07:53 AM EDT, 08/29/2025 (MT Newswires) -- The Canadian province of Alberta released its updated outlook for the 2025-2026 fiscal year (FY2026) on Thursday and the news could have been better, said Desjardins.

Following a bigger-than-anticipated surplus in FY2025, a $6.5 billion budget deficit is now expected for this year -- $1.3 billion larger than the $5.2 billion deficit projected in Budget 2025, noted the bank.

Weaker revenues is one explanation for the larger-than-planned deficit in FY2026, now expected to come in $1.2 billion lower than in Budget 2025 at $73.0 billion. Non-renewable resources are the driving factor, projected to be $1.4 billion less in the current fiscal year than back in the spring budget.

Tax revenues are tracking below the previous forecast as well -- down $349 million to $28.5 billion -- but this is more than offset by higher investment income, which is up $507 million to $3.4 billion.

Expenses also look likely to move higher in FY2026 than projected earlier in the year, up $1.6 billion to $76.9 billion. Unforeseen expenditures for disaster and emergency assistance ($706 million) are likely to add to higher-than-planned operating expenses (up $679 million to $65.0 billion) and capital grants (up $132 million to $3.6 billion).

Debt servicing costs are anticipated to edge higher in FY2026 as well, although marginally (up $3 million to $3.0 billion). That should push debt charges as a share of revenues to 4.1% this fiscal year from 4.0% projected in Budget 2025 and 3.9% last year. Drawing $1.5 bllion from the contingency should help offset this higher spending.

The larger-than-planned budget deficit, combined with the anticipated increase in the total capital plan (up $294 million to $8.9 billion), is expected to push Alberta's net debt to 8.7% of gross domestic product from 7.2% in FY2025.

However, when put in the broader national context, Alberta continues to have the lowest net debt-to-GDP ratio of any province in Canada and its borrowing costs reflect that positive performance, stated the bank.

Kicking the tires on Alberta's latest fiscal outlook, the assumptions for energy prices follow the usual prudence investors have come to expect. At an average price of US$63.75/barrel for West Texas Intermediate, WTI would need to average around US$63/barrel for the remainder of the fiscal year to be in line with the Government of Alberta's planning assumption, added Desjardins.

At the same time, a light-heavy differential of about US$13/barrel for the remainder of the fiscal year is required to average US$11.90/barrel in FY2026 -- wider than any daily spread seen since March. That would put the price outlook of Western Canada Select (WCS) -- the Canadian heavy crude benchmark -- at about US$50/barrel every day through to April 2026, according to the bank.

Contrast that with he bank's oil price outlook and it looks as though there may be some upside to the Government of Alberta's latest fiscal forecast, concluded Desjarins.