## cr18221

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### Political context: turning risk into opportunity
- NAFTA has facilitated trade in the region for over 20 years; renegotiation began in August 2017 and has been prolonged by contention over key issues.
- An escalation in trade tensions between the U.S. and its major trading partners could disrupt global supply chains.
- The 2018 U.S. Tax Cuts and Jobs Act threatens to erode Canada’s relative tax advantage.
- Economic anxiety is high heading into an election year.
- The federal government resisted industry pressure to cut taxes in the 2018 Federal Budget to match the U.S. tax cuts.
- Canada’s longer-run structural challenges: low labor productivity growth, population aging, and weak trade competitiveness.
- Policy opportunity: use favorable environment to rebuild policy buffers, assess U.S. tax reform spillovers, and push comprehensive structural reforms.

### Recent developments and macroeconomic conditions
- Recovery and composition of growth
  - 2017 real GDP growth: 3 percent (highest among G7 countries).
  - Growth drivers: accommodative fiscal and monetary policies, a strong U.S. economy, higher oil prices.
  - Private consumption was the largest contributor to recent rapid growth; disposable incomes accelerated in late 2016 due to fiscal transfers and rising wages.
  - Unemployment rate: fallen below 6 percent, its lowest level in 40 years; full-time employment rate increased steadily.
- Investment and exports
  - Business investment remained subdued; grew for the first time since 2014 but modest historically.
  - Oil sector investment largely flat; residential investment accelerated in 2017Q4 but underlying trend slowed.
  - Exports: export growth picked up in first half of 2017 but stalled thereafter; oil and gas exports rose with prices; non-energy goods exports declined; services exports continued steady growth.
  - Canadian crude (WCS) traded at a steeper-than-usual discount relative to WTI; rail transport cost estimated at $20 per barrel.
  - Market value of net international investment position: $400 billion at end of 2017.
  - Current account balance: narrowed to 2.9 percent of GDP in 2017 (from 3.2 percent of GDP in 2016); deficit largely financed by portfolio inflows.
- Fiscal and monetary adjustments
  - Federal cyclically-adjusted balance: surplus of 0.3 percent of potential GDP in 2015; deficit of 0.3 percent in 2016; deficit of 0.5 percent in 2017.
  - General government cyclically-adjusted deficit: 0.9 percent of GDP in 2016; 1.3 percent of GDP in 2017.
  - Policy interest rate: fixed at 50 basis points for two years, then raised 3 times since July 2017 to 1.25 percent.
  - Canadian 10-year government bond yields increased by 50 basis points to 2.1 percent since June 2017.
  - 5-year mortgage rate increased by 70 basis points to 4.3 percent.
- Housing and household balance sheets
  - Annual house price inflation fell from over 30 percent at the peak to about 16 percent in Vancouver; turned negative in Toronto.
  - Home sales slowest since end-2008; regional price inflation low single digits in many regions; Calgary prices remain depressed four years after oil shock.
  - Low-ratio mortgages in 2017: 75 percent of new lending nationwide and 90 percent in Toronto and Vancouver.
  - Highly indebted households in new mortgage originations (LTI > 450 percent): 16 percent in 2014; 22 percent in 2016; accounted for 32 percent of the value of all low-ratio mortgages in 2016. Share stopped rising and declined slightly beginning in late 2017.
  - Outstanding household debt: 173 percent of disposable income.
  - Household debt composition: 80 percent mortgage debt and home equity lines of credit (HELOC); volume of HELOC-type products around one-fifth of residential mortgage credit for federally regulated banks.
  - HELOC growth (December 2017): 7.2 percent; residential mortgage credit growth: 5.9 percent.
- Financial sector performance and risks
  - Six largest banks (D-SIBs) account for 93 percent of banking system assets.
  - Return on equity: around 15 percent.
  - NPL ratio: 0.5 percent of total loans in 2018Q1.
  - D-SIBs draw about 50 percent of total funding from wholesale sources.
  - Core Tier 1 capital ratio: 12.9 percent in 2018Q1; leverage ratio: 4.2 percent.
  - Royal Bank of Canada added to list of G-SIBs in November 2017.
  - Share of uninsured mortgage loans increased by 3 percentage points to 12.5 percent of total assets between 2011 and 2017.
  - Corporate debt-to-GDP ratio at historic high of 161 percent; corporate debt makes up 13 percent of total bank assets and 21 percent of total bank loans.
  - External debt of financial institutions grew by 15 percentage points of GDP over the past five years.
  - Banks’ oil-sector related portfolios: less than 3 percent of total assets.

### Outlook, projections, and risks
- Growth and policy projections
  - Real GDP growth projected: 2.1 percent in 2018; 2.0 percent in 2019.
  - Medium-term potential growth limited to about 1¾ percent.
  - Fiscal stance expected to gradually tighten by about 0.1 percent of GDP per year from 2018 through the projection horizon.
  - Monetary policy tightening phase expected to continue as capacity constraints emerge.
- Specific projections and impacts
  - U.S. tax reform spillovers to Canada: expected boost of 0.2-0.3 percentage points between 2018-20; expected reduction of around 0.1 percentage points between 2021-22.
  - Tighter macroprudential policy expected to subtract about 0.2 percent from the level of GDP by the end of 2019 (Bank of Canada estimate).
  - Credit to households and corporates projected to slow in line with economic activity.
- Major downside risks (domestic and external)
  - Domestic: sharp correction in the housing market from a sudden shift in price expectations or faster-than-expected mortgage rate increases, potentially causing financial stability risks if combined with rising unemployment and contracting private consumption.
  - External: uncertainty about U.S. policy changes and NAFTA:
    - Failure of NAFTA (reversion to MFN tariffs) could reduce long-run Canadian real GDP by around 0.4 percent (manufacturing hardest hit).
    - A 10 percent increase in non-tariff trade costs could reduce real GDP by 1.9 percent.
    - Failure of NAFTA plus escalation of trade tensions could spark short-term inflation via higher import prices and exchange rate depreciation, followed by persistent output falls.
  - Other risks: structurally weaker growth in key advanced economies, sharp slowdown in China, tighter global financial conditions.
- Upside scenario: higher oil prices or easing of pipeline constraints narrowing WTI-WCS spread could present upside risks.

### Traction of past IMF advice and recommended policy priorities
- Agreed policy directions with authorities:
  - Use available fiscal space to support the economy and keep monetary policy accommodative until durable growth and inflation pressures emerge.
  - Strengthen macroprudential policy and supervision to tackle housing sector vulnerabilities and mitigate financial stability risks.
  - Collect more comprehensive and timely data on real estate transactions.
  - Invest in infrastructure and structural reform to revitalize productivity and raise potential growth.
- Staff recommendations (selected)
  - Rebuild fiscal buffers by frontloading consolidation where feasible; consider fiscal rules to guide annual budget decisions and aim to reduce net federal debt to less than 30 percent of GDP as envisaged in Budget 2018 forecast.
  - Continue gradual monetary tightening to keep inflation on target.
  - Maintain and, if necessary, tighten macroprudential measures; if risks rise, subject new bank lending to loan-to-income limits.
  - Improve coordination between federal and provincial regulators; monitor HELOCs, non-bank mortgage lenders, and ETFs for emerging risks.
  - Accelerate structural reforms: boost labor productivity, reduce marginal effective corporate tax rate while ensuring revenue neutrality through indirect tax adjustments, reduce FDI restrictions, deregulate product markets (electricity, air transport, retail distribution, professional services), and reduce inter-provincial barriers.
  - Frontload infrastructure delivery, consolidate project plans, expand common standards of project evaluation, and move the Canada Infrastructure Bank expeditiously to attract private sector investment.
  - Improve immigrant labor market outcomes and regional absorption; pursue regionalization to support smaller communities.
  - Re-evaluate tax and housing measures: increase housing supply (urban density, land readiness, permit and rezoning speed), design broad-based tax measures to mitigate speculative demand, and re-evaluate rent control where it constrains supply.
  - Public support for innovation should be stage-gated and conditional on performance; consolidate small innovation programs into larger, simplified funds.
  - Assess implications of U.S. tax changes and consider a holistic review of corporate taxation.

### Box 1 — The First Feminist Budget? (findings and federal measures)
- Findings on female labor participation and growth
  - Staff’s research indicates real GDP could increase by about 4 percent if the current gap of 7 percentage points between male and female labor force participation were eliminated.
- Federal measures introduced in the 2018 Federal Budget
  - New “use-it-or-lose-it” Employment Insurance Parental Sharing Benefit: two-parent families who agree to share parental leave receive an additional five weeks of leave.
  - Amendments to the Canada Business Corporations Act: require federally incorporated firms to make annual disclosures about the diversity of their senior management teams and boards of directors.
  - New pay equity legislation: ensure that female and male employees in federally regulated businesses receive equal pay for work of equal value.
  - Access to new financing for women entrepreneurs through the Business Development Bank of Canada and Export Development Canada.
  - Commitment to introduce legislation to make gender budgeting (GBA+) a permanent part of the federal budget-making process.

