## 1canea2022002

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### Fiscal policy stance and recommendations
- Fiscal policy should support the fight against inflation: further revenue windfalls at both federal and provincial levels should be saved.
- Support for households facing high fuel and food prices should be kept temporary and targeted.
- Deficit reduction could be accelerated from the next budget.
- The fiscal framework could be better anchored with a specific debt target supported by an operational rule.
- Rules-based fiscal stimulus could be added to the toolkit for dealing with future downturns.
- Box highlighted: “Strengthening the Fiscal Framework in Canada” (Box 6).

### Recent macroeconomic developments and key indicators
- Real GDP: contracted by 5.2 percent in 2020 and expanded by 4.5 percent in 2021; GDP reached its pre-pandemic level by end-2021.
- Average after-tax income rose by 7 percent in 2020.
- Unemployment: record low of 4.9 percent in June and July 2022; 5.2 percent in September and October 2022; staff NAIRU estimate is 6 percent.
- Wage inflation: 5.6 percent y/y as of October 2022; ULC growth at 5.9 percent in Q2 2022.
- Headline CPI: 8.1 percent in June 2022; 6.9 percent y/y in September and October 2022.
- Bank of Canada policy: cumulative 350 bps hikes as of October meeting; policy rate at 3.75 percent.
- Fiscal consolidation: cyclically-adjusted deficit narrowed by 5¼ percent of GDP in 2021 and expected to improve by a further 3½ percentage points during 2022–23.
- Growth slowdown: above 3 percent y/y in H1 2022 to 1.6 percent in Q3 2022 (flash estimate).

### Outlook and risks (baseline and downside)
- Baseline projections:
  - Annual growth: 3.3 percent in 2022 and 1.5 percent in 2023.
  - Policy rate: expected to stay at or above 4 percent for most of 2023.
  - Unemployment: expected to return to around 6 percent by 2023.
  - House prices: baseline projects a peak-to-trough drop of 20 percent or more over the next few years.
  - Inflation: expected to return to the 2-percent target by end-2024.
- Downside risks:
  - Inflation could remain higher than baseline or de-anchor expectations, prompting more BoC tightening and deeper housing correction.
  - A more abrupt global slowdown (e.g., escalation of the war in Ukraine, worsening pandemic, tighter-than-expected policies by systemic central banks) could materially worsen the outlook, particularly through the U.S. channel.

### Housing and household balance sheets
- Housing boom: average prices climbed more than 50 percent from April 2020 until February 2022.
- Determinants: low mortgage rates, borrower stress test, preference shifts, healthy household incomes, investor demand.
- With higher mortgage rates, house prices began to decline from peak while rents continued to rise.
- Household leverage increased materially during the boom.
- Staff analysis (Box 1) findings:
  - In most CMAs (exceptions: Toronto and Hamilton), price changes through H1 2021 were explained by expanded borrowing capacity.
  - From mid-2021 onward, price growth in most CMAs exceeded attainable-price growth, indicating frothiness.
  - Projected rise in interest rates could drag attainable prices down over 20 percent from their peak; simultaneous shrinkage of overvaluations could cause larger actual price falls.

### Financial sector resilience and regulatory priorities
- Banks: generally well capitalized and liquid; NPL ratios and mortgage-delinquency rates historically low.
- Nonbanks: large pension funds and insurers appear financially healthy but data gaps limit full assessment; increased holdings of riskier and less liquid assets and greater use of derivatives and repo.
- Mortgage stock (as of July 2022): CAD 1.6 trillion outstanding, of which:
  - CAD 1 trillion are fixed‑rate products.
  - nearly another CAD 400 billion are variable‑rate mortgages featuring fixed payments.
  - Staff estimate 30 to 40 percent of outstanding mortgages (in value terms) could be exposed to an increase in payments by end‑2023.
  - Additional considerations: roughly 20 percent of fixed‑rate mortgages reset annually; some variable/fixed loans have hit negative amortization.
- Mitigating factors: market rates not far beyond the Minimum Qualifying Rate; households on average cash rich with substantial excess savings; substantial home equity; mandatory mortgage insurance for LTV > 80 percent; most mortgages are full‑recourse.
- Policy recommendations:
  - Enhance regulation on cryptoassets and the AML/CFT regime.
  - Build on progress in interagency cooperation on financial oversight.
  - Address data gaps for nonbank financial institutions and SMEs.

