That’s according to a new report released yesterday by the International Monetary Fund (IMF). Perhaps most importantly, it calls on Canada to restore a transparent debt-to-GDP anchor in its fiscal framework. His successor, interim parliamentary budget officer Jason Jacques, has warned that the government is missing a declining debt-to-GDP anchor. This recommendation is especially timely as the nation prepares for its next federal budget.
The IMF’s report emphasizes that a defined debt-to-GDP ratio should remain central to Canada’s fiscal policy. Historically, the Canadian government was able to function with a decreasing debt-to-GDP ratio as a baseline goal. Unfortunately, the current Liberal government has made the decision to replace this anchor. They are, for the first time, bringing in new metrics like a declining deficit-to-GDP ratio and a commitment to an operating budget balance within three years.
NRDC’s Jacques has been sounding the alarm over what this transition portends, especially in the run-up to the budget—John’s right that it may be deepening. Without a declining debt-to-GDP anchor, it is also unclear how the sustainability and accountability of any public investment plans would be maintained.
Jack Fragos, a spokesman for Finance Minister Champagne, fended off criticism of the government’s position, arguing that “debt to GDP is stable.” Instead, contrary to this assertion, the IMF’s report shows that Canada has been faring better than expected in the wake of trade shocks caused by U.S.-imposed tariffs. Even with outsized exemptions in the U.S.-Mexico-Canada free trade agreement, employment levels have eroded. Unfortunately, investment levels have dropped against this backdrop of increased challenge.
Trade is changing rapidly and the federal government is starting to get the memo, increasing public investment in response. This change has been forced by the prevailing fiscal climate. This budget, to be presented on November 4, intends to meet these challenges while stimulating robust economic recovery.
The IMF issued its recommendations in a report released Friday as part of its annual checkup on the Canadian economy. This report is an important shot across the bow of our incoherent fiscal policy.
“Elevating the debt ratio from an indicator to a formal anchor—and positioning the deficit and operating-balance paths as complementary instruments — would create a coherent hierarchy, reinforce accountability, and help ensure investment plans remain sustainable and credible,” – the report reads.
He went on to play a key role in emphasizing the importance of this international validation for Canada’s new, long-term economic strategy.
“We welcome the IMF’s report, chiefly the international validation that Budget 2025 reinforces the productivity agenda and can translate higher investment into durable gains in living standards,” – he said.