### Housing-related measures, regulatory actions, and supervision (Annex III highlights)
- Mortgage insurance and underwriting rule changes (selected chronology)
  - July 2008 (effective October 2008): maximum amortization lowered from 40 to 35 years; maximum LTV reduced from 100 to 95; minimum credit score requirement of 620; maximum 45 per cent total debt service ratio introduced; loan documentation standards strengthened.
  - February 2010 (effective April 2010): maximum LTV for insured refinanced mortgages lowered from 95 to 90 percent; minimum down payment on properties not occupied by owner raised from 5 to 20 percent; more stringent eligibility criteria.
  - January 2011 (effective March 2011): amortization lowered from 35 to 30 years; maximum LTV refinanced mortgages lowered from 90 to 85 percent; government-backed insurance on non-amortizing HELOCs withdrawn in April.
  - June 2012 (effective July 2012): amortization lowered from 30 to 25 years; maximum LTV for refinanced mortgages lowered from 85 to 80 percent; maximum GDS and TDS capped at 39 percent and 44 percent respectively; insured mortgages limited to homes priced under $1 million.
  - February 2014 and April 2015: mortgage insurance premiums raised.
  - December 11, 2015 (effective February 2016/July 2016): minimum down payment changes; issuance limits and guarantee fee changes for NHA MBS and CMB; aim to encourage private market funding alternatives.
  - October 17, 2017 (effective January 1, 2018): OSFI Guideline B-20 revised — minimum qualifying “stress test” rate for uninsured mortgages defined; institutions must adhere to appropriate LTV ratio limits; restrictions on lending arrangements designed to circumvent LTV limits.
- Other regulatory and supervisory developments
  - Net Stable Funding Ratio implementation postponed from January 2019 to January 2020.
  - OSFI studying adjustments to capital regime to increase transparency in Pillar 2 capital buffers.
  - Upcoming Financial Sector Assessment Program (FSAP) to assess emerging risks and quality of prudential regulation and supervision.
- Financial stability monitoring and emerging risks (Box 2)
  - Monitor HELOCs, non-bank and alternative mortgage lenders (accounted for about 6 percent of new mortgage lending in Ontario in 2017; total assets around C$10-15 billion nationally), and ETFs (C$153 billion AUM by April 2018) for contagion and liquidity risks.
  - Improve coordination and information exchange between federal and provincial regulators.

### External sector assessment, REER, and balance sheet metrics
- External position and current account
  - NIIP rose from 10.3 percent of GDP in 2016 to 18.7 percent of GDP in 2017 due to valuation gains.
  - Gross external debt ~115 percent of GDP with about a third short-term.
  - Current account deficit: -2.9 percent of GDP in 2017 (narrowed from -3.2 in 2016).
  - Staff EBA CA norm = 2.2 percent of GDP; EBA CA gap = -4.6 percent of GDP for 2017; staff-adjusted CA norm ~1.8 percent of GDP; staff CA gap summarized as -1.9.
- REER assessments
  - EBA REER index model: overvaluation of 2.2 percent in 2017.
  - REER level model: undervaluation of around 6 percent in 2017.
  - Staff overall assessment: real effective exchange rate is overvalued by about 1 to 13 percent relative to medium-term fundamentals and desirable policies.
  - Semi-elasticity of the CA with respect to the REER estimated at 0.27.
  - Price discount between WCS and WTI: $10 per barrel more than historical average, a temporary reduction in oil export prices by around 20 percent, suggesting higher underlying CA position by around 0.6 percent of GDP.

### Public finances, debt dynamics, and stress tests
- Fiscal and debt indicators (selected)
  - Consolidated general government overall balance: 2017 = -1.1 percent of GDP; 2018 = -1.2; 2019 = -1.1.
  - Gross public debt: 2017 = 89.7 percent of GDP; 2018 = 87.3; 2019 = 84.7.
  - Net public debt: 2017 = 27.8 percent of GDP; 2018 = 27.6; 2019 = 27.2.
  - Public gross financing needs: around 16 percent of GDP in 2017; expected within 15-18 percent through projection horizon.
  - Gross debt-to-GDP projected to decline to 76.3 percent by 2023 under the baseline.
  - Net debt-to-GDP expected to fall to about 25 percent by 2023.
- Stress test scenarios (selected impacts)
  - Primary balance shock: deterioration by about one percent of GDP raises gross debt-to-GDP by about 2 percentage points over the projection period; sovereign risk premium assumed to increase by 25 basis points per one percent of GDP deterioration.
  - Growth shock: one standard deviation shock in 2019-2020 reduces real GDP growth to about 0-0.2 percent; primary balance deficit peaks at 2.3 percent in 2020; gross debt-to-GDP reverts to nearly 90 percent in 2019 before resuming decline.
  - Interest rate shock: sovereign risk premium increase by 200 basis points for two years raises effective interest rates ¼-¾ percentage points above baseline; described as mild impact on debt and gross financing needs.
  - Tail risk (combined growth and housing market shock): severe recession with real GDP growth reduced to -1.6 percent in 2018 and 0 percent in 2019; government non-interest expenditure increase equal to 20 percent of government guarantees of mortgage insurance (equivalent to 2½ percent of GDP); debt-to-GDP would rise to just below 95 percent of GDP; gross financing needs would reach 25 percent of GDP at its peak.

### Trade policy, competitiveness, and scenario analyses
- Competitiveness and export performance
  - Canadian non-energy export sector has been losing competitiveness; market share of Canadian goods (excluding resource products) in the U.S. halved to about 11 percent since mid-1990s.
  - Share of total exports (excluding resource exports) to GDP dropped from over 40 percent in the late 1990s to around 30 percent today.
  - Recent overvaluation of the REER has not helped competitiveness.
- NAFTA and CPTPP
  - Successful NAFTA negotiations could boost output by around 0.4 percent.
  - CPTPP signed in March 2018 covers around 13 percent of global output; successful implementation could boost Canada’s output by around 0.1 percent, irrespective of NAFTA outcome.
  - Reducing FDI restrictions and ratifying CPTPP quickly recommended to mitigate NAFTA uncertainty.
- Scenario parameter examples (Appendix I)
  - Successful NAFTA scenarios: "All NAFTA tariffs eliminated"; trade efficiency increased by 1% on U.S. trade with Canada and Mexico; AVEs of NTMs in services on U.S. trade with Canada and Mexico reduced by 25%; ROO trade costs for textiles/apparel and vehicles/parts reduced by one-half.
  - Unsuccessful NAFTA scenarios: "MFN rates on U.S. trade with Canada and Mexico"; trade efficiency decreased by a range of 2% - 30% on U.S. trade with Canada and Mexico; no change in AVEs of NTMs; ROOs replaced by MFN on U.S. trade with Canada and Mexico.

### Key statistics and exact figures cited (selected)
- 3 percent: 2017 real GDP growth.
- Unemployment rate: below 6 percent (lowest in 40 years).
- 2017 current account balance: 2.9 percent of GDP (2016: 3.2 percent).
- Net international investment position market value at end-2017: $400 billion.
- Federal cyclically-adjusted balance: 0.3 percent surplus in 2015; 0.3 percent deficit in 2016; 0.5 percent deficit in 2017.
- General government cyclically-adjusted deficit: 0.9 percent of GDP in 2016; 1.3 percent of GDP in 2017.
- Policy interest rate: raised 3 times since July 2017 to 1.25 percent (previously fixed at 50 basis points).
- Canadian 10-year government bond yield: increased by 50 basis points to 2.1 percent since June 2017.
- 5-year mortgage rate: increased by 70 basis points to 4.3 percent.
- Low-ratio mortgages: 75 percent of new lending nationwide; 90 percent in Toronto and Vancouver in 2017.
- Highly indebted households (LTI > 450 percent) in new mortgage originations: 16 percent in 2014; 22 percent in 2016; accounted for 32 percent of value of all low-ratio mortgages in 2016.
- Outstanding household debt: 173 percent of disposable income.
- HELOC growth (December 2017): 7.2 percent; residential mortgage credit growth: 5.9 percent.
- D-SIBs share of system assets: 93 percent.
- D-SIBs return on equity: around 15 percent.
- NPL ratio: 0.5 percent of total loans in 2018Q1.
- Core Tier 1 capital ratio: 12.9 percent in 2018Q1.
- Leverage ratio: 4.2 percent.
- Uninsured mortgage loans share increase: 3 percentage points to 12.5 percent of total assets between 2011 and 2017.
- Corporate debt-to-GDP ratio: 161 percent.
- Corporate debt shares: 13 percent of total bank assets; 21 percent of total bank loans.
- External debt growth of financial institutions over past five years: 15 percentage points of GDP.
- Banks’ oil-sector related portfolios: less than 3 percent of total assets.
- Growth projections: 2.1 percent in 2018; 2.0 percent in 2019; medium-term potential growth about 1¾ percent.
- Fiscal tightening: about 0.1 percent of GDP per year from 2018 through projection horizon.
- U.S. tax reform spillover to Canada: +0.2-0.3 percentage points (2018-20); −0.1 percentage points (2021-22).
- Macroprudential policy impact: −0.2 percent of GDP by end-2019 (Bank of Canada estimate).
- NAFTA failure model estimate: long-run Canadian real GDP −0.4 percent under MFN reversion and 2 percent non-tariff cost increase scenario; a 10 percent increase in non-tariff trade costs could reduce real GDP by 1.9 percent.

*International Monetary Fund — Canada country report content (excerpt).*

### 1. The First Feminist Budget? ____________________________________________________________________ 16

### 1. The First Feminist Budget? ____________________________________________________________________ 16

### Political context: turning risk into opportunity
- NAFTA has facilitated trade in the region for over 20 years; renegotiation began in August 2017 and has been prolonged by contention over key issues.
- An escalation in trade tensions between the U.S. and its major trading partners could disrupt global supply chains.
- The 2018 U.S. Tax Cuts and Jobs Act threatens to erode Canada’s relative tax advantage.
- Economic anxiety is high heading into an election year.
- The federal government resisted industry pressure to cut taxes in the 2018 Federal Budget to match the U.S. tax cuts.
- Canada’s longer-run structural challenges: low labor productivity growth, population aging, and weak trade competitiveness.
- Policy opportunity: use favorable environment to rebuild policy buffers, assess U.S. tax reform spillovers, and push comprehensive structural reforms.

### Traction of past IMF advice
- Shared views with authorities on:
  - Using available fiscal space to support the economy and keep monetary policy accommodative until durable growth and inflation pressures emerge.
  - Strengthening macroprudential policy and supervision to tackle housing sector vulnerabilities and mitigate financial stability risks.
  - Collecting more comprehensive and timely data on real estate transactions.
  - Investing in infrastructure and structural reform to revitalize productivity and raise potential growth.

