A recent report from the International Monetary Fund (IMF) is urging the Canadian government to reaffirm its commitment to an established fiscal benchmark. Released on Friday as part of the IMF’s routine evaluation of the Canadian economy, the report commended the government’s budget presented on November 4 for shifting focus towards increased public investment amidst challenges from U.S. tariffs and evolving trade relationships.
The IMF report emphasized the importance of maintaining a clear debt-to-GDP ratio as a fundamental component of Canada’s fiscal framework. The report noted that the Liberals had previously replaced the declining debt-to-GDP ratio anchor with new metrics aiming for a decreasing deficit-to-GDP ratio and a balanced operating budget within three years.
Advocating for a structured approach, the report suggested that elevating the debt ratio to a formal anchor and aligning deficit and operating-balance paths as complementary instruments would enhance coherence, strengthen accountability, and ensure sustainability and credibility in investment plans.
Interim parliamentary budget officer Jason Jacques had expressed concerns regarding the absence of a declining debt-to-GDP anchor before the budget announcement. However, following the budget release, he acknowledged the government’s long-term fiscal sustainability while questioning its short-term targets.
In response to inquiries about potentially adopting the IMF’s recommendation, Finance Minister François-Phillippe Champagne’s spokesperson highlighted the stability of the debt-to-GDP ratio. Both the Parliamentary Budget Officer (PBO) and the IMF have deemed federal finances to be fiscally sustainable.
The IMF report also praised Canada’s resilience in the face of trade shocks stemming from U.S. tariffs. Despite challenges such as lower commodity prices, subdued external demand, decreased immigration rates, and tariff uncertainties, the Canadian economy has fared better than initially projected. The IMF anticipates a more balanced economic outlook going forward, though uncertainties are predicted to persist.
The Liberal government had anticipated the IMF’s endorsement ahead of unveiling their significant fiscal strategy in November. IMF Managing Director Kristalina Georgieva’s positive remarks on Ottawa’s emphasis on capital and productive investments were featured prominently in the budget documentation. Additionally, the IMF recommended that Ottawa establish an independent mechanism to define capital within the new spending framework and emphasized the importance of maintaining measured, counter-cyclical, and flexible fiscal policies.
