Bank of Canada\u0027s mission to stomp out inflation risks triggering a recession that could put greater strain on Ottawa\u0027s finances. Read on.
In a recent note, Desjardins Group’s senior director of Canadian economics Randall Bartlett wrote that while Ottawa’s finances have been improving since the depths of the pandemic — fuelled largely by higher, inflation-driven revenues — the current risk outlook leans more toward larger deficits.Article content
However, the Desjardins team also noted that what makes Canada’s federal government stand out is that its debt obligations tend to have shorter-term durations compared to other advanced economies. Bartlett noted that this hadn’t changed much during the pandemic.Article content “This is really the first time in, I would say decades, that interest costs have really been a factor in government finance,” Porter said. “Of course, they were the dominant factor through much of the ’80s and ’90s, but they’ve really faded as you know as a key driver of government finances.”Article content
“Now, however, I think we have to go back to the drawing board because the assumptions upon which even that increase in public debt charges are based are looking pretty optimistic now,” Holt said. “Well, they’re just flat-out wrong.”Holt also pointed to the growth in T-bill yields, which he said the government also misjudged earlier in the year as he noted the initial eight per cent average yield the government assumed on the 90-day T-bill was now at least 100 basis points higher for the year.
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