### Climate transition and carbon pricing
- Canada’s targets and instruments:
  - Aim to cut emissions to 40-45 percent below 2005 levels by 2030.
  - Federal carbon tax planned to rise to CAD 170/ton by 2030.
  - Canada ranked third among G20 countries in 2019 with 19.6 ton of CO2 equivalent per capita.
- Transition risks in oil and gas (Box 5 conclusions):
  - For companies representing about 75 percent of crude oil and other liquids production in 2022, NPV of fields would drop by 24.5 percent on average up to 2050 under a BAU→NZ2050 expectations switch.
  - For the same group, NPV would drop by 36.5 percent under a BAU→DNZ switch.
  - Companies representing more than 5 percent of production would have equity wiped out in BAU→NZ2050 case; share with equity wiped out rises to almost 10 percent in BAU→DNZ case.
  - Weighted average AEDF increases from current 0.4 percent to 8.6 percent (NDC/NZ2050 switch) and to 16.4 percent (NDC/DNZ switch); defaulted firms enter weighted average with 100 percent AEDF.
- Policy implications:
  - Comprehensive medium- to long-run strategy needed to transition workers and regions away from carbon‑intensive products.
  - Consider measures to protect competitiveness (e.g., border carbon adjustment) given rising domestic carbon prices and peers’ policies.
  - BoC could adjust collateral eligibility criteria and require climate‑disclosure‑compliant issuers for collateral.

### Box 2 — Risk Assessment Matrix (selected risks and likelihood/impact)
- Global risks (scale: Low, Medium, High):
  - Abrupt global slowdown or recession: Relative Likelihood: Medium; Impact: High.
  - Intensifying spillovers from Russia’s war on Ukraine: Relative Likelihood: High; Impact: Medium.
  - Deepening geo‑economic fragmentation and geopolitical tensions: Relative Likelihood: High; Impact: Medium.
  - Cyberthreats: Relative Likelihood: Medium; Impact: High.
  - Local COVID‑19 outbreaks: Relative Likelihood: Medium; Impact: Medium.
- Domestic risks:
  - De‑anchoring of inflation expectations and stagflation: Relative Likelihood: Medium; Impact: High.
  - House price correction: Relative Likelihood: High; Impact: Medium.
- Financial stability and housing near‑term risks:
  - Staff fan‑chart: roughly 10‑percent chance that the economy could contract for 2023 as a whole.
  - BoC stress test: in a severe downside scenario NPLs would rise but banking system would remain well capitalized.
  - Nonbank vulnerability to liquidity pressures despite BoC Contingent Term Repo Facility access; data gaps limit systemic risk analysis.

### Policy discussions — A. Supporting Affordability (macrostace, fiscal trade-offs, and housing)
- Macro stance:
  - Both fiscal and monetary policy should remain tight; priority is to bring inflation down quickly without triggering a recession.
  - BoC guidance:
    - Shrink balance sheet: holdings of government securities expected to fall from around CAD 350 billion currently (17 percent of 2021 GDP) to about half that level by 2028.
    - Disinflation requires keeping the policy rate at or above 4 percent for most of 2023.
- Fiscal guidance:
  - Temporary, targeted household buffers for high fuel and food prices can be financed; generalized spending increases should be avoided.
  - 2022 Fall Economic Statement (FES) uses recent excess revenues to finance initiatives amounting to some 1 percent of GDP over the medium term.
  - Further revenue windfalls should be saved; deficit reduction could be accelerated from next year’s budget.
  - 2022 FES cumulative fiscal impact (FY2022/23 to FY2027/28):
    - Making Life More Affordable: 11.1 $C billion / 0.4 Percent of GDP
    - Promoting jobs, growth, and the green transition: 11.0 $C billion / 0.4 Percent of GDP
    - Of which, investment tax credit for clean technologies: 6.7 $C billion / 0.2 Percent of GDP
    - Improving tax revenue and government services: 0.1 $C billion / 0.0 Percent of GDP
    - Other: 8.5 $C billion / 0.3 Percent of GDP
    - Total net fiscal impact: 30.7 $C billion / 1.0 Percent of GDP
- Housing measures:
  - Supply-side: Housing Accelerator Fund (2022 Budget) helpful; additional local measures for permitting and densification and federal support for infrastructure recommended.
  - Demand-side: OSFI’s intention not to loosen stress testing is appropriate; targeted support for first‑time buyers could help; scaled-up/generalized demand support could worsen affordability.
  - Consider measures to disincentivize investors and second homebuyers (e.g., increased stamp duties, capital gains taxes, lower LTV limits) while weighing rental market implications.

