The 59-page briefing titled "Fiscal Risks" was sent to the department’s top official and dated Sept. 25. The majority of its pages were redacted including the entire section titled “Evidence on government debt and risk premiums in Canada?”
Later on, the report said “Canada’s general government debt-to-GDP ratio has already declined from its 2020 peak thanks to fast nominal GDP growth, but it remains elevated relative to its pre-pandemic level.”
CONSTRASING MESSAGE
The analysis contrasts with the frequent message from top ministers that Canada has the strongest public finances among major economies and its triple-A credit rating is a sign that strength will continue. Prime Minister Justin Trudeau for years, before he announced earlier this month his plan to step down March 24, said low borrowing costs made deficits affordable. (See MNI: Trudeau Deficit Unlikely To Fix Canada's Vibecession)
Chrystia Freeland quit as finance minister last month rather than deliver a fiscal update she said contained gimmicks and little clear plan to tackle threatened U.S. tariffs. Before leaving she would only affirm a falling debt-to-GDP ratio as a fiscal anchor, leaving out two others she set last spring. (See MNI INTERVIEW: Trudeau Deficit Cap Strained By Election Threat)
December’s budget update, introduced by the new Finance Minister Dominic LeBlanc, showed federal debt rose 1pp to 42.1% of GDP in in the fiscal year that ended in March 2024. It's projected to decline to 41.9% this fiscal year. The ratio was 31.2% before the Covid pandemic struck.
The finance department’s review also noted other studies suggest investors demand more compensation for the risk of elevated public debt across other types of securities. Canada's government bond trading is often closely linked to Treasuries, and National Bank Financial noted Wednesday that uncertainty over Donald Trump's actions has helped boost the U.S. risk premium.
Excerpt of report:
