Fitch: Canada’s growing deficit will pose future fiscal consolidation challenges
Despite the recent announcement of the prorogation of Parliament following a growing controversy over charities, the Canadian federal government has nonetheless signaled its intention to lose the country to oblivion in the name of saving the economy, or whatever. that this means. However, such generous expenses will certainly not go unnoticed; Fitch Ratings has sounded the alarm bells on Canada’s growing debt burden, warning that fiscal consolidation will become increasingly difficult to achieve.
Since the start of the pandemic, the federal government has put in place a variety of emergency measures aimed at curbing the resulting economic fallout and ultimately alleviating some of the financial burdens many Canadians suddenly face. However, with the official tabling of a 2020/2021 budget budget hastily in a storage cupboard in the House of Commons in the name of a pandemic emergency, the Liberal government was able to rack up a hefty spending bill with relatively oversight. weak. .
However, all actions have consequences, and the endless federal spending ends up attracting the attention of Fitch Ratings, which ultimately downgraded Canada’s credit rating to AA plus. This of course led to scrutiny from both sides, and the federal government was forced to release a budget snapshot of the country’s growing debt. As it turns out, the new budget deficit stood at $ 343 billion, which is about 21% of GDP this year, a significant increase from Fitch’s prediction of 16.1%. This means that the debt consolidation to GDP ratio will increase by more than 120% of GDP!
But rest assured, there is more to the Liberal government’s tickle box of overspending habits. On August 20, the federal government announced it will once again increase spending by $ 37 billion, or 1.6% of GDP, to move Canadians from ECPs to EI . Likewise, Fitch Ratings threw another wrench into the sentiment of a smooth economic recovery.
According to a recent announcement by Fitch Ratings, the US-based credit rating agency warned that continued unprecedented spending by the Canadian federal government would significantly increase the risks of fiscal consolidation going forward. Although Fitch anticipates spending cuts in 2021, the ever-growing deficit and pre-existing public debt will continue to drag the country’s economy down, reducing potential growth to just 1%.
Following a prorogued Parliament, the Liberals will be required to deliver a throne speech outlining their stimulus package for the future, which will then be preceded by a vote of confidence. If the Liberal government does not get approval then there could very well be another federal election, creating more havoc for Canadians during a pandemic. However, Fitch notes that regardless of which party is in power in 2021, the Canadian government will certainly have its hands full with the economic and fiscal policy challenges ahead.
Information for this briefing was found via Fitch Ratings. The author has no title or affiliation related to this organization. Not a buy or sell recommendation. Always do additional research and consult a professional before purchasing a title. The author does not hold any license.