### Policy discussions — B. Strengthening the Policy Toolkit (fiscal framework, rules, and monetary communication)
- Fiscal framework:
  - Adopt an explicit debt anchor supported by an operational rule to guide return to anchor following shocks; useful at federal and provincial levels to manage commodity‑revenue volatility.
  - Rules‑based automatic stimulus: mandate temporary spending increases triggered by macro indicators (e.g., unemployment) to speed recovery and reduce uncertainty; complements but does not replace discretionary policy.
- Monetary policy communication:
  - BoC publishing Summaries of Governing Council deliberations welcome; scenario analysis in July Monetary Policy Report helpful.
  - Staff suggests BoC publish more quantitative discussion of policy‑stance changes under alternative scenarios and publish the rate path underpinning the quarterly forecast (with caveats).
- Box 6 key insights:
  - Rules‑based stabilization with macro triggers reduces delays and improves effectiveness, especially when monetary policy at the ELB.
  - Better communication materially improves outcomes: discretionary spending with poor communication causes about 1½ percent GDP higher cumulative output loss over ten years; credible communication halves short‑run output losses associated with consolidation.

### Policy discussions — C. Enhancing Financial Regulation and Oversight — cryptoassets and AML/CFT
- Need for comprehensive regulatory regime for cryptoassets.
  - OSFI’s interim advisory on cryptoasset exposures an important step.
  - Federal and provincial collaboration required to cover full range of stablecoins and unbacked cryptoassets.
  - Coordination with international regulatory bodies recommended.
  - Finance Canada preparing further regulatory initiatives.
- AML/CFT and beneficial ownership:
  - Legal amendments in 2019 and 2020 strengthened AML/CFT obligations; solicitor‑client privilege gap remains and should be remedied.
  - Beneficial‑ownership registry: federal registry described as welcome; source notes the registry will be operational starting in 2024, while Box 7 states operational by end‑2023 (source contains both passages).
  - Only 10 to 15 percent of Canadian companies are federally registered; provincial coverage needed.
  - Policy recommendations include removing lawyer privilege gap, incentivizing provincial registries, interlinked registers, and publishing beneficial ownership for government contractors.

### Financial sector oversight and FSAP follow‑up (Annex III highlights)
- Authorities continue progress addressing most 2019 FSAP recommendations; interagency cooperation improving.
- Persistent challenges:
  - Data gaps (NBFIs, SMEs), fragmented data sources, legal restrictions hinder centralized pooling and systemic analysis.
  - Oversight of large public pension funds and transparency remain priorities.
- Recommendations:
  - Overcome data fragmentation/legal barriers, possibly via new legislation.
  - Do not defer strengthening oversight and transparency of large public pension funds.

### Sovereign, fiscal, and macro projections (selected key statistics and projections)
- Nominal GDP (2021): Can$ 2,496 billion (US$ 1,990 billion)
- GDP per capita (2021): US$ 52,079
- Population (2021): 38.0 million
- Real GDP (percent change): 2019: 1.9; 2020: -5.2; 2021: 4.5; 2022: 3.3; 2023: 1.5; 2024: 1.6; 2025: 2.3; 2026: 1.9; 2027: 1.7
- CPI inflation (average): 2019: 1.9; 2020: 0.7; 2021: 3.4; 2022: 6.9; 2023: 4.2; 2024: 2.4; 2025: 1.9; 2026: 1.9; 2027: 2.0
- Unemployment rate (average): 2019: 5.8; 2020: 9.6; 2021: 7.4; 2022: 5.3; 2023: 5.9; 2024: 6.2; 2025: 6.1; 2026: 6.0; 2027: 6.0

### Fiscal outlook (general government consolidated, percent of GDP)
- Revenue (consolidated): 2019: 40.7; 2020: 41.6; 2021: 41.0; 2022: 41.5; 2023: 41.2; 2024: 41.2; 2025: 41.2; 2026: 41.2; 2027: 41.3
- Expenditures (consolidated): 2019: 40.7; 2020: 53.0; 2021: 46.0; 2022: 43.0; 2023: 42.3; 2024: 42.0; 2025: 41.8; 2026: 41.8; 2027: 41.7
- Overall balance (consolidated): 2019: 0.0; 2020: -11.4; 2021: -5.0; 2022: -1.5; 2023: -1.1; 2024: -0.7; 2025: -0.6; 2026: -0.6; 2027: -0.4
- Gross public debt (consolidated): 2019: 87.2; 2020: 117.8; 2021: 112.9; 2022: 101.9; 2023: 99.0; 2024: 97.1; 2025: 94.9; 2026: 93.3; 2027: 91.9
- Net public debt (consolidated): 2019: 23.1; 2020: 33.6; 2021: 31.6; 2022: 30.6; 2023: 30.3; 2024: 30.0; 2025: 29.5; 2026: 29.0; 2027: 28.3

