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Canada's Alberta sees budget deficit narrowing to C$18 billion as oil prices recover

CALGARY, Alberta (Reuters) - The Canadian oil-producing province of Alberta on Thursday estimated its 2021/22 budget deficit will shrink to C$18.2 billion ($14.5 billion), as its economy starts to recover from the damage caused by the coronavirus pandemic.

FILE PHOTO: Oil, steam and natural gas pipelines run through the forest at the Cenovus Foster Creek SAGD oil sands operations near Cold Lake, Alberta, July 9, 2012. REUTERS/Todd Korol

Alberta’s 2020/21 deficit stood at C$20.2 billion, compared with a C$24.2 billion deficit projected in August, as recovering crude oil prices help the province narrow its deficit.

Still, the deficit is larger than the historical trend, reflecting the impact of pandemic spending.

Finance minister Travis Toews said Alberta will set aside C$1.25 billion in contingency funding to fight COVID-19. The province also plans to invest nearly C$21 billion over three years in construction projects to create new jobs and support economic recovery.

“Budget 2021 will provide funding ... to ensure Albertans have a competitive edge, as economies reopen, growth restarts and opportunities reappear,” Toews said in his budget address.

Alberta is the centre of Canada’s fossil fuel industry, and oil and gas revenues generate much of the province’s economic activity and revenues. The energy industry was battered last year by a collapse in global fuel demand due to COVID-19, although commodity prices are picking up as vaccines are rolled out globally.

Alberta said its financial exposure from an investment in TC Energy’s Keystone XL pipeline, which would have shipped to the U.S. but had its permit revoked by President Joe Biden, was C$1.3 billion. The government said if the project does not proceed it will seek to recoup the funds.

Toews said Alberta’s real gross domestic product would grow 4.8% in 2020, having contracted 7.8% last year.

The United Conservative Party government expects the provincial economy to reach pre-pandemic levels by 2022 and said the deficit will shrink to C$11 billion in 2022/23 and C$8 billion in 2023/24.

Revenue for the 2021/22 fiscal year is estimated at C$43.7 billion, up from $42.3 billion in 2020/21. Total spending is expected to be down slightly at C$61.9 billion, from C$62.5 billion in the previous fiscal year.

Alberta forecast U.S. crude prices to average $46 per barrel in 2021/22.

Reporting by Nia Williams; Editing by David Gregorio and Grant McCool

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