ST. JOHN'S, N.L. -- Declining oil revenues coupled with costs associated with the COVID-19 pandemic has Newfoundland and Labrador projecting a $2.1-billion deficit for fiscal 2020-21 -- an increase of $1.35 billion from last year's budget.

The grim figure was presented in a fiscal update delivered Friday by Finance Minister Tom Osborne, ahead of a budget expected in September.

"We have been clear for months and as recently as our June update that we anticipated decreased revenue and increased expenses and that is what we are demonstrating in the update today," Osborne told reporters.

The finance minister said expenses for the fiscal year will jump by $720 million, including an increase of $261 million in health care, $90 million of which is related to the pandemic. A $200-million contingency fund that was approved in March has also contributed to rising expenses, with $118 million spent so far.

Offshore oil revenue, which is vital to the province's bottom line, is projected to decrease by $631 million, mainly due to a $560-million drop in royalties.

Key to the drop in oil revenue, Osborne said, was the fall in the projected price of oil -- from US$68 per barrel to US$34 per barrel. The longer-than-anticipated shutdown of the Terra Nova Floating Production Storage and Offloading Vessel located in the Terra Nova oil and gas field was also a major contributor, he said.

Revenues for the 2019-20 fiscal year ended up $225 million less than previously recorded due to new accounting from provincial energy corporation, Nalcor Energy, related to its stake in two offshore oil projects. As a result, Osborne said borrowing projections for the year have increased from $2 billion to $3.2 billion.

"There are very few things that keep me awake at night," Osborne said. "The increased borrowing this year and the fact that our deficit has gone above $2 billion again this year are things that concern me greatly."

The revised update also projects a rise in the province's net debt from $14.6 billion to $16.7 billion, a development Osborne called a "major concern."

He also noted the update did not include Newfoundland and Labrador's share of Ottawa's recently announced safe restart funding -- designed to help provinces with pandemic-related costs -- which is $146.3 million. The minister said the funding would be included in the overall picture when the budget is tabled.

Osborne did not reveal whether any austerity measures would be necessary to help control ballooning costs, noting that a new premier would set priorities once the governing Liberals choose their next leader Aug. 3, after Premier Dwight Ball steps down.

"We'll wait for a new leader before we make final budget decisions," he said.

Newfoundland and Labrador doesn't receive equalization payments from Ottawa and Osborne said further help from the federal government will be key in assisting any economic recovery. He said a "pan-Canadian solution" is necessary.

"Whether it's fiscal stabilization or whether it's equalization, I can't repeat often enough that we are not looking for special treatment -- we are looking for fair treatment," Osborne said. "If other provinces with less challenges than we've had are entitled to equalization, the federal government has to look at that program."

Friday's projected deficit numbers were just short of the province's worst deficit of $2.2 billion recorded in fiscal 2015-16.