### Annex I: public debt dynamics and financing needs (selected)
- Public debt (percent of GDP): Actual 2021: 112.9; 2022: 101.9; 2023: 99.0; 2024: 97.1; 2025: 94.9; 2026: 93.3; 2027: 91.9
- Change in public debt (percent of GDP): 2022: -4.9; 2023: -10.9; 2024: -2.9; 2025: -1.9; 2026: -2.3; 2027: -1.6; 2028: -1.4
- Gross financing needs (GFN, percent of GDP): 2022: 22.4; 2023: 20.1; 2024: 21.0; 2025: 20.5; 2026: 20.6; 2027: 20.5; 2028: 19.7
- Debt service (percent of GDP): 2022: 20.0; 2023: 21.2; 2024: 22.8; 2025: 22.8; 2026: 22.8; 2027: 22.8; 2028: 22.0
- Memo macro assumptions:
  - Real GDP growth: 2021: 4.5; 2022: 3.3; 2023: 1.5; 2024: 1.6; 2025: 2.3; 2026: 1.9; 2027: 1.7
  - Inflation (GDP deflator): 2021: 8.1; 2022: 9.2; 2023: 3.2; 2024: 1.8; 2025: 1.5; 2026: 1.3; 2027: 1.3
  - Effective interest rate: 2021: 2.5; 2022: 2.6; 2023: 2.9; 2024: 3.1; 2025: 3.1; 2026: 3.1; 2027: 3.0

### Staff appraisal and consolidated recommendations
- Conjuncture: Canada outperformed many comparators during the pandemic but faces a challenging conjuncture with high inflation eroding real incomes, a housing correction underway, and tilted downside risks.
- Monetary policy recommendations:
  - Maintain policy rate at or above 4 percent for most of 2023.
  - Continue quantitative tightening and clear communication.
- Fiscal policy recommendations:
  - Save further revenue windfalls; keep support for needy temporary and targeted.
  - Consider accelerating deficit reduction in the next budget.
  - Adopt a specific debt target with an operational rule; consider rules‑based automatic stimulus.
- Financial regulation:
  - Establish comprehensive cryptoasset regulation; remedy AML/CFT gaps; remove obstacles to cross‑sectoral data sharing for systemic risk analysis.
- Climate policy:
  - Credit for ambitious plans; Canada well placed to help catalyze an international differentiated carbon price floor; comprehensive transition strategy needed to assist affected workers, communities, and regions.

*IMF staff report dated November 17, 2022.*

### 2023. Fiscal policy should support the fight against inflation—further revenue windfalls

### 2023. Fiscal policy should support the fight against inflation—further revenue windfalls

### Fiscal policy stance and recommendations
- Fiscal policy should support the fight against inflation: further revenue windfalls at both federal and provincial levels should be saved.
- Support for households in the face of high fuel and food prices should be kept temporary and targeted.
- Deficit reduction could be accelerated from the next budget.
- The fiscal framework could be better anchored with a specific debt target supported by an operational rule.
- Rules-based fiscal stimulus could be added to the toolkit for dealing with future downturns.
- Box noted: “Strengthening the Fiscal Framework in Canada” (Box 6) as an area for reform.

### Recent macroeconomic developments and key indicators
- Real GDP contracted by 5.2 percent in 2020 and bounced back by 4.5 percent in 2021; GDP reached its pre-pandemic level by end-2021.
- Average after-tax income rose by 7 percent in 2020.
- Unemployment hit a record low of 4.9 percent in June and July 2022 before retreating to 5.2 percent in September and October 2022; staff’s estimate of NAIRU is 6 percent.
- Wage inflation: 5.6 percent y/y as of October 2022; ULC growth at 5.9 percent in Q2 2022.
- Headline CPI inflation reached 8.1 percent in June 2022; headline inflation fell to 6.9 percent y/y in both September and October 2022.
- As of its October meeting, the Bank of Canada had hiked by a cumulative 350 bps, leaving the policy rate at 3.75 percent.
- Fiscal consolidation: cyclically-adjusted deficit narrowed by 5¼ percent of GDP in 2021 and is expected to improve by a further 3½ percentage points during 2022–23.
- The economy slowed from above 3 percent y/y in H1 2022 to 1.6 percent in Q3 2022 (flash estimate).

