MNI POLICY: Trudeau: Covid-19 Aid Priority Over Record Deficit

By Greg Quinn

     OTTAWA (MNI) - Canadian Prime Minister Justin Trudeau said Thursday his

priority is ensuring a strong economic recovery over a report the government is

heading for a record budget deficit.

     "For the time being, we are focused on what we have to do now to get

Canadians through this crisis. We are lucky to have one of the lowest debt to

GDP ratios" among major economies, Trudeau said at a press conference in Ottawa.

     The deficit will equal 12.7% of GDP in the fiscal year that began April 1

according to a report from the parliamentary budget office Thursday, the highest

in modern-day records back to the 1960s. The CAD252 billion shortfall is up from

the office's estimate just a few weeks ago of CAD184 billion, and could rise

further as stimulus programs are rolled out. 

     Trudeau said he wants the economy "to come roaring back" after the

coronavirus pandemic passes. The prime minister didn't update his government's

previous estimate the deficit would be 5% of GDP, or when he will present a

budget to a Parliament where he needs some opposition support to stay in power. 

     The cash deficit projection is 4.5 times greater than the previous

shortfall set during the global financial crisis, and as a share of GDP beats a

postwar high of 8.1% set in the early 1980s after a deep recession. The deficit

peaked at 22.5% of GDP in 1943 during World War II.

     --BOC PURCHASES

     The sudden need for cash is eased by the Bank of Canada's plan to buy at

least CAD5 billion a week of federal government debt. The BOC next week will

also start buying up to CAD50 billion of provincial government debt.

     "Our economy's fundamentals remain strong despite this crisis," Trudeau

said. 

     Mounting deficits have done nothing to stall a huge bond rally this year,

with 10-year Canadas trading at 1.40% Thursday. Some investors have said Canada

may still lose its triple-A credit rating. 

     Canada's debt would rise to 48.4% of GDP under the budget officer's

projection, the highest since 1999. That comes in part with the budget office

assuming GDP falls 12% this year. 

     "Once the budgetary measures expire and the economy recovers, the federal

debt-to-GDP ratio should stabilize and then start declining under pre-crisis

fiscal policy settings," the budget office's report said. "However, should some

of the measures be extended or made permanent, the federal debt ratio could keep

rising."

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

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