## cr17210 ## Source details **Canonical URL:** [cr17210](https://www.imf.org/-/media/files/publications/cr/2017/cr17210.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2017/cr17210.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2017/cr17210.pdf.json) --- ### Political context and macro challenges - Since November 2015 the Trudeau government has made inclusive growth central to policy: tax cuts for the middle class, expanded family benefits, and raised infrastructure spending. - Short-term revival achieved; medium-term challenges noted: - Growth forecasts have been gradually marked down since the oil shock; without bold action Canada’s medium-term growth will struggle to rise above 2 percent. - Housing market imbalances increased; the Can$1.5 trillion mortgage market has supported consumption, but households are highly indebted and affordability in Vancouver and Toronto has become a social issue. - External geopolitical/policy risks highlighted: - U.S. trade and tax reform, the timing/form of the U.K.’s withdrawal from the EU, and elections in major European countries could tilt policies toward protectionism and economic fragmentation. ### A year of recovery but weak business investment - Key findings: - GDP growth expanded by 1.5 percent in 2016, up from 0.9 percent in 2015. - Negative output gap estimated around 1 percent of potential GDP and is beginning to close. - Employment growth accelerated to 1.3 percent at end-2016; between December 2016 and April 2017, full time jobs increased by 108,000 while part time jobs declined by 22,000. - Services account for 70 percent of total output and contributed 1.5 percentage points to GDP growth in 2016; manufacturing and agriculture together contributed 0.1 percentage points. - WTI about US$50; resource-province unemployment stabilized around 8 percent (Alberta). - Median income increased by 7.5 percent since 2010; Gini coefficient broadly stable at about 0.32. - Business investment concern: - Non-residential business investment declined by about 20 percent since mid-2014. - Oil and gas share in total business investment fell from about 30 percent in 2014 to 19 percent in 2016. - Structural constraints: working-age population ratio fell by about 2 percentage points since 2010 and projected to fall another 7 percentage points over next 20 years; labor productivity growth fell to 0.5 percent in the past decade. ### External sector and competitiveness - Despite a 15 percent depreciation of the Canadian dollar since mid-2014, non-energy exports disappointed; exports should have been about 6 percent higher in 2016 based on historical correlations. - Years of low labor productivity growth eroded external competitiveness in manufacturing; Canada’s export share in the U.S. market for non-resource goods is about 11 percent, roughly half of its mid-1990s share. - Competitive advantage retained in services, but Mexico and China catching up. ### Inflation, monetary conditions, and interest rates - Inflation: - Headline CPI hovered between 1–1.5 percent for most of last year; rose to about 2 percent in early 2017 due to gasoline prices. - All three core inflation measures remained below 2 percent since late 2016. - Labor costs and hours: - Total hours worked broadly flat; unit labor costs increased by only 1 percent. - Interest rates: - U.S. Federal Reserve raised the Fed funds rate twice since December (context in source); markets pricing additional increases in 2017. - Canadian long-term yields rose in line with U.S. yields; markets do not expect Bank of Canada to hike soon. ### Fiscal policy, fiscal space, and public debt - Fiscal positions and measures: - General government gross debt over 92 percent of GDP; financial assets about 64 percent of GDP; net debt 28 percent of GDP. - Stimulus measures in the 2016 Budget totaled 0.6 percent of GDP. - Can$95.6 billion in new infrastructure spending through FY2027 committed. - Estimated GDP impact from 2016 stimulus about 0.4 percentage points; average fiscal multiplier estimated at 0.7. - General government deficit increased by ¾ percentage points of GDP to around 2 percent of GDP in 2016; cyclically adjusted deficit increased by ¾ percentage points to 1½ percent of GDP. - Public DSA highlights: - Baseline: gross debt peak 92 percent in 2016, expected to fall to 82 percent by 2022. - Net debt 28 percent in 2016; expected to fall below 20 percent by 2021. - Financial assets cushion about 64 percent of GDP; highly-liquid portion about 29 percent of GDP. - Stress scenarios: even under most stress scenarios debt ratio does not rise above 100 percent; housing market shock could raise debt-to-GDP to just below 100 percent and gross financing needs to 25 percent of GDP at peak. ### Banking system and housing nexus—vulnerabilities - Banking sector structure: - Big-6 banks account for 93 percent of total banking system assets. - About 35 percent of total assets allocated to consumer and mortgage lending; about 50 percent of total revenues from consumer and mortgage loans. - Mortgage and household metrics: - Mortgage lending accounts for 45 percent of total loans; share of uninsured mortgages now exceeds insured mortgages. - MFCs market share grew from $5 billion outstanding mortgages (about 1 percent) in 1999 to $165 billion (about 12 percent) in 2015; most MFC-originated mortgages are insured. - Household debt-to-disposable income nearly 170 percent. - High-ratio mortgage borrowers (loan-to-income over 450 percent): Toronto share rose from 32 percent to 49 percent between 2014 and 2016; Vancouver from 31 percent to 39 percent. - Market episodes and risks: - Moody’s downgraded Big-6 banks by one notch in May (source context) citing household balance sheet resilience concerns. - Home Trust liquidity shock in April: investors withdrew more than 70 percent of high-interest savings; emergency credit line at 22 percent interest; Home Capital ≈ 1 percent of mortgage market but episode raised concerns. - Direct bank exposure to oil sector limited to 2 percent of total loans on average, plus 2 percent in undrawn credit lines. - Macroprudential and supervisory framework: - OSFI principles-based supervision and B-20/B-21 underwriting guidance; capital ratios strengthened from 10 percent to 11.3 percent; leverage ratios improved to 5 percent; profitability averaging 15 percent ROE; NPLs less than 1 percent. ### Regional divide in housing markets - Vancouver and Toronto accelerated house-price increases in recent years, widening gap with other cities. - Vancouver: prices rose over 50 percent between mid-2013 and mid-2016; activity slowed after 15 percent property transfer tax on non-resident buyers in Aug 2016; foreign buyer share fell from 12.8 percent (June 10–Aug 1, 2016) to 3.9 percent by Feb 2017. - Toronto: prices rose by 32 percent year-on-year in April 2017; Ontario announced 16 measures on April 20, including a 15 percent non-resident speculation tax for the Greater Golden Horseshoe. - Affordability and warning indicators: - BOC housing affordability index currently 0.34, compared to 0.39 at the 2008 crisis peak. - BIS credit-to-GDP gap widened to 17.4 percentage points by Q3 2016 (critical threshold 10 percentage points). - Under a 250-basis-point interest rate increase with 100-per-cent pass-through, debt service ratio for interest payments would rise from 3.6 percent to 7.9 percent of disposable income (13.4 cents per dollar). ### Housing policy, macroprudential tools, and data - Macroprudential measures since 2008 gradually tightened; October 2016 stricter qualification for insured mortgages reduced high-ratio originations by 12 percent y/y in Q1 2017. - Recommended measures for insured and uninsured mortgages: - caps on LTI or LTVs; - cap on share of high-LTI mortgages in bank portfolios; - more stringent mortgage-rate stress test (e.g., 300 basis points) with higher spread for high-LTI loans; - higher property transfer tax on short-term flips or investment purchases; empty-home tax. - Data and coordination needs: - Can$40 million over five years allocated in 2017 budget for Statistics Canada to develop national residential transactions database. - Close federal-provincial coordination for surveillance and problem resolution encouraged. ### Outlook—near-term, medium-term, and risks - Near-term projections: - Real GDP growth projected to lift to 2.5 percent in 2017 and 1.9 percent in 2018. - Residential construction expected to expand at a more moderate pace after a strong Q1. - Household credit growth projected to decelerate and fall below business credit growth. - Current account deficit expected to narrow to 3.0 percent of GDP by 2018. - Medium-term constraints: - Potential growth limited by weak external competitiveness, low labor productivity, and population aging to about 1.8 percent (below 2000-2008 average 2.6 percent). - Risks (from Risk Assessment Matrix): - Upside: stronger-than-expected U.S. growth could boost exports and investment. - Downside (mutually reinforcing; policy choices crucial): - Sharp housing correction impairing bank balance sheets could raise general government debt-to-GDP to about 100 percent under severe recession. - External: uncertainty about U.S. policies, faster U.S. rate hikes, protectionism, corporate tax cuts that could deter FDI. - Further declines in oil prices or weaker global growth could significantly reduce exports and potential growth. ### Illustrative risk scenarios and macro impacts (Box 1 highlights) - Tighter global financial conditions: - Increase in U.S. term premium by 50 basis points would raise Canada’s term premium by about 40 basis points. - Tighter conditions reduce investment by 0.6 percent in short term and output by 0.1 percent over medium term (central bank cuts policy rate). - Sharp house price correction (severe downside illustrative): - A 150 basis points increase in term premium reduces output by about 1 percent mostly via investment. - Adding higher debt service reduces disposable income and household consumption by about 1 percent. - Adding a 30 percent decline in house prices produces a near 3 percent short-term decline in real GDP; consumption 3.5 percent below baseline; investment lower by 18 percent even with central bank easing. ### Trade shock—U.S. tariffs on Canadian softwood lumber - U.S. tariffs ranging from 3 to 24 percent imposed on April 25, 2017 affecting about US$5.66 billion (CAN$7.50 billion) of imports from Canada. - Represents 1.4 percent of Canadian exports of goods, 1.2 percent of total exports, and 0.4 percent of 2016 GDP. - Lumber accounted for less than 0.3 percent of all Canadian jobs in 2016. - Simulated effects (IMF Global Integrated Monetary and Fiscal Model): - Canada real GDP: negative short-term impact of about 0.4 percent. - Channels: lower external demand → lower exports, profits, disposable income → permanently lower investment and private consumption; Canadian dollar depreciation cushions tariff effects. - A 20 percent tariff on 1.4 percent of exports yields about 0.3 percent average tariff on U.S. imports of goods from Canada. - Companion antidumping duty investigation ongoing with preliminary determination expected June 23, 2017. ### Fiscal policy direction and key measures (2017 budget context) - Fiscal stance: - Fiscal policy should continue to lead recovery; 2017 federal budget proposals described as countercyclical, growth friendly, inclusive. - Discretionary measures expected to contribute 0.6 percentage points to GDP growth in 2017. - Overall deficit rises from 1.1 percent of GDP in FY2016/17 to 1.4 percent of GDP in FY2017/18; infrastructure spending ≈ 0.2 percent of GDP. - Budget allocates about 0.4 percent of GDP over medium term to Innovation and Skills plan targeting six areas. - Funding and timing: - Measures funded via reallocation and tax measures (e.g., new tax on ride-sharing businesses, elimination of public transit tax credit, tighter tax-evasion controls). - No further stimulus required as output gap closes in 2018; cyclically adjusted federal deficit to be broadly unchanged in 2018 and gradually reduced beginning in 2019. - Federal medium-term consolidation target: overall deficit 0.8 percent of GDP by FY2021/22. - If downside risks materialize, additional stimulus (shovel-ready infrastructure, social housing, temporary personal income tax cuts) should be on stand-by. ### Provincial fiscal positions and recommendations - Provinces face higher debt burdens and rising health-care costs; provincial governments account for about 65 percent of total health expenditure. - Ontario and Quebec most indebted among Big-4; gradual fiscal consolidation recommended. - Alberta projected sizable deficit of 3.1 percent of Alberta GDP for FY2017/18; debt to rise fast from low levels; recommendation to formulate consolidation plan including measures to boost non-oil revenues. ### Infrastructure investment and Canada Infrastructure Bank (CIB) - Infrastructure need: - Including ongoing projects, infrastructure investment would amount to Can$187 billion (7½ percent of GDP). - Impact: - Staff estimate: one dollar increase in economic infrastructure stock raises GDP by about 46 cents on average over medium term. - Canada Infrastructure Bank: - Authorized to spend $35 billion in amounts provided by Minister of Finance; $15 billion could be used as “first loss” equity. - Guarantees issuance requires Minister approval; special purpose vehicle to limit liabilities. - Recommendations: publish selection criteria, ensure public interest, consider cabinet veto for accountability, and educate public to build acceptance. ### Monetary policy stance and guidance - Staff model estimates suggest monetary policy remains accommodative; policy rate below estimated neutral rate. - Recommendation: keep policy accommodative until durable growth and higher inflation; conditional baseline implies policy at 