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Canada's Liberal Government Criticized for Postponing Debt Reduction Goals

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Sakchi Khandelwal
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Canada's Liberal Government Criticized for Postponing Debt Reduction Goals

Canada's Liberal government is under fire for not successfully meeting its debt reduction goals, despite recently committing to lower the federal debt as a percentage of GDP in the medium term. The country's Finance Minister, Chrystia Freeland, has twice postponed these goals this year, signifying a rise in the debt-to-GDP ratio for two successive fiscal years. New fiscal objectives include a deficit cap of C$40.1 billion for the current fiscal year, a reduced debt-to-GDP target for the 2024-25 fiscal year, and preventing the deficit from surpassing 1% of GDP from 2026-27.

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Funding Priorities and Implications

The government has prioritized spending on inflation relief, housing, and green technologies. Despite having the lowest net debt among G7 nations when considering provincial and municipal borrowing and pension assets, Canada's gross debt is higher than Germany and the UK. Conservative leader Pierre Poilievre has gained prominence by attributing inflation to government spending.

Rating Agencies and Fiscal Targets

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While Trudeau's government has experienced inconsistencies in achieving fiscal targets, Canada continues to receive the highest ratings from most agencies. However, experts suggest that the government may abandon its new fiscal goals if economic conditions worsen, implying a comfort with running deficits indefinitely.

Canada's Economic Outlook

Simultaneously, private-sector forecasters anticipate slower economic growth for Canada through 2024 due to high interest rates and a global economy in decline, before steady growth in the medium term. Challenges related to housing affordability persist, and the impact of past Bank of Canada interest rate hikes is yet to fully manifest. Nevertheless, the National Bank of Canada reported robust earnings per share for Q4 2023 and the full year, underscoring its strong positioning for 2024.

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