MNI: Canada Aug Budget Deficit Shrinks Year-To-Date Surplus

Canada's budget deficit shrank to CAD2.5 billion in August from CAD9.8 billion a year earlier as Covid support programs expired and tax revenues climbed, the finance department reported Friday.

The government remains in surplus over the fiscal year that began in April with a CAD3.9 billion windfall. Finance Minister Chrystia Freeland in April projected a CAD52.8 billion deficit for the year equal to 2% of GDP and shortfalls through 2026-2027.

Finances may sour if the economy falls into recession as projected by several major commercial banks. Freeland says she will limit policy to targeted measures to avoid adding to inflation and force the central bank to hike interest rates further. The government in April spent more than half the windfall from the economic rebound and a former top cabinet adviser told MNI policy should tightened faster. (See: Canada Should End Stimulus Symmetrically)

While Canada still benefits from top credit ratings, 10-year borrowing costs nearly doubled over the past year to 3.22%.