0.5 percent into first half of 2018 with gradual rise thereafter. - Effective lower bound estimated by Bank of Canada at -0.5 percent. - If yield curve steepens sharply, use forward guidance to reduce long-term rates. ### Macroprudential and financial-sector policy - Macroprudential tightening since 2008 effective in slowing mortgage credit growth and to a lesser extent house prices. - Recommended additional tools: LTI/LTV caps, portfolio limits on high-LTI loans, stronger mortgage stress testing, targeted property taxes. - Consider easing macroprudential measures counter-cyclically if markets correct rapidly, with careful calibration to avoid disruptive adjustment. - AML/CFT concerns: real estate sector vulnerable; recommendation to bring legal counsels, legal firms and Quebec notaries within AML/CFT framework and strengthen due diligence on beneficial owners and PEPs. ### Structural reforms, trade, and innovation - Productivity-enhancing levers: reduce product market barriers, improve innovation framework, increase access to post-secondary education, active labor market policies. - Canadian Free Trade Agreement (April 2017) moves to negative-list approach for interprovincial trade; removing barriers could raise potential output by around 0.2 percentage points annually (Bank of Canada estimate). - Innovation and Skills Plan: Can$8 billion (0.4 percent of GDP) over five years, including up to Can$950 million for “superclusters”. - Tax system review recommended to improve efficiency and preserve tax competitiveness; suggested liberalization of foreign ownership restrictions in several sectors. ### Immigration, gender, and labor force contributions - Immigration: - About one fifth of the population foreign-born; newly arrived immigrants account for more than 50 percent of annual population growth. - Without immigration, working-age population would drop by 8 percent within 10–15 years; share over 64 would rise from 16 percent in 2015 to 23 percent in 2030. - Without policy action, annual GDP growth over next 50 years could drop to 1.5 percent and per capita GDP growth to 0.8 percent. - Gender budget: - First-ever gender statement in 2017 budget; over 60 measures including Canada Child Benefit expansion, 40,000 new subsidized childcare spaces, STEM promotion for women, expanded caregiver Employment Insurance. - Women’s median wage about 19 percentage points lower than men’s. ### AML/CFT assessment—findings and priority actions - Technical compliance: Total 29 C or LC; 11 PC or NC. - Effectiveness (Immediate Outcomes): - IO.1 Risk, policy and coordination: High - IO.2 International cooperation: High - IO.3 Supervision: Substantial - IO.4 Preventive measures: Moderate - IO.5 Legal persons and arrangements: Low - IO.6 Financial intelligence: Moderate - IO.7 ML investigation and prosecution: Moderate - IO.8 Confiscation: Moderate - IO.9 TF investigation and prosecution: Substantial - IO.10 TF preventive measures and financial sanctions: Substantial - IO.11 PF financial sanctions: Moderate - Priority actions (exactly as listed): - (i) ensure legal counsels, legal firms and Quebec notaries are brought within the AML/CFT regime; - (ii) increase timeliness of access to accurate/up-to-date beneficial ownership information; - (iii) authorize FINTRAC to request/obtain further information from reporting entities; - (iv) use financial intelligence more to investigate ML and trace assets; - (v) increase efforts to detect, pursue and bring before courts different types of ML cases; - (vi) ensure asset recovery is pursued as a policy objective; - (vii) ensure compliance by all financial institutions to confirm beneficial ownership accuracy for all customers; - (viii) require designated non-financial sectors to identify/verify beneficial owners and politically exposed persons; - (ix) coordinate more effectively supervision of federally regulated financial institutions; - (x) ensure FINTRAC develops sector-specific expertise and applies more intensive supervisory measures to real estate and dealers in precious metals and stones sectors. ### Key macroeconomic projections (Table: Medium-Term Scenario 2014–22—selected series) - Real GDP (percent): 2.6 0.9 1.5 2.5 1.9 1.8 1.8 1.8 1.8 - Q4/Q4 (percent): 2.2 0.4 2.0 2.3 2.0 1.8 1.8 1.8 1.8 - Unemployment rate (percent): 6.9 6.9 7.0 6.7 6.6 6.5 6.5 6.5 6.5 - CPI inflation (y/y): 1.9 1.1 1.4 1.9 2.0 2.1 2.0 2.0 2.0 - General government gross debt (percent of GDP): 85.4 91.6 92.3 90.3 89.0 87.3 85.6 83.7 81.6 - General government net debt (percent of GDP): 27.2 25.2 27.6 25.6 24.3 22.7 20.9 19.0 16.9 - Current account balance (percent of GDP): -2.4 -3.4 -3.3 -3.0 -3.0 -2.9 -2.8 -2.5 -2.3 - Ten-year government bond yield (percent): 2.2 1.5 1.3 1.7 2.1 2.6 3.0 3.3 3.4 - Nominal GDP (billions of Can$) memorandum: 1,983 1,986 2,028 2,124 2,206 2,294 2,384 2,478 2,576 ### External balance, NIIP and capital flows - NIIP declined from 21.7 percent of GDP in 2015 to 9.3 percent of GDP in 2016; gross external debt reached 116 percent of GDP. - About a third of external debt is short-term. - 2016 current account balance -3.3 percent of GDP; staff CA norm about -0.9 percent of GDP; cyclically adjusted CA gap -3.1 percent of GDP (EBA) or between -2.6 and -0.6 percent (staff). - Financing: CA deficit in 2016 financed by net portfolio inflows equal to 7.3 percent of GDP; FDI recorded a net outflow of 2.1 percent of GDP in 2016. ### Data, statistics, and institutional notes - Canada subscribes to SDDS; data quality and coverage adequate for Article IV surveillance. - Key releases and observation dates for several series provided (e.g., CPI latest observation April 2017; international reserve assets latest observation June 15, 2017). - Fund relations: Quota 11,023.90 (SDR Million); Fund holdings of currency 10,048.77 (SDR Million). *Source: IMF staff report excerpt (cr17210).* ### 1. Risk Scenarios and Spillovers __________________________________________________________________ 17 ### 1. Risk Scenarios and Spillovers ### Political Context - Since November 2015 the Trudeau government has made inclusive growth a central tenet of its governing philosophy, with measures including tax cuts for the middle class, expanded family benefits, and raised infrastructure spending. - Short-term revival achieved, but medium-term challenges remain: - Growth forecasts have been gradually marked down since the oil shock; without bold action Canada’s medium-term growth will struggle to rise above 2 percent. - Housing market imbalances have increased; the Can$1.5 trillion mortgage market has supported consumption, but households are highly indebted and affordability in Vancouver and Toronto has become a social issue. - External geopolitical and policy risks noted: - U.S. policies on trade and tax reform, the timing and form of the U.K.’s withdrawal from the EU, and elections in major European countries could tilt policies toward protectionism and economic fragmentation, with significant consequences for Canada’s trade-reliant economy. ### A Year of Recovery but Weak Business Investment Findings - GDP growth expanded by 1.5 percent in 2016, up from 0.9 percent in 2015. - The negative output gap is estimated around 1 percent of potential GDP and is beginning to close. - Labor market and demand: - Employment growth accelerated to 1.3 percent at the end of 2016, the fastest annual job growth since mid-2013. - Between December 2016 and April 2017, full time jobs increased by 108,000, whereas part time jobs declined by 22,000. - Services account for 70 percent of total output and contributed 1.5 percentage points to GDP growth in 2016; manufacturing and agriculture together contributed 0.1 percentage points. - Energy and regional dynamics: - WTI about US$50; rise since mid-2016 allowed oil sands producers to remain in business. - Unemployment in resource provinces stabilized around 8 percent (Alberta). - Income and inequality: - Median income increased by 7.5 percent since 2010. - Canada’s Gini coefficient has been broadly stable at about 0.32. Key concern: business investment - Non-residential business investment has declined by about 20 percent since mid-2014. - The oil and gas share in total business investment fell from about 30 percent in 2014 to 19 percent in 2016. - Structural factors curbing investment: - Population aging: the working age population ratio (aged 15–64 as a share of total population) has fallen by about 2 percentage points since 2010 and is projected to fall another 7 percentage points over the next 20 years. - Labor productivity growth: Canada’s labor productivity growth has fallen to 0.5 percent in the past decade, reflecting sluggish total factor productivity and slower capital accumulation. ### External Sector and Competitiveness - Despite a 15 percent depreciation of the Canadian dollar since mid-2014, non-energy exports disappointed; based on historical correlations, exports should have been about 6 percent higher in 2016. - Staff research indicates years of low labor productivity growth have eroded external competitiveness in manufacturing and caused a permanent loss of manufacturing capacity. - Canada’s export share in the U.S. market for non-resource goods is about 11 percent, roughly half of its mid-1990s share. - Canada retains a competitive advantage in services, but Mexico and China are catching up. ### Inflation, Monetary Conditions, and Interest Rates - Inflation: - Headline CPI inflation hovered between 1–1.5 percent for most of last year, below the mid-point of the BOC’s target band (1–3 percent), rising to about 2 percent in early 2017 due to gasoline price increases. - All three core inflation measures remained below 2 percent since late 2016. - Labor costs: - Total hours worked broadly flat; unit labor costs increased by only 1 percent. - Interest rates: - U.S. Federal Reserve raised the Fed funds rate twice since December (date context in source); markets pricing additional rate increases in 2017. - Canadian long-term yields rose in line with U.S. yields, steepening the yield curve, but markets do not expect the Bank of Canada to hike rates soon. ### Fiscal Policy and Use of Fiscal Space Findings and projections - General government gross debt is over 92 percent of GDP, with financial assets about 64 percent of GDP; net debt is 28 percent of GDP (advanced-economy average net debt 72 percent of GDP referenced). - Canada’s public debt remains sustainable under most stress scenarios (Annex II reference). - Stimulus implementation: - Stimulus measures in the 2016 Budget totaled 0.6 percent of GDP (investment in social housing, middle-class tax cuts, increased child care benefits, infrastructure investment). - Implementation broadly on track, with about 15 percent of the budgeted infrastructure allocation (equivalent to 0.1 percent of GDP) expected unspent by the fiscal year end in March; remaining allocation to be rolled over. - Government commitment: Can$95.6 billion in new infrastructure spending through FY2027 remains intact. - Estimated impact on GDP growth from the 2016 stimulus package: about 0.4 percentage points (staff estimate; average fiscal multiplier estimated at 0.7). - Fiscal outcomes: - General government deficit increased by ¾ percentage points of GDP to around 2 percent of GDP in 2016. - On a cyclically adjusted basis, the general government deficit increased by ¾ percentage points to 1½ percent of GDP in 2016. - Institutional credibility: Office of the Parliamentary Budget Officer (PBO) serves as an effective counterpoint evaluating fiscal policy consistency and medium-term forecasts; sovereign long-term bonds rated AAA trading at a premium to U.S. 10-year treasury bonds. Policy implications highlighted - Canada has fiscal space and is pro-actively using it to support growth, consistent with previous Fund advice. ### Banking and Housing Nexus: Vulnerabilities Structure and exposures - The Big-6 banks account for 93 percent of total banking system assets. - Big-6 asset allocation and revenue: - About 35 percent of total assets allocated to consumer and mortgage lending. - About 50 percent of total revenues drawn from consumer and mortgage loans. - Mortgage lending composition: - Mortgage lending accounts for 45 percent of total loans. - The share of uninsured mortgages now exceeds insured mortgages. - Insured vs. non-insured: non-insured loans have a maximum LTV of 80 percent and are not backed by government mortgage insurance. - Mortgage finance companies (MFCs) market share grew from $5 billion outstanding mortgages (about 1 percent) in 1999 to $165 billion (about 12 percent) in 2015; most MFC-originated mortgages are insured. Household debt and regional concentrations - Household debt-to-disposable income reached nearly 170 percent, among the highest in G7 economies. - High-ratio mortgage borrowers (loan-to-income ratio over 450 percent): - Toronto: share increased from 32 percent to 49 percent between 2014 and 2016. - Vancouver: share increased from 31 percent to 39 percent between 2014 and 2016. - Market signals: - In May (year context in source), Moody’s downgraded the credit rating of the Big-6 banks by one notch, citing untested resilience of household balance sheets and bank portfolios to a serious downturn at these indebtedness levels. - Home Trust liquidity shock in April (year context in source): investors withdrew more than 70 percent of high-interest savings; emergency credit line provided at 22 percent interest; Home Capital not systemic (1 percent of mortgage market) but episode raised broader concerns. Risks and dynamics - Low interest rates have kept total debt service affordable so far. - U.S. Fed normalization likely to raise Canadian long-term rates, increasing housing-related vulnerabilities. - With house prices and household credit rising faster than nominal GDP, the gap between the business and housing cycles has widened. *Source: IMF staff report excerpt (chapter: 1. Risk Scenarios and Spillovers).