Alberta's choice to borrow money in South Africa an 'unusual case,' economist says

Successive Alberta governments have taken on more than $28 billion in debt over the past decade.

It turns out a sliver of that debt must be paid back to South Africa.

In February, the province borrowed 750 million South African rands, which the finance minister says was equivalent toroughly $70million CDN at the time.

The loan mustbe repaid in 2024.

An economist at the University of Calgary's School of Public Policy expressed surprise that Alberta went to South Africa to borrow money.

"It is an unusual case," JackMintzsaid of the South African loan.

The economist noted thatgovernments often take out loans overseas to diversify their debt holdings.But they typically borrow from major financing countries with highly convertible and liquid currencies.

About 70 per cent of Alberta's debt is held by Canadian institutions. The provincial government has historically taken loans in US dollars, British pounds, Swedish krona, Australia dollars, Swiss francs and in euros.

Economist surprised by country

Mintz,whoworked for the Ontario Finance Authority for six years,said governments like to diversify their borrowings.

He said borrowing in South Africa, rather than in major international currencies,brings other risks. The rand is more volatile, its market is less liquid and if Alberta wants to get rid of that debt before paying it off, it might have trouble.

"If you do want to sell off the debt, which is possible to do to financial institutions, it's harder to sell it without paying a higher payment cost associated with it," Mintzsaid.

But Alberta's finance minister is defending the decision.

Best deal, finance minister says

Joe Ceci said officials in his department hadsound financial reasonsto take on this short-term loan.

"They look around the world to see where there's available funds to borrow, and these were the least expensive funds at that time," Ceci said this week.

"We exchanged them immediately to Canadian funds to protect ourselves, so we have a really good deal."

Ceci said the interest rate on the loan is 2.33 per cent.

The reason for this specific loan hasn't been revealed by the finance department.

In recent years, the department has typically taken on about two dozen loans annually. The government needs the funds to financeits operations and payfor major infrastructure projects.

Lots of history to recent Alberta debt

The finance department's website lists eight pages of loans that have been taken out bygovernments since 2008, including underpremiers Ed Stelmach, Alison Redford, Dave Hancock,Jim Prentice andRachel Notley.

The loans have various repayment terms. Some of the borrowings aren't due to be paid off until 2050.

Alberta governments in the 1980s and '90s also borrowed billions of dollars on domestic and international markets. But the international loans were all in American, Japanese or European currencies.

The government of Ralph Klein set aside enough money in 2005 to pay off those loans as they came due with the final payment made in 2013.

However before the loans were all paid off, the provincial government was again borrowing money to finance its debts.