## 1canea2021001

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### Recovery, Outlook, and Key Risks
- Real GDP: -5.4 (2020); 4.4 (2021); 4.1 (2022).
- Total domestic demand: -6.5 (2020); 5.3 (2021); 4.6 (2022).
- Private consumption: -5.6 (2020); 6.4 (2021); 4.5 (2022).
- Total investment: -10.4 (2020); 7.9 (2021); 7.0 (2022).
- Net exports, contribution to growth: 0.6 (2020); -1.4 (2021); -0.6 (2022).
- Unemployment rate (average): 9.6 (2020); 8.1 (2021); 6.9 (2022).
- CPI inflation (average): 0.7 (2020); 1.6 (2021); 1.8 (2022).
- Gross national saving (% of GDP): 20.0 (2020); 20.7 (2021); 20.9 (2022).
- Current account balance (% of GDP): -1.5 (2020); -1.0 (2021); -1.4 (2022).
- Export volume (percent change): -7.3 (2020); 16.0 (2021); 6.5 (2022).
- Import volume (percent change): -6.4 (2020); 19.1 (2021); 8.0 (2022).
- Terms of trade: -2.6 (2020); 5.4 (2021); 0.1 (2022).
- Outlook drivers and risks:
  - Upside: “American Rescue Plan” boost to Canadian growth; higher oil prices; stronger-than-expected pent up domestic demand.
  - Downside: recovery could be delayed by new waves of the virus.
- Context summary:
  - Economy was operating near capacity pre-pandemic; unprecedented decline in activity in first half of 2020 followed by strong rebound in Q3 2020; second wave late-2020 slowed recovery.
  - Strength and durability of recovery hinge on evolution of the pandemic.

### Policy Response to the Crisis — Fiscal, Monetary, and Financial Measures
- Fiscal support:
  - Direct federal fiscal support expected to amount to almost 15 percent of GDP.
  - ERP (Economic Response Plan) pillars: Health and Safety; Direct Support to Households; Direct Support to Businesses; Liquidity Support.
  - Two flagship programs:
    - Canada Emergency Response Benefit (CERB): $2,000 per month to individuals for up to 16 weeks (later extended until end-September); direct transfers totaling $83 billion (3.8 percent of GDP); unique applicants exceeded 35 percent of the labor force.
    - Canada Emergency Wage Subsidy (CEWS): subsidized 75 percent of payroll, up to $847 per employee per week; by July 2020 supported up to 15 percent of the labor force; extended until June 2021.
- ERP fiscal and liquidity support (Estimated 2020 GDP; figures in billions and percent of GDP):
  - Direct Support total: 322.3 (14.6 percent of GDP)
    - Health and Safety: 52.5 (2.4 percent of GDP)
    - Households: 234.9 (10.7 percent of GDP)
      - CERB: 83.0 (3.8 percent of GDP)
      - Recovery Benefits and Enhanced EI: 32.5 (1.5 percent of GDP)
      - Emergency Wage Subsidy Programs: 100.1 (4.5 percent of GDP)
      - Other: 19.4 (0.9 percent of GDP)
    - Businesses: 35.0 (1.6 percent of GDP)
  - Liquidity Support (Credit): 83.4 (3.8 percent of GDP)
    - Emergency Business Account: 27.9 (1.3 percent of GDP)
    - Small and Medium-Sized Business Loan Guarantee: 40.0 (1.8 percent of GDP)
  - Liquidity Support (Tax Deferrals): 85.1 (3.9 percent of GDP)
    - Personal Income: 25.0 (1.1 percent of GDP)
    - Business Income: 30.0 (1.4 percent of GDP)
    - Other: 30.1 (1.4 percent of GDP)
  - Total Support (Direct, Credit, and Tax Deferrals): 490.7 (22.3 percent of GDP)
  - Net Fiscal Support (accrual basis, up to 2025/26): 338.4 (15.4 percent of GDP)
- Fiscal outcomes and plans:
  - ERP measures amount to almost $500 billion, more than 20 percent of GDP.
  - Federal government expected fiscal deficit FY 2020/21: $381.6 billion (17.5 percent of GDP).
  - Net federal debt (authorities’ definition) expected to reach 50.7 percent of GDP (increase of almost 20 percentage points over the year).
  - Federal commitment to spending up to $100 billion (4 percent of GDP) over the next 3 years to jumpstart recovery once the virus is contained.
- Monetary and financial policy:
  - Bank of Canada cut policy rate by 150bps to 0.25 percent (effective lower bound estimate at the time).
  - BoC total assets increased from $150 billion in February to $546 billion in July.
  - Purchases included federal and provincial government bonds, corporate short-term paper, medium-term securities, and mortgage bonds.
  - BoC holdings: share of total government debt held increased from 15 percent at end-2019 to 34 percent at end-2020.
  - BoC guidance: will hold policy rate at the effective lower bound until economic slack is absorbed so that the 2 percent inflation target is sustainably achieved.

### Labor Market, Distributional Effects, and Rapid Testing
- Labor market impacts (first wave):
  - GDP contracted (annualized) 7.3 percent in 2020:Q1 and 38 percent in 2020:Q2; record growth 40.5 percent (annualized) in 2020:Q3.
  - Unemployment increased from below 6 percent in early 2020 to 13.7 percent in May.
  - Roughly a third of the labor force either lost jobs or had sharp declines in hours; women were particularly hard hit.
  - Low-wage workers’ employment fell by 38 percent during the crisis.
  - Female labor force participation rate dropped below 60 percent in March 2020 (lowest in almost two decades); women make up 64 percent of the part-time workforce.
- Rapid tests (reliability and economics):
  - Rapid tests sensitivity: over 90 percent.
  - Rapid tests designed to detect viable (infectious) virus; PCR may show positive long after infectious period.
  - Cost range: $1.30 to $30 (CAD) per test.
  - Testing every Canadian at $6.50 per test every day for one month would cost 0.33 percent of GDP.
  - Federal fiscal support in 2020: around 15 percent of GDP.
  - Evidence: Lindner et al. (2020) — 97 percent of culturable-virus individuals detected by a rapid test.
  - Policy recommendation: deploy large-scale, decentralized rapid-testing strategy alongside vaccination to identify and isolate infectious individuals.

### Housing, Oil Sector, and Medium-Term Risks
- Housing:
  - House prices increased broadly across metropolitan areas; Toronto, Vancouver, and Hamilton remain overvalued.
  - House price-to-income ratios continue to climb as low mortgage rates and rising household debt-to-income ratios fuel demand.
  - House prices in Calgary and Edmonton correspond to borrowing capacity; Montreal broadly consistent with fundamentals.
  - Risk: house price correction (Relative Likelihood: Medium; Impact: Medium).
- Oil sector:
  - Oil prices fell by half between February and March 2020 and hovered around $20 per barrel through much of April; WTI briefly around -$37 per barrel on April 20.
  - Canada’s oil sector faced pre-existing lower earnings and high debt since 2014 price decline; risk of reservoir damage from shutting steam-assisted gravity drainage operations.
  - Risk: oversupply and volatility in the oil market (Relative Likelihood: Medium; Impact: Medium).
- Medium-term outlook and risks:
  - Potential growth limited to 1.7 percent over the medium term due to weak external competitiveness, low productivity growth, and population aging.
  - Staff baseline: real output around 1 percent below pre-crisis trend by end of projection horizon.
  - House prices and household debt-to-income ratios likely continue to increase while policy rates and mortgage interest rates remain low.
  - Key downside risks: pandemic resurgence, supply-chain disruptions, premature withdrawal of policy support, long-term scarring, higher private-sector indebtedness, oil-market oversupply and volatility.

### Fiscal Framework, Debt Dynamics, and DSA Scenarios
- Finding: "There is little clarity at this stage about the federal government’s medium-term fiscal anchor."
- Recommendations:
  - Clearly communicate fiscal objectives and commit to a well thought-through debt anchor supported by an operational rule or publish longer-term fiscal projections illustrating fiscal sustainability.
  - Allow automatic stabilizers to operate during downturns; consider enhanced automatic stabilizers with macroeconomic triggers.
- Fiscal statistics and projections (selected):
  - Nominal GDP (2019): Can$ 2,223 billion (US$ 1,676 billion).
  - GDP per capita (2019): US$ 44,574.
  - Population (2019): 37.6 million.
  - Consolidated general government revenue: 38.6 (2020); 38.2 (2021); 39.4 (2022) percent of GDP.
  - Consolidated general government expenditures: 58.4 (2020); 45.8 (2021); 43.8 (2022) percent of GDP.
  - Overall balance: -19.8 (2020); -7.6 (2021); -4.4 (2022) percent of GDP.
  - Gross debt: 115.4 (2020); 114.3 (2021); 112.1 (2022) percent of GDP.
  - Net debt: 48.0 (2020); 47.4 (2021); 45.5 (2022) percent of GDP.
- DSA underlying assumptions (Baseline 2021–2026, selected):
  - Real GDP growth: 4.4, 4.1, 2.3, 1.7, 1.7, 1.7.
  - Inflation: 3.5, 1.9, 1.9, 2.1, 2.0, 2.1.
  - Primary Balance: -7.1, -4.3, -2.2, -1.4, -1.0, -0.6.
  - Effective interest rate: 2.9, 2.6, 2.5, 2.5, 2.6, 2.8.
- Stress-test scenarios (Macro-Fiscal shocks, 2021–2026, selected):
  - Primary Balance Shock, Real GDP Growth Shock, Real Interest Rate Shock, Real Exchange Rate Shock, Combined Shock each specified with annual series; outputs include Gross Nominal Public Debt (percent of GDP) under baseline and shocks.

### Financial Sector Resilience, Macroprudential, and FSAP Implementation
- Banking system:
  - Banking system found broadly resilient.
  - Payment deferrals have allowed banks to avoid costly borrower defaults so far; accrual of interest poses restructuring considerations at moratorium end.
  - BoC’s liquidity and credit support lowered risk premia and avoided major market disruptions.
- Macroprudential measures implemented:
  - Domestic Stability Buffer reduced from 2.25 percent to 1 percent.
  - Regulatory capital relief measures instructed not to be used to increase dividends.
  - Banks’ sovereign bond holdings and central bank reserve holdings could be temporarily excluded from the leverage ratio.
  - Loans under deferral status treated as performing for regulatory and accounting purposes.
- Policy guidance:
  - Phase out temporary financial sector support as pandemic effects fade; pace withdrawal to balance growth and financial stability risks.
  - Encourage prudent bank lending and forward-looking mortgage contract parameters to mitigate interest-rate shock vulnerability.
  - Address outstanding macro-critical FSAP recommendations: enhance regulatory capital requirements for mortgage exposures and ensure mortgage insurers are adequately capitalized.
- FSAP implementation progress (by end-January 2021, selected):
  - OSFI: CAR Guideline update public consultation in March 2021; implementation targeted for Q1 2023.
  - CMHC tightened mortgage insurance eligibility (last in July 2020).
  - Systemic Risk Surveillance Committee (SRSC) created late 2019 to improve monitoring; HoA and SRSC ToR made public.
  - Progress on contingency planning, recovery and resolution planning, liquidity facilities, and inter-agency MoUs; some timelines extended due to pandemic.