* ### 14. The regional divide in the housing ### 14. The regional divide in the housing ### Regional housing market developments - Rapid acceleration of house prices in Vancouver and Toronto in the last two years widened an already large gap between these two markets and the rest of the country. - On weighted average terms: - In Calgary and Regina, house prices have stabilized after two years of declines. - In Ottawa and Montreal, house prices are growing at a slow pace. - Staff heat maps show Vancouver and Toronto deeply in “red”, with house prices accelerating at a rate that is difficult to be justified by fundamentals, while other major cities are “green”. - Vancouver: - House prices rose over 50 percent between mid-2013 and mid-2016. - Housing activity started to slow down in early 2016, and the decline accelerated after British Columbia introduced a property transfer tax of 15 percent on non-resident buyers in the Metro Vancouver Area in August 2016. - British Colombia authorities noted that foreign buyers accounted for 12.8 percent of the total value of property transfers in the province between June 10 and August 1, 2016, and the share of foreign buyers fell to 3.9 percent by February 2017. - Toronto: - House prices have continued to surge through 2017, rising by 32 percent year-on-year in April. - On April 20, the Ontario government announced 16 measures, including a 15 percent non-resident speculation tax for the Greater Golden Horseshoe region around Toronto. ### Housing affordability and credit indicators - The BOC’s housing affordability index is currently 0.34, compared to 0.39 at the peak of the crisis in 2008. - The BIS early warning indicator for domestic banking risks shows Canada’s credit to GDP gap widening to 17.4 percentage points by the third quarter of 2016, second only to China (26.3 gap) and above the critical threshold of 10 percentage points. - Under stressed conditions—a 250-basis-point increase in interest rates and assuming 100-per-cent pass-through—the debt service ratio for interest payments would rise from 3.6 percent to 7.9 percent, or 13.4 cents for every dollar of household disposable income. ### Safety nets and banking resilience - Supervisory framework: - OSFI’s principles-based supervision emphasizes accountability of board directors and management and adherence to supervisory guidance. - OSFI has consistently updated expectations of residential mortgage and insurance underwriting practices (B-20 and B-21 Guidelines) with emphasis on rigorous income verification, non-conforming loans, debt service and LTV calculations, property appraisals, and risk profile assessment; full assessment of borrower’s ability to withstand plausible shocks. - Bank balance sheets and performance (Big-6 banks): - Strengthened capital ratios from 10 percent a year ago to 11.3 percent. - Improved leverage ratios to 5 percent. - High profitability, averaging 15 percent return on equity. - Strong asset quality, with less than 1 percent non-performing loan ratios (NPL). - Diversified sources of funding, with foreign assets mostly in the U.S. - The U.S. now accounts for about 30 percent of TD bank’s total net income. - Mortgage finance and recourse: - Government-backed mortgage finance system takes on virtually all the credit risk on insured mortgage loans, subject to strict underwriting requirements; interest rate on the loans resets every five years. - Government guarantees of insured mortgages amount to 36 percent of GDP. - In most provinces, Canadian banks have full recourse to take legal action to recoup money from the homeowner if a foreclosed home is sold for less than the amount owed; exceptions: Alberta and Saskatchewan (Alberta does not always offer recourse based on vintage and nature of loan; in Saskatchewan, recourse only applies to refinanced mortgages). ### Outlook and near-term projections - Near-term growth drivers and projections: - Positive momentum expected to continue in the near term, supported by higher domestic and external demand. - A strong U.S. economy, expansionary fiscal and monetary policy, and stable oil prices are expected to lift real GDP growth to 2.5 percent in 2017 and 1.9 percent in 2018. - After a strong first quarter, residential construction is expected to expand at a more moderate pace. - Household credit growth projected to decelerate and fall below business credit growth. - Slowdown in housing activity reflects more expensive mortgage financing as long-term rates rise in response to U.S. monetary policy tightening and tighter macroprudential measures. - Increase in exports and stable domestic demand expected to generate growth in business investment and, along with an increase in national savings, narrow the current account deficit to 3.0 percent of GDP by 2018. ### Medium-term outlook and structural constraints - Medium-term potential growth limited by structural impediments: - As fiscal stimulus fades and the U.S. economy returns to trend, weak external competitiveness, low labor productivity growth, and population aging will limit potential growth to about 1.8 percent, lower than the recent average of 2.6 percent (2000-2008). ### Risks to the outlook (highlights from Risk Assessment Matrix) - Upside risk: - Stronger-than-expected growth in the U.S. could boost export and investment in the near term. - Downside and salient risks (mutually reinforcing; policy choices crucial): - Main domestic risk: sharp correction in the housing market that impairs bank balance sheets, triggers negative feedback loops, and increases contingent claims on the government. - Under a severe recession accompanying a housing correction, the general government debt-to-GDP ratio could rise to about 100 percent of GDP. - Staff stress tests show banks’ strong profitability and capital position could withstand significant loss on uninsured residential mortgage portfolio; NPL may have to increase to levels higher than seen in most advanced countries during the global financial crisis to breach the minimum requirement for common equity tier 1 capital. - Main external risk: high uncertainty about U.S. policies and impact on global growth. - Faster-than-expected U.S. interest rate hikes and tightening global financial conditions could raise the cost of funding for Canadian businesses and households, dampening domestic demand. - A move by the U.S. towards greater protectionism, including imposing non-tariff barriers in a revised NAFTA or raising tariffs, would undercut Canada’s growth prospects, leading to a permanent reduction in investment and consumption. - A sharp reduction in the U.S. corporate tax rate may make Canada less attractive and discourage FDI inflows. - Other external risks: structurally weaker growth in key advanced and emerging economies and a further decline in oil prices could significantly reduce Canadian exports and potential growth. - Banks’ exposure to oil sector: - Direct exposure limited to 2 percent of total loans on average, with another 2 percent in undrawn credit lines. ### Policy responses and recommended actions (selected from Risk Assessment Matrix) - For global retreat from cross border integration / geopolitical uncertainties (High likelihood, High impact): - Monetary policy: The BOC should cut the policy rate and use forward guidance to keep long-term rates low; if policy rate hits the effective lower bound, introduce unconventional monetary policy. - Fiscal policy: Federal government should introduce discretionary measures, including bringing forward already committed infrastructure spending; provinces with low deficit/debt should also take expansionary measures. - Structural reforms: Accelerate to raise productivity, improve external competitiveness, trade, and boost potential growth. - For significant further strengthening of the US dollar and/or higher rates (High likelihood, Medium impact): - Implicit policy response: monitor and manage repricing risk; depreciation of the Canadian dollar would cushion shocks. - For sharp house price correction combined with a sharp and persistent rise in unemployment (Medium likelihood, High impact): - Ensure adequate loss absorbing buffers in the banking and insurance sectors, and conduct regular stress testing. - Macroprudential policy may need to be eased as a counter-cyclical measure. ### Risk scenarios and illustrative macro impacts (Box 1, highlights) - Tighter global financial conditions: - An increase in the U.S. term premium by 50 basis points would raise Canada’s term premium by about 40 basis points. - Tighter financial conditions will reduce investment by 0.6 percent in the short term and output by 0.1 percent over the medium term (central bank reacts by reducing policy rate). - Sharp house price correction (illustrative severe downside scenario): - Tighter global financial conditions lead to higher debt service costs that trigger a contraction in house prices by 30 percent. - Scenario 1: A 150 basis points increase in the term premium would reduce output by about 1 percent mostly through lower investment. - Scenario 2: Scenario 1 plus increase in debt service reduces disposable income and household consumption by about 1 percent. - Scenario 3: Scenario 2 plus a 30 percent decline in house prices—negative effect on real GDP close to 3 percent in the short term; consumption 3.5 percent below baseline; investment lower by 18 percent, even when central bank eases monetary policy. *Source: cr17210 - 14. The regional divide in the housing* ### 2.1 percentage points to the WTO most- ### cr17210 - 2.1 percentage points to the WTO most- ### Trade shock: U.S. tariff increase on Canadian lumber - U.S. tariffs ranging from 3 to 24 percent were imposed on Canadian softwood lumber exporting companies on April 25, 2017. - The tariff increase affects about US$5.66 billion worth of imports from Canada (CAN$7.50 billion). - This represents 1.4 percent of Canadian exports of goods and 1.2 percent of total exports (goods and services) and 0.4 percent of 2016 GDP. - Lumber accounted for less than 0.3 percent of all Canadian jobs in 2016. - A 20 percent tariff on 1.4 percent of exports would yield about 0.3 percent average tariff on imports of goods from Canada. - A companion antidumping duty investigation by the U.S. is ongoing, with a preliminary determination expected June 23, 2017. Simulated macroeconomic effects (IMF Global Integrated Monetary and Fiscal Model) - Canada real GDP: negative short-term impact of about 0.4 percent. - Mechanisms: - Lower external demand reduces exports, profits, and disposable income, leading to permanently lower investment and private consumption. - Canadian dollar depreciates, softening tariff effects on exports but increasing the price of foreign goods. - Trade balance deteriorates, then recovers as the exchange rate remains depreciated. - Effects on the U.S.: negligible for GDP and moderately positive for private consumption when tariff revenues are rebated to households; U.S. dollar appreciates; households switch part of consumption to domestic production consistent with declines in imports and exports. - Charted outcomes (difference from baseline scenario, percent or percentage points as indicated): - Real GDP: roughly a peak decline near -0.4 percent in short term (chart labels: -1.0, -0.5, 0.0, 0.5, 1.0; horizontal years 0–10). - Real consumption, Real investment, Real exports, Real imports, Trade balance (1/ difference from baseline scenario in percentage points of GDP), Current account (1/), REER, Real Bilateral XR — model responses shown across 0–10 periods. ### Canada's free trade access and export shares (2016) - Share of World included in Canada's trade agreements concluded or in force (Share of 2016 World economy included in Canada's trade agreements concluded or in force): - NAFTA: 28% - TPP excl. NAFTA: 10% - CETA: 22% - Other agreements: 4% - Share of World not Included: 36% - Sources: IMF, World Economic Outlook, 2016. - Canada's Export Share as of 2016 (Percent of total FOB exports of goods): - NAFTA: 78% - TPP excl. NAFTA: 3% - CETA: 8% - Other agreements: 2% - Share of World not Included: 9% - Sources: IMF, Direction of Trade Statistics. ### A. Fiscal Policy — overall direction and key measures - Fiscal policy should continue to take the lead in supporting the recovery. - The 2017 federal budget proposals are countercyclical, growth friendly, and inclusive. - Discretionary measures expected to contribute 0.6 percentage points to GDP growth in 2017. - To smooth the economic cycle: - Overall deficit increases from 1.1 percent of GDP in FY2016/17 to 1.4 percent of GDP in FY2017/18. - Infrastructure spending accounts for about 0.2 percent of GDP. - To foster long-term growth: - Budget will allocate about 0.4 percent of GDP over the medium-term to the Innovation and Skills plan targeting six key areas: advanced manufacturing, agri-food, clean technology, digital industries, health/bio-sciences and clean resources. - To promote inclusion: - Budget includes Canada’s first ever gender statement and measures expanding caregiver support and parental leave to improve female labor participation. - Funding of discretionary measures: - Reallocation of funds from existing projects and tax measures including a new tax on ride-sharing businesses (“Uber tax,” currently not subject to the Goods and Services Tax), elimination of the public transit tax credit, and tighter control of tax evasion. Policy timing and contingencies - No further stimulus required as output gap closes in 2018; cyclically adjusted federal deficit should remain broadly unchanged in 2018 and be gradually reduced beginning in 2019. - Federal medium-term fiscal consolidation plan aims to lower the overall deficit to 0.8 percent of GDP by FY2021/22. - If downside risks