07:53 AM EST, 11/22/2024 (MT Newswires) -- The provincial government of Alberta in Canada had a lot of good news to deliver in its Q2 Update, with its projected budget surplus for the 2024-2025 fiscal year (FY2025) being much larger than expected in Budget 2024, noted Desjardins.

It is now anticipated to come in at C$4.6 billion this year, up from C$400 million in the budget plan and C$2.9 billion in the Q1 Update, said the bank.

Revenues were revised substantially higher than projected in the budget, largely on the back of stronger bitumen royalties -- up C$3.1 billion to C$15.6 billion -- and, to a lesser extent, higher personal and corporate income tax revenues -- up C$900 million and C$300 million, respectively) due to population and employment gains.

However, in contrast to Ontario's and Quebec's fall updates, there was no mention of greater revenues due to the federal government's increase in the capital gains inclusion rate.

Operating expenses moved higher -- up C$1.2 billion to C$61.3 billion -- on broad-based spending related to health, seniors and communities and education services. Notably, nearly C$80 million in additional spending was used for disaster and emergency assistance, primarily for fighting wildfires. However, projected debt servicing costs were down C$200 million from the budget, mainly due to lower required borrowing.

The much-improved deficit outlook for FY2025 should lead to lower borrowing requirements and, as such, a much-reduced net debt-to-GDP ratio than expected in the spring -- to 8.2% from 9.2% previously, stated the bank. This has helped to maintain Alberta's position as the province with the strongest fiscal position in Canada and gives the provincial government ample room to strategically pre-fund future debt maturities in FY2026.

But risks to Alberta's latest forecast update are largely to the downside. The expected average WTI oil price for FY2025 is unchanged from Budget 2024 at US$74/barrel -- but down from $US76.50/barrel in the Q1 Update -- a level the light, sweet crude benchmark hasn't closed at since early October.

Further, if the federal government's plans for newcomer admissions come to fruition, population growth could be much weaker than expected.

Finally, while Desjardins expects some exemptions to be made for energy imports to the United States, the threat of tariffs looms large over the economic outlook.