### Recent developments

A. A solid recovery but investment and exports are still lagging
- 2017 real GDP growth: 3 percent (highest among G7 countries).
- Growth drivers: accommodative fiscal and monetary policies, a strong U.S. economy, higher oil prices.
- Private consumption largest contributor to recent rapid growth:
  - Disposable incomes started accelerating in late 2016; initial boost from fiscal transfers, more recent increases due to rising wages and a strengthening labor market.
  - Full-time employment rate has increased steadily; unemployment rate has fallen below 6 percent, its lowest level in 40 years.
- Business investment:
  - Remained subdued; grew for the first time since 2014 but modest recovery historically.
  - Oil sector investment largely flat because oil prices have not reached levels sufficient to spark renewed capital spending.
  - Residential investment accelerated in 2017Q4, but underlying trend has slowed.
- Exports:
  - Export growth picked up in first half of 2017 but stalled thereafter.
  - Oil and gas exports increased in line with rebound in prices.
  - Non-energy goods exports declined (automobiles, aircraft, consumer goods).
  - Services exports continued steady growth, led by commercial and transportation services.
- Canadian crude (WCS) traded at a steeper-than-usual discount relative to WTI:
  - Rail transport cost estimated at $20 per barrel.
  - Market value of net international investment position: $400 billion at end of 2017.
- Current account balance: narrowed to 2.9 percent of GDP in 2017 (from 3.2 percent of GDP in 2016).
- Financing: current account deficit largely financed by portfolio inflows.
- Despite deficit and rising external debt, Canada remains a net creditor.

B. Policy levers begin to adjust as the output gap closes
- Federal cyclically-adjusted balance:
  - Surplus of 0.3 percent of potential GDP in 2015.
  - Deficit of 0.3 percent in 2016.
  - Deficit of 0.5 percent in 2017.
- General government cyclically-adjusted deficit: increased from 0.9 percent of GDP in 2016 to 1.3 percent of GDP in 2017.
- Central bank tightening:
  - All three core inflation measures and headline inflation edging up toward midpoint of 1-3 percent target range.
  - Policy interest rate fixed at 50 basis points for two years, then raised 3 times since July 2017 to 1.25 percent.
  - Canadian 10-year government bond yields increased by 50 basis points to 2.1 percent since June 2017.
  - 5-year mortgage rate increased by 70 basis points to 4.3 percent.

C. Housing market cools but household debt remains high
- Annual house price inflation:
  - Fell from over 30 percent at the peak to about 16 percent in Vancouver.
  - Turned negative in Toronto.
  - Home sales slowest since end-2008.
- Regional price inflation: low single digits in many regions; Calgary prices remain depressed four years after oil shock.
- Macroprudential and provincial tax measures used to safeguard stability and improve affordability.
- Low-ratio mortgages prevalence in 2017:
  - Account for 75 percent of new lending nationwide and 90 percent in Toronto and Vancouver.
- Highly indebted households in new mortgage originations:
  - Share with LTI greater than 450 percent increased from 16 percent in 2014 to 22 percent in 2016.
  - Accounted for 32 percent of the value of all low-ratio mortgages in 2016.
  - Increase more pronounced among borrowers <35 years, lowest income quintile, and high house-price-growth markets.
  - Share of highly indebted households stopped rising and declined slightly beginning in late 2017.
- Outstanding household debt: 173 percent of disposable income.
- Household debt composition and growth:
  - Household debt consists of 80 percent mortgage debt and home equity lines of credit (HELOC).
  - Volume of HELOC-type products around one-fifth of volume of residential mortgage credit (for federally regulated banks).
  - Growth rate of HELOCs accelerating since early 2016 and outpaces growth of residential mortgage credit (7.2 percent vs. 5.9 percent in December 2017).

D. Another banner year for the large banks with some new risks
- Six largest banks (D-SIBs) account for 93 percent of banking system assets.
- Return on equity: around 15 percent.
- NPL ratio: 0.5 percent of total loans in 2018Q1.
- Funding: D-SIBs draw about 50 percent of total funding from wholesale sources.
- Core Tier 1 capital ratio: rose to 12.9 percent in 2018Q1.
- Leverage ratio: 4.2 percent.
- Royal Bank of Canada added to list of global systemically important banks (G-SIBs) in November 2017.
- Bank stocks: consistently best performing in the TSX.
- Mortgage exposures and vulnerabilities:
  - Share of uninsured mortgage loans increased by 3 percentage points to 12.5 percent of total assets between 2011 and 2017.
  - Some banks exposed to monoline lenders relying on brokered deposits for uninsured mortgage lending; small share but potential systemic effects (e.g., Home Capital Group funding stress in early 2017).
- Corporate indebtedness:
  - Corporate debt-to-GDP ratio at historic high of 161 percent.
  - Corporate debt makes up 13 percent of total bank assets and 21 percent of total bank loans.
- External debt of financial institutions: rapid growth over past five years (15 percentage points of GDP).
- Banks’ oil-sector related portfolios: less than 3 percent of total assets.

### Outlook and risks: uncertain times
- Growth projections:
  - Real GDP growth projected to slow to 2.1 percent in 2018 and 2.0 percent in 2019.
  - Potential growth over medium-term limited to about 1¾ percent.
- Monetary policy: tightening phase expected to continue as capacity constraints emerge.
- Fiscal stance: expected to gradually tighten by about 0.1 percent of GDP per year from 2018 through the projection horizon (negligible impact on growth).
- U.S. tax reform projections:
  - Expected to boost Canada’s growth by 0.2-0.3 percentage points between 2018-20.
  - Expected to reduce Canada’s growth by around 0.1 percentage points between 2021-22.
- Tighter macroprudential policy expected to subtract about 0.2 percent from the level of GDP by the end of 2019.
- Credit projections: credit to households and corporates projected to slow in line with economic activity.

Major downside risks (domestic and external)
- Domestic risk: sharp correction in the housing market could be triggered by sudden shift in price expectations or faster-than-expected increases in mortgage interest rates; could produce risks to financial stability if accompanied by rising unemployment and contraction in private consumption.
- External risks related to U.S. policy changes and NAFTA:
  - Uncertainty about impact of U.S. tax reform on near-term growth and spillovers to Canada; some provisions without historical precedent.
  - Lower tax rates in U.S. could reduce Canada’s attractiveness for investment.
  - Failure of NAFTA (reversion to MFN tariffs) could reduce long-run Canadian real GDP by around 0.4 percent (manufacturing hardest hit).
  - A 10 percent increase in non-tariff trade costs could reduce real GDP by 1.9 percent.
  - Failure of NAFTA plus escalation of trade tensions could short-term spark inflation via higher import prices and exchange rate depreciation, followed by large and persistent fall in output.
- Other risks: structurally weaker growth in key advanced economies, sharp slowdown in China, tighter global financial conditions.
- Upside: higher oil prices or easing of domestic pipeline constraints narrowing the WTI-WCS spread could present upside risks.

### Key statistics and exact figures cited
- 3 percent: 2017 real GDP growth.
- Unemployment rate: below 6 percent (lowest in 40 years).
- 2017 current account balance: 2.9 percent of GDP (2016: 3.2 percent).
- Net international investment position market value at end-2017: $400 billion.
- Federal cyclically-adjusted balance: 0.3 percent surplus in 2015; 0.3 percent deficit in 2016; 0.5 percent deficit in 2017.
- General government cyclically-adjusted deficit: 0.9 percent of GDP in 2016; 1.3 percent of GDP in 2017.
- Policy interest rate: raised 3 times since July 2017 to 1.25 percent (previously fixed at 50 basis points).
- Canadian 10-year government bond yield: increased by 50 basis points to 2.1 percent since June 2017.
- 5-year mortgage rate: increased by 70 basis points to 4.3 percent.
- House price inflation: fell from over 30 percent at peak to about 16 percent in Vancouver; negative in Toronto.
- Low-ratio mortgages: 75 percent of new lending nationwide; 90 percent in Toronto and Vancouver in 2017.
- Highly indebted households (LTI > 450 percent) in new mortgage originations: 16 percent in 2014; 22 percent in 2016; accounted for 32 percent of value of all low-ratio mortgages in 2016.
- Outstanding household debt: 173 percent of disposable income.
- HELOC vs residential mortgage credit growth (December 2017): HELOC growth 7.2 percent; residential mortgage credit growth 5.9 percent.
- D-SIBs share of system assets: 93 percent.
- D-SIBs return on equity: around 15 percent.
- NPL ratio: 0.5 percent of total loans in 2018Q1.
- D-SIBs wholesale funding share: about 50 percent.
- Core Tier 1 capital ratio: 12.9 percent in 2018Q1.
- Leverage ratio: 4.2 percent.
- Uninsured mortgage loans share increase: 3 percentage points to 12.5 percent of total assets between 2011 and 2017.
- Corporate debt-to-GDP ratio: 161 percent.
- Corporate debt shares: 13 percent of total bank assets; 21 percent of total bank loans.
- External debt growth of financial institutions over past five years: 15 percentage points of GDP.
- Banks’ oil-sector related portfolios: less than 3 percent of total assets.
- Growth projections: 2.1 percent in 2018; 2.0 percent in 2019; medium-term potential growth about 1¾ percent.
- Fiscal tightening: about 0.1 percent of GDP per year from 2018 through projection horizon.
- U.S. tax reform spillover to Canada: +0.2-0.3 percentage points (2018-20); −0.1 percentage points (2021-22).
- Macroprudential policy impact: −0.2 percent of GDP by end-2019 (Bank of Canada estimate).
- NAFTA failure model estimate: long-run Canadian real GDP −0.4 percent under MFN reversion and 2 percent non-tariff cost increase scenario; a 10 percent increase in non-tariff trade costs could reduce real GDP by 1.9 percent.

