Can the Liberals slay the deficit and still keep their election promises?

Of all of Premier Dwight Ball's new cabinet ministers, Finance Minister Cathy Bennett might have the toughest job of all.

The precise magnitude of the challenge she faces will be officially revealed later today when Bennett delivers the long awaited fiscal update.

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In the transition period when the PCs were on their way out and the Liberals on their way in, sources told CBC News the deficit had ballooned to a record $1.8-billion.

Now other sources say that number is too low and that the deficit is pushing towards $2 billion.

"It might not quite get there," said one senior Liberal, with an air of cautious pessimism.

Oil is worth far less than expected

Oil is the short-term problem and it only serves to exacerbate the decade long problem of high government spending. On Monday, Brent crude was trading in the high $30s.

The April budget was based on a US $62 barrel of oil and even that now rosy projection would mean a record deficit.

But not only are the numbers way off for this year, the existing five year plan to return to a balanced budget is based on a steady rebound in the price of oil  jumping to $71 a barrel for 2016/17 and then climbing all the way to $90 by 2020/21.

The PCs bet heavily on that in April. Almost nobody would make that bet today.

The Liberals are counting on a combination of better management and economic diversification to fill that revenue gap. But that seems overly optimistic given the scale of the challenge.

Let's revisit those old targets

The other legacy challenge from the final PC budget comes in a series of fiscal performance targets that were at the core of the five-year plan to eliminate the deficit. These include:

• Debt expenses as a percentage of gross revenue will not exceed 13 per cent
• Net debt as a percentage of nominal GDP will not exceed 40 per cent
• Annual deficit will not exceed 3% of nominal GDP
• Return to surplus by 2020/21
• New borrowing not to exceed $5 billion.

Those weren't conditions set by the government, so much as they were strongly suggested by the bond rating agencies. The blunt message was that if Newfoundland and Labrador fails to meet those targets it could suffer a credit rating downgrade. That would mean higher interest rates heading into what appears to be an extended period of heavy borrowing.

It is highly unlikely that the Liberals will be able to meet all or even most of those targets without a sudden and sustained rebound in oil revenues, or a drastic overhaul of the public sector. But the Liberals were emphatic during the campaign that cuts and layoffs were not part of their plan to deal with the deficit.

Dwight Ball has already shown through his scrapping of the HST hike, that he is determined to keep his election promises --  even if it creates even more fiscal challenges for the province.

So, as she prepares to deliver a fiscal update with the largest deficit in the province's history, Cathy Bennett is in a tough spot. She finds herself caught between global economic factors she doesn't control, and an election promise her boss doesn't want her to break.

The bond raters and an anxious province are watching.