materialize, additional fiscal stimulus should be considered: - Fiscal stimulus is more potent when there is slack and monetary policy is constrained by the effective lower bound. - Authorities should have on stand-by stimulus measures: shovel-ready infrastructure, social housing projects, and temporary cuts of personal income taxes. ### Provincial fiscal positions and recommendations - Provincial governments face higher debt burdens and growing health-care costs. - Among the Big-4 provinces, Ontario and Quebec are most indebted; fiscal consolidation should continue at a gradual pace to avoid offsetting federal support. - Alberta: - Projected sizable deficit of 3.1 percent of Alberta GDP for FY2017/18. - Debt expected to rise fast (albeit from a very low level). - Recommendation: formulate a fiscal consolidation plan that includes measures to boost non-oil revenues (e.g., introduction of a goods and sales tax). - Health care costs and federal transfers: - Anticipated increase in health care costs due to population aging will constrain provincial finances. - Federal government committed to increasing health-related transfers in line with nominal GDP growth or 3 percent (whichever is higher); provinces must manage the remaining fiscal gap. - Provincial fiscal data notes: - Provincial governments account for about 65 percent of total health expenditure; federal government and social security funds pay about 5 percent; private sector pays remaining 30 percent. - Fiscal position charts present net debt (left scale) and operating deficit (right scale) for provinces (FY2015/16 or FY2014/2015 for some). ### Infrastructure investment: needs, impact, and plan - Infrastructure need: - Including ongoing projects, infrastructure investment would amount to Can$187 billion (7½ percent of GDP). - Priority areas: public transit, green technology, trade, and social infrastructure (housing, child care, indigenous communities). - Potential impact: - Staff estimates suggest a one dollar increase in the economic infrastructure stock would raise GDP by about 46 cents on average over the medium-term. - Evidence of positive spillovers across provinces that could enhance long-term growth. - Long-term infrastructure plan (percent of GDP by FY years) charted across FY2016–FY2026 with categories: Approved by the previous govt, Public transit, Rural, Green, Trade, Social. ### B. Canada Infrastructure Bank (CIB): objectives and issues (Box 4) - Purpose: - Leverage private capital for public infrastructure; handle large, complex, and revenue-generating projects. - Operational details and fiscal impact: - CIB authorized to spend $35 billion in amounts provided by the Minister of Finance as needed. - Of this $35 billion, $15 billion could be used as “first loss” equity to attract private capital. - Corporate plan along with operating and capital budget to be prepared annually and submitted for approval as designated in law. - Issuance of guarantees by the CIB requires approval by the Minister of Finance; special purpose vehicle limits liabilities or losses to CIB’s equity investment. - Key challenges and recommendations: - Serving the public interest: - Project selection process must ensure high priority public needs are met. - Cabinet could have authority to veto CIB proposed projects to ensure accountability. - Selection criteria should be published. - Attracting private capital: - Private investors require acceptable risk-adjusted rate of return. - CIB actions to increase leveraged capital: (i) increase cash inflow primarily via user fees; (ii) reduce cash outflows by leveraging private sector expertise and discipline; (iii) reduce risk premium, especially revenue risk. - Private investors can lower upfront costs via experience from similar projects. - Public acceptance: - Public acceptance of involving private investors and offering adequate returns is a precondition to success. - Government and CIB must educate the public and publish selection criteria and run competitive selection of investors to build confidence. ### Institutional and fiscal framework recommendations - The existence of a medium-term fiscal framework provides a good anchor for fiscal policy. - Federal government committed to putting debt-to-GDP ratio on a downward path over the next five years to rebuild buffers. - Reinstating a new fiscal rule would be useful but can reasonably be delayed until there is greater certainty that growth has stabilized around its potential; once assessed, a clear timeline for introducing a new fiscal rule should be established. - At the provincial level, fiscal rules should be strengthened to target the overall balance that includes capital spending, rather than the operational balance, to link deficit and debt targets. *Italicized source: IMF staff estimates and Canada Article IV Consultation material contained in the provided content.* ### 0.5 percent since July 2015 (Figure 7). Staff ### cr17210 - 0.5 percent since July 2015 (Figure 7). Staff ### Monetary policy: stance and guidance - Staff model-based estimates of the neutral rate of interest suggest that monetary policy remains accommodative, with the actual policy rate below the estimated neutral rate. - Output gap has started to close, but monetary policy should stay accommodative until signs of durable growth and higher inflation emerge. - Given downside risks and a policy rate close to zero, deferring rate increases and allowing a temporary overshoot above the inflation target would be appropriate to reinforce the symmetry of the inflation target and provide insurance against disinflation and policy reversal. - Conditional staff baseline implication: keeping the policy at 0.5 percent into the first half of 2018 with a gradual rise thereafter, barring upside surprises to growth or inflation. - If the economy slows, further easing of monetary policy could complement fiscal stimulus, but it could worsen housing-sector imbalances. - Bank of Canada estimate: the effective lower bound for the policy rate is -0.5 percent. - If the yield curve steepens sharply, appropriate response would be to use forward guidance to reduce long-term rates; clear communication would be critical. ### Financial sector policy: macroprudential measures and housing risks - Since 2008, federal macroprudential policy has been gradually tightened to reduce exposure to mortgage insurance and to contain housing-sector vulnerabilities. - Staff research indicates macroprudential measures have generally been effective in slowing mortgage credit growth and, to a lesser extent, house prices, and improving financial stability. - October 2016 measures with stricter qualification rules for insured mortgages reduced high-ratio mortgage originations by 12 percent year on year in the first quarter of 2017. - OSFI is assessing the impact of the newly introduced risk-sensitive floor for loss given default for mortgages. - Rising housing imbalances warrant more targeted measures to address excessive speculation in all mortgages; responsibility should be joint federal and provincial given regional divides. - Recommended combination of measures for insured and uninsured mortgages: - caps on LTI or LTVs; - a cap on the share of mortgages with high LTI in bank portfolios; - more stringent stress test on mortgage rates (e.g. 300 basis points), with a higher spread for high LTI loans; - higher property transfer tax on properties sold within a relatively short period or bought for investment purposes; or an empty home tax. - Among these, LTI-based measures would strengthen household balance sheet resilience and reduce household default probability under downside scenarios. - Recent British Columbia and Ontario measures could help, but the property transfer tax on non-residents could be considered a capital flow management measure; staff recommends alternative measures consistent with the IMF’s Institutional View on the Liberalization and Management of Capital Flows. - Improved data and supervision needed for effective macroprudential policy: - Comprehensive and timely data on real estate transactions, including foreign investor activity. - Can$40 million over five years allocated in the 2017 budget for Statistics Canada to develop a national database of residential transactions. - Close coordination between federal and provincial authorities for surveillance and timely problem resolution. - Encourage provincially regulated financial institutions to adhere to OSFI’s underwriting standards for mortgages when mortgages are not federally insured. - Addressing gaps from the 2014 FSAP would strengthen the framework: - Clear and explicit regulatory mandates to monitor systemic risk and facilitate macroprudential oversight and system-wide crisis preparedness. - Amend legislation, consistent with Basel Core Principles, to give OSFI operational independence without ministerial power to override supervisory judgment. - If housing markets correct much faster than expected and raise financial stability concerns, authorities may need to consider easing macroprudential measures; calibration must avoid triggering disruptive adjustment. - AML/CFT shortcomings identified in the 2015 IMF assessment: real estate sector highly vulnerable to money laundering; recommendation to strengthen supervisory measures and require all professionals involved in real estate transactions (including legal counsels, legal firms and Quebec notaries) to fall within the AML/CFT framework and implement due diligence on beneficial owners and politically exposed persons. ### Trade and structural reforms: productivity, innovation, and tax framework - Revitalizing productivity and finding new export markets are key to creating middle-class jobs over the medium term. - Policy levers with sizable productivity gains: reducing barriers to product market competition, improving the innovation framework, increasing access to post-secondary education, and active labor market policies. - April 2017: federal and provincial governments signed a new Canadian Free Trade Agreement (CFTA) to move interprovincial trade to a ‘negative list’ approach, harmonize regulations and standards, and improve government procurement rules; much implementation work remains. - Removing interprovincial barriers could raise Canada’s potential output growth by around 0.2 percentage points annually (Bank of Canada estimate). - Government’s 2017 “Innovation and Skills Plan”: Can$8 billion (0.4 percent of GDP) over the next five years, including: - Innovation Canada platform to coordinate support for innovators; up to Can$950 million competitively provided to “superclusters” focusing on advanced manufacturing, agri-food, clean technology, digital technology, health/bio-sciences, clean resources, infrastructure and transportation. - Investments in education and research, lifelong learning, Youth Employment Strategy, targeted immigration, and a new entity to identify skills needs, explore skills-development approaches, and share information. - More flexible family benefits and work arrangements to encourage women’s workforce participation. - Policy design caveats for innovation support: - R&D incentives to small firms tend to be two to three times more effective in Canada than for large firms in generating extra private R&D; R&D incentives to large firms can also be desirable because of larger spillovers. - Avoid “choosing winners”; create a competition-friendly environment, target high-spillover sectors only if competitive, spread support across many firms, and ensure new entrants can benefit. - A holistic review of the overall tax system is timely to improve efficiency and preserve tax competitiveness; the review should examine taxes on earnings, savings, consumption, businesses, and housing across federal and provincial levels. - Canada remains relatively restrictive on foreign investment in key sectors; suggested reforms: - Reduce foreign ownership restrictions and improve regulatory environment in sectors such as telecommunications, broadcasting, transportation, retail, and professional services to lower prices and speed technology adoption. - May 2017 legislation tabled proposing to liberalize international ownership restrictions for Canadian air carriers from 25 to 49 percent of voting interests and to lift ownership limits for Canadian National Railway Co. from 15 to 25 percent. - Trade diversification: - NAFTA trade will remain important; CETA applied provisionally starting in mid-2017 and is expected to boost bilateral trade between Canada and the EU by 20 percent from the current share in total trade of 5.6 percent. - Asia (China, India, Japan) collectively account for 6.9 percent of Canada’s total exports and represent opportunities for diversification. *International Monetary Fund — Canada country report excerpt* ### Box 5. A Talent-Based Immigration Policy ### Box 5. A Talent-Based Immigration Policy ### Immigration’s role in population and labor force growth - Immigration has been "an important driver of population and labor force growth in Canada." - "About one fifth of the population in Canada is foreign born (sixth highest in the OECD)." - "Newly arrived immigrants account for more than 50 percent of annual population growth." - "Between 1990 and 2015, immigrants contributed more than a third to the growth in Canada’s working-age population in Canada." ### Canada’s managed, targeted immigration system - Canada's immigration system "has long targeted high-skilled immigrants, rewarding education, fluency in English or French, and work experience." - "About half of immigrants hold a university degree, compared to just 21 percent of the Canadian-born population." - Newcomers benefit from "settlement services, long-term language support and bridging/recognition procedures that promote rapid labor market integration and a common sense of belonging." ### Demographic