*International Monetary Fund — Canada country report content (excerpt).*

### 1. Retreat from cross

### 1. Retreat from cross border integration

### Risk description and implications
- Canada is a highly open economy with total trade accounting for over 60 percent of GDP.
- A shift toward protectionism and economic isolationism would reduce global trade, capital and labor inflows, and global growth.
- A prolonged period of uncertainty, the repeal of NAFTA or the further escalation of trade tensions would negatively affect Canada’s exports, business investment and private consumption.
- The U.S. tax reform will also likely affect the relative attractiveness of Canada as a location for investment.

### Short-term policy response
- The BOC should closely monitor inflation developments and be prepared to cut the policy rate and, if necessary, resort to unconventional measures.
- The federal government, as well as provinces with fiscal space, should ease fiscal policy and introduce discretionary measures, including:
  - bringing forward the infrastructure program; and
  - cutting personal income taxes which have a relatively high multiplier.

### Medium-term policy response
- Structural reform policies should be accelerated to raise productivity, which would improve external competitiveness, foster trade, and boost potential growth.
- Reduce the marginal effective corporate tax rate, while adjusting indirect taxes to ensure revenue neutrality.

### Risk Assessment Matrix (RAM) context (as provided)
- The RAM shows events that could materially alter the baseline path (the scenario most likely to materialize in the view of IMF staff).
- The relative likelihood is the staff’s subjective assessment of the risks surrounding the baseline:
  - “low” is meant to indicate a probability below 10 percent,
  - “medium” a probability between 10 and 30 percent, and
  - “high” a probability between 30 and 50 percent.
- “Short term (ST)” and “medium term (MT)” are meant to indicate that the risk could materialize within 1 year and 3 years, respectively.

*Source: cr18221 - 1. Retreat from cross*

### Box 1. The First Feminist Budget?

### Box 1. The First Feminist Budget?

### Findings on female labor participation and growth
- Staff’s research indicates that real GDP could increase by about 4 percent if the current gap of 7 percentage points between male and female labor force participation were eliminated.
- Reference: “Women are Key for Future Growth: Evidence from Canada”, IMF Working Paper, IMF/17/166, July 2017, by B. Petersson, R. Mariscal, and K. Ishi.

### Federal measures introduced in the 2018 Federal Budget
- New “use-it-or-lose-it” Employment Insurance Parental Sharing Benefit: two-parent families who agree to share parental leave receive an additional five weeks of leave.
- Amendments to the Canada Business Corporations Act: require federally incorporated firms to make annual disclosures about the diversity of their senior management teams and boards of directors.
- New pay equity legislation: ensure that female and male employees in federally regulated businesses receive equal pay for work of equal value.
- Access to new financing for women entrepreneurs through the Business Development Bank of Canada and Export Development Canada.
- Commitment to introduce legislation to make gender budgeting (GBA+) a permanent part of the federal budget-making process.

*Source: Box 1. The First Feminist Budget?*

### Box 2. Measures to Increase Housing Supply (Concluded)

### Box 2. Measures to Increase Housing Supply (Concluded)

### Financial stability monitoring and emerging risks
- Close monitoring and improved coordination and information exchange between federal and provincial regulators are required to mitigate potential and emerging risks to financial stability.
- Home Equity Lines of Credit (HELOCs)
  - The increasing use of HELOCs may contribute to a rise in household vulnerabilities as the revolving part of these loans do not require the principal to be repaid on a fixed schedule.
  - Regular monitoring and assessment of HELOC’s role in housing finance, including that of the purpose of HELOCs, is important, particularly ensuring that they are not used for circumventing LTV rules.
- Non-bank and alternative mortgage lenders
  - There is a risk that the stricter qualifying requirements for uninsured mortgages may lead some borrowers to turn to lenders that are not subject to the same regulation.
  - These lenders accounted for about 6 percent of new mortgage lending in Ontario in 2017, and their total assets are around C$10-15 billion nationally.
  - Although small and constrained by limited funding sources, monitoring developments in this sector is needed.
  - Vigilance is also needed for credit unions’ mortgage lending in case they do not follow the tightened requirements of the federal regulator.
- Exchange-traded funds (ETFs) and market contagion
  - The Canadian ETF market reached C$153 billion assets under management by April 2018.
  - While ETFs lower cost, enhance price discovery, and facilitate hedging and diversification, they may contribute to a rise in cross-asset correlations during periods of stress, increasing contagion risk.
  - Riskier market segments (ETFs with less liquid underlying assets and synthetic ETFs) are relatively small in Canada, but regulators should closely monitor exposures and ensure financial institutions maintain robust risk management standards.

### Regulatory developments and supervisory work
- The Office of the Superintendent of Financial Institutions (OSFI) has updated several regulatory initiatives in the areas of liquidity and capital requirements.
  - The implementation of the Net Stable Funding Ratio was postponed from January 2019 to January 2020 based on implementation progress at the international level.
  - OSFI is studying potential adjustments to the capital regime with a view to increase transparency in Pillar 2 capital buffers. OSFI’s objective is to increase the likelihood that the capital that is already built up will be drawn as intended in case of a stressed event in the future.
- The upcoming Financial Sector Assessment Program (FSAP) will conduct a more comprehensive assessment of the financial sector, focusing on emerging risks and the quality of prudential regulation and supervision.

*Source: cr18221 - Box 2. Measures to Increase Housing Supply (Concluded), cr18221 - Box 2. Measures to Increase Housing Supply (Concluded)*

### Trade policy: competitiveness, NAFTA, and CPTPP
- Competitiveness trends and export performance
  - Canadian non-energy export sector has been losing competitiveness for some time.
  - Since the middle of the 1990s, the market share of Canadian goods (excluding resource products) in the U.S. has halved to about 11 percent.
  - The share of total exports (excluding resource exports) to GDP has dropped from over 40 percent in the late 1990s to around 30 percent today.
  - Recent overvaluation of the real effective exchange rate has not helped competitiveness.
- NAFTA negotiations and uncertainty
  - A NAFTA agreement should be reached within a reasonable timeframe to alleviate uncertainty that is impacting business decisions and weighing on investment, particularly in the export sector.
  - Several U.S. proposals represent major points of contention: minimum U.S. content requirements, eliminating the investor-state dispute resolution framework, a cap on government procurement, and a five-year sunset clause.
  - The U.S. has objected to the Canadian system of supply management of the dairy sector that imposes very high tariff rates for imports above a certain volume.
  - Staff estimates suggest that successful NAFTA negotiations could boost output by around 0.4 percent.
- CPTPP opportunity and timing
  - The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) was signed by 11 countries in March 2018 and covers around 13 percent of global output.
  - Canada should quickly ratify the agreement to seize potential benefits from greater market access and export diversification and to help mitigate risks associated with NAFTA negotiations.
  - Staff estimates suggest that successful implementation of CPTPP could boost Canada’s output by around 0.1 percent, irrespective of the outcome of NAFTA negotiations.
- Foreign direct investment (FDI) and regulatory barriers
  - Canada ranks at the forefront in open trade regulation among G20 economies but maintains relatively more restrictive FDI regulations.
  - Reducing FDI restrictions can help mitigate the impact from US tax reforms.
  - OECD reports prohibitive limits on foreign equity ownership in key non-manufacturing sectors and preferential treatment given to domestic firms and suppliers.
  - Restrictions affect sectors including telecom, broadcasting, financial services, commercial aviation, energy, fishing, and mining; and regulatory barriers target foreign suppliers in fixed and mobile telecom, maritime and air transport, film and video distribution, book publishing, broadcasting, uranium mining, fishing, patenting and trademarking, customs brokering, and other professional services (e.g., accountancy, architecture, engineering and legal professions).
- Domestic inter-provincial trade reform
  - The Canadian Free Trade Agreement (CFTA) modified government procurement rules in April 2017 to allow equal access to firms across provinces, made domestic regulations compatible with international agreements, and lowered barriers to goods and services.
  - The CFTA establishes a Regulatory Reconciliation and Cooperation Table to address remaining barriers and commit to future liberalization of selected sectors, including financial services.
  - Important remaining tasks include addressing large domestic trade, labor mobility, and business registration barriers outlined in the over 135 pages of exemptions included in the CFTA.
  - Federal leadership is vital for meaningful progress toward national standardization of regulation.

### Structural reform: infrastructure, innovation, and productivity
- Long-run productivity challenge
  - Weak labor productivity has been a drag on Canada’s long-term growth potential.
  - Canadian productivity growth has averaged only 1 percent since 2000, compared with almost 2 percent in the United States over the same period.
  - Contributing factors: smaller domestic market, limitations to scalability with a high concentration of small less productive firms, regulatory barriers to FDI and inter-provincial operations, and shortage of skills needed for a knowledge-based economy.
  - These factors imply Canada may have failed to benefit from the same wave of technology adoption driving productivity growth in the U.S. and other high-growth OECD countries during the early 2000s.

*Source: cr18221 - Box 2. Measures to Increase Housing Supply (Concluded), cr18221 - Box 2. Measures to Increase Housing Supply (Concluded)*

### 2018. IMF.

### cr18221 - 2018. IMF.

### Macroeconomic outlook and policy stance
- Economy operating close to capacity; output growth expected to moderate to around 2 percent in 2018 and 2019.
- Staff view: with growth above potential, priority of fiscal policy should be on rebuilding buffers.
- Monetary policy: Bank of Canada to tighten gradually; further increases in the policy interest rate are warranted to keep inflation on target.
- Staff projection highlights (from Table 1 and Table 8):
  - Real GDP: 2017 = 3.0; 2018 = 2.1; 2019 = 2.0.
  - Unemployment rate (average): 2017 = 6.3; 2018 = 6.1; 2019 = 6.2.
  - CPI inflation (average): 2017 = 1.6; 2018 = 2.5; 2019 = 2.2.
  - Ten-year government bond yield: 2017 = 1.8; 2018 = 2.3; 2019 = 2.7.
  - Current account balance (percent of GDP): 2017 = -2.9; 2018 = -2.9; 2019 = -2.0.
  - Nominal GDP (billions of Can$): 2017 = 2,145; 2018 = 2,239; 2019 = 2,336.