### Staff Recommendations and Executive Board Assessment (summary)
- Continue public health measures and sustain fiscal and monetary support "until the pandemic is under control."
- Avoid premature withdrawal of fiscal and monetary support; provide greater clarity on conditions that would trigger withdrawal under data-driven approaches.
- Specify a medium-term fiscal anchor or regularly publish longer-term fiscal projections to guard fiscal credibility.
- Consider replacing temporary emergency measures with a more systematic framework for cyclical stabilization (e.g., link to unemployment rate); review Employment Insurance (EI) system as an automatic stabilizer.
- Scale back monetary asset purchases and lift policy rate when recovery is robust to promote financial stability and rebuild policy space.
- Continue structural reforms to boost productivity, diversify beyond traditional sectors, and transition to a greener and more equitable economy.
- Address outstanding macro-critical FSAP recommendations, notably regulatory capital for mortgage exposures and adequate capitalization of mortgage insurers.

*Staff report for the 2021 Article IV Consultation with Canada, February 25, 2021.*

### 4.4 percent in 2021 as the pandemic fades. The United States recently approved “American

### CANADA STAFF REPORT FOR THE 2021 ARTICLE IV CONSULTATION

### Recovery, Outlook, and Key Risks
- Real GDP: -5.4 (2020); 4.4 (2021); 4.1 (2022).
- Total domestic demand: -6.5 (2020); 5.3 (2021); 4.6 (2022).
- Private consumption: -5.6 (2020); 6.4 (2021); 4.5 (2022).
- Total investment: -10.4 (2020); 7.9 (2021); 7.0 (2022).
- Net exports, contribution to growth: 0.6 (2020); -1.4 (2021); -0.6 (2022).
- Unemployment rate (average): 9.6 (2020); 8.1 (2021); 6.9 (2022).
- CPI inflation (average): 0.7 (2020); 1.6 (2021); 1.8 (2022).
- Gross national saving (% of GDP): 20.0 (2020); 20.7 (2021); 20.9 (2022).
- Current account balance (% of GDP): -1.5 (2020); -1.0 (2021); -1.4 (2022).
- Export volume (percent change): -7.3 (2020); 16.0 (2021); 6.5 (2022).
- Import volume (percent change): -6.4 (2020); 19.1 (2021); 8.0 (2022).
- Terms of trade: -2.6 (2020); 5.4 (2021); 0.1 (2022).
- Outlook drivers and risks:
  - Upside: “American Rescue Plan” boost to Canadian growth; higher oil prices; stronger-than-expected pent up domestic demand.
  - Downside: recovery could be delayed by new waves of the virus.
- Context summary:
  - Economy was operating near capacity pre-pandemic; unprecedented decline in activity in first half of 2020 followed by strong rebound in Q3 2020; second wave late-2020 slowed recovery.
  - Strength and durability of recovery hinge on evolution of the pandemic.

### Policy Response to the Crisis
- Fiscal support:
  - Direct federal fiscal support expected to amount to almost 15 percent of GDP.
  - Support included spending on healthcare, cash transfers, wage subsidies, tax deferrals, credit facilities, and loan guarantees.
- Monetary and financial policy:
  - Bank of Canada cut policy interest rate by 150bps to an historical low.
  - Bank of Canada announced programs to support liquidity, including purchase of federal and provincial government bonds and commercial paper.
  - Financial sector measures deployed to support banks, insurers, and pension funds; regulatory authority coordinated with Bank of Canada.
- Assessment of policy deployment:
  - Authorities took timely, decisive, and well-coordinated policy actions.
  - Size and scope of policy support described as unprecedented.
  - Recommendations stressed avoiding premature withdrawal of fiscal and monetary support and pursuing clear communication.

### Executive Board Assessment and Staff Recommendations
- Executive Board recognition:
  - Canada’s strong history of prudent policymaking and ample buffers provided policy space to respond forcefully to the COVID-19 pandemic.
  - Recovery hinges on pandemic evolution; Directors encouraged continued public health measures while maintaining adequate policy support.
  - Structural reforms should focus on promoting a green and inclusive economy.
- Specific Director observations and guidance:
  - Review of the employment insurance system, including its role as an automatic stabilizer, was noted.
  - Welcome for data-driven approach to withdrawal of policy support; Directors saw scope for greater clarity about conditions that would trigger withdrawal.
  - Addressing gaps in the social safety net emphasized as important.
  - Encouraged clearer communication of medium-term fiscal objectives.
  - Consider introducing a fiscal anchor to illustrate fiscal sustainability and strengthen credibility of fiscal framework.
  - Bank of Canada: communication strategy for maintaining and withdrawing policy support welcomed; current monetary policy settings broadly appropriate.
  - Scale back policy support once recovery is firmly entrenched to promote financial stability and rebuild policy space; clear and credible communication is key.
  - Macroprudential settings broadly appropriate; withdrawal should balance short-term growth and financial stability risks against longer-term vulnerabilities from buildup of leverage and rising house prices.
  - Continue structural reforms to boost productivity, diversify beyond traditional sectors, and transition to a greener and more equitable economy.
  - Importance of addressing outstanding macro-critical FSAP recommendations, particularly regulatory capital requirements for mortgage exposures and ensuring mortgage insurers are adequately capitalized.

### Fiscal and Financial Indicators (selected levels and changes)
- Nominal GDP (2019): Can$ 2,223 billion (US$ 1,676 billion).
- GDP per capita (2019): US$ 44,574.
- Population (2019): 37.6 million.
- Main exports: Oil and gas, autos and auto parts, gold, lumber, copper.
- General government fiscal indicators (percent of GDP):
  - Revenue: 38.6 (2020); 38.2 (2021); 39.4 (2022).
  - Expenditures: 58.4 (2020); 45.8 (2021); 43.8 (2022).
  - Overall balance: -19.8 (2020); -7.6 (2021); -4.4 (2022).
  - Gross debt: 115.4 (2020); 114.3 (2021); 112.1 (2022).
  - Net debt: 48.0 (2020); 47.4 (2021); 45.5 (2022).
- Money and credit:
  - Household credit growth: 3.7 (2020); 8.9 (2021); 7.5 (2022).
  - Business credit growth: 3.9 (2020); 7.2 (2021); 8.2 (2022).
  - Three-month treasury bill yield: 0.5 (2019); 0.2 (2021); 0.3 (2022).
  - Ten-year government bond yield: 0.8 (2020); 0.9 (2021); 1.0 (2022).
- Saving and investment:
  - Gross domestic investment (% of GDP): 21.6 (2020); 21.8 (2021); 22.4 (2022).
  - Private saving (% of GDP): 35.7 (2020); 24.5 (2021); 21.8 (2022).
  - Personal saving (% of GDP): 35.8 (2020); 9.0 (2021); 3.9 (2022).
  - Business saving (% of GDP): -0.1 (2020); 15.5 (2021); 17.8 (2022).

### Key Policy Recommendations (staff summary)
- Keep spread of COVID-19 under control and avoid premature withdrawal of fiscal and monetary support.
- Maintain clear and credible communication about the path to normalcy.
- Consider replacing temporary emergency measures with a more systematic framework for cyclical stabilization.
- Provide greater clarity on the conditions that would trigger withdrawal of stimulus under the announced data-driven approach.
- Specify a medium-term fiscal anchor to guard against weakening credibility in the fiscal framework given the recent sharp rise in public debt.
- Continue implementing structural reforms to increase productive capacity and support a stronger, greener, and more equitable recovery.
- Address outstanding macro-critical FSAP recommendations, notably regulatory capital for mortgage exposures and adequate capitalization of mortgage insurers.

*Staff report for the 2021 Article IV Consultation with Canada, February 25, 2021.*

### 47024.  The banking system was found  to be broadly resilient, suggesting that it could also weather the stress of  the

### 1canea2021001 - 47024.  The banking system was found  to be broadly resilient, suggesting that it could also weather the stress of  the

### The Pandemic — First Wave (from March until early May)
- Canada entered the “Great Lockdown” soon after the WHO declared COVID-19 a pandemic; community transmission confirmed by mid-March and, by March 19, each province had declared a state of emergency.
- Containment strategy focused on: (i) social distancing; (ii) identifying COVID-19 cases (testing); and (iii) contact tracing and quarantine measures. Public schools and non-essential businesses were closed across Canada.
- GDP movements:
  - GDP contracted by (an annualized) 7.3 percent and 38 percent in 2020:Q1 and 2020:Q2, respectively.
  - After reopening, record growth in 2020:Q3 was 40.5 percent (annualized).
- Inflation declined significantly, with high-income households experiencing larger declines in their cost of living than low-income households.
- Labor market impacts:
  - Unemployment increased from below 6 percent in early 2020 to 13.7 percent in May.
  - Roughly a third of the labor force either lost their jobs or had to accept a sharp decline in hours worked; women were particularly hard hit.
  - A sharp drop in labor force participation helped limit the effect of job losses on the unemployment rate.
- Distributional effects:
  - Low-wage workers’ employment fell by 38 percent during the crisis, much larger than higher-wage workers.
  - By May, employment among higher-paid workers had essentially recovered, but low-paid workers still suffered.
- Box 1 — Impact on Female Workers:
  - Women suffered severe job losses in sectors such as accommodation, food services, and other services.
  - Women make up 64 percent of the part-time workforce, contributing to larger layoffs among women.
  - Female labor force participation (FLFP) rate reached its lowest level in almost two decades in March 2020, dropping below 60 percent.
  - The federal government announced it will develop a Canada-wide early learning and childcare system to help increase FLFP over time.

### The Pandemic — Oil Sector and Second Wave (beginning in September)
- Oil market shock:
  - Declining global demand and production disputes led oil prices to fall by half between February and March and to hover around $20 per barrel through much of April.
  - On April 20, WTI oil prices briefly plunged to around -$37 per barrel.
  - The decline hit Canada’s oil sector on top of pre-existing lower earnings and significant debt burdens since the 2014 price decline.
  - Steam-assisted gravity drainage operations (nearly half of oil-sands production) faced the risk that shutting down operations may cause permanent reservoir damage.
- Second wave:
  - New daily cases began to surge again in September after a relatively low-infection summer.
  - By December, new daily cases were surging with a lower positivity rate; the rolling 7-day average of COVID-19-related deaths had reached half the peak seen during the first wave.
  - The second wave was more pervasive than the first, with higher infection rates in Alberta, British Columbia, and some smaller provinces; Ontario and Quebec again experienced surges.
  - The resurgence prompted tightening of social and economic restrictions (declining mobility indicators); Ontario and Quebec were in lockdown during January 2021 but began to ease restrictions in early February.
- Near-term risk: the resurgence of the virus added to near-term risks for the economy.

