A recent report from the International Monetary Fund (IMF) urges the Canadian government to reaffirm its commitment to a previous fiscal guideline. The report, part of the IMF’s routine assessment of the Canadian economy, commended the government’s recent budget proposal for emphasizing increased public investment in response to challenges posed by U.S. tariffs and evolving trade relationships.
However, the IMF report emphasized the importance of maintaining a clear debt-to-GDP ratio as a core element of Canada’s fiscal framework. The report noted that the Liberals had replaced the previous declining debt-to-GDP ratio target with new objectives, aiming for a decreasing deficit-to-GDP ratio and a balanced operating budget within three years.
The IMF recommended elevating the debt ratio to a formal anchor and aligning deficit and operating-balance paths as complementary tools to enhance coherence, accountability, and sustainability of investment plans. Jason Jacques, the interim parliamentary budget officer, had previously expressed concerns about the absence of a declining debt-to-GDP anchor before the budget release. Despite some doubts about meeting short-term targets, he later acknowledged the government’s long-term fiscal sustainability.
When questioned about potentially adopting the IMF’s suggestion, Finance Minister François-Phillippe Champagne’s spokesperson, John Fragos, highlighted the stability of Canada’s debt-to-GDP ratio. He mentioned that both the Parliamentary Budget Office (PBO) and the IMF consider federal finances to be fiscally sound.
The IMF’s endorsement of Ottawa’s emphasis on capital and productive investments was highlighted by the Liberals ahead of their significant fiscal plan unveiling in November. The IMF also recommended establishing an independent mechanism to define capital within the new spending framework, echoing a previous proposal by Jacques.
Additionally, the IMF report acknowledged that Canada has fared better than expected amidst the trade challenges posed by U.S. tariffs. While the impact of the trade dispute was partially offset by exemptions under the free trade agreement with the U.S. and Mexico, employment and investment have still suffered. Factors such as lower commodity prices, reduced external demand, slowing immigration, and tariff-related uncertainties have contributed to the economic strain.
Looking forward, the IMF anticipates a more balanced but still uncertain economic outlook, with risks expected to persist.