### Innovation, investment, and regulatory agenda
- Federal initiatives launched since 2015 to boost productivity and investment:
  - Long-term infrastructure plan; creation of Canada Infrastructure Bank (CIB) and Invest in Canada Hub.
  - Innovation and Skills Plan (2017 Federal Budget); Venture Capital Catalyst Initiative; Super Cluster Initiative.
  - Strategic Innovation Fund; additional funds to Statistics Canada for program evaluations; central performance evaluation team at the Treasury Board; targeted reviews of regulatory burden for innovation activity.
- Budgetary allocations and program details:
  - The 2018 Federal Budget allocated $11.5 million over the next three years to review regulatory burden on innovation and business investment.
  - Strategic Innovation Fund intends to gather $1.26 billion funds over five years, including $1.06 billion from consolidating de-centralized programs.
  - Government commitment to $95.6 billion (3.6 percent of GDP) in infrastructure spending through FY2028.
  - About $4.8 billion (equivalent to 0.2 percent of GDP) planned for FY2016–18 has been deferred to FY2019 and beyond.
- Staff recommendations:
  - Public support for innovation should be stage-gated and conditional on performance.
  - Strong monitoring and evaluation framework for Supercluster projects; select projects based on arms-length criteria.
  - Coordination between federal and provincial governments to reduce overlaps and inefficiencies.
  - Consolidation of small innovation programs into larger, simplified funds (welcome).

### Infrastructure delivery and Canada Infrastructure Bank
- Implementation underway but some amounts deferred ($4.8 billion).
- Recommendation: consolidate project plans across all levels of government; expand common standards of project evaluation.
- With new CEO appointment, Canada Infrastructure Bank should move expeditiously to attract private sector and institutional investment to new revenue-generating infrastructure projects.

### Immigration, labor force, and regional absorption
- Immigration targets and impact:
  - Raised to 300,000 new residents in 2017; target raised further to 340,000 in 2020 (roughly 1 percent of the population).
  - Staff estimate: raising annual immigration to the 2020 target would raise real GDP by a cumulative 0.15 percent.
- Benefits and risks:
  - Immigration policies can counteract population aging and strengthen the labor force; evidence of positive impact on productivity growth.
  - Concentrated inflows to urban areas create short-term pressures on local labor and housing markets and on social and physical infrastructure; inflows will account for 100 percent of the country’s population growth by 2033.
- Staff recommendations:
  - Improve labor market outcomes of immigrants and expand regional absorptive capacity.
  - Regionalization to support smaller communities and relieve pressures in large urban areas.

### Fiscal framework and public finances
- Authorities committed to maintaining a downward deficit and debt ratio track; provinces with high deficits or debt should pursue fiscal consolidation more forcefully.
- Staff appraisal:
  - Federal fiscal plan size is appropriate but could be frontloaded to build buffers faster.
  - Rebuilding fiscal space creates room to finance growth-promoting policies and reduce income inequality.
  - Fiscal framework could explicitly incorporate fiscal rules:
    - Aim to reduce net federal debt to less than 30 percent of GDP as envisaged in Budget 2018 forecast.
    - Operational rules to guide annual budget decisions.
  - Provincial fiscal rules are most urgent for Ontario and Alberta.
- Fiscal indicators (selected, Table 3):
  - Consolidated general government overall balance: 2017 = -1.1 percent of GDP; 2018 = -1.2; 2019 = -1.1.
  - Gross public debt: 2017 = 89.7 percent of GDP; 2018 = 87.3; 2019 = 84.7.
  - Net public debt: 2017 = 27.8 percent of GDP; 2018 = 27.6; 2019 = 27.2.

### Taxation and competitiveness
- Staff view: time to carefully rethink corporate taxation to improve efficiency and preserve Canada’s position in a changing international tax environment; undertake a holistic review weighing incremental vs. radical options.
- Authorities to assess implications of U.S. tax changes; note complexity (rate reduction offset by base broadening) and cross-border tax features (e.g., U.S. state sales taxes).

### Housing sector and macroprudential policy
- Housing vulnerabilities:
  - Canadian house prices among the fastest growing in the OECD in recent years; notable surges in Vancouver and Toronto.
  - Household indebtedness high by global standards.
  - Shift in mortgage risk characteristics; changes in buyer markets across cities.
- Macroprudential stance:
  - Current macroprudential measures broadly appropriate and appear to be containing housing-related financial sector risk.
  - Continued vigilance required given large stock of household debt; if housing risks rise further, new lending by banks should be subject to loan-to-income limits.
  - Need coordinated monitoring between federal and provincial regulators for emerging risks: home-equity lines of credit, less regulated mortgage lending, rapid growth in exchange-traded funds.
  - Improve access to beneficial ownership information and financial intelligence to mitigate money laundering risks in the real estate sector.

### Financial sector soundness
- Canadian big six banks vs. G-SIBs (Figure/Table highlights):
  - Capital ratios rising but remain below G-SIBs; Canadian banks enjoy higher profitability than G-SIBs.
  - Non-performing loan ratios are low.
  - Leverage ratio has continued to rise.
- Financial soundness indicators (selected, Table 5):
  - Total capital ratio: 2017 = 14.8 percent.
  - Tier 1 ratio: 2017 = 12.9 percent.
  - Return on equity: 2017 = 21.3 percent.
  - Non-performing loans to Gross Loans: 2017 = 0.5 percent.
  - Household real credit growth: 2017 = 4.0 percent (Table 1).

### External sector assessment and recommendations
- External position:
  - NIIP rose from 10.3 percent of GDP in 2016 to 18.7 percent of GDP in 2017 due to valuation gains; gross external debt ~115 percent of GDP with about a third short-term.
  - Staff assessment: external position in 2017 remained moderately weaker than implied by medium-term fundamentals and desirable policies.
- Current account and gaps:
  - Current account deficit: 2017 = -2.9 percent of GDP (narrowed from -3.2 in 2016).
  - Staff estimate: EBA CA norm = 2.2 percent of GDP; EBA CA gap = -4.6 percent of GDP for 2017. Staff-adjusted CA norm ~1.8 percent of GDP; staff CA gap between -3.4 and -0.4 percent of GDP; staff CA gap summarized as -1.9 (table: CA Assessment: Actual CA -2.9; Cycl. Adj. CA -2.4; EBA CA Norm 2.2; EBA CA Gap -4.6; Staff Adj. -2.7; Staff CA Gap -1.9).
- Policy recommendations to improve external position:
  - Boost non-energy exports via improved labor productivity, R&D and physical capital investment, promotion of FDI, development of services exports, and diversification of export markets.
  - Increase public infrastructure investment to boost competitiveness.
  - A credible medium-term fiscal consolidation plan to support external rebalancing.
  - Maintain tight macroprudential policies to support private sector saving.

### Staff appraisal: structural reform priorities
- Product market deregulation:
  - Further deregulation in electricity, air transport, retail distribution and professional services would increase investment incentives, efficiency, and innovation.
  - Specific issues cited: high vertical integration in electricity markets; onerous licensing and registration requirements, price controls, and operational restrictions in retail and professional services.
  - Product market reforms produce gains for both entrants and incumbents.
- Trade and structural reforms:
  - Continue negotiations to modify NAFTA; ratify and implement CPTPP as soon as possible.
  - Reduce inter-provincial barriers to trade and labor mobility; accelerate infrastructure approvals; further deregulate product markets to attract FDI.
  - Innovation programs (e.g., Supercluster Initiative) should have clear performance targets and conditional funding.
- Housing and urban policy:
  - Address housing supply by increasing urban density, accelerating delivery of land ready for development, shortening approval processes for building permits and re-zoning, and re-evaluating rent control where it constrains supply.
  - Tax measures to mitigate speculative demand should be broad-based rather than targeted solely at non-residents.

*Source: cr18221 - 2018. IMF.*

### 2017. Estimates through [May] 2018 show that the REER has been unchanged relative to the 2017 average.

### cr18221 - 2017. Estimates through [May] 2018 show that the REER has been unchanged relative to the 2017 average.

### REER assessment and current account (CA) implications
- EBA REER index model: overvaluation of 2.2 percent in 2017.
- REER level model: undervaluation of around 6 percent in 2017.
- Staff view: REER level model could overstate the extent of undervaluation.
- Staff overall assessment: real effective exchange rate is overvalued by about 1 to 13 percent relative to medium-term fundamentals and desirable policies.
- Technical note: semi-elasticity of the CA with respect to the REER is estimated at 0.27.
- Technical note: the statistical treatment of retained earnings on portfolio equity and inflation is estimated to generate a downward bias in the income balance of the current account of the order of 1.7 percent of GDP.
- Technical note: the price discount between Canadian crude (WCS) and the West Texas benchmark has been $10 per barrel more than its historical average, amounting to a temporary reduction in oil export prices by around 20 percent and suggesting a higher underlying CA position (by around 0.6 percent of GDP).

### Capital and financial accounts: flows and policy measures
- CA deficit in 2017 financed by net portfolio inflows equal to 4.9 percent of GDP.
- Composition of portfolio net inflows in 2017:
  - corporate debt securities: 59 percent of portfolio net inflows.
  - foreign acquisition of Canadian equities: 10 percent of portfolio net inflows.
  - foreign acquisition of government debt securities: 31 percent of portfolio net inflows.
- Foreign direct investment in 2017: net outflow of 3.3 percent of GDP (compared with 2.4 percent of GDP in 2016).
- Assessment: Canada has an open capital account.
- Vulnerabilities limited by:
  - credible commitment to a floating exchange rate.
  - government running fiscal deficits slightly less than 1 percent of GDP in the near term, with strong and credible commitment to fiscal consolidation over the medium term.

### FX intervention and reserves level
- Regime: free-floating exchange rate.
- FX interventions: none since September 1998 (except when participating in internationally concerted interventions).
- Reserves: limited; central bank has standing swap arrangements with the U.S. Federal Reserve and four other major central banks (swap lines have not been drawn).
- Assessment: policies appropriate; commitment to floating regime together with swap arrangement reduces need for reserve holding.

