Canada

Thursday, July 16, 2020 - 15:53

MNI POLICY: Canada May Surpass Debt Limit by CAD150B: PBO


By Greg Quinn

OTTAWA (MNI) - Canada may surpass a statutory debt limit by at least CAD150 billion this year, even with a special exclusion of borrowing used to tackle Covid-19, the Parliamentary Budget Office said Thursday.

Legislation that took effect November 2017 set a debt limit of CAD1.168 trillion for the government and state-owned companies. That authority extends for three years, meaning Finance Minister Bill Morneau needs to recommend a new ceiling by November of this year and could just recommend a higher one.

Bond and bill sales are surging in line with Morneau's July 8 fiscal snapshot showing a record CAD343 billion deficit this fiscal year.

"Given Finance Canada's projection of total market debt of $1,236 billion in 2020-21 in Economic and Fiscal Snapshot 2020, it is likely that total borrowing (unmatured debt plus agent Crown corporation debt) will exceed the maximum amount under the Borrowing Authority Act, even if borrowing to finance the COVID-19 measures is excluded," the PBO report said.

Parliament approved a special law this year excluding the cost of measures to deal with the pandemic from other debt tallies, under special powers that are due to lapse Sept. 30. Those measures have cost CAD228 billion.

While the government has spent more on healthcare and relief checks during the pandemic, there has also been a major drop in revenue as the economy shrinks and businesses have been allowed to defer some tax payments.

The Liberal Party government led by Justin Trudeau needs opposition support for major spending votes to stay in power, though opposition parties have encouraged more rather than less stimulus so far.

Parliament should demand more transparency on the finances of state-owned companies, and the government should commit to a new fiscal "anchor" after Canada lost its triple-A credit rating from Fitch last month, the PBO said.

"This commitment should be supported with the Government's detailed economic and fiscal projections over a medium- and longer-term horizon" following the July 8 update that only gave figures for the current fiscal year, the PBO said.

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

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

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