‘Unprecedented shock’: Covid-19 pandemic could cause Canada’s federal deficit to increase tenfold
Amid the coronavirus crisis, Canada’s federal debt is expected to cross $1 trillion for the first time in the country’s history.Updated: Jul 09, 2020 13:11 IST
Canada’s projected deficit for the year has multiplied 10 times and net debt could reach $ 1.2 trillion due to the economic impact of the Covid-19 pandemic. These figures were among those detailed by Canadian finance minister Bill Morneau while presenting a fiscal update in the wake of what he described as, “an unprecedented shock to our system.”
Before the coronavirus crisis hit and forced the closure of much of the economy, Canada was expected to record $ 34.4 billion for 2020-21 and this number has now been revised to a whopping $343.2 billion. As the deficit balloons, so does the net federal debt, crossing a trillion dollars for the first time in the country’s history.
Even the country’s GDP is hitting historic highs, projected to decline by 6.8 per cent this year, placing the country in a situation not witnessed since the Great Depression.
The document described these circumstances as “truly the challenge of our lifetime” but sounded a cautiously optimistic note, looking ahead to a return to 5.5 per cent growth next year.
There are other systemic challenges: debt-to-GDP ratio is nearly at 50 per cent, a near 20 per cent spike from what was projected earlier.
The update also said, “the projected contraction in federal budgetary revenues is unprecedented since the Great Depression with an expected decline in 2020-21 more than twice as big as in 2009-10 following the global financial crisis.”
The burgeoning deficit can be attributed to emergency support measures announced by the government amounting to $212 billion with a loss of $81.3 billion to the treasury due to the slowdown caused by coronavirus-induced restrictive measures across the nation. Morneau said, “Some will criticize us on the cost of action. But our government knew that the cost of inaction would’ve been far greater.”
The government was under pressure to present a full budget for the year but Canadian prime minister Justin Trudeau had argued that was not possible given that the impact of Covid-19 could not be predicted. Instead, he settled on the compromise offering of this fiscal snapshot which was presented by Morneau in the House of Commons.
And clarity regarding the future could be a while away, as the update stated, “Due to the unprecedented degree of uncertainty clouding the economic outlook, providing a fiscal forecast beyond the current fiscal year with an appropriate degree of confidence is not possible at this time, and would potentially be misleading.”