### Public Debt Sustainability Analysis — overall assessment
- Overall assessment: broadly unchanged from the 2017 Article IV staff report.
- Public debt trajectory: remains on a sustainable trajectory over the medium term.
- Gross debt-to-GDP:
  - peaked at 91.1 percent in 2016.
  - fell to 89.7 percent in 2017.
  - projected to decline to 76.3 percent by 2023 under the baseline scenario.
- Most significant stress scenario: pushes debt to 95 percent.
- Probability: debt remaining below 85 percent of GDP is high over the projection horizon.
- Financial assets: about 62 percent of GDP provide additional cushion.
- Net debt-to-GDP:
  - stood at 27.8 percent in 2017.
  - expected to fall to about 25 percent by 2023.

### Fiscal space and composition of public finances
- General government gross debt: 89.7 percent of GDP in 2017.
- If accounts payable excluded, gross debt falls to just below 70 percent of GDP.
- General government financial assets: about 62 percent of GDP (currency and deposits, debt securities, loans, equity and investment fund shares, and accounts receivable).
- Federal level gross debt: 38 percent of GDP.
- If only highly-liquid assets included (28 percent of GDP), net debt-to-GDP would be around 62 percent.
- Public gross financing needs:
  - around 16 percent of GDP in 2017.
  - expected to hover within a range of 15-18 percent of GDP through the projection horizon (below the indicative high-risk threshold of 20 percent).

### Baseline scenario and realism of projections
- General government primary deficit projected path:
  - projected to decline from 0.9 percent of GDP in 2018 to 0.4 percent by 2023.
- Gross debt dynamics:
  - real GDP growth expected to exceed real interest rates until 2021.
  - from 2022 onward, real interest rates expected to exceed real GDP growth.
  - nevertheless, steady decline in primary deficit contributes to gross debt-to-GDP ratio falling to 76.3 percent by 2023.
- Net debt dynamics:
  - net debt ratio expected to fall to 25 percent by 2023.
- Realism of projections:
  - projection errors in recent years for real GDP growth, primary balance, and inflation were moderate, with the median forecast error in line with other economies.
  - no evidence of systematic projection bias undermining the DSA assessment.
- Market perceptions:
  - Canada maintained AAA ratings since 2002.
  - In early June 2018, Canada’s benchmark 10-year bond yields were around 2.2-2.3 percent, about 65-68 basis points below U.S. 10-year treasury note yields.

### Public DSA risk assessment and probabilistic outcomes
- Under symmetric distribution of risk: more than a 75 percent probability that debt will be below 85 percent of GDP over the medium term.
- Under asymmetric distribution (no positive shocks to the primary balance): at least 60 percent chance that debt path will remain below 85 percent of GDP over the projection horizon.

### Stress tests — key scenarios and impacts
- Primary balance shock:
  - deterioration in the primary balance by 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.
  - gross financing needs increase by 1-2 percentage points of GDP compared to baseline.
- Growth shock:
  - one standard deviation shock to growth in 2019 and 2020 reduces real GDP growth rates to about 0-0.2 percent.
  - primary balance deficit peaks at 2.3 percent in 2020.
  - gross debt-to-GDP ratio reverts to nearly 90 percent of GDP in 2019, then returns to downward path as growth recovers.
  - gross financing needs rise about 2-3 percentage points higher than baseline until 2020.
- Interest rate shock:
  - increase in sovereign risk premium by 200 basis points for two years raises the effective interest rate ¼-¾ percentage points higher than baseline.
  - impact on debt and gross financing needs described as mild.
- Exchange rate shock:
  - about 90 percent of general government outstanding marketable debt instruments are in Canadian dollars.
  - fiscal impact of a substantial exchange rate depreciation of about 23 percent is minimal.
- Stagnant growth in major economies:
  - real GDP growth could fall below baseline by ½ percentage points over the projection horizon.
  - gross debt-to-GDP ratio would still fall but at a much slower pace.
- Tail risk scenario (combined growth and housing market shock):
  - severe recession: real GDP growth reduced by two standard deviations in 2018 (to minus 1.6 percent) and one standard deviation (to 0 percent) in 2019.
  - sharp housing market correction could force partial bailouts of mortgage insurers.
  - government non-interest expenditure increase equal to 20 percent of government guarantees of mortgage insurance (equivalent to 2½ percent of GDP).
  - debt-to-GDP ratio would rise to just below 95 percent of GDP.
  - gross financing needs would reach 25 percent of GDP at its peak.

### Accounting issues for international comparisons
- Canada’s general government debt includes sizable accounts payable; excluding accounts payable would reduce general government debt to about 69 percent of GDP in 2017.
- Public sector issued debt to fund public sector employee pension plans; general government debt as reported does not include unfunded pension liabilities.
- General government debt including unfunded pension liabilities would be about 105 percent of GDP on a gross basis.

*Source: IMF staff report (cr18221).*

### Annex III. Housing-Related Measures to Safeguard Financial

### Annex III. Housing-Related Measures to Safeguard Financial Stability

### Changes in Mortgage Insurance Rules (Annex III. Table 1)
- July 2008 (effective on October 2008)
  - Maximum amortization for new government backed insured mortgages was lowered (from 40 to 35 years)
  - Maximum LTV for new mortgages was reduced (from 100 to 95)
  - Minimum credit score requirement (of 620) was introduced)
  - Maximum of 45 per cent total debt service ratio was introduced (the amount of gross income that is spent on servicing debt and housing-related expenses such as heat or condo fees).
  - Loan documentation standards strengthened to ensure reasonableness of property value and of the borrower’s sources and level of income
- February 2010 (effective on April 2010)
  - Maximum LTV for insured refinanced mortgages was lowered (from 95 to 90 percent)
  - Minimum down payment on properties not occupied by owner was raised (from 5 to 20 percent)
  - More stringent eligibility criteria were introduced (all borrowers are required to meet the standards for a 5-year benchmark fixed-rate mortgage, even if they choose a mortgage with a variable interest rate and shorter term.
- January 2011 (effective on March 2011)
  - Maximum amortization for new government backed insured mortgages was lowered (from 35 to 30 years)
  - Maximum LTV refinanced mortgages was lowered (from 90 to 85 percent)
  - Government-backed insurance on non-amortizing lines of credit secured by houses (HELOCs) withdrawn in April
- June 2012 (effective on July 2012)
  - Maximum amortization for new government backed insured mortgages was lowered (from 30 to 25 years)
  - Maximum LTV for refinanced mortgages was lowered (from 85 to 80 percent)
  - Maximum gross debt service ratio and maximum total debt service ratios were capped at 39 percent and 44 percent respectively
  - Government-backed insured mortgages limited to homes with a purchase price of less than $1 million
- February 2014 (effective on May 2014)
  - Mortgage insurance premiums were raised
- November 2014 (full implementation by June 30, 2015)
  - Residential Mortgage Insurance Underwriting Practices and Procedures (Guideline B21) was issued. This guideline:
    - outlines OSFI’s expectations concerning mortgage insurers’ governance and internal risk management practices
    - outlines principles for mortgage insurers on internal underwriting operations, including setting prudent requirements for lenders and applying appropriate due diligence to lenders’ practices
    - enhances disclosure requirements, which will support greater transparency, clarity and public confidence in mortgage insurers’ residential mortgage insurance underwriting practices
- April 2015 (effective on June 2015)
  - Mortgage insurance premiums were raised
- December 11, 2015 (effective on February 2016)
  - The minimum down payment for new insured mortgages increased from 5 to 10 percent for the portion of the house price above $500.000. The 5 percent minimum down payment for properties up to $500,000 remained unchanged
- December 11, 2015 (effective on July 2016)
  - Issuance limits for NHA MBS in 2016 will be kept effectively unchanged as part of the ongoing effort to limit government involvement in the mortgage market
- December 11, 2015 (effective on July 2016)
  - Guarantee fee for NHA MBS and the CMB program will be increased to encourage the development of private market funding alternatives by narrowing the funding cost difference between government sponsored and private market funding sources
- October 3, 2016 (effective on October 17, 2016)
  - To ensure the uniform rules for all insured mortgages, all new mortgage borrowers with a down payment of less than 20% and seeking mortgage insurance are required to qualify at the posted rate for a conventional mortgage for a five-year term or the contract rate, whichever is higher
- October 3, 2016 (effective on November 30, 2016)
  - The standard for a low-ratio mortgage portfolio insurance are tightened to become uniform with those for insured high ratio-mortgages