### Policy Response to the Crisis — Overview
- The economic policy response was decisive, strong and well-coordinated, leveraging Canada’s pre-crisis fiscal space.
- Fiscal and monetary support was unprecedented in size and scope, focusing on direct emergency income transfers, subsidies, and credit facilitation.
- The Bank of Canada (BoC) cut its policy rate to 25 basis points and adopted measures to support financial markets; policies were also adopted to support banks, insurers, and pension funds.

### Fiscal Policy — Economic Response Plan (ERP) and Main Measures
- ERP was initiated less than a week after the WHO declared COVID-19 a pandemic.
- ERP key pillars:
  - Health and Safety
  - Direct Support to Households
  - Direct Support to Businesses
  - Liquidity Support
- Public health spending and measures included forming the COVID-19 Response Fund and funding PPE and research on therapeutics and vaccines.
- Two flagship direct-support programs:
  - Canada Emergency Response Benefit (CERB):
    - Provided $2,000 per month to individuals for up to 16 weeks (later extended until end-September).
    - Number of unique applicants exceeded 35 percent of the labor force.
    - Provided direct transfers totaling $83 billion (3.8 percent of GDP).
    - When it ended, two million claimants transitioned to a simplified Employment Insurance (EI) system; many remained ineligible for EI.
    - Three new recovery benefits were launched to cover individuals unable to work due to COVID-19, available until September 2021.
  - Canada Emergency Wage Subsidy (CEWS):
    - Subsidized 75 percent of payroll, up to $847 per employee per week.
    - Extended up to 24 weeks after modifications; eligibility required revenue decline thresholds (15 percent in March or 30 percent in April and subsequent months).
    - Businesses not qualifying for CEWS qualified for a 10 percent temporary wage subsidy.
    - By July 2020 the CEWS was redesigned with varying support rates and declining subsidy rates over time; initial enrollment was gradual but later supported up to 15 percent of the labor force before winding down as the economy reopened. In November, the program was extended until June 2021.
- ERP fiscal and liquidity support (exact figures from Department of Finance and staff estimates; Estimated 2020 GDP):
  - Direct Support total: 322.3 (14.6 percent of GDP)
    - Health and Safety: 52.5 (2.4 percent of GDP)
    - Households: 234.9 (10.7 percent of GDP)
      - Emergency Response Benefit (CERB): 83.0 (3.8 percent of GDP)
      - Recovery Benefits and Enhanced EI: 32.5 (1.5 percent of GDP)
      - Emergency Wage Subsidy Programs: 100.1 (4.5 percent of GDP)
      - Other (incl. students, seniors, and vulnerable groups): 19.4 (0.9 percent of GDP)
    - Businesses: 35.0 (1.6 percent of GDP)
      - Emergency Business Account (loan forgiveness): 14.6 (0.7 percent of GDP)
      - Emergency Rent Subsidy: 6.5 (0.3 percent of GDP)
      - Other (incl. sector-specific support and sub-nationals): 14.0 (0.6 percent of GDP)
  - Liquidity Support (Credit): 83.4 (3.8 percent of GDP)
    - Emergency Business Account: 27.9 (1.3 percent of GDP)
    - Small and Medium-Sized Business Loan Guarantee: 40.0 (1.8 percent of GDP)
    - Other: 15.5 (0.7 percent of GDP)
    - memo: Loss Provisions (budget implications): 11.0 (0.5 percent of GDP)
  - Liquidity Support (Tax Deferrals): 85.1 (3.9 percent of GDP)
    - Personal Income: 25.0 (1.1 percent of GDP)
    - Business Income: 30.0 (1.4 percent of GDP)
    - Other: 30.1 (1.4 percent of GDP)
    - memo: Deferral Provision (budget implications): 3.0 (0.1 percent of GDP)
  - Total Support (Direct, Credit, and Tax Deferrals): 490.7 (22.3 percent of GDP)
  - Net Fiscal Support (accrual basis, up to 2025/26): 338.4 (15.4 percent of GDP)
- Additional fiscal measures:
  - Targeted support to tourism, air transportation, culture, heritage, and sports.
  - Enhanced scrutiny of certain foreign investments under the Investment Canada Act.
  - Liquidity support tailored by firm size (CEBA, BCAP, LEEFF).
  - Income and sales tax deferrals totaling $85 billion (3.9 percent of GDP).
- Fiscal outcomes and future plans:
  - Total ERP measures amount to almost $500 billion, more than 20 percent of GDP.
  - Federal government expected fiscal deficit FY 2020/21: $381.6 billion (17.5 percent of GDP).
  - Net federal debt (authorities’ definition) expected to reach 50.7 percent of GDP (increase of almost 20 percentage points over the year).
  - Federal stimulus will be unwound depending on data-driven “fiscal guardrails” (employment rate, total hours worked, unemployment level).
  - Federal commitment to spending up to $100 billion (4 percent of GDP) over the next 3 years to jumpstart recovery once the virus is contained.
  - Provincial deficits widened sharply; four largest provinces account for more than 85 percent of Canada’s economic activity and each projects a wide deficit for FY2020/21.
  - Consolidated general government deficit expected to be almost 20 percent of GDP this fiscal year.
  - Overall gross debt expected to exceed 115 percent of GDP (increase of almost 30 percentage points); net public debt expected to remain low at 48 percent of GDP relative to other G7 countries.

### Monetary and Financial Policy
- Bank of Canada (BoC) actions:
  - Policy rate lowered from 1.75 percent at end-2019 to 0.25 percent (authorities’ estimate of the effective lower bound at the time).
  - BoC total assets increased from $150 billion in February to $546 billion in July.
  - Purchases included central and provincial government debt securities, corporate short-term paper and medium-term securities, and mortgage bonds.
  - BoC balance sheet expansion was one of the largest (as a share of GDP) among advanced economy central banks.
  - Programs to secure liquidity provision for individual financial institutions were bolstered through repurchase operations and liquidity facility programs, reducing risk premia and bid-ask spreads on government and corporate bonds towards pre-pandemic levels.
- BoC holdings and market operations:
  - Share of total government debt held by the Bank increased from 15 percent at end-2019 to 34 percent at end-2020.
  - By October 2020, some emergency support programs were scaled back (bankers’ acceptance facility and Canada Mortgage Bond Purchase Program discontinued; frequency of term repurchase operations increased to every two weeks).
  - BoC purchased provincial government debt via the Provincial Money Market Program and Provincial Bond Purchase Program to ensure market functioning.
  - Most asset purchases were in secondary markets; for balance sheet management a portion of government securities is allotted on a non-competitive basis (around 13 percent of issuance). As of end-January, shares of holdings acquired through primary and secondary markets of bonds and bills combined amounted to 42 and 58 percent, respectively.
- Policy stance and guidance:
  - BoC does not plan to adopt a negative policy interest rate at this time; it considered 25 basis points the “effective lower bound.”
  - BoC introduced forward guidance: it “will hold the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2 percent inflation target is sustainably achieved.”

*Source: 1canea2021001 - 47024.  The banking system was found  to be broadly resilient, suggesting that it could also weather the stress of  the*

### 33.      The macroprudential  policy stance was relaxed and additional measures were deployed

### 33.      The macroprudential  policy stance was relaxed and additional measures were deployed

### Macroprudential measures implemented to support the financial system
- Capital requirements were modified by reducing the Domestic Stability Buffer from 2.25 percent to 1 percent.
- Regulatory capital relief measures were instructed to not be used by banks to increase dividends.
- Banks’ sovereign bond holdings and central bank reserve holdings could temporarily be excluded from the leverage ratio.
- Some pending implementation steps regarding Basel III were postponed until 2023.
- Loans under deferral status were to be treated as performing from both a regulatory and an accounting perspective.
- Insurers could pause reporting on progress regarding the IFRS 17 accounting standard.
- Pension funds could freeze their portability transfers and annuity purchases to protect members' benefits.

### Outlook and risks for the recovery
- The recovery will hinge on the evolution of the pandemic; first phase began as restrictions were lifted in May.
- Following an estimated contraction of 5.4 percent in 2020, real GDP is projected to expand by 4.4 percent in 2021 and 4.1 percent in 2022.
- Around half of the initial output decline in 2020 is assumed to come from a transitory drop in productive capacity and the remainder from a more persistent collapse in demand.
- The current account deficit is expected to reach 2.2 percent of GDP by 2026.
- Over the medium term, potential growth is limited to 1.7 percent due to weak external competitiveness, low productivity growth, and population aging.
- Staff’s baseline projection assumes that real output will be around 1 percent below its pre-crisis trend by the end of the projection horizon.
- House prices and household debt-to-income ratios will likely continue to increase given the expectation that policy rates and mortgage interest rates will remain low for some time.
- Key upside risks:
  - Adoption of the “American Rescue Plan” in the United States.
  - Higher oil prices.
  - Stronger-than-expected pent up domestic demand.
- Key downside risks:
  - The pandemic: resurgence of the virus domestically or in main trading partners; supply-chain disruptions; stagflation and shortages.
  - Premature withdrawal of policy support.
  - The legacy of the crisis: long-term scarring, firm closures, worker dislocation, and reskilling challenges.
  - Higher private-sector indebtedness leading to overleverage and amplified macro-financial stress; bank capitalization pressure if pandemic persists.
  - Oversupply and volatility in the oil market threatening Canada’s oil sector.

