Statement by IMF Article IV Staff Mission to Canada

Press Release No. 10/401
October 28, 2010

Mr. Charles Kramer, the International Monetary Fund’s Mission Chief for Canada, released the following statement today at the conclusion of the Fund’s 2010 Article IV staff mission to Canada:

“The pace of Canada’s economic expansion has slowed over recent months. After a rapid expansion propelled by extraordinary monetary and fiscal stimulus, the recovery has begun to decelerate, as global demand slows and the Canadian dollar strengthens. Meanwhile, risks to the outlook are rising, including from stretched household balance sheets in Canada and housing market fragilities in the United States.

“In this context, Canada faces three main policy challenges: managing the exit toward a neutral macroeconomic policy stance; cementing fiscal stabilization; and incorporating the lessons from the crisis for financial supervision and regulation.

“On the exit, the Bank of Canada’s decision to keep its policy rate on hold strikes the right balance between the risks to the outlook and Canada’s relatively advanced expansion. The policy rate remains at an accommodative level.

“Meanwhile, fiscal policy is appropriately set to shift from expansion to consolidation next year. The budgeted adjustment is significant, although the Government has recently taken some steps to smooth the approach to the near-term consolidation. More generally, monetary and fiscal policies have room to respond to downside risks if they occur.

“On fiscal stabilization, the government appropriately charts a course to fiscal balance over the medium term. This would put net debt-to-GDP ratio on a downward trajectory from already low levels, maintaining Canada’s standing as the strongest fiscal position in the G-7. The plan includes welcome, growth-friendly measures to support Canada’s long-run economic potential, notably infrastructure spending and cuts in the corporate income tax rate. For the longer-run, and as in many advanced countries, restraining growth in health care spending will be an essential ingredient in fiscal stability.

“On financial reforms, Canada is well positioned to adapt to international initiatives to strengthen supervision and regulation. Indeed, Canada’s resilience during the crisis has yielded lessons on arrangements for promoting stability. The progress toward a national securities regulator is welcome, and this regulator should play an important role in Canada’s financial stability framework.”



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