projections and macroeconomic implications - Without immigration, "the working age population in Canada will drop by 8 percent within 10–15 years." - The share of the population over the age of 64 would rise "from 16 percent in 2015 to 23 percent in 2030." - "Without policy action to offset the impact of these demographic changes, annual GDP growth over the next 50 years could drop by more than half of historical levels to 1.5 percent and per capita GDP growth could decline to 0.8 percent." ### Evidence on migration and income - Jaumotte et al (2016) estimate that "a 1 percentage point increase in the share of migrants in the working-age population can raise GDP per capita over the long term by up to 2 percent regardless of the skill level of migrants, possibly because most migrants tend to be 'over-qualified'." ### Key statistics and figures (Canada) - "1 in 5 Canadians born outside Canada" - "31,462 Refugees admitted in 2015" - "271,369 Permanent residents admitted in 2015" - "3.7 million New permanent residents in the last 15 years" - "$953 million (0.05% of GDP) Spending on settlement funding for 2016-17" - "15 million Immigrants since Confederation" - "35.8 million Canada population in 2015" *Source: IMF staff summary of Box 5. A Talent-Based Immigration Policy from cr17210* ### Box 6. Gender Budget ### Box 6. Gender Budget ### Context and objectives - Canada published its first ever gender statement in the 2017 federal budget as part of the government’s ongoing efforts to achieve gender equality over medium term. - The statement includes the assessment of gender gaps and a gender-based analysis of budget measures. ### Gender gaps and economic impact - Canada has made a grade stride in raising female labor participation rates and education attainment over the past several decades; today, both indicators fare relatively well compared to other OECD economies. - Career-related gender indicators show gaps: - Women’s median wage in Canada is about 19 percentage points lower than men’s (compared to the OECD average of 15 percentage points). - Women remain substantially underrepresented in private sector executive boards and national parliaments, well below the best OECD economy. - A forthcoming IMF study suggests: - A 1 percentage point increase in the labor force participation of women with an advanced degree would raise Canada’s overall labor productivity growth by 0.2 to 0.3 percentage point a year. - If the current gap of 7 percentage points between male and female labor force participation were eliminated, the level of real GDP could be about 4 percent higher today. - Footnote: See “Women and Key for Future Growth: Evidence from Canada,” by Bengt Petersson, Rodrigo Mariscal, and Kotaro Ishi (IMF WP, forthcoming). ### Key gender measures (proposed in the gender statement) - More than 60 measures to address gender gaps, including: - The Canada Child Benefit, a tax-free monthly benefit that helps parents with child care costs. - New investment in early learning and child care (e.g., creating 40,000 new subsidized childcare spaces) to give parents more choices when it comes to participation in work, education or training. - New funding to promote the development of STEM skills and digital literacy, particularly for women, girls and underrepresented groups. - Expanding employment insurance caregiver benefits to care for critically ill or injured family members. - Updating the Canada Labor Code to give federally regulated employees more flexible work arrangements. ### Female Labor Participation Regression Results - Based on panel regression models, using data from 10 Canadian provinces, for 1990-2015 (averaged for five 5-year periods). The estimation method is GMM. The dependent variable is labor productivity growth. Regression models include a set of control variables, such as the initial level of labor productivity, and the growth rate of capital stock per hours worked. R&D spending per hours. - Estimated coefficients (dependent variable: labor productivity growth): - Female labor force participation rates: - All females: -0.036 (standard error (0.053)) - Females with high education attainment: 0.317** (standard error (0.149)) - Females with low education attainment: 0.027 (standard error (0.086)) - Source for regression: Petersson, B., M. Mariscal, and K. Ishi, "Women are Key for Future Growth: Evidence from Canada," IMF WP (forthcoming). *Italic: Source: cr17210 - Box 6. Gender Budget (cr17210 - Box 6. Gender Budget).* ### 1. Colors are based on Z-scores, which are calculated on the annual growth rate of nominal house prices, real residentia ### cr17210 - 1. Colors are based on Z-scores, which are calculated on the annual growth rate of nominal house prices, real residentia ### Housing and composite indicators (data and methodology) - Colors are based on Z-scores, which are calculated on the annual growth rate of nominal house prices, real residential investment, real residential mortgage loans, on the trend of household debt-to-GDP ratio, and on the level of sales to new listing index. - House prices and sales-to-new listing ratios are those for major cities in the sample provinces, while the other variables are those for provinces. - The data are quarterly, and the sample period is from Q1 1995 to Q4 2015. - Total index is calculated using the principal component methodology. - Z-score scale shown: -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5. ### National accounts and medium-term projections (Table 9: Canada: Medium-Term Scenario 2014–22) - Real GDP (percent): 2.6 0.9 1.5 2.5 1.9 1.8 1.8 1.8 1.8 - Q4/Q4 (percent): 2.2 0.4 2.0 2.3 2.0 1.8 1.8 1.8 1.8 - Net exports (contribution to growth): 1/ 1.1 1.0 0.6 -0.2 0.0 0.0 0.0 0.0 0.0 - Final domestic demand: 1.9 0.3 1.0 2.7 1.9 1.8 1.8 1.8 1.7 - Private consumption: 2.7 1.9 2.3 2.4 1.9 1.9 1.8 1.7 1.7 - Public consumption: 0.8 1.5 2.0 2.7 1.4 1.0 1.1 1.3 1.1 - Private fixed domestic investment: 1.8 -6.2 -3.9 1.9 2.2 2.8 2.7 2.6 2.7 - Public investment: -4.2 4.5 1.1 1.3 3.2 -0.2 0.6 0.8 0.9 - Change in inventories (contribution): -0.3 -0.3 -0.3 -0.1 -0.1 0.0 0.0 0.0 0.0 - Nominal GDP (percent): 4.5 0.2 2.1 4.8 3.9 4.0 3.9 3.9 3.9 Employment and inflation - Unemployment rate (percent): 6.9 6.9 7.0 6.7 6.6 6.5 6.5 6.5 6.5 - Employment (percent): 0.6 0.9 0.7 1.5 1.0 0.8 0.7 0.7 0.7 - CPI inflation (y/y): 1.9 1.1 1.4 1.9 2.0 2.1 2.0 2.0 2.0 - Core CPI inflation (y/y): 1.8 2.2 1.9 1.6 2.0 2.1 2.0 2.0 2.0 - GDP deflator (percent): 1.9 -0.8 0.6 2.2 1.9 2.1 2.1 2.1 2.1 - Potential output growth (percent): 2.1 1.6 1.5 1.5 1.6 1.7 1.8 1.8 1.9 - Output gap (percent of potential GDP): -0.4 -1.0 -1.1 -0.1 0.3 0.4 0.4 0.4 0.3 Fiscal indicators (percent of GDP / billions of Can$) - Federal fiscal balance (percent of GDP): 0.4 0.0 -0.8 -1.3 -1.3 -1.1 -0.9 -0.8 -0.8 - Federal fiscal balance (billions of Can$): 8.2 -0.6 -17.0 -27.0 -27.8 -24.6 -21.4 -20.5 -19.7 - General government fiscal balance (percent of GDP): 0.0 -1.1 -1.9 -2.2 -2.0 -1.7 -1.5 -1.4 -1.2 - General government fiscal balance (billions of Can$): -0.6 -22.3 -37.9 -47.2 -44.7 -39.8 -36.4 -34.1 -29.7 - General government gross debt (percent of GDP): 85.4 91.6 92.3 90.3 89.0 87.3 85.6 83.7 81.6 - General government net debt (percent of GDP): 27.2 25.2 27.6 25.6 24.3 22.7 20.9 19.0 16.9 Monetary and market rates - Three-month treasury bill (percent): 0.9 0.5 0.5 0.5 0.8 1.4 2.4 2.8 2.8 - Ten-year government bond yield (percent): 2.2 1.5 1.3 1.7 2.1 2.6 3.0 3.3 3.4 External indicators (percent of GDP unless noted) - Current account balance (percent of GDP): -2.4 -3.4 -3.3 -3.0 -3.0 -2.9 -2.8 -2.5 -2.3 - Merchandise trade balance (percent of GDP): 0.2 -1.2 -1.3 -1.1 -1.2 -1.2 -1.1 -0.9 -0.7 - Export volume (percent): 5.7 3.7 0.5 1.5 2.8 3.1 3.2 3.3 3.2 - Import volume (percent): 2.3 0.3 -1.2 2.4 2.8 3.1 2.9 3.0 3.0 - Terms of trade (percent): -1.3 -6.9 -2.0 1.8 -0.4 0.1 0.3 0.4 0.4 - Real effective exchange rate (percent): -6.4 -8.8 -2.4 (followed by ellipses in source) Saving and investment (percent of GDP) - Gross national saving: 22.2 20.4 19.6 19.9 20.0 20.1 20.4 20.8 21.0 - General government saving: 3.6 2.9 2.4 1.8 1.9 2.0 2.0 2.0 2.0 - Private saving: 18.6 17.5 17.2 18.1 18.1 18.2 18.4 18.8 19.0 - Gross domestic investment: 24.7 23.8 22.9 22.9 23.0 23.1 23.2 23.3 23.4 - Personal savings (percent of disposable income): 3.7 5.0 5.1 5.1 5.0 4.6 4.2 4.1 4.0 Memorandum items - Nominal GDP (billions of Can$): 1,983 1,986 2,028 2,124 2,206 2,294 2,384 2,478 2,576 Sources cited in table: Haver Analytics; and IMF staff estimates. - Footnotes preserved: 1/ Contribution to growth. 2/ Percent of GDP. 3/ Percent. 4/ Percent of potential GDP. 5/ Includes federal, provincial, territorial, and local governments; and Canada and Quebec pension plans. 6/ Percent of disposable income. ### External balance assessment (Annex I) - NIIP background: Canada’s net international investment position (NIIP) declined from 21.7 percent of GDP in 2015 to 9.3 percent of GDP in 2016. - Causes of NIIP decline: net borrowing from abroad and valuation changes due to stronger performance of the Canadian stock market relative to most major foreign stock markets. - Gross external debt reached 116 percent of GDP, 5 percentage points of GDP higher than in 2015; foreign portfolio investment accounted for most of this increase. - About a third of external debt is short-term. - NIIP projection: projected to decline in the medium term, in line with a reduction in the current account deficit. - Assessment: Despite rising external debt, Canada remains a net creditor. Canada’s foreign assets have a higher foreign currency component than its liabilities, providing a hedge against currency depreciation. The NIIP level and trajectory are sustainable. - Overall Assessment (2016): The external position in 2016 remained moderately weaker than implied by medium-term fundamentals and desirable policies. - Adjustment considerations: Depreciation over the past two years has helped improve competitiveness, but structural adjustment, restoration of production capacity, and productivity underperformance will take time. - Medium-term expectation: External position expected to strengthen as non-energy exports benefit from improved price competitiveness and investment in services and manufacturing capacity. Potential policy responses (to boost non-energy exports and external position) - Improve labor productivity. - Invest in R&D and physical capital. - Promote FDI. - Develop services exports. - Diversify Canada’s export markets. - Increase public infrastructure investment (planned) to boost competitiveness. - Implement a credible medium-term consolidation plan for fiscal policy to support external rebalancing. - Maintain tight macroprudential policies to ensure financial stability and support private sector saving. ### Current account (background and assessment) - Background: CA balance improved marginally from -3.4 percent of GDP in 2015 to -3.3 percent of GDP in 2016. - Drivers: Higher merchandise trade deficit was offset by slightly higher services trade balance due to stronger sales of commercial and travel services. - Underlying sector balances: General government savings-investment balance worsened by 0.6 percentage points of GDP (from -1 percent to -1.6 percent) due to fiscal expansion; private sector balance improved by 0.7 percentage point (from -2.4 percent to -1.7 percent). - EBA estimates: CA norm of 0.5 percent of GDP, consistent with a cyclically adjusted CA gap of -3.1 percent of GDP for 2016. - Staff estimates: CA norm lower, at about -0.9 percent of GDP, with the CA gap between -2.6 and -0.6 percent of GDP. - Staff adjustment rationale: Adjustment accounts mainly for erosion in external competitiveness and productive capacity in the non-resource sector. ### Real exchange rate (REER) - Background: REER depreciated by 2 percent on an annual average basis between 2015 and 2016; as of May 2017, REER appreciated by 2.3 percent compared to the average for 2016. - Assessment: EBA REER index and level approaches point to the currency being undervalued by 10 and 20.5 percent respectively in 2016, which differs from the implied EBA CA results. - Staff view: REER approaches overstate undervaluation because they do not fully capture structural factors behind export underperformance and the need to restore competitiveness in non-resource sectors. - Staff estimate: REER is overvalued by about 2 to 10 percent relative to medium-term fundamentals and desirable policies. - Technical note: The semi-elasticity of the CA with respect to the REER is estimated at 0.27. ### Capital and financial accounts; FX intervention and reserves - Background on financing: The CA deficit in 2016 was financed by net portfolio inflows equal to 7.3 percent of GDP. - Composition of portfolio inflows: Non-resident investors mostly purchased corporate debt securities (44 percent of portfolio net inflows); foreign acquisition of Canadian equities and government debt securities stood at 51 and 5 percent, respectively. - FDI: In 2016 foreign direct investment recorded a higher net outflow of 2.1 percent of GDP (1.6 percent of GDP in 2015). - Assessment: Canada has a fully open capital account. Vulnerabilities are limited by a credible commitment to a floating exchange rate and a strong commitment to fiscal consolidation over the medium term. - FX intervention and reserves background: Free-floating exchange rate regime; no FX intervention since September 1998 except for participation in internationally concerted interventions. Canada has limited reserves but central bank has standing swap arrangements with the U.S. Federal Reserve and four other major central banks (swap lines not drawn on). - Assessment: Policies appropriate to Canada’s circumstances; floating regime and swap arrangements reduce need for reserve holdings. ### Public Debt Sustainability