fuel and payroll taxes No federal guarantee on provincial debt, however federal government provides significant and predictable financial support to Alberta (1) Euromoney Country Risk score 2

3 Economic structure The Road to Recovery Alberta s economy rebounding Return to growth forecast in 2017 Exports, reconstruction in Fort McMurray, public infrastructure A moderate recovery Unprecedented decline in incomes from oil shock will weigh on business investment and consumer spending Full recovery in real GDP not until

4 (%) Economic structure Signs of improvement Real GDP* Alberta Activity Index (AAX) Source: Statistics Canada, Alberta Treasury Board and Finance * 2016 is real GDP by industry 4

5 (percentage points) Economic structure Exports drive recovery Contributions to Change in Alberta Real GDP by Expenditure Exports Imports Total Domestic Demand* Real GDP e 2017f 2018f 2019f 2020f Source: Statistics Canada, Alberta Treasury Board and Finance Budget 2017, e-estimate, f-forecast * Includes total household, business and government spending 5

6 (US$/bbl) (Million bpd) (Billions bbl) Economic structure 3 rd Largest reserves & production growing AB s oil reserves are massive and open to private investment (1) Canada Oil sands 170 Saudi Arabia 266 Venezuela 301 Despite price declines, production continues to rise (2) Western Canada Select (Left) Alberta Oil Production (Right) f 2018f 2019f (1) 2016 Global reserves: U.S. Energy Information Administration, Alberta Energy Regulator (2) Statistics Canada, Alberta Energy and Baytex Energy (March 13, 2017), f-forecast 6

7 (Mbpd) Economic structure Market access Pipeline and Refinery Capacity and Western Canada Heavy Oil Production 4,000 3,500 Total Western Canada Heavy Oil Production Kinder Morgan Trans Mountain Expansion 3,000 2,500 2,000 1,500 1,000 Current Pipeline Capacity Enbridge Line 3 Expansion + Clipper TMX and Line 3 to ease pipeline constraints Western Canada Refinery Capacity Rail Commitment e 2017f 2018f 2019f 2020f 2021f 2022f 7

8 (000s) (%) Economic structure Labour market improves gradually Alberta Labour Market Indicators 2,500 2,300 2,100 1,900 1,700 1, f 2018f 2019f 2020f Employment (left) Unemployment Rate (right) Sources: Statistics Canada and Alberta Treasury Board and Finance, f-forecast *The number of people working or looking for work 8

9 (Thousands) Economic structure AB s population expected to grow Change in the Alberta population by component Natural Increase (Left) Net Interprovincial (Left) Net International (Left) Population Growth (Right) f 2018f 2019f 2020f Population is forecast to expand faster than Canadian average, supporting consumer spending and housing (%) Sources: Statistics Canada and Alberta Treasury Board and Finance, Budget 2017, f-forecast 9

10 ($ Thousands) Economic structure Long-standing economic prosperity Nominal GDP per capita Rest of Canada Range Rest of Canada Average AB AB has proven to be resilient in the face of tough economic times Sources: Statistics Canada, and TD Economics forecasts (March, 2017). Alberta Treasury Board and Finance numbers updated with Budget

11 Fiscal policy AB s fiscal capacity Alberta still has a significant tax advantage compared to other provinces (1) British Columbia Saskatchewan Ontario New Brunswick Nova Scotia Manitoba Prince Edward Island Quebec Newfoundland & Labrador (1) Alberta Treasury Board and Finance ($billion) Other Taxes / Carbon Charges Sales Tax 11

12 Revenue (billions) Fiscal policy Revenue sources (1) $60 $50 $40 $30 $20 $10 $0 Non-Renewable Resource Revenue GoC Transfers Net Income from Gov Business Enterprises Other (1) A=Actual, E= Estimate, T=Target. Income and Other Taxes Investment Income Premiums, Fees and Licences Non-Renewable Resource Revenue can be large, but variable Combined other sources provide stability and support growth Transfers from GoC of $8B in , or 18% of total revenue 12

13 Fiscal policy Budget 2017 Key metrics Contain rate of growth of government operating expense to the rate of population growth plus inflation Manage province s fiscal position with a long-term view Maintain government services, instead of making drastic cuts Budget 2017 (1) Actuals Forecast Estimate Target Target Consolidated Revenue Consolidated Expense Surplus / (Deficit) (6.4) (10.8) (9.8) (9.0) (6.2) Risk Adjustment - - (0.5) (0.7) (1.0) Surplus / (Deficit) After Risk Adjustment (6.4) (10.8) (10.3) (9.7) (7.2) (1) Numbers may not add due to rounding. 13

Financial management Borrowing program 2017-18 Borrowing Borrowing Requirements ($ billions) Corporations (1) Capital Refinancing & Fiscal (2) $12.3 $6.8 2017-18 Estimate 6.3 6.0 6.9 2018-19 Target 3.