### Outlook and risks
- Baseline projections:
  - Annual growth: 3.3 percent in 2022 and 1.5 percent in 2023.
  - Policy rate expected to stay at or above 4 percent for most of 2023.
  - Unemployment expected to return to around 6 percent by 2023.
  - House prices: baseline projects a peak-to-trough drop of 20 percent or more over the next few years.
  - Inflation: expected to return to the 2-percent target by end-2024.
- Downside risks highlighted:
  - Inflation could stay higher than baseline for longer or expectations could de-anchor, prompting more BoC tightening and deeper housing correction.
  - A more abrupt global slowdown (e.g., escalation of the war in Ukraine, worsening pandemic, tighter-than-expected policies by systemic central banks) could materially worsen the outlook, particularly via the U.S. channel.

### Housing and household balance sheets
- Housing boom: average prices climbed more than 50 percent from April 2020 until February 2022.
- Determinants: low mortgage rates, borrower stress test, preference shifts, healthy household incomes, investor demand.
- With higher mortgage rates, house prices have started to come off their peak while rents continued to rise.
- Household leverage increased materially during the boom.
- Staff analysis (Box 1) finds:
  - In most CMAs (exceptions: Toronto and Hamilton), price changes through H1 2021 were explained by expanded borrowing capacity.
  - From mid-2021 onward, price growth in most CMAs exceeded attainable-price growth, suggesting frothiness.
  - Projected rise in interest rates could drag attainable prices down over 20 percent from their peak; if overvaluations shrink simultaneously, actual prices could fall substantially more.

### Financial sector resilience and regulatory priorities
- Banks are generally well capitalized and liquid; NPL ratios and mortgage-delinquency rates remain historically low.
- Nonbanks (large pension funds, insurers) appear financially healthy but data gaps limit full assessment.
- Following search-for-yield behavior, these institutions hold a larger share of riskier and less liquid assets and use derivatives and repo transactions more intensely.
- Policy recommendations:
  - Enhance financial regulation on cryptoassets and on the AML/CFT regime.
  - Build on progress in strengthening interagency cooperation on financial oversight.
  - Continue addressing data gaps for nonbank financial institutions and SMEs.

### Climate transition and carbon pricing
- From a challenging starting point of high emissions, Canada has ambitious plans for carbon pricing.
- Canada is well placed to help catalyze international agreement on a differentiated carbon price floor.
- A comprehensive strategy is needed to transition the economy away from carbon-intensive products and processes and to assist affected workers, communities, and regions as the world moves toward net-zero emissions.
- Boxes and annexes address macroeconomic effects of climate change, decomposing climate transition risk in Canadian stocks, and climate transition risk in the oil and gas sector.

*IMF staff report dated November 17, 2022.*

### Box 2. Risk Assessment Matrix

### Box 2. Risk Assessment Matrix

### Globally‑Sourced Risks
- Risk framework scale: Low, Medium, and High.
- 1. Abrupt global slowdown or recession
  - Relative Likelihood: Medium
  - Impact: High
  - Policy Response: Risk factors combine to cause a synchronized, sharp growth slowdown, with an outright recession in some countries, global spillovers, and downward pressures on some commodity prices. The U.S. could see a “hard landing” and a stronger dollar. Both monetary and fiscal policy would need to respond to a global recession. The strength of the reaction would depend on developments in inflation and commodity prices.
- 2. Intensifying spillovers from Russia’s war on Ukraine
  - Relative Likelihood: High
  - Impact: Medium
  - Policy Response: Further sanctions resulting from the war and related uncertainties exacerbate trade and financial disruptions and commodity price volatility. As a major commodity producer, Canada has been hit less hard than others by the war. Policies should focus on further increasing the resilience of the economy to the conflict and to trade disruptions in the affected region.
- 3. Deepening geo‑economic fragmentation and geopolitical tensions
  - Relative Likelihood: High
  - Impact: Medium
  - Policy Response: Broadening of conflicts and reduced international cooperation accelerate deglobalization, resulting in a reconfiguration of trade, supply disruptions, rising input costs, financial instability, a fracturing of the international monetary and financial system, and lower potential growth. Work actively to strengthen the rules-based multilateral trading system, international economic cooperation, and promote cooperative approaches to climate change mitigation.
- 4. Cyberthreats
  - Relative Likelihood: Medium
  - Impact: High
  - Policy Response: Cyberattacks on critical physical or digital infrastructure (including digital currency platforms) trigger financial instability and disrupt economic activities. Strengthen defenses (in the financial sector and elsewhere in the economy) to prevent cyberattacks and take steps to build resilience to ensure continuity of operations when attacks occur.
- 5. Local COVID-19 outbreaks
  - Relative Likelihood: Medium
  - Impact: Medium
  - Policy Response: Outbreaks in slow-to-vaccinate countries or the emergence of more contagious vaccine-resistant variants force new lockdowns or inhibit commerce. This results in extended supply chain disruptions and slower growth. Continue vaccination strategy as recommended by experts, and securing and distributing vaccines. Until a transmission-blocking vaccine is available, limit spread and hospitalizations by considering cost-effective strategies like improving ventilation standards, rapid mass testing, or using N95 grade masks when appropriate.