Analysis (Annex II) - Overall assessment: Broadly unchanged from 2016 Article IV staff report. Canada’s public debt remains on a sustainable trajectory over the medium term. - Baseline outlook: After peaking at 92 percent in 2016, gross debt-to-GDP ratio will gradually decline to 82 percent by 2022 as real GDP growth picks up and fiscal consolidation proceeds. - Stress scenarios: Even under most stress scenarios, the debt ratio does not rise above 100 percent. - Financial assets cushion: Sizable financial assets (about 64 percent of GDP) provide an additional cushion. Net debt-to-GDP ratio stood at 28 percent in 2016 and is expected to fall below 20 percent by 2022. Baseline scenario details - General government primary deficit: projected to increase to 1.5 percent of GDP in 2017 and thereafter decline to 0.4 percent by 2022 with fiscal consolidation. - Gross debt path: general government gross debt-to-GDP ratio expected to fall to 82 percent by 2022. - Net debt (authorities’ broader definition): 28 percent of GDP in 2016; net debt using only highly-liquid assets was around 63 percent. - Net debt projection: expected to decline from 28 percent to below 20 percent by 2021. - Gross financing needs: around 18 percent (noted as "Grows financing needs at around 18 percent is relatively high but is manageable"), expected to hover within a range of 17-20 percent during the projection horizon. Stress tests (key scenarios and impacts) - Primary balance shock: - Deterioration of the primary balance of about one percent of GDP would raise the gross debt-to-GDP ratio by about 2 percentage points over the projection period. - Sovereign risk premium assumed to increase by 25 basis points for each one percent of GDP deterioration in the primary balance, resulting in higher gross financing needs of 1–2 percentage points of GDP compared to the baseline. - Growth shock: - Lower real GDP growth by one standard deviation for two years in 2018 and 2019 will reduce real GDP growth rates sharply to about 0-0.2 percent. - Primary balance would deteriorate sharply, reaching a 2¾ percent deficit at its peak in 2019. - Gross debt-to-GDP ratio will approach nearly 95 percent of GDP in 2019, then revert to a downward path as GDP growth recovers. - Gross financing needs will rise about 3 percentage points higher than the baseline until 2019. - Interest rate shock: - Increase in the sovereign risk premium by 200 basis points for two years would raise the effective interest rate ½-¾ percentage points higher than the baseline during the projection period. - Impact on debt and gross financing needs are mild. - Exchange rate shock: - About 90 percent of outstanding marketable debt instruments are in Canadian dollars, so fiscal impact of an exchange rate shock is minimal, even with a substantial exchange rate depreciation of about 23 percent (experienced in 2008). - Stagnant growth scenario: - Structurally weak growth in key advanced and emerging economies could reduce demand for Canadian exports. - Canada’s real GDP growth could fall below the baseline by ¼-½ percentage points for the projection horizon. - In this scenario, the gross debt-to-GDP ratio will not fall and will stay at the current level. - Housing market shock (tail event): - Severe recession reducing real GDP growth by two standard deviation in 2018 (to -1.6 percent) and one standard deviation in 2019 (to 0.1 percent) could precipitate a sharp housing market correction. - Mortgage insurers could come under stress and need partial bailouts. - Government would be forced to increase non-interest expenditures by 20 percent of government guarantees for mortgage insurers’ borrowings (equivalent to 2 percent of GDP). - Debt-to-GDP ratio would rise to just below 100 percent of GDP while gross financing needs would reach 25 percent of GDP at its peak. Additional cushion from assets - General government financial assets: about 64 percent of GDP in 2016. - Highly-liquid portion of assets: about 45 percent of financial assets (29 percent of GDP) were highly-liquid assets (deposits, short-term papers, and bonds). *International Monetary Fund — content unit cr17210 (source PDF text as provided)* ### 5. Public debt has increased in recent ### 5. Public debt has increased in recent ### Public debt increase and pension liabilities - Public debt increase reflects the government’s policy to fund public sector employee pension plans by issuing new debt. - General government debt as reported does not include unfunded pension liabilities. - General government debt, including unfunded pension liabilities, would be 109 percent of GDP on a gross basis, and 44 percent of GDP on a net basis in 2016. - The vast majority of advanced economies do not report unfunded pension liabilities; they are excluded from measures of public sector debt for consistent international comparison. ### Composition of general government financial assets (percent share of total financial assets 1/) - Categories shown include: Curency and deposits; Accounts receivable; Shor-term bonds; Other bonds; Investment fund shares; Loans. - The chart labels "Highly liquid assets" as a grouping. ### Public DSA (Debt Sustainability Analysis) — key indicators and metrics - Debt level indicators and benchmarks referenced (2016): - Debt burden benchmark: 85% - Gross financing needs benchmark: 20% of GDP - Bond spread benchmarks: 400 and 600 basis points - External financing requirement benchmarks: 17 and 25 percent of GDP - Change in the share of short-term debt benchmarks: 1 and 1.5 percent - Public debt held by non-residents benchmarks: 30 and 45 percent - Market perception metrics (as of June 07, 2017): - EMBIG (bp) 3/-77 - Long-term bond spread over U.S. bonds: presented in basis points 4/ - Public Debt Held by Non-Residents: 54% (in percent of total) - Annual Change in Short-Term Public Debt: -1% (in percent) - External Financing Requirement: values referenced with benchmarks (in percent of GDP) 5/ ### Historical and projected public debt and financing needs (selected figures) - Nominal gross public debt (in percent of GDP) series: 78.1, 91.6, 92.3, 90.3, 89.0, 87.3, 85.5, 83.6, 81.6 (years span 2015–2023 in table context). - Public gross financing needs (in percent of GDP): 16.2, 15.7, 17.5, 16.4, 19.0, 19.8, 18.5, 18.2, 18.0 (2015 onwards). - Net public debt (in percent of GDP): 25.4, 25.2, 27.6, 25.6, 24.3, 22.7, 20.9, 19.0, 16.9. - Real GDP growth (in percent): 1.7, 0.9, 1.5, 2.5, 1.9, 1.8, 1.8, 1.8, 1.8. - Inflation (GDP deflator, in percent): 2.1, -0.8, 0.6, 2.2, 1.9, 2.1, 2.1, 2.1, 2.1. - Effective interest rate (in percent) 4/: 5.0, 3.6, 3.3, 3.0, 3.3, 3.3, 3.4, 3.6, 3.6. - Change in gross public sector debt (cumulative): 1.6, 6.1, 0.7, -2.0, -1.3, -1.6, -1.8, -1.9, -2.1, -10.7. - Identified debt-creating flows (cumulative): 1.5, 4.9, 2.0, 0.0, 1.0, 0.6, 0.4, 0.3, 0.1, 2.6. - Primary deficit (in percent of GDP): 0.7, 0.5, 1.1, 1.5, 1.5, 1.2, 0.9, 0.6, 0.4, 6.1. - Primary (noninterest) revenue and grants (in percent of GDP): 36.1, 36.6, 36.8, 36.6, 36.4, 36.5, 36.5, 36.6, 36.6, 219.3. - Primary (noninterest) expenditure (in percent of GDP): 36.9, 37.2, 37.9, 38.1, 38.0, 37.7, 37.4, 37.2, 37.0, 225.4. - Automatic debt dynamics (cumulative): 0.8, 4.4, 0.9, -1.5, -0.5, -0.5, -0.4, -0.3, -0.2, -3.6. - Interest rate/growth differential (cumulative): 0.8, 3.0, 1.1, -1.5, -0.5, -0.5, -0.4, -0.3, -0.2, -3.6. - Of which: real interest rate: 2.1, 3.8, 2.4, 0.7, 1.2, 1.0, 1.1, 1.2, 1.2, 6.3. - Of which: real GDP growth: -1.3, -0.8, -1.3, -2.2, -1.7, -1.6, -1.5, -1.5, -1.4, -9.9. - Exchange rate depreciation (cumulative): 0.0, 1.4, -0.2, ..................... - Residual, including asset changes (cumulative) 8/: 0.1, 1.3, -1.2, -2.1, -2.3, -2.3, -2.2, -2.2, -2.2, -13.3. - Assumption note 9/: Assumes that key variables (real GDP growth, real interest rate, and other identified debt-creating flows) remain at the level of the last projection year. ### Baseline and alternative scenario assumptions (selected values) - Baseline scenario (2017–2022 projections): - Real GDP growth: 2.5, 1.9, 1.8, 1.8, 1.8, 1.8. - Inflation: 2.2, 1.9, 2.1, 2.1, 2.1, 2.1. - Primary Balance (in percent of GDP): -1.5, -1.5, -1.2, -0.9, -0.6, -0.4. - Effective interest rate: 3.0, 3.3, 3.3, 3.4, 3.6, 3.6. - Historical scenario: - Real GDP growth: 2.5, 1.6, 1.6, 1.6, 1.6, 1.6. - Inflation: 2.2, 1.9, 2.1, 2.1, 2.1, 2.1. - Primary Balance: -1.5, -1.1, -1.1, -1.1, -1.1, -1.1. - Effective interest rate: 3.0, 3.3, 3.6, 3.8, 4.1, 4.2. - Constant Primary Balance Scenario: - Primary Balance held at -1.5 for 2017–2022. - Effective interest rate values: 3.0, 3.3, 3.3, 3.4, 3.5, 3.6. ### Composition of public debt and maturity/currency breakdown (charts referenced) - Composition displays gross nominal public debt (in percent of GDP) and net debt (in percent of GDP) over 2015–2022. - By maturity: medium and long-term vs short-term (projection). - By currency: Local currency-denominated vs foreign currency-denominated (projection). - Public gross financing needs (in percent of GDP) presented as a projection series. ### Realism checks and forecast track record - Forecast errors and percentile ranks (2007–2015): - Real GDP growth: Canada forecast error median -0.64; has a percentile rank of 41%. - Primary Balance: Canada forecast error median 1.09; has a percentile rank of 90%. - Inflation (Deflator): Canada forecast error median 4.56; has a percentile rank of 85%. - Assessment of projected fiscal adjustment: - 3-year CAPB adjustment distribution: Canada has a percentile rank of 46% (3-year adjustment in cyclically-adjusted primary balance). - 3-year average level of CAPB: Canada has a percentile rank of 81%. ### Macro-fiscal stress tests and scenario outcomes (selected scenario assumptions and outcomes) - Stress test scenarios and underlying assumptions (2017–2022) include: - Primary Balance Shock: Primary balance path -1.5, -2.5, -2.1, -0.9, -0.6, -0.4; Real GDP growth: 2.5, 1.9, 1.8, 1.8, 1.8, 1.8; Effective interest rate: 3.0, 3.3, 3.3, 3.5, 3.6, 3.6. - Real GDP Growth Shock: Real GDP growth: 2.5, 0.2, 0.1, 1.8, 1.8, 1.8; Primary balance: -1.5, -2.4, -2.9, -0.9, -0.6, -0.4; Effective interest rate: 3.0, 3.3, 3.3, 3.4, 3.5, 3.6. - Real Interest Rate Shock: Effective interest rate path: 3.0, 3.3, 3.6, 3.9, 4.1, 4.3. - Real Exchange Rate Shock, Combined Shock, Stagnant Growth Scenario, Housing Market Shock: each defined with specific real GDP growth, inflation, primary balance and effective interest rate paths (values provided for 2017–2022). - Stress-test results charts show gross nominal public debt (in percent of GDP and percent of revenue) and public gross financing needs (in percent of GDP) under baseline and shocks for 2017–2022 (charts referenced). ### Annex III — Housing-related measures to safeguard financial stability - Table 1. Changes in Mortgage Insurance Rules (chronological highlights): - October 2008 (announced in July 2008): Maximum amortization for new government-backed insured mortgages lowered from 40 to 35 years; Maximum LTV for new mortgages reduced from 100 percent to 95 percent; Minimum credit score requirement of 620 introduced; Maximum of 45 percent total debt service ratio introduced; Loan documentation standards strengthened. - April 2010 (announced in February 2010): Maximum LTV for insured refinanced mortgages lowered from 95 percent to 90 percent; Minimum down payment on properties not occupied by owner raised from 5 percent to 20 percent; Eligibility criteria tightened to five-year fixed-rate mortgage standards. - March 2011 (announced in January 2011): Maximum amortization lowered from 35 to 30 years; Maximum LTV for refinanced mortgages lowered from 90 percent to 85 percent; Government-backed insurance on HELOCs withdrawn in April. - July 2012 (announced in June 2012): Maximum amortization lowered from 30 to 25 years; Maximum LTV for refinanced mortgages lowered from 85 percent to 80 percent; Maximum gross debt service ratio and maximum total debt service ratio capped at 39 percent and 44 percent, respectively; Government-backed insured mortgages limited to homes with purchase price less than Can$1 million. - May 2014 (announced in February 2014): Mortgage insurance premiums were raised. - June 2015 (announced in April 2015): Mortgage insurance premiums were raised. - February 2016 (announced in December 2015): Minimum down payment for new insured mortgages increased from 5 to 10 percent for portion of house price above $500,000; 5 percent minimum down payment for properties up to $500,000 remained unchanged. - October 17, 2016 (announced on October 3, 2016): New mortgage borrowers with down payment less than 20 percent required to qualify at the posted rate for a conventional mortgage for a five-year term or the contract rate, whichever is higher. - November 30, 2016 (announced on October 3, 2016): Standards for low-ratio mortgage portfolio insurance tightened to be uniform with insured high-ratio mortgages. - Table 2. Other Housing Finance Related Regulatory Measures (chronological highlights): - January 2013 (announced in June 2011): Protection of Residential Mortgage Hypothenar Insurance Act (PRMHIA) and amendments to the National Housing Act assented; formalizes rules for government-backed mortgage insurance; provision for Minister of Finance to charge fees to compensate Government exposure. - November 2011/January 2012: IFRS standards implemented requiring banks to report debt securitizations on balance sheet. - March 2012 Economic Action Plan 2012: Canadian banks prohibited from issuing covered bonds backed by government-insured mortgages; CMHC designated administrator of covered bond framework; CMHC mandate enhanced to include financial stability; CMHC commercial activities subject to OSFI examination. - June 2012: Guideline on Sound Residential Mortgage Underwriting Practices (B-20) issued by