### Policy discussions — Immediate response and assessment
- Decisive fiscal actions and unprecedented fiscal support helped avert a sharper fall in output despite a sharp rise in the fiscal deficit and public debt.
- Staff analysis: without fiscal stimulus real output would have declined by an additional 7.8 percentage points in 2020 and the unemployment rate would have been 3.2 percentage points higher (counterfactual from a large-scale FSGM model).
- Despite the rise in federal debt, debt service has been stable due to low interest rates; over 60 percent of federal debt issuance during March–November 2020 was short-term, with less than 10 percent for maturities greater than 10 years.
- The relatively short maturity structure of newly-issued debt exposes the government to higher interest rate risk.
- Monetary easing has supported the economy; BoC uses forward guidance and quantitative easing and has a rich toolbox of policy measures.
- BoC’s forward guidance is contingent on reducing economic slack and achieving the inflation target.
- BoC’s liquidity and credit support actions helped avoid major market disruptions and lowered risk spreads toward pre-pandemic levels.
- Staff counterfactual estimates using an integrated micro-macro simulation: if policy interest rates had been 150 basis points higher since March 2020, the firm industry-aggregate debt-weighted probability of default could have approached 6 percent versus 3.2 percent in 2020 (on average); real GDP growth could have been 3.4 percentage points lower; unemployment 1 percentage point higher (year average); corporate debt risk spreads about 120 basis points wider; combined with base interest rate shift, firm debt costs could have risen close to 300 basis points.
- Impact on bank capitalization (corporate loan portfolios only) in that counterfactual ranges between -25 basis points and -240 basis points (min-max) for the seven largest banks’ CET1 capital ratios; RWA-weighted banking system-wide impact would stand at -70 basis points inclusive of second-round feedback.
- Banking system remained sound in 2020 with capital ratios steady or slightly increased; payment deferrals have allowed banks to avoid costly borrower defaults so far.
- One underlying pressure: accrual of interest and the implied need to consider further restructuring of loans to avoid overburdening borrowers by the end of a moratorium.

### Transitioning from crisis management to supporting the recovery
- Public health policy: swift vaccination of Canadians is a key short-term priority; mitigation efforts (expanded testing, contact tracing, maintaining health system capacity, continued mask wearing) must continue before vaccine protection is widespread.
- Rapid and frequent use of rapid tests, together with continued mask wearing, is recommended to help quickly identify infectious individuals and avoid costly lockdowns.
- Fiscal policy:
  - The crisis exposed gaps in Canada’s social safety net, prompting the CERB and later transitions to a revamped EI system and temporary recovery benefits; lessons present an opportunity to review the EI system and its role as an automatic stabilizer.
  - The federal government could consider developing a more systematic framework for cyclical stabilization, linking temporary fiscal spending to a timely and well-understood macroeconomic variable (e.g., the unemployment rate) to provide automatic triggers for stimulus initiation and withdrawal.
  - The federal government’s data-driven “fiscal guardrails” approach to withdrawing stimulus is a step in the right direction but requires more clarity about specific triggering conditions.
  - Before embarking on any new spending, ensure composition achieves well-defined objectives including enhancing long-term growth.
  - The federal government's commitment to spend up to 4 percent of GDP over the next three years to support the recovery needs further justification and evaluation against objectives to operate at full capacity and stop COVID-19 from doing long-term damage to potential output.
  - Staff’s baseline projection includes $100 billion in additional federal spending that has been announced, broadly evenly phased over three years, and assumes a gradual withdrawal of the current fiscal support at a pace consistent with the recovery.
  - Historical experience suggests a significant risk that the gross debt-to-GDP ratio could drift higher over the projection horizon.

*CANADA  INTERNATIONAL  MONETARY  FUND*

### 52.      As staff has recommended in the past, the federal government  needs to more clearly

### 1canea2021001 - 52.

### Fiscal policy: clarity, anchors, and provincial rules
- Finding: "There is little clarity at this stage about the federal government’s medium-term fiscal anchor."
- Recommendation: The federal government needs to more clearly communicate its fiscal objectives.
- Recommendation: Commit to a well thought-through debt anchor supported by a well-understood operational rule, or regularly publish longer-term fiscal projections that clearly illustrate fiscal sustainability.
- Clarification: "An operational rule need not constrain the role of government or the structure of the tax system."
- Recommendation: Allow automatic stabilizers to freely operate during downturns; consider enhanced automatic stabilizers based on specific macroeconomic triggers.
- Provincial-level finding: "A wide fiscal deficit and rapidly-rising debt—as currently seen in many provinces—increases the need for a clear and credible strategy for maintaining medium-term fiscal sustainability."
- Provincial-level recommendations:
  - Design fiscal rules to identify and address structural sources of imbalance (e.g., excessive current spending or under-taxation).
  - Address key sources of revenue volatility (e.g., in oil prices in Alberta and Saskatchewan).
  - Protect infrastructure investment and ensure fiscal sustainability over the medium term.

### Monetary policy: communication and interaction with fiscal policy
- Finding: Current monetary policy settings (forward guidance and the QE) "are well-aligned with the needs of the economy."
- Recommendation: The central bank should continue to clearly communicate its strategy for both maintaining and eventually withdrawing policy support.
- Recommendation: Scale back asset purchases and lift the policy rate to its estimated "natural level" once the economy has robustly recovered to promote financial stability and create policy space for the next downturn.
- Process note: "In 2021, the Bank of Canada and the Government of Canada will renew their agreement on Canada’s inflation-control target after a thorough review of the existing inflation-targeting framework."
- Interaction risk: Historically low interest rates reduce financing costs but "may put pressure on the central bank to not raise interest rates if inflation exceeds the target" given the short maturity structure of recently-issued federal debt and highly-indebted firms and households.
- Recommendation: Clear and credible communication of objectives and a commitment to the 2 percent inflation target remain key.

### Financial sector policy: withdrawal of support and macroprudential priorities
- Recommendation: Phase out temporary financial sector support as the effects of the pandemic fade.
- Finding: "Current macroprudential policy settings are broadly appropriate."
- Recommendation: Pace the withdrawal to balance short-term risks against longer-term macro-financial vulnerabilities from lower interest rates and higher debt.
- Banking sector guidance:
  - Encourage banks to lend under prudent conditions and be forward-looking in pricing.
  - For longer duration mortgages, set mortgage contract parameters so borrowers can cover higher interest payments in the future to mitigate system-wide leverage buildup.
- Recommendation: Consider eliminating provincial and municipal real estate taxes on non-residents or harmonizing them into broad-based tax measures targeted at speculative activity more generally.
- FSAP implementation progress:
  - Information sharing and collaboration improved via the Systemic Risk Surveillance Committee established in 2019.
  - Important remaining macro-critical recommendations: enhance regulatory capital requirements for banks’ mortgage exposures and ensure mortgage insurers are adequately capitalized.
- Climate-related financial risk: Ongoing work (e.g., BoC and OSFI pilot on climate risk scenarios) will be important.

### Beyond the pandemic: productivity, inclusiveness, and green transition
- Finding: "Canada still needs to boost its productivity."
- Recommended measures to raise productivity: attract productivity-enhancing investments, diversify beyond traditional sectors including the oil sector, facilitate internal and international trade, implement infrastructure investment well, cut regulatory barriers, and review the tax system to remove distortions and improve efficiency.
- Inclusiveness: The federal "Build Back Better" plan focuses on training and skills, promoting equal opportunity and diversity, support for the green economy, an action plan for women (including groundwork for a Canada-wide childcare system), and more opportunities for vulnerable groups (e.g., young and minority groups).
- Expected effect: These initiatives, complemented by earlier recommendations, would help increase productivity and "reduce the public debt burden over the medium term."

### Distributional impacts and housing
- Finding: "The crisis will have a long-lasting impact on income and wealth inequality."
- Data points:
  - "Pre-crisis data show that 20 percent of households account for almost 50 percent of total household net worth in Canada."
- Housing policy guidance:
  - Staff "welcome the federal government’s emphasis on housing affordability."
  - Recommendation: Policies should focus on expanding housing supply and removing distortions in housing markets.
  - Caution: Direct subsidies and tax deductions can perversely favor those who can already afford to buy a house, worsening inequalities.

### Carbon pricing and climate policy (Box 3)
- Target pledges: Cut GHGs about 30 percent below current levels by 2030 and achieve zero net GHGs by 2050.
- Federal requirement: Provinces and territories must impose a carbon pricing scheme with prices rising rapidly to CAN$50 per ton by 2022 and proposed to rise to $170 by 2030; a federal pricing backstop applies where this requirement is not met.
- Finding: "Carbon pricing is the most efficient mitigation instrument and success in Canada provides a model for others."
- Complementary measures: Sectoral fiscal policies and feebates can reinforce mitigation incentives in transport, power, industry, building, forestry, and agricultural sectors without a new tax burden on the average household or firm.
- Distributional estimate: The carbon pricing scheme would impose an average household burden of 2 percent of consumption in 2030; recycling revenues to households in lower income taxes offsets about 80 percent of this burden while providing an employment boost.
- International dimension:
  - A border carbon adjustment similar to the EU's could level the playing field for energy-intensive, trade-exposed industries.
  - Such a BCA "would have raised revenues of 0.5 percent of GDP in 2015 with 41 and 23 percent of the revenues from charges on China and US, imports respectively."
  - An international carbon price floor (ICPF) among large emitters would be more effective at scaling up global mitigation; Canada’s price floor provides a prototype for an ICPF mechanism.

### Authorities’ views (summary)
- Broad agreement with staff’s macroeconomic outlook; key risks include U.S. fiscal stimulus, higher oil prices, pent-up domestic demand (upside) and delayed recovery from new virus waves (downside).
- Authorities’ short-term priority: swift vaccination.
- EI system: Authorities will continue to review the EI system and agree the crisis is an opportunity to review its role as an automatic stabilizer.
- Fiscal stance: The federal government is committed to avoiding premature withdrawal of policy support and to outlining a long-term fiscal anchor when the economy is stable.
- Monetary policy: Bank of Canada will continue clear communication and agrees with staff on current settings.
- Macroprudential stance: Authorities will closely monitor household debt and housing market risks; remaining financial sector support will be phased out as pandemic effects wane.
- Structural agenda: Authorities agree many pre-existing structural challenges remain and support carbon pricing as the most efficient emissions-reduction policy; they view Canada’s price floor as a potential prototype for international arrangements.
- FSAP progress: Authorities report significant progress implementing 2019 FSAP recommendations, including enhanced information sharing and contingency planning.

### Staff appraisal (key conclusions and recommendations)
- Assessment: "The authorities took timely, decisive, and well-coordinated policy actions in response to the pandemic."
- Recommendation: Continue public health measures and sustain support to households and firms "until the pandemic is under control."
- Social safety net: Crisis exposed gaps in Canada’s social safety net; opportunity to review the Employment Insurance (EI) system and its role as an automatic stabilizer.
- Recommendation: Consider developing a more systematic framework for cyclical stabilization, including:
  - Enhancing the EI system’s response to the business cycle.
  - Linking discretionary spending to a timely and well-understood macroeconomic variable (e.g., the unemployment rate).
  - Implementing enhanced automatic stabilizers to maximize policy effectiveness over the business cycle and reduce uncertainty about the size and duration of fiscal support.