### Domestically‑Sourced Risks
- 6. De‑anchoring of inflation expectations and stagflation
  - Relative Likelihood: Medium
  - Impact: High
  - Policy Response: Both domestically- and globally-sourced supply shocks to food and energy prices increase headline inflation and pass-through to core inflation, de-anchoring inflation expectations and triggering wage-price spiral in tight labor markets. To avoid a de-anchoring of inflation expectations, the central bank should continue communicating a strong commitment to the inflation target and resolve to increase the policy rate further if needed.
- 7. House price correction
  - Relative Likelihood: High
  - Impact: Medium
  - Policy Response: Rising mortgage rates will press on house prices to decline. House prices have already started coming down, and further declines are likely. Some households will see their mortgage payments increase. On account of prudent mortgage underwriting and the nature of prevailing mortgage products, the financial sector should remain resilient. Policies should focus on macro‑prudential measures to lower the volatility of house prices and monitoring the financial system’s health.

### Financial Stability, Housing, and Near‑term Risks
- Staff’s fan‑chart analysis: Risks around the baseline growth forecast are asymmetrical, with a roughly 10‑percent chance that the economy could contract for 2023 as a whole.
- Banking sector resilience observations:
  - Banks’ net interest margins are improving as interest rates move higher.
  - Majority of households should generally be able to continue servicing their mortgages given Canada’s prudent mortgage-underwriting process and the nature of mortgage structures.
  - Of the CAD 1.6 trillion in mortgages outstanding as of July 2022:
    - CAD 1 trillion are fixed‑rate products.
    - nearly another CAD 400 billion are variable‑rate mortgages featuring fixed payments (with the principal/interest composition changing and the amortization period lengthening when market rates rise).
    - Staff calculations suggest that 30 to 40 percent of outstanding mortgages (in value terms) could be exposed to an increase in payments by end‑2023.
    - Additional considerations: roughly 20 percent of fixed‑rate mortgages reset annually; some variable/fixed loans have hit negative amortization.
  - Mitigating factors highlighted:
    - Market rates are not far beyond the Minimum Qualifying Rate at which all recent borrowers have already been stress‑tested.
    - Canadian households, though high in debt by international comparison, are on average cash rich with substantial excess savings remaining from pandemic support and further bolstered by the strong labor market.
    - Borrowers generally have substantial equity in their homes given conservative lending practices and the sharp price run‑up since 2020.
    - Losses for banks are mitigated by mandatory mortgage insurance for loans with LTV above 80 percent.
    - Most mortgages are full‑recourse.
  - Vulnerable groups: recent home purchasers (more likely variable‑rate mortgages, higher payments as share of income, less built‑up equity), holders of revolving consumer loans and home‑equity lines of credit.
  - BoC stress test finding: In a severe downside scenario—with a significant increase in unemployment, declining real incomes, and a fall in housing prices—NPLs would rise, but the banking system would remain well capitalized.
- Nonbank institutions: Large pension funds and insurers may be vulnerable to liquidity pressures despite appearing financially healthy and having access to the BoC’s Contingent Term Repo Facility. Data gaps, data fragmentation, and legal restrictions limit systemic risk analysis.

### Climate‑Related Risks and Findings (Boxes 3–5)
- Physical risks (Box 3)
  - Data and method: Annual data from ten Canadian provinces over the period of 1961–2017; dynamic panel regression.
  - Core findings:
    - Persistent temperature increases above historical norms have virtually no effect on the growth of real output per capita in Canada.
    - Temperature shortfalls relative to historical norms (increased cold spells) and excessive precipitation lower growth.
    - A persistent 0.1 degree Celsius annual decrease in temperature below historical norms or a one-centimeter annual increase in precipitation above norms can lower growth by 30 bps per year.
    - Sectoral impacts: agriculture, construction, manufacturing, and transport output growth are negatively affected by extensive periods of rain and snow and unusually cold temperature.
- Transition risks (Box 4 and Box 5)
  - Climate pricing in equities (Box 4):
    - Machine‑learning/NLP analysis of Financial Times news (2005–2022) used to construct positive (mitigation‑friendly) and negative (mitigation‑unfriendly) climate risk factors.
    - Evidence that stock prices of oil and gas companies incorporate information about climate transition risk.
    - Responses are asymmetric: higher climate transition risk is associated with a significantly negative risk premium for oil and gas companies; a fall in climate transition risk yields a positive but statistically insignificant premium.
    - Results robust across market model, Fama‑French 3 factor, Carhart 4 factor, Fama‑French 5 factor, and Fama‑French 5 plus momentum models.
  - Valuation exposure of Canadian oil and gas (Box 5):
    - Method: Merton (1974) approach; NPV over 2022–50 of Canadian oil and gas assets under NGFS scenarios (BAU, NZ2050, DNZ).
    - If agents switch expectations from BAU to more ambitious decarbonization, NPV of Canadian oil and gas fields could decline by as much as 24 to 36 percent.
    - Canada’s carbon tax policy: carbon tax rising to CAD 170/ton by 2030 noted as ambitious; potential competitiveness concerns if peers lag, possibly requiring measures such as a border carbon adjustment.
    - Canada faces transition risks due to reliance on oil and gas and relatively high average breakeven prices in international comparison.