### Other Housing Finance Related Regulatory Measures (Annex III. Table 2)
- June 2011 (effective on January 1, 2013)
  - Protection of Residential Mortgage Hypothecary Insurance Act (PRMHIA) and amendments to the National Housing Act assented
    - Formalizes the rules for government-backed mortgage insurance and other existing arrangements with private mortgage insurers
    - Provision for the Minister of Finance to charge fees to compensate the Government for its exposure to risk represented by loan insurance
- November 2011/January 2012
  - IFRS standards were implemented requiring banks to report debt securitizations on balance sheet
- March 2012 (Economic Action Plan 2012 announcements)
  - Canadian banks prohibited from issuing covered bonds backed by government-insured mortgages (sets strong eligibility criteria for mortgages in the cover pool)
  - CMHC designated as administrator of the covered bond framework
  - CMHC's mandate was enhanced to include financial stability as an objective of CMHC's commercial activities
  - CMHC commercial activities subject to OSFI examination
- June 2012
  - Guideline on Sound Residential Mortgage Underwriting Practices (B-20)
    - A guideline for residential mortgage underwriting practices and procedures was issued by OSFI (including assessment of borrower's background and demonstrated willingness to service debt payment in a timely manner, assessment of borrower's capacity to service debt, assessment of property value/collateral, effective credit and counterparty risk management, comprehensive residential mortgage underwriting policy)
    - Maximum LTV on the revolving portion of HELOCs Cut (from 80 to 65 percent)
    - Stated income mortgages are no longer allowed without some verification of income
- February 2014 (Economic Action Plan 2014 announcements)
  - CMHC will pay guarantee fees to the Receiver General to compensate for mortgage insurance risks (pursuant to NHA 8.2), effective January 1,2014. Fees are 3.25 percent of premiums written and 10 basis points on new portfolio insurance written
  - CMHC will reduce its annual limit of issuance of portfolio insurance from $11 billion to $9 billion
  - For 2014, the Minister of Finance authorized $80 billion for NHA MBS (down from $85 billion in 2013) and $40 billion for CMB (down from $50 billion in 2013)
- September 2014 (effective on January 1, 2015)
  - Revised Minimum Capital Test Guideline for property and casualty insurers
    - The guideline introduces 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 was prohibited to increase market discipline in residential lending and reduce taxpayer exposure to the housing sector
- December 11, 2015 (CMHC announced changes to its securitization programs)
  - Changes in the guarantee fee schedule (effective on July 1,2016). Fees were raised for large MRS issuers
  - For 2016, the Minister of Finance authorized $105 billion for NHA MBS and $40 billion for CMB.
  - OSFI announced its plan to update the regulatory capital requirements for residential mortgages
  - OSFI will propose a risk-sensitive floor for one of the model inputs (losses in the event of default) that will be tied to increases in local property prices and/or to house prices that are high relative to borrower incomes
  - For federally regulated private mortgage insurers, OSFI will introduce a new standardized approach that updates the capital requirements for mortgage guarantee insurance risk. It will require more capital when house prices are high relative to borrower incomes
- February 10, 2016 (effective on July 1, 2016)
  - The DOF required that portfolio-insured loans be funded only through CMHC securitization programs
- October 17, 2017 (effective on January 1, 2018)
  - OSFI revised its Guideline on Residential Mortgage Underwriting Practices and Procedures (B20):
    - setting a new minimum qualifying rate, or “stress test” for uninsured mortgages: the minimum qualifying rate for uninsured mortgages has to be the greater of the five-year benchmark rate published by the Bank of Canada or the contractual mortgage rate +2%;
    - federally regulated financial institutions must establish and adhere to appropriate LTV ratio limits that are reflective of risk and are updated as housing markets and the economic environment evolve;
    - placing restrictions on certain lending arrangements that are designed, or appear designed to circumvent LTV limits.

*International Monetary Fund — Annex III. Housing-Related Measures to Safeguard Financial Stability (cr18221)*

### Appendix I. Table 4. Composition of the Scenarios and Sensitivity Analyses (Concluded)

### Appendix I. Table 4. Composition of the Scenarios and Sensitivity Analyses (Concluded)

### Scenario descriptions
- Successful NAFTA with increased Mexican labor costs in vehicles and parts production
  - All NAFTA tariffs eliminated
  - 50 percentage point increase in factor tax on labor used in Mexican production of vehicles and parts
  - Trade efficiency increased by 1% on U.S. trade with Canada and Mexico
  - AVEs of NTMs in services on U.S. trade with Canada and Mexico reduced by 25%
  - ROO trade costs for NAFTA trade in textiles/apparel and vehicles/parts reduced by one-half

- Unsuccessful NAFTA with increasing trade costs on U.S. trade with Canada and Mexico
  - MFN rates on U.S. trade with Canada and Mexico
  - Trade efficiency decreased by a range of 2% - 30% on U.S. trade with Canada and Mexico
  - No change in AVEs of NTMs in services on U.S. trade with Canada and Mexico
  - ROOs no longer apply on U.S. trade with Canada and Mexico (MFN rates imposed); no change in Canada-Mexico ROO trade costs

- Successful versus unsuccessful NAFTA, excluding changes in trade costs
  - Successful: all NAFTA tariffs eliminated
  - Unsuccessful: MFN rates imposed on U.S. trade with Canada and Mexico
  - No changes in trade efficiency among CPTPP members or NAFTA members
  - Successful: AVEs of NTMs in services on U.S. trade with Canada and Mexico reduced by 25%
  - Unsuccessful: No change in AVEs of NTMs on U.S. trade with Canada and Mexico
  - Successful: ROO trade costs for NAFTA trade in textiles/apparel and vehicles/parts reduced by one-half
  - Unsuccessful: ROOs replace by MFN rates on U.S. trade with Canada and Mexico; no change in Canada-Mexico ROO trade costs

### Key policy instruments and parameters used across scenarios
- Tariff changes:
  - "All NAFTA tariffs eliminated" (successful scenarios)
  - "MFN rates on U.S. trade with Canada and Mexico" (unsuccessful scenarios)
- Labor taxation:
  - "50 percentage point increase in factor tax on labor used in Mexican production of vehicles and parts"
- Trade efficiency shocks:
  - "Trade efficiency increased by 1% on U.S. trade with Canada and Mexico"
  - "Trade efficiency decreased by a range of 2% - 30% on U.S. trade with Canada and Mexico"
- Non-tariff measures (NTMs) and AVEs:
  - "AVEs of NTMs in services on U.S. trade with Canada and Mexico reduced by 25%" (successful)
  - "No change in AVEs of NTMs in services on U.S. trade with Canada and Mexico" (unsuccessful)
- Rules of Origin (ROO) trade costs:
  - "ROO trade costs for NAFTA trade in textiles/apparel and vehicles/parts reduced by one-half" (successful)
  - "ROOs no longer apply on U.S. trade with Canada and Mexico (MFN rates imposed); no change in Canada-Mexico ROO trade costs" (unsuccessful)
  - "ROOs replace by MFN rates on U.S. trade with Canada and Mexico; no change in Canada-Mexico ROO trade costs" (unsuccessful comparison)

*International Monetary Fund*

### References

### References

### Bibliographic and data sources cited
- Aguilar, Angel (2016). “Concordances – Six Digit HS Sectors to GTAP Sectors.” GTAP Resource #5111. Center for Global Trade Analysis, Purdue University, West Lafayette, IN.
- Anson, Jose; Olivier Cadot; Antoni Estevadeordal; Jaime de Melo; Akiko Suwa-Eisenmann; Bolorma Tumurchudur (2005). “Rules of Origin in North-South Preferential Trading Arrangements with an Application to NAFTA,” Review of International Economics, v. 13, no. 3, pp. 501-517.
- Bratt, Michael (2014). Estimating the Bilateral Impact of Non-tariff measures (NTMs). University of Geneva Working Paper No. 14-01-01.
- Cadot, Olivier and Julien Gourdon (2015). NTMs, Preferential Trade Agreements, and Prices - New Evidence. Working Paper No. 2015-01-February. CEPII, Paris, France.
- Dean, Judith; Robert Feinberg; José E. Signoret; Michael Ferrantino; Rodney Ludema (2006). Estimating the Price Effects of Non-tariff Measures. Office of Economics Working Paper No. 2006-06-A. U.S. International Trade Commission, Washington, DC.
- Corong, Erwin L.; Thomas W. Hertel; Robert McDougall; Marinos E. Tsigas; Dominique van der Mensbrugghe (2017). “The Standard GTAP Model, Version 7,” Journal of Global Economic Analysis, v. 2, no. 1, p. 1-119.
- Fontagne, Lionel; Cristina Mitaritonna; Jose Signoret (2016). Estimated Equivalents of Service NTMs. No. 16-20, CEPII, Paris, France.
- Fox, Alan K.; William Powers; Ashley Winston (2007). Textile and Apparel Barriers and Rules of Origin in a Post-ATC World. No. 2007-06-A Office Of Economics Working Paper. U.S. International Trade Commission, Washington, DC.
- Freund, Caroline (2017). Streamlining Rules of Origin in NAFTA June, 2017, PB17-25, Peterson Institute, Washington, DC.
- Herin, Jan (1986). “Rules of Origin and Differences Between Tariff Levels in EFTA and in the EC,” Technical Report, EFTA Occasional Paper 13. European Free Trade Agreement, Geneva, Switzerland.
- Hertel, Thomas W. and Marinos Tsigas (1997) in Thomas W. Hertel, ed. Global Trade Analysis – Modeling and Applications. Cambridge University Press.
- Jafari, Yaghoob and David G. Tarr (2014). Estimates of Ad Valorem Equivalents of Barriers Against Foreign Suppliers of Services in Eleven Services Sectors and 103 Countries Policy Research Working Paper 7096. World Bank, Washington, DC.
- Kee, Hiau Looi; Alessandro Nicita; Marcelo Olarreaga (2009). "Estimating Trade Restrictiveness Indices," Economic Journal 119: 172-199.
- World Trade Organization (2012). New Evidence on Preference Utilization. Staff Working Paper ERSD-2012-12. Geneva, Switzerland.
- Additional national and international data sources cited: Bureau of Labor Statistics (U.S. Department of Labor); Eurostat; Global Affairs Canada; Government of Canada (Canadian Industry Statistics; Office of the Chief Economist); Ibisworld (Report nos. 3721 and 3725); International Organization of Motor Vehicle Manufacturers; Japan MITI Census of Manufactures, 2014; National Bureau of Statistics of China, China Statistical Yearbook, 2016; Trading Economics; United States Census Bureau (Statistical Abstract of the United States, 2012; Annual Survey of Manufactures, 2016); United States International Trade Administration (Mexico: Automotive Parts and Supplies; China: Automotive Industry); United States International Trade Commission (2016). Trans-Pacific Partnership Agreement: Likely Impact on the U.S. Economy and on Specific Industry Sectors. Publication Number: 4607 Investigation Number: TPA-105-001; World Integrated Trade Solution (WITS).