*Source: 1canea2021001 - 52.*

### 75.      The authorities should avoid a premature  withdrawal of policy support. The federal

### The authorities should avoid a premature withdrawal of policy support. The federal

### Fiscal policy
- The federal government’s data-driven approach to the withdrawal of policy stimulus (its “fiscal guardrails”) represents a strong signal of the authorities’ commitment to support the economy.
- More clarity about the specific conditions that would trigger withdrawal would enhance communication and reduce uncertainty.
- The federal government needs to elaborate and clearly communicate its medium-term fiscal objectives.
- While the federal fiscal support provided is well justified and more support may be needed still, fiscal risks have risen.
- Commitment to a well thought-through fiscal anchor, or the regular publication of longer-term fiscal projections that clearly illustrate fiscal sustainability, would help to maintain the credibility of the fiscal framework.

### Monetary policy
- The central bank should continue to clearly communicate its strategy for both maintaining and eventually withdrawing policy support.
- Current monetary policy settings are well-aligned with the needs of the economy.
- Scaling back asset purchases and gradually lifting the policy rate once the economy has robustly recovered will promote financial stability and help create policy space for the next downturn.
- Clear communication about future policy intentions will be key to managing expectations.

### Financial sector policy and macroprudential stance
- Financial sector support should also be gradually phased out as the effects of the pandemic fade.
- While current macroprudential policy settings are broadly appropriate, the future policy stance should carefully balance short-term risks to growth and financial stability against longer-term macro-financial vulnerabilities.
- Financial sector policies should help pre-emptively contain a broad-based and persistent buildup of leverage that is likely fueled by low interest rates as well as counteract further rising overvaluation in the housing market.
- Welcome progress has been made towards implementing recommendations from the 2019 Financial Sector Assessment Program.
  - Notably, information sharing and collaboration among financial oversight authorities has been enhanced through the establishment of the Systemic Risk Surveillance Committee in 2019.
  - Going forward, it will be important to address outstanding macro-critical recommendations, in particular the enhancement of regulatory capital requirements for banks’ mortgage exposures and ensuring that mortgage insurers are adequately capitalized.

### Structural challenges and climate policy
- Structural challenges that existed prior to the pandemic remain.
- Canada still needs to boost its productivity, support productivity-enhancing investments, diversify beyond traditional sectors, and continue the transition to a greener and more equitable economy.
- Carbon pricing is the most efficient policy for reducing emissions.
- At the global level, Canada’s carbon price floor could be a valuable prototype for an international carbon price floor arrangement among large emitting countries.

### External position
- Canada’s external position was moderately weaker than the level implied by medium-term fundamentals and desirable policies in 2020.
- Canada also has a strong international investment position.

*Source: https://www.imf.org/-/media/files/publications/cr/2021/english/1canea2021001.pdf*

### 82.      It is recommended  that the next Article IV consultation be held on a standard 12-

### 82.      It is recommended  that the next Article IV consultation be held on a standard 12-month cycle.

### Recovery and Output
- After a historic slump in 2020:Q2, a recovery began in Q3; both the contraction and the recovery were broad-based across provinces.
- Recovery driven mainly by consumption and investment.
- Consumption plummeted in Q2 despite significant public transfers boosting disposable income.

### Labor Market
- Canada's unemployment rate rose to an historical high in 2020.
- Sharp declines in both employment and participation rates.
- Jobs were lost in all sectors; sectors with a predominance of non-essential workers suffered most.
- Part-time workers were particularly hard hit.
- The pace of wage growth has been rising, reflecting higher wage growth in the service sector.
- Wage indicators drawn from: Labor Force Survey, Survey of Employment, Payrolls and Hours, Productivity Accounts, and National Accounts (weighted average using real GDP).

### Housing Market
- House prices have increased across advanced economies despite the COVID-19 crisis.
- Increases broad-based across metropolitan areas in Canada.
- In some areas it is a “sellers” market as supply continues to lag demand.
- House price-to-income ratios continue to climb as low mortgage rates and rising household debt-to-income ratios fuel demand.

### Oil Market
- The discount on Canada heavy crude oil widened in 2020 again but has since fallen to very low levels.
- Crude oil production has fallen close to pipeline capacity while refinery capacity has been broadly stable.
- Inventories have declined and there have been (more expensive) shipments by rail.
- WCS-WTI spreads and production/utilization dynamics highlighted.

### External Sector
- The current account deficit narrowed with lockdowns having a large impact on services trade.
- Volatility in energy and non-energy exports affected trade flows.
- The exchange rate has risen; the non-energy trade balance remains in deficit.
- The current account deficit has largely been financed by portfolio inflows recently.
- Despite its CA deficit, Canada continues to be a net creditor vis-à-vis the rest of the world.

### Monetary Conditions and Financial Markets
- Monetary policy has eased to its “effective lower bound” as inflation and inflation expectations declined.
- Output gap turned negative with most sectors operating well-below capacity.
- Effective cost of borrowing has declined while spreads have been narrowing.
- TSX index has broadly tracked global indices and recovered since lockdowns were lifted; recent increases driven by the technology sector while energy stocks remain weak.
- Market volatility has declined but remains elevated; sovereign and corporate bond yields have fallen due to central bank actions.
- Long-term yields remain closely tied to developments in the U.S.; the yield curve has shifted.

### House Price Assessment
- Toronto, Vancouver, and Hamilton markets remain overvalued.
- House prices in Calgary and Edmonton correspond to households' borrowing capacity.
- It took around six years to normalize after large overvaluations in the past.
- House prices broadly consistent with fundamentals in Montreal and some other parts of Canada.

### Business Investment and Productivity
- Canada’s productivity has lagged the U.S. since the early 2000s, including in information technologies.
- Capital expenditure weakness concentrated mainly in oil and mining.
- Business investment continues to lag developments seen in other G7 countries.
- Canada slipped in the OECD Doing Business Ranking from 18th place to 22nd, and from 10th to 12th place in the Global Competitiveness Index.
- Business investment defined as gross fixed capital formation, constant prices excluding residential investment.

### Key Statistics (Selected Economic Indicators, Table 1)
- Nominal GDP (2019): Can$ 2,223 billion (US$ 1,676 billion)
- GDP per capita (2019): US$ 44,574
- Main exports: Oil and gas, autos and auto parts, gold, lumber, copper.
- Real GDP (2016–2022): 1.0, 3.0, 2.4, 1.9, -5.4, 4.4, 4.1
- Unemployment rate (average) 2/: 7.1, 6.4, 5.9, 5.7, 9.6, 8.1, 6.9
- CPI inflation (average): 1.4, 1.6, 2.3, 1.9, 0.7, 1.6, 1.8
- Gross national saving (percent of GDP): 19.7, 20.7, 20.9, 20.9, 20.0, 20.7, 20.9
- General government overall balance (percent of GDP): -0.5, -0.1, 0.3, 0.5, -19.8, -7.6, -4.4
- Gross Debt (percent of GDP): 91.7, 88.8, 88.8, 86.8, 115.4, 114.3, 112.1
- Household Credit Growth (annual average): 5.6, 5.7, 4.8, 3.7, 3.7, 8.9, 7.5
- Three-month treasury bill: 0.5, 0.7, 1.4, 1.7, 0.5, 0.2, 0.3
- Ten-year government bond yield: 1.3, 1.8, 2.3, 1.6, 0.8, 0.9, 1.0
- Current account balance (percent of GDP): -3.1, -2.8, -2.3, -2.1, -1.5, -1.0, -1.4
- Quota: SDR 11,023.9 million
- Population (2019): 37.6 million

### Balance of Payments Highlights (Table 2)
- Current account balance (percent of GDP, 2016–2026): -3.1, -2.8, -2.3, -2.1, -1.5, -1.0, -1.4, -1.7, -1.7, -1.9, -2.2
- Merchandise trade balance (percent of GDP, 2016–2026): -1.2, -1.1, -0.9, -0.7, -1.4, -0.7, -1.1, -0.9, -0.7, -0.8, -1.1
- Exports, goods (percent of GDP): 25.8, 25.7, 26.3, 25.9, 24.1, 27.4, 27.5, 27.3, 27.2, 26.7, 26.2
- Export volume growth (percentage change): 0.5, 0.7, 3.0, 0.9, -7.3, 16.0, 6.5, 3.3, 3.1, 1.8, 1.4
- Imports, goods (percent of GDP): 27.0, 26.9, 27.2, 26.6, 25.5, 28.1, 28.6, 28.2, 27.9, 27.5, 27.3
- Import volume growth (percentage change): -0.3, 4.9, 3.0, 0.7, -6.4, 19.1, 8.0, 3.0, 2.5, 2.4, 1.8
- Net international investment position (percent of GDP): 20.2, 33.9, 32.8, 42.4, 41.5, 36.9, 33.0, 29.6, 26.5, 23.3, 20.0
- Gross external debt (percent of GDP, 2016–2026): 116.0, 114.8, 120.5, 125.6, 130.7, 131.5, 133.9, 132.4, 133.9, 134.8, 135.3

### Fiscal Indicators (Table 3)
- Federal government revenue (percent of GDP, 2016–2026): 14.5, 14.6, 15.1, 15.2, 13.1, 14.1, 14.6, 14.8, 15.0, 15.0, 15.0
- Federal expenditures (percent of GDP, 2016–2026): 14.6, 14.7, 14.8, 15.1, 29.3, 19.9, 17.5, 15.6, 15.3, 15.1, 14.9
- Federal budgetary balance (percent of GDP): -0.1, -0.1, 0.3, 0.1, -16.2, -5.8, -2.9, -0.8, -0.3, -0.1, 0.1
- Consolidated general government revenue (percent of GDP): 40.3, 40.3, 41.1, 41.5, 38.6, 38.2, 39.4, 40.6, 41.1, 41.3, 41.4
- Consolidated general government expenditures (percent of GDP): 40.8, 40.5, 40.9, 41.0, 58.4, 45.8, 43.8, 42.6, 42.3, 42.2, 42.0
- Overall consolidated balance (percent of GDP): -0.5, -0.1, 0.3, 0.5, -19.8, -7.6, -4.4, -2.1, -1.3, -0.9, -0.6
- Net public debt (percent of GDP): 28.7, 26.0, 25.6, 23.4, 48.0, 47.4, 45.5, 43.2, 40.4, 37.4, 34.0
- Gross public debt (percent of GDP): 91.7, 88.8, 88.8, 86.8, 115.4, 114.3, 112.1, 109.4, 106.6, 103.6, 100.2