OSFI; maximum LTV on revolving portion of HELOCs cut from 80 to 65 percent; Stated Income mortgages no longer allowed without some verification of income. - February 2014 Economic Action Plan 2014: CMHC to pay guarantee fees to Receiver General effective January 1, 2014 (fees are 3.25 percent of premiums written and 10 basis points on new portfolio insurance written); CMHC reduced annual limit of issuance of portfolio insurance from $11 billion to $9 billion; For 2014 Minister authorized $80 billion for NHA MBS (down from $85 billion in 2013) and $40 billion for CMB (down from $50 billion in 2013). - January 2015 (announced in September 2014): Revised Minimum Capital Test Guideline for property and casualty insurers introduced new and updated risk factors and margins plus a revised definition of available capital. - May 15, 2015: Amendments to PRMHIA; substitution of loans in portfolio insurance pools prohibited. - June 30, 2015 full implementation (announced in November 2014): Guideline B21 (Residential Mortgage Insurance Underwriting Practices and Procedures) issued outlining OSFI expectations for mortgage insurers’ governance and underwriting, and enhancing disclosure requirements. - December 11, 2015: CMHC announced changes to securitization programs; changes in guarantee fee schedule (effective July 1, 2016); For 2016 Minister authorized $105 billion for NHA MBS and $40 billion for CMB. - November 2016 (announced in December 2015): OSFI updated regulatory capital requirements for residential mortgages; imposed risk-sensitive floor for model input tied to increases in local property prices; introduced new standardized approach for federally regulated private mortgage insurers requiring more capital when house prices are high relative to borrower incomes. - July 2016 (announced in February 2016): DOF required that portfolio-insured loans be funded only through CMHC securitization programs. - October 3, 2016: Consultation process launched on lender risk sharing to limit federal government’s obligations in mortgage defaults and promote prudent lending practices. *Source: IMF staff (Canada: Public DSA and Annex III content).* ### Annex IV. Key Findings from Canada’s Detailed Assessment on ### Annex IV. Key Findings from Canada’s Detailed Assessment on AML/CFT ### Assessment overview - Fund staff assessed Canada’s anti-money laundering and combating the financing of terrorism (AML/CFT) regime against the 2012 Financial Action Task Force (FATF) Recommendations in November 2015 using the 2013 assessment methodology. - The assessment established (i) the level of technical compliance of Canada’s legal and institutional framework with the FATF Recommendations, and (ii) the extent to which Canada’s AML/CFT regime is effective in achieving the 11 outcomes set out in the methodology. - Staff’s detailed assessment report was adopted by the FATF and the Asia/Pacific Group on Money Laundering (APG) as Canada’s mutual evaluation report in June 2016 and in September 2016, respectively, and published on the Fund, the FATF and the APG websites. ### Technical compliance — key findings and metrics - Overall finding: Canada’s AML/CFT legal and institutional framework is comprehensive, but important deficiencies remain. - Aggregate technical-compliance outcome: - Total: 29 C or LC; 11 PC or NC. - Detailed breakdown by Recommendation groups (FATF Rec. and counts exactly as presented): - AML/CFT Policies and Coordination R.1-2: 2 C or LC; - PC or NC - Money Laundering and Confiscation R.3-4: 2 C or LC; - PC or NC - Terrorist Financing and Financing of Proliferation R.5-8: 4 C or LC; - PC or NC - Preventive Measures R.9-23: 8 C or LC; 7 PC or NC - Transparency and Beneficial Ownership or Legal Persons and Arrangements R.24-25: - C or LC; 2 PC or NC - Powers and Responsibilities of Competent Authorities and Other Institutional Measures R.26-35: 8 C or LC; 2 PC or NC - International Cooperation R.36-40: 5 C or LC; - PC or NC - Specific technical strengths and deficiencies: - Strengths: The money laundering offense is fully in line with the standard; the terrorist financing offense and customer due diligence obligations on financial institutions largely meet the standard. - Deficiencies: Obligations imposed on the nonfinancial businesses and professions designated by the standard are deficient in several areas. AML/CFT obligations are inoperative for legal counsels, legal firms and Quebec notaries — noted as a significant concern. ### Effectiveness — Immediate Outcomes and ratings - Overall: Canada has a strong AML/CFT regime achieving good results in some areas but requires several improvements to be fully effective. - High-level characterization from the assessment: - Canada faces important money laundering and, to a lesser extent, terrorist financing risks and has put mitigating measures in place. - The regime is comprehensive and presents several characteristics of an effective system, but in some areas major to fundamental improvements are necessary. - Immediate Outcomes with level of effectiveness (exact labels preserved): - IO.1 Risk, policy and coordination: High - IO.2 International cooperation: High - IO.3 Supervision: Substantial - IO.4 Preventive measures: Moderate - IO.5 Legal persons and arrangements: Low - IO.6 Financial intelligence: Moderate - IO.7 ML investigation and prosecution: Moderate - IO.8 Confiscation: Moderate - IO.9 TF investigation and prosecution: Substantial - IO.10 TF preventive measures and financial sanctions: Substantial - IO.11 PF financial sanctions: Moderate - Aggregate tabulation exactly as presented: - Total - 5 5 1 (interpreted as High: - ; Substantial: 5 ; Moderate: 5 ; Low: 1) - Effectiveness findings (qualitative): - Substantial effectiveness achieved in: understanding the risks, international cooperation, AML/CFT supervision, and in the prevention, investigation and prosecution of terrorist financing activities (Immediate Outcomes 1, 2, 3, 9 and 10). - A comprehensive assessment of inherent ML/TF risks was conducted in 2015; authorities have a good understanding of most risks. - The AML/CFT regime covers all high-risk areas except legal counsels, legal firms and Quebec notaries (due to the Supreme Court declaring AML/CFT measures inoperative in their respect). - Domestic AML/CFT cooperation and coordination between competent authorities are generally good at policy and operational levels. - Effective use of the framework for international cooperation in AML/CFT matters. - Financial institutions and designated sectors are generally subject to risk-sensitive AML/CFT supervision, but supervision of the real estate and dealers in precious metals and stones sectors is not entirely commensurate to the risks. - TF-related targeted financial sanctions are adequately implemented by financial institutions but not by designated non-financial sectors. Charities are monitored on a risk basis. - Assessors concluded Canada needed to make moderate improvements to increase effectiveness in these areas. - Major improvements needed in: reporting entities’ application of AML/CFT preventive measures, use of financial intelligence, and law enforcement efforts commensurate with risks (Immediate Outcomes 4, 6, 7, and 8). - Financial institutions generally apply preventive measures commensurate with ML/TF risks, but designated businesses and professions are less effective. - Financial intelligence is used to some extent for predicate crimes and TF activities, but is used to a much more limited extent to pursue ML. - FINTRAC receives a wide range of information and uses it adequately, but is limited in scope and depth of analysis because FINTRAC is not authorized to request additional information from any reporting entity. - Law enforcement results for ML are not commensurate with Canada’s ML risk; asset recovery is low. - Canada achieved a moderate level of effectiveness in these areas, and major improvements are needed. - TF and proliferation financing (PF) financial sanctions (Immediate Outcome 11): - Canada’s Iran and North Korea sanction regime is comprehensive; some success freezing funds of designated individuals. - There is no mechanism to monitor compliance with PF-related targeted financial sanctions. - Canada demonstrated a moderate level of effectiveness in this area; major improvements are needed. - Transparency of beneficial ownership (Immediate Outcome 5): - Canadian legal persons are at high risk of misuse for ML/TF purposes, and that risk is not mitigated in practice. - Canada achieved a low level of effectiveness in transparency of the beneficial ownership of legal persons and arrangements. - Fundamental improvements are needed to ensure beneficial ownership information is available to the authorities without impediments. ### Priority actions recommended (exactly as listed) - Going forward, Canada’s priority actions should include: - (i) ensuring that legal counsels, legal firms and Quebec notaries are brought within the AML/CFT regime; - (ii) increasing the timeliness of access by competent authorities to accurate and up-to-date beneficial ownership information; - (iii) increase timely access to financial intelligence, notably by authorizing FINTRAC to request and obtain further information related to suspicions of ML, predicate offenses and TF from any reporting entity; - (iv) using financial intelligence to a greater extent to investigate ML and trace assets; - (v) increasing efforts to detect, pursue and bring before the courts different types of ML cases; - (vi) ensuring that asset recovery is pursued as a policy objective; - (vii) ensuring compliance by all financial institutions with the requirements to confirm the accuracy of beneficial ownership in relation to all customers; - (viii) required designated non-financial sectors to identify and verify the identity of beneficial owners and politically exposed persons; - (ix) coordinating more effectively supervision of federally regulated financial institutions; and - (x) ensuring that FINTRAC develops sector-specific expertise and applies more intensive supervisory measures to the real estate and dealers in previous metals and stones sectors. ### Recent progress by the authorities (actions since the assessment) - Canada is committed to a strong and comprehensive AML/CFT regime and has taken actions to improve the regime and respond to emerging risks. - Specific measures taken since the assessment: - Amendments to the AML/CFT regulations in June 2016 to: - clarify that online casinos are subject to the AML/CFT regime; - expand the requirements to domestic politically exposed persons; and - require an assessment of the money laundering and terrorist financing risks of new technologies. - In the 2017 Budget, the Government expressed its commitment to work towards: - putting in place a national strategy to strengthen the transparency of legal persons and legal arrangements; - improving the availability of beneficial ownership information; and - proposing legislative amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act to strengthen the AML/CFT framework further. *Prepared by LEG’s Financial Integrity Group; Fund staff assessment adopted by the FATF and APG as Canada’s mutual evaluation report.* ### Annex VI. 2017 Federal Budget Measures to Enhance Innovation, ### Annex VI. 2017 Federal Budget Measures to Enhance Innovation, Skills, and Clean Technology ### FY2017 and FY2017–FY2021 Program Spending (by theme) - Skills - Helping Canadians Get New and Better Jobs: FY2017 = 0.2 (Billions of C$); FY2017–FY2021 = 2.1 (Billions of C$); FY2017 percent of GDP = 0.01; FY2017–FY2021 percent of GDP = 0.09 - Helping Working Adults Upgrade Their Skills: FY2017 = 0.0 (Billions of C$); FY2017–FY2021 = 0.5 (Billions of C$); FY2017 percent of GDP = 0.00; FY2017–FY2021 percent of GDP = 0.02 - Expanding Employment Insurance Benefits to Offer More Flexibility for Families: FY2017 = 0.1 (Billions of C$); FY2017–FY2021 = 0.9 (Billions of C$); FY2017 percent of GDP = 0.01; FY2017–FY2021 percent of GDP = 0.04 - Improving the Temporary Foreign Worker Program and the International Mobility Program: FY2017 = 0.1 (Billions of C$); FY2017–FY2021 = 0.3 (Billions of C$); FY2017 percent of GDP = 0.00; FY2017–FY2021 percent of GDP = 0.01 - Other programs (Skills): FY2017 = 0.4 (Billions of C$); FY2017–FY2021 = 1.5 (Billions of C$); FY2017 percent of GDP = 0.02; FY2017–FY2021 percent of GDP = 0.07 - Sub total (Skills): FY2017 = 0.8 (Billions of C$); FY2017 percent of GDP = 0.04; FY2017–FY2021 = 5.2 (Billions of C$); FY2017–FY2021 percent of GDP = 0.23 - Innovation - Accelerating Innovation Through Superclusters: FY2017 = 0.1 (Billions of C$); FY2017–FY2021 = 1.0 (Billions of C$); FY2017 percent of GDP = 0.00; FY2017–FY2021 percent of GDP = 0.04 - The New Strategic Innovation Fund and Venture Capital: FY2017 = 0.1 (Billions of C$); FY2017–FY2021 = 0.2 (Billions of C$); FY2017 percent of GDP = 0.00; FY2017–FY2021 percent of GDP = 0.01 - Other programs (Innovation): FY2017 = 0.2 (Billions of C$); FY2017–FY2021 = 0.5 (Billions of C$); FY2017 percent of GDP = 0.01; FY2017–FY2021 percent of GDP = 0.02 - Sub total (Innovation): FY2017 = 0.3 (Billions of C$); FY2017 percent of GDP = 0.02; FY2017–FY2021 = 1.7 (Billions of C$); FY2017–FY2021 percent of GDP = 0.07 - Clean Tech, digital, and agri-food - Clean technology: FY2017 = 0.1 (Billions of C$); FY2017–FY2021 = 1.1 (Billions of C$); FY2017 percent of GDP = 0.00; FY2017–FY2021 percent of GDP = 0.05 - Other programs (Clean Tech): FY2017 = 0.0 (Billions of C$); FY2017–FY2021 = 0.1 (Billions of C$); FY2017 percent of GDP = 0.00; FY2017–FY2021 percent of GDP = 0.00 - Sub total (Clean Tech): FY2017 = 0.1 (Billions of C$); FY2017 percent of GDP = 0.00; FY2017–FY2021 = 1.1 (Billions of C$); FY2017–FY2021 percent of GDP = 0.05 - Total programs - FY2017 = 1.2 (Billions of C$); FY2017 percent of GDP = 0.06 - FY2017–FY2021 = 8.1 (Billions of C$); FY2017–FY2021 percent of GDP = 0.35 - Source data noted as: Federal Budget 2017, Table 1.3., and Fall Economic Statement 2016. ### Key policy emphasis from Annex VI - Focus on skills: measures to help Canadians get new and better jobs, upgrade adult skills, expand Employment Insurance flexibility for families, and improve temporary foreign worker and international mobility programs. - Focus on innovation: support for superclusters, a Strategic Innovation Fund, venture capital, and other innovation programs. - Focus on clean technology and agri-food: investments in clean technology and related programs. --- ### Fund Relations (as of May 31, 2017) ### Membership and financial positions - Membership Status: Joined 12/27/1945; Article VIII - Quota: 11,023.90 (SDR Million); Percent of Quota = 100.00 - Fund holdings of currency: 10,048.77 (SDR Million); 91.15 (Percent of Quota) - Reserve Tranche Position: 975.16 (SDR Million); 8.85 (Percent of Quota) - New Arrangements to Borrow: 623.08 (SDR Million) - SDR Department - Net cumulative allocation: 5,988.08 (SDR Million); Percent of Allocation = 100.00 - Holdings: 5,635.35 (SDR Million); 94.11 (Percent of Allocation) - Outstanding Purchases and Loans: None. - Latest Financial Arrangements: None. ### Projected obligations to the Fund (SDR Million; based on existing use of resources and present holdings of SDRs) - Charges/Interest: 2017 = 0.97; 2018 = 2.12; 2019 = 2.12; 2020 = 2.12; 2021 = 2.12 - Total: 2017 = 0.97; 2018 = 2.12; 2019 = 2.12; 2020 = 2.12; 2021 = 2.12 ### Exchange rate arrangements - Authorities maintain a “free floating” exchange rate regime. - Exchange rate regime free from exchange restrictions and multiple currency practices. - Authorities may intervene to maintain orderly conditions in the exchange market. - No taxes or subsidies on purchases or sales of foreign exchange. - Canada has accepted the obligations of Article VIII, Sections 2, 3, and 4 (a). - Canada maintains exchange restrictions for security reasons based on UN Security Council Resolutions (most recently notified June 10, 2014). ### Article IV Consultation - Last Article IV Consultation: Staff Report for the 2016 consultation considered June 6, 2016 (IMF Country Report No. 16/146). Canada is on a 12-month consultation cycle. - 2017 Article IV Consultation: Discussions took place in Toronto and Ottawa during May 15–26 and May 30–31, 2017. Team comprised Cheng Hoon Lim (head), Kotaro Ishi, Yulia Ustyugova (WHD), Zsofia Arvai (MCM), David Gentry (FAD); Messrs. Werner and Srinivasan (WHD) and Ms. Horsman (ED) joined concluding meeting in Ottawa. Ms. Young and Ms. Zorn (OED) accompanied the mission. - Meetings included: Finance Minister Morneau, Governor Poloz, Superintendent Rudin, Deputy Minister Rochon, Deputy Governors Lane and Schembri, other senior officials, regulators, provincial governments, financial and business sector representatives, academics, and think tanks. - Press conference: May 31, 2017 in Ottawa. --- ### FSSA Participation and ROSC Assessments — Summaries and Recommendations ### Financial System Stability Assessment (FSSA) and updates - FSSA (June 30, 2000) summary findings: - Canada has a stable and highly advanced financial system among the soundest in the world. - Supported by a well-developed regulatory system with high compliance with international standards. - Recommendations (most addressed): - Introducing capital requirements for guarantees in life insurance segregated fund (completed by end-2001). - Tabling legislation granting OSFI powers to remove a financial institution’s director or senior officer (brought Canada into broad compliance with Basel Core Principles). - Progress in harmonizing securities regulation and improving coordination among provincial securities regulators; creation of Canadian Securities Administrators; Senate commission to develop recommendations on further harmonization. - Report on the Observance of Standards and Codes—Fiscal Transparency Module (IMF Country Report No. 02/51, 03/12/02) summary: - Fiscal management meets requirements of the fiscal transparency code and in many instances represents best practice. - Commended for: use of private sector economic forecasts, statistical integrity, impartial tax administration, open procurement, transparent regulatory process. - Recommended improvements (many addressed subsequently): - Timely, current year estimates of federal and provincial budgets on a comparable basis. - Comprehensive account of budget cycle and expenditure management procedures. - Systematic reporting of the use of reserves for non-economic contingencies. - Resumption of publication of reconciled national and public accounts forecasts over the forecast horizon. - Publication by all governments of quasi-fiscal activities. - Report on the Observance of Standards and Codes—Data Module (IMF Country Report No. 03/328, 10/23/03) summary: - Macroeconomic statistics are comprehensive, timely, accurate; adequate for surveillance. - Legal and institutional frameworks support compilation and dissemination; confidentiality protected. - Recommendations and priorities (many addressed): - Articulate roles of Statistics Canada and the Bank of Canada in producing financial sector statistics; explore more data sharing. - Estimate consumption of fixed capital at replacement cost rather than historic costs for corporate sector in CSNA. - Disseminate sources and methods used in compiling quarterly public sector statistics for quarterly CSNA. - Reclassify certain transactions not recorded in line with BPM5. - FATF AML/CFT assessments and updates: - AML/CFT assessed in March 2007; shortcomings identified in customer due diligence scope, supervision implementation, and FINTRAC effectiveness. - Canada submitted six follow-up reports to FATF (last in February 2014) and took steps to strengthen framework. - Next mutual evaluation scheduled in fourth quarter of 2015 (note: within source context). - FSSA Update (IMF Country Report No. 08/59, 02/13/08) summary: - Financial system mature, sophisticated, well-managed; underpinned by sound macroeconomic policies and strong prudential regulation. - Banking system appeared sound; stress tests showed major banks could withstand sizeable shocks. - Concerns: banks entering competitive foreign markets or complex activities. - Recommended moving towards a single securities regulator to streamline policy, reduce compliance costs, and improve enforcement; recognized improvements via Canadian Securities Administrators (CSA) and passport system. - FSSA Update (IMF Country Report No. 14/29, 02/03/14) summary: - Canada navigated the global financial crisis successfully; stress tests suggest major institutions resilient to credit, liquidity, and contagion risks. - Elevated house prices and high household debt remain an area of concern despite government-guaranteed mortgage insurance; targeted prudential and macro-prudential measures proving effective. - Regulatory and supervisory framework shows strong compliance with international standards. - Recommended: more clarity on legal independence of OSFI and assigning stronger prudential responsibilities to the regulator. - Securities markets: progress in harmonization, but challenges in enforcement, risk identification, and timely policy making. - Federal safety net credible, but no single body with explicit mandate for comprehensive systemic risk view or crisis preparedness; improving federal–provincial cooperation would reinforce system-wide oversight. - Report on the Observance of Standards and Codes—FATF Recommendations (IMF Country Report No. 16/293, 09/15/16) summary: - Authorities have good understanding of most money laundering and terrorism financing risks. - AML/CFT cooperation and coordination generally good at policy and operational levels. - Coverage: all high-risk areas covered except legal counsel, legal firms, and Quebec notaries — constitutes a significant loophole. - Law enforcement results are not commensurate with money-laundering risk; asset recovery is low. --- ### Statistical Issues and Data Quality ### General assessment - Quality, coverage, periodicity, and timeliness of Canada’s economic data are adequate for the Article IV consultation and ongoing surveillance. - Canada subscribes to the Fund’s Special Data Dissemination Standard (SDDS); metadata posted on DSBB. - Data ROSC published October 23, 2003. ### Real sector - Statistics Canada provides timely monthly, quarterly, and annual data. - CSNA aligned with SNA2008 starting October 2012; CSNA2012 changes included capitalization of research and development, move to replacement cost-based valuation of consumption of fixed capital, and valuing equity at market price. - 2014 CSNA release introduced new accounts, improved integration with Government Finance Statistics, additional detail, and presentational changes. - 2015 comprehensive revision to CSMA: integration of Government Finance Statistics, improved treatment of defined benefit pension plans, measurement of financial services purchased by households, and updated measures of national wealth. ### Fiscal sector - Statistics Canada provides quarterly data (Statement of Government Operations and Balance Sheet) on general government and subsectors following GFSM 2001. - November 2014: provisional (unconsolidated) CGFS data for 2008–2012 released. - February 2015: estimates for financial flows and balance sheet of general government and government business enterprises for 2007–2012 published. - March 2016: Consolidated Government Finance Statistics data for 2008–2014 published; March 2017: data for 2015 published. - Department of Finance Canada provides monthly and annual federal budget and tax policy data. ### Financial sector - Bank of Canada and OSFI provide monthly and quarterly data on a broad range of financial variables. - 2013 FSSA Update recommended expanding financial sector data collection and dissemination to enhance coverage, regularity, and time-series availability. ### Monetary sector - Bank of Canada provides daily, weekly, monthly, and quarterly data related to the monetary sector. ### External sector - Statistics Canada provides quarterly balance of payments, external debt, and international investment position data. - Department of Finance Canada provides monthly Official International Reserves data in a format comparable to the IMF’s reserve data template. ### Table of Common Indicators (selected metadata from source) - Exchange Rates: Date of latest observation = Same day; Date received = Same day; Frequency of Data = D; Frequency of Reporting = D; Frequency of Publication = D - International Reserve Assets and Reserve Liabilities of the Monetary Authorities: Date of latest observation = June 15, 2017; Date received = June 16, 2017; Frequency = W; Frequency of Reporting = W; Frequency of Publication = W - Reserve/Base Money: Date of latest observation = June 14, 2017; Date received = June 16, 2017; Frequency = W; Frequency of Reporting = W; Frequency of Publication = W - Broad Money: Date of latest observation = End April, 2017; Date received = May 29, 2017; Frequency = M; Frequency of Reporting = M; Frequency of Publication = M; Data Quality – Methodological soundness = LO, O, LO, LO; Data Quality – Accuracy and reliability = O, O, O, O, O - Central Bank Balance Sheet: Date of latest observation = June 14, 2017; Date received = June 16, 2017; Frequency = W; Frequency of Reporting = W; Frequency of Publication = W - Consolidated Balance Sheet of the Banking System: Date of latest observation = End April, 2017; Date received = May 29, 2017; Frequency = M; Frequency of Reporting = M; Frequency of Publication = M - Consumer Price Index: Date of latest observation = April 2017; Date received = May 19, 2017; Frequency = M; Frequency of Reporting = M; Frequency of Publication = M; Data Quality – Methodological soundness = O, O, O, O; Data Quality – Accuracy and reliability = O, O, O, O, NA - Revenue, Expenditure, Balance and Composition of Financing – General Government: Date of latest observation = 2017 Q1; Date received = May 31, 2017; Frequency = Q; Frequency of Reporting = Q; Frequency of Publication = Q; Data Quality – Methodological soundness = O, O, O, O; Data Quality – Accuracy and reliability = O, O, O, O, O - Revenue, Expenditure, Balance and Composition of Financing – Central Government: Date of latest observation = Mar 2017; Date received = May 26, 2017; Frequency = M; Frequency of Reporting = M; Frequency of Publication = M - External Current Account Balance: Date of latest observation = 2017 Q1; Date received = May 30, 2017; Frequency = Q; Frequency of Reporting = Q; Frequency of Publication = Q - Exports and Imports of Goods and Services: Date of latest observation = April 2017; Date received = June 2, 2017; Frequency = M; Frequency of Reporting = M; Frequency of Publication = M; Data Quality – Methodological soundness = O, O, LO, O; Data Quality – Accuracy and reliability = O, O, O, O, O - GDP/GNP: Date of latest observation = 2017 Q1; Date received = May 31, 2017; Frequency = Q; Frequency of Reporting = Q; Frequency of Publication = Q; Data Quality – Methodological soundness = O, O, O, LO; Data Quality – Accuracy and reliability = O, O, O, O, O - Gross External Debt: Date of latest observation = 2017 Q1; Date received = June 13, 2017; Frequency = Q; Frequency of Reporting = Q; Frequency of Publication = Q - International Investment Position: Date of latest observation = 2017 Q1; Date received = June 13, 2017; Frequency = Q; Frequency of Reporting = Q; Frequency of Publication = Q *Source: Annex VI. 2017 Federal Budget Measures to Enhance Innovation, Skills, and Clean Technology; Canada — Staff Report for the 2017 Article IV Consultation—Informational Annex.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2017/cr17210.pdf_