The government's second-quarter update shows the deficit for 2010-11 is now forecast to be at $5 billion, an increase from the original forecasted budget of $4.7 million. The province said an increase in spending for disaster and emergency assistance has contributed to the budget increase.

"We can't control forest fires, floods and drought, but we still have to pay for them," said Minister of Finance and Enterprise Ted Morton.

Revenue also dropped $475 million from the first quarter update projection, which the province blames on a higher Canadian dollar, lower energy royalties, and a drop in income tax.

But despite the dismal results, Morton still hopes to deliver a balanced budget in 2012.

"It won't be an easy commitment to fulfil but Albertans have been here before. And I am confident that working together we can overcome these challenges."

Alberta's main long-term savings fund is expected to lose value and is expected to be worth $14.1 billion by March, down $700 million since September.

With files from Scott Roberts