### Statement of General Government Operations and Balance Sheet (Table 4)
- Revenue (percent of GDP, 2012–2019): 38.5, 38.5, 38.6, 40.0, 40.4, 40.4, 41.2, 41.6
- Total expenditure (percent of GDP, 2012–2019): 40.9, 40.0, 38.4, 40.0, 40.8, 40.5, 40.9, 41.0
- Net lending or borrowing (percent of GDP, 2012–2019): -2.5, -1.4, 0.2, 0.0, -0.4, -0.1, 0.3, 0.6
- Net worth (market value, percent of GDP, 2012–2019): -8.6, 1.3, -0.5, -3.8, 1.8, 9.4, 11.5, 13.3
- Nominal GDP (billions of Can$) (memorandum): 1,827; 1,902; 1,995; 1,990; 2,026; 2,141; 2,231; 2,311

### Financial Soundness Indicators (Table 5)
- Total assets (billions of Can$) 2012–2019: 3,682; 3,854; 4,179; 4,666; 5,014; 5,277; 5,675; 6,116
- Total assets (percent of GDP): 201.5; 202.6; 209.5; 234.4; 247.5; 246.5; 254.3; 264.7
- Total capital ratio: 16.2; 14.3; 14.2; 14.2; 14.8; 14.8; 15.2; 15.3
- Tier 1 ratio: 13.4; 11.7; 11.9; 12.1; 12.5; 12.9; 13.2; 13.2
- NPLs to Gross Loans: 0.7; 0.6; 0.5; 0.5; 0.6; 0.4; 0.5; 0.5
- Return on assets: 1.1; 1.1; 1.1; 1.0; 1.0; 1.1; 1.2; 1.1
- Liquid assets to total assets: 11.9; 11.3; 11.0; 11.5; 10.9; 10.7; 10.6; 9.8
- Customer deposits to loans: 96.3; 98.2; 99.3; 101.0; 101.4; 99.9; 98.9; 98.0
- FX loans to total loans: 26.8; 27.7; 30.1; 33.4; 34.3; 35.5; 37.2; 38.5

### Medium-Term Scenario (Table 6, 2016–26)
- Real GDP (2016–2026): 1.0; 3.0; 2.4; 1.9; -5.4; 4.4; 4.1; 2.3; 1.7; 1.7; 1.7
- Q4/Q4 growth (2016–2026): 1.7; 3.1; 2.3; 1.7; -3.5; 3.5; 3.4; 1.9; 1.6; 1.7; 1.7
- Potential output growth (2016–2026): 1.8; 1.7; 2.2; 2.1; -2.1; 3.0; 2.5; 2.1; 1.8; 1.7; 1.7
- Output gap (percent of potential GDP): -0.9; 0.4; 0.6; 0.4; -3.0; -1.7; -0.1; 0.1; 0.0; 0.0; 0.0
- CPI inflation (2016–2026): 1.4; 1.6; 2.3; 1.9; 0.7; 1.6; 1.8; 2.0; 2.0; 2.0; 2.0
- Unemployment rate (2016–2026): 7.1; 6.4; 5.9; 5.7; 9.6; 8.1; 6.9; 6.5; 6.5; 6.5; 6.5
- General government gross debt (percent of GDP): 91.7; 88.8; 88.8; 86.8; 115.4; 114.3; 112.1; 109.4; 106.6; 103.6; 100.2
- General government net debt (percent of GDP): 28.7; 26.0; 25.6; 23.4; 48.0; 47.4; 45.5; 43.2; 40.4; 37.4; 34.0
- Three-month treasury bill (percent): 0.5; 0.7; 1.4; 1.7; 0.5; 0.2; 0.3; 0.8; 1.5; 1.9; 2.1
- Ten-year government bond yield (percent): 1.3; 1.8; 2.3; 1.6; 0.8; 0.9; 1.0; 1.4; 1.8; 2.1; 2.4
- Current account balance (percent of GDP): -3.1; -2.8; -2.3; -2.1; -1.5; -1.0; -1.4; -1.7; -1.7; -1.9; -2.2

### External Debt (Table 7)
- Total external debt (percent of GDP, 2008–2019): 67.7; 73.2; 73.6; 75.8; 84.3; 86.4; 93.9; 111.9; 116.0; 114.8; 120.5; 125.6
- Short-term external debt (percent of GDP, 2008–2019): 23.5; 22.9; 21.7; 22.6; 24.2; 24.3; 28.1; 34.3; 35.9; 35.2; 40.1; 46.1
- Banks' external debt (percent of GDP, 2008–2019): 20.1; 20.0; 19.4; 20.2; 24.8; 26.7; 32.4; 40.9; 43.3; 43.7; 48.9; 54.8
- Total all sectors (in billions of US dollar, 2008–2019): 916; 1,100; 1,234; 1,323; 1,549; 1,545; 1,615; 1,610; 1,750; 1,958; 1,971; 2,234
- Gross external debt trends show increases in both short-term and long-term exposures through 2019.

*Sources: Statistics Canada; Haver Analytics; Bank of Canada; OECD Statistics; National Energy Board; U.S. Energy Information Administration; Bloomberg; CREA; RPS Real Property Solution; Tera Net; World Bank, Doing Business Database; World Economic Forum; Department of Finance Canada; provincial budget reports; IMF staff calculations and estimates.*

### Annex I. Risk Assessment  Matrix

### 1canea2021001 - Annex I. Risk Assessment  Matrix

### Globally-sourced risks
- 1. Unexpected shift in the Covid-19 pandemic
  - Relative Likelihood: Medium
  - Impact: High
  - Description:
    - "The disease  proves harder to eradicate (e.g. due to vaccines’ ineffectiveness and difficulties  in distribution) requiring more containment efforts and impacting economic activity directly and through persistent behavioral changes (prompting costly reallocations of resources). The risk of asynchronous progress with limited access to, and longer-than-expected deployment of, vaccines in some countries."
  - Policy Response:
    - "Continue preparing for vaccination, securing vaccines and their swift  distribution. In the meantime, encourage uniform masking, limit risky and less  economically critical  activities, and ramp up rapid testing  of asymptomatic population (screening)."

- 2. Accelerating de-globalization
  - Relative Likelihood: Medium
  - Impact: High
  - Description:
    - "Despite  renewed efforts to reach multilateral  solutions  to existing  tensions, geopolitical  competition  leads to further fragmentation. Reshoring and less  trade reduce potential growth."
  - Policy Response:
    - "Work actively  to strengthen the rules-based  multilateral  trading system and promote cooperative approaches to climate  change mitigation."

- 3. Oversupply and volatility in the oil market
  - Relative Likelihood: Medium
  - Impact: Medium
  - Description:
    - "Supply increases (due to e.g.  OPEC+ disagreements or an unexpected surge in shale  production) and lower demand leads  to renewed weakness  in energy prices. Uncertainty about production cuts, prospects for the shale gas industry, and the pace of demand recovery lead to bouts of volatility."
  - Policy Response:
    - "Continue to diversify out of reliance on the fossil  fuels to limit  the sensitivity  to oil  prices disruption and support the climate  change initiatives.  Support modern and efficient techniques of oil  extraction."

### Domestically-sourced risks
- 4. House price correction
  - Relative Likelihood: Medium
  - Impact: Medium
  - Description:
    - "With  households highly indebted, housing markets could be destabilized, should the recovery from the crisis, the unexpected shift  in the covid-19 pandemic occurs, or interest  rates normalize."
  - Policy Response:
    - "Ensure adequate loss  absorbing buffers in the banking and insurance sectors and provide emergency liquidity  as needed."
    - "Ensure proactive supervisory and effective crisis management frameworks are in place."
    - "Loosen macroprudential policy if credit falls significantly."

- 5. Drag on growth due to balance-sheet impairment or sharp rise in risk premia
  - Relative Likelihood: Medium
  - Impact: Medium
  - Description:
    - "Non-financial corporations entered the crisis with leverage at historical  highs and elevated  with respect to many peer countries. The hit  from the crisis  to income and balance sheet may prompt companies to re-build buffers and focus on balance sheet  repair rather than on productive investment.  Exposed financial vulnerabilities  may lead to spike in risk premia."
  - Policy Response:
    - "Support access of solvent companies to credit, secure quick resolution of the insolvent ones. Motivate  prudent leverage position using macro-prudential tools and phase out tax advantage of borrowing relative  to equity financing."

*Source: Annex I. Risk Assessment Matrix (excerpt) from the provided IMF content unit.*

### Annex III. Figure 3. Canada: Public DSA – Composition of Public Debt and Alternative

### Annex III. Figure 3. Canada: Public DSA – Composition of Public Debt and Alternative Scenarios

### Underlying Assumptions (in percent)
- Baseline scenario (2021–2026)
  - Real GDP growth: 4.4, 4.1, 2.3, 1.7, 1.7, 1.7
  - Inflation: 3.5, 1.9, 1.9, 2.1, 2.0, 2.1
  - Primary Balance: -7.1, -4.3, -2.2, -1.4, -1.0, -0.6
  - Effective interest rate: 2.9, 2.6, 2.5, 2.5, 2.6, 2.8
- Historical scenario (2021–2026)
  - Real GDP growth: 4.4, 1.4, 1.4, 1.4, 1.4, 1.4
  - Inflation: 3.5, 1.9, 1.9, 2.1, 2.0, 2.1
  - Primary Balance: -7.1, -2.3, -2.3, -2.3, -2.3, -2.3
  - Effective interest rate: 2.9, 2.6, 2.9, 3.0, 3.2, 3.4
- Constant Primary Balance scenario (2021–2026)
  - Real GDP growth: 4.4, 4.1, 2.3, 1.7, 1.7, 1.7
  - Inflation: 3.5, 1.9, 1.9, 2.1, 2.0, 2.1
  - Primary Balance: -7.1, -7.1, -7.1, -7.1, -7.1, -7.1
  - Effective interest rate: 2.9, 2.6, 2.4, 2.3, 2.4, 2.5

### Composition of Public Debt (charts and projections, 2019–2026)
- Net debt (in percent of GDP): projection series shown for 2019, 2020, 2021, 2022, 2023, 2024, 2025, 2026 (baseline, historical, constant primary balance scenarios are displayed).
- Gross Nominal Public Debt (in percent of GDP): projection series shown for 2019–2026.
- Public Gross Financing Needs (in percent of GDP): projection series shown (time series extends back to 2010 in figures and projects through 2026).
- By maturity: breakdown into Medium and long-term and Short-term (projection, percent of GDP, series shown 2010–2026).
- By currency: Local currency-denominated and Foreign currency-denominated (projection, percent of GDP, series shown 2010–2026).

