MNI POLICY: Canada PBO Sees CAD256B Deficit, 11.8% of GDP

--No Gov't Budget Seen Yet For FY That Began April 1

By Greg Quinn

     OTTAWA (MNI) - Canada's parliamentary budget office on Thursday raised this

year's deficit projection to a record wide CAD256 billion, or 11.8% of GDP, the

day after Prime Minister Justin Trudeau said he can only offer a partial fiscal

update on July 8 as Covid-19 rocks the economy.

     That's four times greater than the previous record deficit of CAD56.4

billion seen in 2009-10. As a share of GDP it also beats a post-war high of

around 8% set in the early 1980s after a deep recession. The deficit peaked at

22.5% of GDP in 1943 during World War II.

     Canada's debt would rise to 44.4% of GDP under the budget officer's

projection, the highest since 2001-02. That comes in part with the budget office

assuming GDP falls 6.8% this year, more than double the previous post-war record

set in 1982. 

     The PBO report did allude to further room for fiscal expansion, giving low

market rates and the temporary nature of the problem, but said the deficit would

become a greater issue the more ingrained it became.

     --BOC BOND BUYING

     The update tallies up CAD169 billion of measures through June 12, before

the government extended flagship CAD2,000-a-month relief checks for another

eight weeks. PBO chief Yves Giroux's deficit estimate is up from CAD252 billion

on April 30 and CAD184 billion a few weeks before that. 

     PBO's GDP outlook is still more favorable now with evidence of firms

re-opening than the April 30 projection, when the deficit was seen hitting 12.7%

of GDP and debt-to-GDP reaching 48.4%

     The sudden need for cash is eased by the BOC's plan to buy at least CAD5

billion a week of federal bonds. Deficits haven't prevented record low

government bond yields this year, even with some investors saying Canada may

lose its triple-A credit rating. 

     The ruling Liberal Party need opposition support to support fiscal plans

and stay in power, though there has been little serious threat of triggering an

election amid the pandemic. Trudeau said Tuesday the July 8 fiscal "snapshot"

can't be a full budget for the year that started April 1 because the outlook is

too uncertain. 

--MNI Ottawa Bureau; +1 613-314-9647; email: greg.quinn@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

[TOPICS: M$C$$$,MC$$$$]