### Authorities’ Views and Policy Implications
- Finance Canada and the BoC broadly shared staff’s views: outlook likely to slow, risks tilted to the downside, housing markets expected to cool, financial sector likely to remain resilient, and recognition of important physical and transition climate risks.
- Policy implications emphasized across risks:
  - Strengthen economic resilience to geo‑political and trade disruptions.
  - Continue central bank communication and readiness to raise policy rates to anchor inflation expectations.
  - Use macro‑prudential measures to lower house price volatility and closely monitor vulnerable borrower cohorts.
  - Strengthen cyber defenses and operational resilience.
  - Continue vaccination strategies and cost‑effective nonpharmaceutical interventions until transmission‑blocking vaccines are available.
  - Advance rules‑based multilateral cooperation and consider measures (e.g., border carbon adjustments) to protect competitiveness amid ambitious domestic mitigation.

*Source: Box 2. Risk Assessment Matrix, excerpted from the IMF Canada report content provided.*

### Box 5. Climate Transition Risk in the Canadian Oil and Gas Sector (concluded)

### Box 5. Climate Transition Risk in the Canadian Oil and Gas Sector (concluded)

### Climate transition risk findings and financial implications
- For companies representing about 75 percent of the crude oil and other liquids production in 2022, the NPV of their oil and gas fields would drop by 24.5 percent, on average, over the horizon up to 2050, in case of a switch in economic agents’ expectations between the BAU and NZ2050 scenarios.
- For the same group of companies, the NPV would drop by 36.5 percent assuming a switch between the BAU and DNZ scenarios.
- Companies representing more than 5 percent of oil and other liquids production would have their equity wiped out (i.e., they would be technically in default) in the BAU→NZ2050 switch case.
- The share of companies with equity wiped out rises to almost 10 percent in the BAU→DNZ switch case.
- The change in NPV is translated into a potential change in companies’ DtD and AEDF using the logic of the Merton model.
- Most firms would experience a drop in the NPV of their oil and gas assets, leading to:
  - an increase in the weighted average AEDF from the current value of 0.4 percent to 8.6 percent, assuming an NDC/NZ2050 switch in expectations; and
  - an increase in the weighted average AEDF to 16.4 percent in case of an NDC/DNZ switch.
- Note: In the weighted average, defaulted firms enter with a 100 percent AEDF.

*See P. Grippa, “Climate Transition Risk in the Canadian Oil and Gas Sector,” IMF Working Paper (forthcoming).*

---

### Policy discussions

### A. Supporting Affordability — macro stance and fiscal trade-offs
- Both fiscal and monetary policy should remain tight. The chief priority is to bring inflation down quickly and decisively without triggering a recession.
- The BoC should continue reducing the size of its balance sheet and keep the policy rate high to guide inflation back to target.
  - Under the Bank’s quantitative tightening policy, holdings of government securities are expected to fall from around CAD 350 billion currently (17 percent of 2021 GDP) to about half that level by 2028.
  - Disinflation will also require keeping the policy rate at or above 4 percent—broadly consistent with BoC communications and market expectations—for most of 2023.
  - Clear communication about the BoC’s reaction function is essential given uncertainties around the supply-demand imbalance and the extent to which unemployment must rise to reduce excess demand.
- Fiscal policy should support the fight against inflation:
  - Temporary and targeted programs to buffer vulnerable households from high fuel and food prices could be financed, but more generalized spending increases should be avoided so as not to undercut monetary policy.
  - The 2022 Fall Economic Statement (FES) uses some of the recent excess revenues to finance spending initiatives amounting to some 1 percent of GDP over the medium term.
  - Further revenue windfalls at both federal and provincial levels should be saved.
  - Deficit reduction could be accelerated from next year’s budget onward; the 2022 FES plans would compress deficits by nearly 1 ½ percent of GDP over five years.
  - Net federal debt would remain 10 percent of GDP higher in 2027/28 than was expected before the pandemic, suggesting scope for further improvement in the primary balance.
- The 2022 Fall Economic Statement: cumulative fiscal impact (FY2022/23 to FY2027/28) (figures shown in source):
  - Making Life More Affordable: 11.1 $C billion / 0.4 Percent of GDP
  - Promoting jobs, growth, and the green transition: 11.0 $C billion / 0.4 Percent of GDP
  - Of which, investment tax credit for clean technologies: 6.7 $C billion / 0.2 Percent of GDP
  - Improving tax revenue and government services: 0.1 $C billion / 0.0 Percent of GDP
  - Other: 8.5 $C billion / 0.3 Percent of GDP
  - Total net fiscal impact: 30.7 $C billion / 1.0 Percent of GDP