### Macro-Fiscal Stress Tests (Annex III. Figure 5)
- Shocks and underlying assumptions (annual series, 2021–2026):
  - Baseline (selected series)
    - Real GDP growth: 4.4, 4.1, 2.3, 1.7, 1.7, 1.7
    - Inflation: 3.5, 1.9, 1.9, 2.1, 2.0, 2.1
    - Primary balance: -7.1, -4.3, -2.2, -1.4, -1.0, -0.6
    - Effective interest rate: 2.9, 2.6, 2.5, 2.4, 2.6, 2.8
  - Primary Balance Shock
    - Real GDP Growth: 4.4, 1.6, -0.2, 1.7, 1.7, 1.7
    - Inflation: 3.5, 1.2, 1.3, 2.1, 2.0, 2.1
    - Primary balance: -7.1, -5.6, -4.7, -1.4, -1.0, -0.6
    - Effective interest rate: 2.9, 2.6, 2.5, 2.4, 2.6, 2.7
  - Real GDP Growth Shock
    - Real GDP growth: 4.4, 1.6, -0.2, 1.7, 1.7, 1.7
    - Inflation: 3.5, 1.2, 1.3, 2.1, 2.0, 2.1
    - Primary balance: -7.1, -5.6, -4.7, -1.4, -1.0, -0.6
    - Effective interest rate: 2.9, 2.6, 2.5, 2.4, 2.6, 2.7
  - Real Interest Rate Shock
    - Real GDP growth: 4.4, 4.1, 2.3, 1.7, 1.7, 1.7
    - Inflation: 3.5, 2.4, 1.9, 2.1, 2.0, 2.1
    - Primary balance: -7.1, -4.3, -2.2, -1.4, -1.0, -0.6
    - Effective interest rate: 2.9, 3.0, 3.0, 2.7, 2.8, 2.9
  - Real Exchange Rate Shock
    - Real GDP growth: 4.4, 4.1, 2.3, 1.7, 1.7, 1.7
    - Inflation: 3.5, 2.4, 1.9, 2.1, 2.0, 2.1
    - Primary balance: -7.1, -4.3, -2.2, -1.4, -1.0, -0.6
    - Effective interest rate: 2.9, 2.7, 2.5, 2.5, 2.6, 2.8
  - Combined Shock
    - Real GDP growth: 4.4, 1.6, -0.2, 1.7, 1.7, 1.7
    - Inflation: 3.5, 1.2, 1.3, 2.1, 2.0, 2.1
    - Primary balance: -7.1, -8.4, -6.8, -2.2, -1.4, -1.0
    - Effective interest rate: 2.9, 2.7, 2.9, 2.6, 2.7, 2.8
- Stress-test outputs (charts)
  - Gross Nominal Public Debt (in percent of GDP) under baseline and shocks, series 2021–2026.
  - Gross Nominal Public Debt (in percent of Revenue) and Public Gross Financing Needs (in percent of GDP), series 2021–2026.

### External Debt Sustainability Framework (Annex IV. Table 1, selected highlights)
- Baseline: External debt (2015–2025)
  - 2015: 93.7
  - 2016: 103.5
  - 2017: 106.6
  - 2018: 105.8
  - 2019: 116.1
  - 2020: 120.7
  - 2021: 115.5
  - 2022: 116.4
  - 2023: 115.0
  - 2024: 116.5
  - 2025: 117.5
  - Debt-stabilizing non-interest current account: -0.4
- Change in external debt (2015–2025)
  - 2015: 13.5
  - 2016: 9.9
  - 2017: 3.0
  - 2018: -0.8
  - 2019: 10.3
  - 2020: 4.6
  - 2021: -5.3
  - 2022: 1.0
  - 2023: -1.5
  - 2024: 1.6
  - 2025: 1.0
- Identified external debt-creating flows (4+8+9)
  - 2015: 15.6
  - 2016: 12.7
  - 2017: 3.6
  - 2018: -1.2
  - 2019: 2.0
  - 2020: 16.2
  - 2021: -2.4
  - 2022: -0.4
  - 2023: 0.3
  - 2024: 1.2
  - 2025: 1.5
- Components (selected)
  - Current account deficit, excluding interest payments (2015–2025 sample values include): 1.1, 0.3, -0.1, -0.6, -1.3, -1.6, -1.6, -1.3, -1.2, -1.5, -1.4
  - Net non-debt creating capital inflows (negative): 3.8, 9.0, 7.8, 0.9, 1.9, 8.0, 1.3, 2.6, 1.2, 1.4, 1.5
  - Automatic debt dynamics (contribution): 10.6, 3.4, -4.1, -1.5, 1.4, 9.8, -2.0, -1.7, 0.4, 1.3, 1.5
    - Contribution from nominal interest rate: 2.4, 2.7, 2.9, 3.0, 3.3, 3.2, 2.6, 2.7, 2.9, 3.1, 3.3
    - Contribution from real GDP growth: -0.6, -1.0, -2.9, -2.5, -1.9, 6.6, -4.7, -4.5, -2.5, -1.8, -1.8
    - Contribution from price and exchange rate changes: 8.8, 1.6, -4.0, -2.0, 0.0, ...
  - Residual, incl. change in gross foreign assets (2-3): -2.1, -2.8, -0.6, 0.4, 8.2, -11.5, -2.9, 1.4, -1.8, 0.4, -0.5
- External debt-to-exports ratio (in percent)
  - 2015: 294.1
  - 2016: 328.7
  - 2017: 338.8
  - 2018: 327.1
  - 2019: 363.7
  - 2020: 412.7
  - 2021: 360.9
  - 2022: 362.3
  - 2023: 360.4
  - 2024: 366.1
  - 2025: 373.8
- Gross external financing need (in billions of US dollars)
  - 2015: 836.6
  - 2016: 827.0
  - 2017: 901.9
  - 2018: 890.6
  - 2019: 967.7
  - 2020: 1165.1
  - 2021: 1198.9
  - 2022: 1287.6
  - 2023: 1356.2
  - 2024: 1399.4
  - 2025: 1472.4
  - in percent of GDP (sample values shown): 53.8, 54.1, 54.7, 51.7, 55.6, ...
- Key macroeconomic assumptions underlying baseline (selected)
  - Nominal GDP (US dollars), 2015–2025 sample: 1556.5, 1528.0, 1649.3, 1721.8, 1741.6, 1647.1, 1877.5, 2013.1, 2123.7, 2230.6, 2342.3
  - Real GDP growth (in percent) sample: 0.7, 1.0, 3.0, 2.4, 1.9, 2.2, 0.9, -5.4, 4.4, 4.1, 2.3, 1.7, 1.7
  - GDP deflator in US dollars (change in percent) sample: -14.4, -2.8, 4.8, 1.9, -0.7, 0.4, 7.6, -0.1, 9.2, 3.0, 3.1, 3.3, 3.3
  - Nominal external interest rate (in percent) sample: 2.6, 2.9, 3.0, 2.9, 3.2, 3.1, 0.4, 2.6, 2.5, 2.5, 2.7, 2.9, 3.0
  - Growth of exports (US dollar terms, in percent) sample: -13.5, -2.9, 7.8, 7.4, -0.2, 3.9, 9.7, -13.3, 24.6, 7.7, 4.7, 4.8, 3.7
  - Growth of imports (US dollar terms, in percent) sample: -9.4, -3.1, 7.3, 6.2, -1.0, 3.9, 8.9, -12.4, 22.5, 9.0, 4.5, 4.1, 4.0
  - Current account balance, excluding interest payments (sample): -1.1, -0.3, 0.1, 0.6, 1.3, -0.4, 0.9, 1.6, 1.6, 1.3, 1.2, 1.5, 1.4
  - Net non-debt creating capital inflows (sample): -3.8, -9.0, -7.8, -0.9, -1.9, -4.5, 3.0, -8.0, -1.3, -2.6, -1.2, -1.4, -1.5

*Source: IMF staff.*

### Annex V. 2019 FSAP Key Recommendations and Implementation

### Annex V. 2019 FSAP Key Recommendations and Implementation

### Bolstering the financial system’s resilience and enhancing systemic risk oversight
- Recommendation: Raise required capital for mortgage exposures at both banks and mortgage insurers to fully account for through-the-cycle risks; increase risk-based differentiation in mortgage pricing (OSFI, AMF; DOF)
  - Timeframe: NT; MT *
  - Progress by end-January 2021:
    - OSFI: Model Risk Division conducted analyses regarding banks’ residential mortgage models and will be prescribing additional requirements for probability of default (PD) calibration in the future. The CAR Guideline is being updated (public consultation in March 2021 and implementation targeted for Q1 2023) to require IRB banks’ PDs to be based on a data sample that includes a minimum amount of stress period data to ensure that PD estimates are not watered down by benign conditions in the market.
    - CMHC continues to tighten its eligibility requirements for its mortgage insurance program (last in July 2020).
    - AMF considered no further regulatory changes since the 2019 FSAP and does not plan any further changes for the time being.
- Recommendation: Develop the policy framework for managing a housing market downturn (BOC, AMF, BCSC, OSC)
  - Timeframe: NT *
  - Progress:
    - DOF: The Senior Advisory Committee (SAC) and Financial Institutions Supervisory Committee (FISC) continue to develop and maintain contingency planning and crisis management frameworks while monitoring vulnerabilities in the housing and mortgage markets.
    - BOC: Launched the Standing Term Liquidity Facility to provide emergency liquidity support to financial institutions and enhance the resilience of the Canadian financial system. Formalized an interagency working group to assess the need for and recommend policy measures related to housing market vulnerabilities, including contingency planning for a downturn.
    - OSFI: Made regulatory adjustments to support the financial and operational resilience of federally regulated financial institutions.
- Recommendation: Modernize the systemic risk oversight framework, underpinned by a federal-provincial platform (potentially, HOA) to discuss systemic issues and formulate policy responses, supported by enhanced transparency (HOA, BOC)
  - Timeframe: NT *
  - Progress:
    - BOC: The Heads of Regulatory Agencies (HoA) created the Systemic Risk Surveillance Committee (SRSC) in late 2019 to improve financial system monitoring and systemic risk assessment. SRSC incorporates views from CMHC, CDIC, BC Financial Services Authority and the Financial Services Regulatory Authority of Ontario. Terms of Reference for the HoA and SRSC were made public. The Financial System Review (FSR) now includes a box updating on the work of the HoA.
- Recommendation: Develop a comprehensive systemic risk surveillance framework, supported by a more unified approach to data collection; address data gaps, particularly related to cross-sectoral exposures, unregulated nonbank financial intermediation, and funding market activities (BOC, competent authorities, governments)
  - Timeframe: NT/MT *
  - Progress:
    - BOC: Addressing data gaps is included as an item in the SRSC ToR.
    - Statistics Canada: Enhances the NBFI economic account to provide better balance sheet data for NBFI entities.
- Recommendation: Enhance risk monitoring of banks’ funding, risk-taking by nonbanks, housing finance-related vulnerabilities, and cross-border and intra-system interconnectedness; carry out Canada-wide surveillance in key sectors such as banking and insurance (BOC lead; HOA, SAC; OSFI, AMF)
  - Timeframe: NT *
  - Progress:
    - BOC: Introduced a dynamic stress-testing model as part of its suite of top-down stress testing models. Analyzes banks’ funding liquidity and risks of runoffs on different bank funding types and how it can force banks to re-optimize lending across asset types. Developing a framework combining investor-perceived financial firm network and actual network from balance sheet exposures to simulate contagion across institutions and asset classes. Concluded no notable cross-border funding and connectedness risks. Formalized an interagency working group to assess housing market measures.
    - AMF: Regarding capital and disclosure requirements at the solo level, the activities of Québec chartered insurers outside Canada are relatively small. AMF closely follows OSFI solo capital developments and will consider application to Québec chartered insurers when deemed necessary.
    - CSA: Involved through participation at the HoA level.
- Recommendation: Strengthen oversight of large public pension funds, and increase transparency of their financial disclosures (DOF, provincial governments)
  - Timeframe: NT
  - Progress: Plans to consider whether enhanced oversight and increased transparency is necessary.