### IMF and Fund-related publications and assessments cited
- Canada: Financial System Stability Assessment–Volume II: Report on Observance of Standards in the Financial System. June 30, 2000. Summary findings included:
  - Canada has a stable and highly advanced financial system with a well-developed regulatory system and a high degree of compliance with major international standards.
  - Recommendations that were addressed included introducing capital requirements for guarantees in life insurance segregated funds (completed by end-2001), granting OSFI powers to remove unsuitable directors or senior officers (bringing Canada into broad compliance with the Basel Core Principles), and progress on harmonizing securities regulation via the Canadian Securities Administrators.
- Canada: Report on the Observance of Standards and Codes—Fiscal Transparency Module. IMF Country Report No. 02/51, 03/12/02. Summary findings and suggested improvements included:
  - Fiscal management meets the fiscal transparency code and in instances represents best practice, including use of private sector economic forecasts.
  - Recommendations (some since addressed) included: (i) preparation of timely, current year estimates of federal and provincial budgets on a comparable basis; (ii) comprehensive account of procedures for the budget cycle and expenditure management; (iii) systematic reporting on use of reserves for non-economic contingencies; (iv) resumption of reconciled national and public accounts forecasts; (v) publication by all governments of quasi-fiscal activities.
- Canada: Report on the Observance of Standards and Codes—Data Module. IMF Country Report No. 03/328, 10/23/03. Summary:
  - Canada’s macroeconomic statistics are comprehensive, timely, and accurate and adequate for surveillance.
  - Recommendations (many addressed) included: articulating roles of Statistics Canada and Bank of Canada in financial sector statistics; estimating consumption of fixed capital at replacement cost; disseminating methods used for quarterly public sector statistics; reclassifying certain transactions to align with BPM5.
- Canada: Report on the Observance of Standards and Codes––FATF Recommendations for AML/CFT. IMF Country Report No. 08/372, 12/11/08. Summary:
  - Shortcomings identified in customer due diligence scope, AML/CFT supervision implementation, and FINTRAC effectiveness. Follow-up reports submitted through February 2014. Next mutual evaluation scheduled in fourth quarter of 2015.
- Canada: Financial System Stability Assessment—Update. IMF Country Report No. 08/59, 02/13/08. Summary:
  - Financial system mature, sophisticated, and well-managed; sound macroeconomic policies, strong prudential regulation, deposit insurance, and crisis arrangements. Recommendations included benefits of a single securities regulator while recognizing progress via the CSA and passport system.
- Canada: Financial System Stability Assessment—Update. IMF Country Report No. 14/29, 02/03/14. Summary:
  - Major Canadian financial institutions resilient to credit, liquidity, and contagion risks in severe stress scenarios.
  - Areas of concern: elevated house prices and high household debt; need for more clarity on legal independence of OSFI and stronger prudential responsibilities; challenges in securities markets enforcement, risk identification, and timely policy making; need for comprehensive system-wide mandate for systemic risk oversight and improved federal-provincial cooperation.
- Canada: Report on the Observance of Standards and Codes—FATF Recommendations for AML/CFT. IMF Country Report No. 16/293, 09/15/16. Summary:
  - Authorities have a good understanding of most money laundering and terrorism financing risks; AML/CFT cooperation and coordination generally good.
  - Gaps: legal counsel, legal firms, and Quebec notaries are not covered by AML/CFT measures (constituting a significant loophole); law enforcement results are not commensurate with money-laundering risk; asset recovery is low.

### Fund relations and key numeric facts (as of dates cited)
- Membership Status: Joined 12/27/1945; Article VIII.
- General Resources Account: SDR Million Percent of Quota
  - Quota   11,023.90 100.00
  - Fund holdings of currency  10,048.77    91.15
  - Reserve Tranche Position 975.16    8.85
  - Lending to the Fund (none reported)
  - New Arrangements to Borrow 623.08
- SDR Department: SDR Million Percent of Allocation
  - Net cumulative allocation 5,988.08 100.00
  - Holdings 5,635.35 94.11
- Outstanding Purchases and Loans: None.
- Latest Financial Arrangements: None.
- Projected Obligations to Fund (SDR Million; based on existing use of resources and present holdings of SDRs):
  - Forthcoming: 2017 2018 2019 2020 2021
  - Principal      (no amounts reported)
  - Charges/Interest 0.97 2.12 2.12 2.12 2.12
  - Total 0.97 2.12 2.12 2.12 2.12
- Exchange Rate Arrangements:
  - The authorities maintain a “free floating” exchange rate regime.
  - The exchange rate regime is free from exchange restrictions and multiple currency practices.
  - Authorities may intervene to maintain orderly conditions in the exchange market.
  - There are no taxes or subsidies on purchases or sales of foreign exchange.
  - Canada has accepted 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 to the Fund on June 10, 2014, under Executive Board Decision No. 144–(52/51).

### Statistical issues, data quality, and dissemination
- Overall assessment:
  - Quality, coverage, periodicity, and timeliness of Canada’s economic data are considered adequate for Article IV consultation and ongoing surveillance.
  - Canada has subscribed to the Fund’s Special Data Dissemination Standard (SDDS); metadata posted on the DSBB.
  - Data ROSC published on October 23, 2003.
- Real sector:
  - Statistics Canada provides timely monthly, quarterly, and annual data.
  - CSNA aligned with SNA2008 in October 2012 (CSNA2012): capitalization of research and development; move to replacement cost-based valuation of consumption of fixed capital; valuing equity at market price.
  - 2014 CSNA release introduced additional changes with limited impact on GDP and improved integration and presentation.
  - 2015 comprehensive revision to the Canadian System of Macroeconomic Accounts (CSMA) with four main revision sources: integration of Government Finance Statistics; improved treatment of defined benefit pension plans; measurement of financial services purchased by households; updated measures of national wealth.
- Fiscal sector:
  - Statistics Canada provides quarterly Statement of Government Operations and Balance Sheet following GFSM 2001.
  - Provisional CGFS data for 2008–2012 published November 2014; estimates for financial flows and balance sheet for 2007–2012 published February 2015.
  - Consolidated Government Finance Statistics data for 2008-2014 published March 2016 and for 2015 in March 2017.
  - Department of Finance Canada provides monthly and annual federal budget data (national presentation).
- Financial sector:
  - Bank of Canada and OSFI provide monthly and quarterly financial variables.
  - 2013 FSSA Update recommended expanding financial sector data collection and dissemination to enhance coverage, regularity, and availability of time series.
- Monetary sector:
  - Bank of Canada provides daily, weekly, monthly, and quarterly monetary data.
- 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 Required For Surveillance (selected entries and dates):
  - Exchange Rates: Date of latest observation — Same day; Date received — Same day; Frequency of Data/Reporting/Publication — D.
  - International Reserve Assets and Reserve Liabilities of the Monetary Authorities: Date of latest observation — May 31, 2018; Date received — June 8, 2018; Frequency — W.
  - Reserve/Base Money: April, 2018; Date received — June 5, 2018; Frequency — M.
  - Broad Money: April, 2018; Date received — June 5, 2018; Frequency — M; Data Quality – Methodological soundness: LO, O, LO, LO; Data Quality – Accuracy and reliability: O, O, O, O, O.
  - Central Bank Balance Sheet: April, 2018; Date received — May 13, 2018; Frequency — M.
  - Consolidated Balance Sheet of the Banking System: March 31, 2018; Date received — May 31, 2018; Frequency — M.
  - Interest Rates: Date of latest observation — Same day; Date received — Same day; Frequency — D.
  - Consumer Price Index: April 2018; Date received — May 18, 2018; Frequency — 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: 2018 Q1; Date received — June 14, 2018; Frequency — 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: March 2018; Date received — June 4, 2018; Frequency — M.
  - External Current Account Balance: 2018 Q1; Date received — May 30, 2018; Frequency — Q.
  - Exports and Imports of Goods and Services: April 2018; Date received — June 06, 2018; Frequency — M; Data Quality – Methodological soundness: O, O, LO, O; Data Quality – Accuracy and reliability: O, O, O, O, O.
  - GDP/GNP: 2018 Q1; Date received — May 31, 2018; Frequency — Q; Data Quality – Methodological soundness: O, O, O, LO; Data Quality – Accuracy and reliability: O, O, O, O, O.
  - Gross External Debt: 2018 Q1; Date received — June 13, 2018; Frequency — Q.
  - International Investment Position: 2018 Q1; Date received — June 13, 2018; Frequency — Q.

### Statement by the Staff Representative on Canada (July 13, 2018) — key points
- Context:
  - Note provides information on countermeasures introduced by the Government of Canada on July 1 in response to U.S. tariffs on Canadian steel and aluminum products; based on information since staff report (SM/18/170); does not alter staff appraisal.
- U.S. actions:
  - On May 31, 2018, the U.S. announced imposition of tariffs on imports of certain steel and aluminum products from Canada at the rates of 25% and 10%, respectively, applied following a section 232 investigation.
  - Canada accounts for some 15 percent of U.S. steel imports and almost 40 percent of aluminum imports.
  - Steel and aluminum products represent less than 2 percent of Canadian exports and imports.
- Canada’s countermeasures:
  - Canada introduced surtaxes on C$16.6 billion of imports of steel, aluminum, and 79 consumer products from the U.S., which authorities indicate is equivalent to the value of 2017 Canadian exports affected by the U.S. tariffs.
  - Steel products are subject to a 25 percent surtax. Aluminum and other products are subject to a 10 percent surtax.
- Support measures announced by the Government of Canada (up to C$2 billion):
  - Extending the duration of work-sharing agreements to help employers retain their skilled workforce and avoid layoffs.
  - Increasing funding to provinces and territories to increase capacity of job and training programs for workers affected by the U.S. measures.
  - Providing liquidity support to affected businesses.
  - Offering up to $250 million in new support through the Strategic Innovation Fund to help bolster competitiveness of Canadian manufacturers and better integrate the steel and aluminum supply chain within Canada.

*Source: cr18221 - References (extracted content from the provided PDF).*

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_Source: https://www.imf.org/-/media/files/publications/cr/2018/cr18221.pdf_