14 Financial management Borrowing program Borrowing Borrowing Requirements ($ billions) Corporations (1) Capital Refinancing & Fiscal (2) $12.3 $ Estimate Target Target Total Liabilities / Borrowing ($ billions) Direct Borrowing Provincial Corporations Estimate Target Target 71.1 (1) Includes new and re-financing of maturing term debt (2) Includes amounts borrowed on behalf of the Balancing Pool; $494 million in ; $833 million in ; $699 million in

15 Fiscal policy Low debt burden Projected Net Debt to GDP (1) Quebec 46% Ontario 38% British Columbia 16% Alberta 7.1% (1) RBC: Public accounts basis. Numbers are based on reports from individual governments and, due to accounting differences, are not strictly comparable between provinces. Sources include: Fiscal reference tables (Department of Finance Canada), various provincial budgets, budget updates and public accounts. As of April 27, Alberta s ratio calculated by Treasury Board based on Budget 2017 forecasts. 15

16 2017/ / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / /49 Billions Financial management Maturity profile & liquidity (1) $6.0 $5.0 $4.0 $3.0 $2.0 $1.0 $- Issued by Alberta Current Benchmarks (1) As of June 19, Excludes Money Market amounts. 16

17 Financial management Borrowing platform Target issuance 60% - 70% Domestic International 30% - 40% Ensure domestic liquidity Maintain larger domestic benchmark sized issues ($3-$5B) Infrequent domestic MTN issuance Monitor secondary market liquidity Control domestic supply Target issuance of 30%-40% or more to international markets More frequent large US$ benchmarks Opportunistic multi-currency issues 17

18 Financial management Borrowing platform continued Foreign currency borrowing US$ Global Issues in 3, 5, 7, and 10 years Expect more frequent issuance now province is SEC Registered US$ CP program expected to come online in early 2017 Sterling Benchmarks across curve driven by investor demand Continued Euro placements in longer terms with potential for larger benchmark issues MTN and structured issues in other currencies, including under the new AUD program as opportunities arise 18

19 Summary Strong economic base; real GDP growth forecast to be 2.6% in 2017 and average 2.4% over the medium term Demonstrated resiliency to past commodity price shocks Continued high level of fiscal capacity Strong bond ratings Multi-currency, multi-market borrowing platforms Strong secondary liquidity 19

20 20 Appendix

21 Budget 2017 Assumptions (1) Appendix Fiscal Year (Apr- Mar 31) A F E T T WTI Oil (US$/bbl) Light-Heavy Differential (US$/bbl) Natural Gas (CDN$/GJ) Exchange Rate (US/CDN$) Calendar year 2015A 2016E 2017F 2018F 2019F 2020F Real GDP Growth (%) Employment Growth (%) Unemployment Rate (%) (1) A=Actual, B=Budget, T=Target, F= Forecast. Source: Statistics Canada, Alberta Energy, Alberta Treasury Board and Finance 21

22 Budget 2017 Sensitivities Appendix Fiscal Sensitivities to Key Assumption, (1) Change Net Impact ( ) Oil Price (WTI US$/bbl) -$ Light-Heavy Differential (US$/bbl) +$ Natural Gas Price (Cdn$/GJ) -10 Cents -45 Exchange Rate (US /Cdn$) +1 cent -215 Interest Rates +1% -230 Primary Household Income -1 % -160 (1) Sensitivities are based on current assumptions of prices and rates and show the effect for a full 12 month period. Sensitivities can vary significantly at different price and rate levels. The energy price sensitivities do not include the potential impact of price changes on the revenue from land lease sales. 22

23 Federal support to provinces Appendix Main transfer programs to provinces Canada Health Transfer (CHT) Canada Social Transfer (CST) Grows in line with federal annual escalator (3%) and changes to AB s share of the national population Grows in line with federal annual escalator and changes to AB s share of the national population Equalization Transfer Ensures provinces have sufficient revenues to provide reasonably comparable levels of public services at reasonably comparable levels of taxation Receiving provinces are free to spend the funds according to their own priorities Determined by provinces' fiscal capacity relative to the Canadian Average Alberta expects to receive $8 billion in federal transfers in , including CHT and CST payments but no equalization 23

24 Economic structure Market access remains key Appendix Continue to work to improve market access Source: Canadian Association of Petroleum Producers 24

25 ($billion) (Mbpd) Economic structure Appendix Energy investment stabilizing, production continuing to grow 70 4, , , , Oil Sands Investment (Left) Production (Right) Conventional oil projects ~$25-$55 USD/barrel Enhanced ~$50-$60 USD/barrel Approximate breakeven Sources: Alberta Treasury Board and Finance, e-estimate, f-forecast, Budget Conventional Oil and Gas Investment (Left) Oil sands projects Surface mine ~$80 - $85 full cycle SAGD $45-$65 USD/barrel full cycle 25