### Improving financial sector oversight
- Recommendation: Strengthen autonomy and governance of financial sector authorities, including BOC and OSFI (powers), and FICOM (overall); clarify the roles and responsibilities of the authorities in charge of overseeing systemically important FMIs (DOF, provincial governments; BOC; AMF, BCSC, OSC)
  - Timeframe: MT
  - Progress by end-January 2021:
    - DOF: OSFI has the required autonomy and governance to carry out its mandate. OSFI’s guidelines are enforceable in practice.
    - BOC: BOC and provincial securities commissions have overlapping mandates for oversight of FMIs, with an MOU established and cooperation effective during the pandemic. BOC is solely responsible for resolution of FMIs and plans to establish MOUs with securities commissions covering resolution.
    - AMF: Operationalized MoUs with the BOC and CDIC in 2018 through regular technical and quarterly executive meetings; met regularly with BOC at onset of COVID-19 and continue frequent meetings regarding D-SIFI oversight.
    - CSA: CSA and BOC continue coordination and cooperation; existing 2014 MOU “Respecting the Oversight of Certain Clearing and Settlement Systems” between AMF, BCSC & OSC and BOC promotes safety and efficiency of clearing and settlement systems. BOC is working with CSA to develop a second MOU for Resolution.
- Recommendation: Complete the Cooperative Capital Markets Regulatory System initiative (DOF, provincial governments)
  - Timeframe: MT
  - Progress: Participating governments remain committed. Timelines for drafting the proposed legislative framework will need to be extended given focus on the pandemic and provincial reviews of securities legislation. All participating governments have made significant investments and work continues to develop the proposed legislative framework.
- Recommendation: Enhance inter-agency cooperation, particularly between federal and provincial authorities, with additional MoUs (OSFI, AMF, other relevant provincial authorities)
  - Timeframe: NT *
  - Progress:
    - OSFI: Finalizing MoU on information sharing among federal and provincial members of the HoA committee. Increased engagement with provincial deposit-taking and insurance regulatory associations (CUPSA/CCIR). Initiated a 2021 provincial engagement project to increase two-way dialogue between OSFI and provincial regulators and associations. Federal and provincial regulators began meeting more closely at the SRSC in early 2019 (SRSC chaired by BOC and reports to HoA).
    - AMF: No MoU between OSFI and AMF has yet been signed; AMF remains of the view that a more formal means of exchange is needed.
    - CSA: Working on this recommendation in coordination with the HoA.
    - HoA/SRSC: On May 1, 2020, Heads of Agencies agreed to Terms of Reference for the HoA and SRSC. HoA developed an MOU for sharing confidential information among HoA and SRSC, agreed to in principle at the HoA meeting in October 2020 and expected to be signed in 2021.
- Recommendation: Address shortcomings in regulatory and supervisory frameworks related to credit risk of mortgage exposures; adopt a common loan forbearance framework in all jurisdictions (OSFI, AMF, other provincial credit union supervisors)
  - Timeframe: NT
  - Progress:
    - OSFI: Does not intend to pursue a common framework to monitor forborne exposures in all jurisdictions. Will consult publicly in spring 2021 on proposed revisions to the capital treatment of mortgages backed by private mortgage insurers (PMIs). Revised treatment will increase capital requirements for these mortgages and better align capital treatment with the structure of the government guarantee provided to PMIs.
    - AMF: Plans to draft a single guideline including accounting for expected credit losses and definitions of non-performing loans and forbearance. Regulatory monitoring and benchmarking exercise completed. Drafting to continue through spring of 2021 and expected to come into force in late fall 2021.
- Recommendation: Strengthen legal foundation underpinning insurance group-wide supervision; apply the regulatory framework more consistently to group-side supervision (OSFI, AMF; DOF, Québec government)
  - Timeframe: NT
  - Progress:
    - OSFI: Judges current arrangements to obtain information and apply prudential requirements for insurance groups have functioned well in practice. Further innovations may be considered as part of ongoing supervisory framework development.
    - AMF: Discussing with the Quebec Ministry of Finance possible legislative amendments to address lack of legal powers over unregulated holding companies and to enhance group-wide supervision capability.
- Recommendation: Complete reforms in the areas of OTC derivatives and duties towards clients; increase the focus of oversight on high-impact firms; ensure the capacity to handle market-wide stress (CSA, relevant provincial governments)
  - Timeframe: NT
  - Progress: No information could be sourced related to this item during the mission.

### Strengthening crisis management and safety net
- Recommendation: Task the SAC with responsibility of overseeing Canada-wide crisis preparedness, performing the roles of coordination body at the federal level and federal coordinator with key provincial authorities; strengthen CDIC’s operational independence (MoF; SAC; DOF)
  - Timeframe: NT *
  - Progress:
    - DOF: Agencies continue to develop and maintain inter-agency contingency planning and crisis management frameworks. Conduct regular tabletop exercises to test coordinated crisis preparedness measures aimed at addressing stress events under different scenarios.
- Recommendation: Expand recovery planning to all deposit-taking institutions and resolution planning to those performing critical functions; further develop the valuation framework for compensation; adopt depositor preference; strengthen resolution powers (OSFI; AMF and CDIC; DOF and Québec government)
  - Timeframe: NT *
  - Progress:
    - CDIC: Resolution planning for D-SIBs is advanced. All D-SIBs submit resolution plans to CDIC annually. CDIC continues to build out plans for member institutions not considered systemic but whose failure could generate adverse systemic effects.
    - OSFI: All D-SIBs must have recovery plans; OSFI uses a range of criteria to determine which other banks must prepare recovery plans.
    - AMF: Expand recovery planning to all deposit-taking institutions and resolution planning to those performing critical functions. Recovery and resolution plans drafted for Desjardins Group (the only one performing critical functions) and updated by Desjardins Group and AMF. Work underway to develop a valuation framework for resolution; AMF in the process of selecting a firm to support implementation with work planned for spring of 2021. Work on depositor preference must be carried out jointly with federal counterpart (CDIC) since law allowing introduction of this power is under federal purview. Strengthening resolution powers is ongoing as appropriate. Provincial indemnity has been put in place for the ELA. Technical meetings between AMF and BOC should ensure smooth ELA operations. Discussions underway with the Quebec ministry of Finance to formalize backstop funding arrangements.
- Recommendation: Operationalize emergency lending assistance (ELA) with key provinces; improve testing to ensure smooth ELA operations (BOC; British Columbia, Ontario and Québec governments)
  - Timeframe: NT *
  - Progress:
    - BOC: Established information-sharing MoUs with prudential and resolution authorities in all provinces except two Atlantic provinces to facilitate timely ELA decision-making. Established an MoU (including an indemnity agreement annex) with the Quebec government regarding provision of ELA to Desjardins.
- Recommendation: Further develop contingency plans for market-wide liquidity provision, particularly intervention in securities markets and foreign-currency liquidity provision (BOC; DOF, provincial governments)
  - Timeframe: NT *
  - Progress:
    - BOC: Expanded the range of liquidity facilities and asset purchase programs available to provide market-wide liquidity and support market functioning during the peak of the COVID-19 crisis.

- Note: Institutions in the parenthesis are the agencies with leading responsibilities. The * denotes macro-critical. NT and MT stand for near-term (within one year) and medium-term (within 2–3 years).

*Annex V. 2019 FSAP Key Recommendations and Implementation — progress by end-January 2021*

### 5.      The main concern raised about rapid tests relates to their reliability.

### 1canea2021001 - 5.      The main concern raised about rapid tests relates to their reliability.

### Reliability and purpose of rapid tests
- Rapid tests have become increasingly reliable over time, with current sensitivity rates standing at over 90 percent.
- PCR tests can show a positive result long after an individual is infectious; antigen (rapid) tests are designed to detect viable virus.
- The key aim of rapid tests is to identify infectious individuals, not infected individuals.
- Relatively long turnaround times for PCR test results limit their usefulness in mitigating the spread of the virus.
- Even imperfect but frequent testing could dramatically reduce virus spread.

### Cost and economic perspective
- Current cost of a single rapid test ranges between $1.30 and $30 (CAD).
- Testing every Canadian at a cost of $6.50 per test every day for one month would cost just 0.33 percent of GDP.
- By way of comparison, the federal government has spent around 15 percent of GDP in 2020 on fiscal support for firms and households to help mitigate the economic impact of the pandemic in 2020.
- Rapid tests could be self-administered at home and would not involve any additional burden on medical personnel and equipment.
- There is ample room for economies of scale and other technological improvements to lower the cost further.

### Policy recommendations and implications
- Proactive identification and isolation of infectious individuals should be a key part of any strategy to mitigate the spread of infectious diseases, especially since it will take time for vaccinations to stamp out the virus.
- Deploying moderate resources to implement a large-scale and decentralized rapid-testing strategy could deliver extremely large payoffs at relatively low cost.

### Supporting evidence and key statistics
- Lindner et al. (2020) conclude that 97 percent of individuals for whom virus could be cultured were detected by a rapid test.
- Research cited illustrating effectiveness of screening testing includes work by Atkeson et al (2020), Baqaee et al (2020), Dizioli and Pinheiro (2020), and Romer (2020).
- New COVID-19 cases stabilized at around 2,900 cases on a rolling 7-day average basis (early March context).
- As of March 9, 5.1 percent of the Canadian population had received at least one vaccine dose.
- By the end of March, Canada should have access to a total of 8 million vaccine doses, up from 6 million doses that were originally committed.

*Source: CANADA — STAFF REPORT FOR THE 2021 ARTICLE IV CONSULTATION — INFORMATIONAL ANNEX (February 25, 2021).*

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_Source: https://www.imf.org/-/media/files/publications/cr/2021/english/1canea2021001.pdf_