26 (%) Economic structure Costs have come down Appendix Year-over-Year change in non-residential construction price index Alberta Calgary Edmonton Source: Statistics Canada 26

27 Economic Structure The importance of Canadian oil 2016 U.S. imports crude oil and products Canada Saudi Arabia Venezuela Mexico Colombia Russia Iraq Ecuador Nigeria Kuwait Alberta In 2016, US imported more crude oil and products from Canada than from all OPEC countries combined Sources: Statistics Canada (Canadian International Trade Merchandise) and Energy Information Administration Outside AB Appendix 1,390 27

28 Economic structure Appendix AB s economy is very capital intensive 2017 Private Sector Capital Expenditures Intentions Alberta NL Saskatchewan Manitoba British Columbia Quebec Ontario Maritimes $0 $10 $20 $30 $40 $50 $60 (billions) Source: Statistics Canada 28

29 (%) Economic structure Appendix Highest employment rate and incomes Employment Rate (%) (1) Average Weekly Earnings (2) $1,250 $1,000 $ % National Avg. 61.5% NL PEI NS NB QC ON MB SK AB BC $1,118 National Avg. $966 $500 NL PEI NS NB QC ON MB SK AB BC (1) Share of adults (15+) employed as of May 17, Source: Statistics Canada (2) Including overtime as of Mar 2017 Source Statistics Canada 29

30 (Thousands) ($ Thousands) Economic structure Housing activity picking up Appendix Annualized AB housing starts, existing home sales and the average resale home price* Housing Starts (left) Existing Home Sales (left) Average Resale Price (right) Home prices have been steady despite lower housing starts Sources: Canadian Real Estate Association, Canada Mortgage and Housing Corporation 30

31 Financial management ATB Financial (1) Appendix Professionally managed at arms-length basis from government Credit policies and other risk management not unlike those of any other financial institution Subject to regulatory oversight by provincial and national regulatory bodies An agent of the crown, assets and liabilities belong to the crown Potential economic loss relatively small in relation to AB s balance sheet, budget and borrowing requirement Less susceptible to the risk of a run due to provincial guarantee of deposits ATB increased deposits during 2008/09 liquidity crisis Capital requirements set by the Minister of Finance Total Assets $48.6B, Total Liabilities $45.4B and Equity $3.1B Liabilities include: Loans from province $2.9B, Collateralized Borrowings $7.2B, as well as Deposits and Other totaling $35.2B (1) As of March 31, Numbers may not add due to rounding. 31

32 Financial management Appendix Well funded public sector pensions Public Sector Pensions Fiscal Year Ending Mar Net Pension Assets (billions) $38.5 $44.4 $52.2 $60.1 $67.1 Aggregate Funded Status 78.4% 81.5% 87.1% 93.8% 99.4% Liability for Province s employer share (billions) Total Government Unfunded Pension Liabilities (billions) $1.5 $1.8 $1.8 $1.7 $1.5 $10.6 $10.9 $11.6 $11.2 $10.6 $8.1B of total unfunded liability from a settlement with teachers to deal with an issue stemming from 1992 pension reform Unfunded Pension Liability s absolute value has remained fairly static, but Aggregate Funded Status has greatly improved 32

33 Financial management Credit ratings Appendix Long Term Short Term Outlook S&P A+ A-1+ (stable) Moody s Aa1 P-1 (negative) DBRS AA (high) R-1 (high) (stable) 33

34 Information and contact Website Contact Steve Thompson Chris Williams Executive Director, Senior Analyst, Capital Markets Treasury and Investor Relations Province of Alberta Province of Alberta Disclosure Statement This presentation was compiled by the Alberta Department of Treasury Board and Finance. The information in this presentation is for general information purposes only and does not constitute an offer to sell or a solicitation of offers to purchase securities. Certain forward-looking information or forward-looking statements have been included in this presentation for such general information purposes. These statements are based on the Province of Alberta s current estimates or projections which the Province believes are reasonable. Such statements are not guarantees of future performance, and accordingly, you should not place undue reliance on them. Forward-looking information or statements involve known and unknown risks, uncertainties and other factors which could cause the state of the Province s economy to differ materially from the forecasts and economic outlook expressed or implied by any forward-looking information or statements. Forward-looking information or statements speak only as of the date they are made. Alberta undertakes no obligation to update any forward-looking information or statements to reflect new information, future events or otherwise, except as may be required under applicable law. While the information in this presentation, when posted or released, was believed to be reliable as of its date, no warranty is made as to the accuracy or completeness of this document or the information it contains. 34

Province of Alberta Investor Meetings

Province of Alberta Investor Meetings December, 2016 Stephen J Thompson Executive Director Capital Markets, Treasury Board and Finance and Tim Pierce Director Financing Capital Markets, Treasury Board