### A. Supporting Affordability — housing affordability and targeted measures
- Rising interest rates will make housing less affordable in the short term, but as they curb demand and reduce prices, homeownership should, over time, become more affordable, especially for younger and cash-constrained households.
- Supply-side measures remain the key long-term constraint:
  - The Housing Accelerator Fund introduced in the 2022 Budget should help boost housing development, but additional local measures to expedite permitting and promote densification are needed and could be complemented by additional federal support for critical infrastructure.
- Demand-side measures are nuanced:
  - OSFI’s stated intention not to loosen stress testing of individual borrowers appears appropriate.
  - Targeted support, as in the 2022 budget, could help first-time homebuyers but scaled-up or generalized demand-side support could worsen affordability.
  - Measures to disincentivize investors and second homebuyers—e.g., increased stamp duties and capital gains taxes, or lower LTV limits—could be helpful, though implications for the rental market need careful consideration.

### A. Supporting Affordability — authorities’ views
- The BoC underscored its commitment to restoring price stability.
- Government counterparts emphasized careful targeting of fiscal support toward the neediest and commitment to maintaining carbon pricing.
- Authorities noted Canada’s fiscal consolidation compares well to other G7 countries and stressed substantial investment needs, including for the green transition.
- On housing policy, authorities noted challenges in promoting housing supply, cautioned that disincentivizing second homebuyers may have limited effects, and warned that measures targeting investors could have unintended effects on rental markets.

---

### B. Strengthening the Policy Toolkit — fiscal framework and rules
- Canada could benefit from adoption of an explicit debt anchor and a supporting operational rule:
  - The federal government’s commitment to reduce the federal debt ratio and publish long-term projections are welcome, but the government’s precise debt goals remain unstated.
  - Adopting a specific debt anchor, supported by an operational rule to determine how the fiscal position would return to the anchor following shocks, would help guide market expectations and enhance credibility and accountability.
  - Fiscal rules could be useful at the provincial level to shield provincial budgets from commodity-revenue volatility.

- Fiscal policy could be enhanced through rules-based automatic stimulus:
  - Such a mechanism would mandate temporary spending increases based on a pre-set macroeconomic trigger, such as a rise in unemployment above a certain level.
  - Rules-based automatic stimulus would provide a clear signal of government spending, reduce uncertainty, and induce households and firms to spend more, helping faster recovery.
  - Rapid implementation of such spending is a major advantage; it would not replace discretionary fiscal responses but could be a useful addition when monetary policy is constrained.

### B. Strengthening the Policy Toolkit — monetary policy communication
- Improved communication enhances the effectiveness of monetary policy:
  - The BoC’s decision to start publishing summaries of Governing Council deliberations is welcome.
  - The introduction of scenario analysis in the July Monetary Policy Report should help markets appreciate key risks.
  - The BoC could add more quantitative discussion of changes in the policy stance associated with alternative scenarios and publish the rate path underpinning the quarterly economic forecast, while making clear this is not a commitment and policy will respond to incoming data.

### Box 6. Strengthening the Fiscal Framework in Canada — key insights
- Rules-based fiscal stabilization with macro triggers can avoid delays and make fiscal aid more effective by allowing rapid and predictable responses to the business cycle.
- Staff analysis suggests automatic stabilizers augmented by rules-based targeted transfers, triggered by a deviation of unemployment from a pre-specified level, can help stabilize the economy—especially critical when the monetary policy rate is close to or at its effective lower bound (ELB).
- Good communication matters: purely discretionary fiscal spending leads to a higher cumulative output loss than better-communicated spending of the same size.
  - Over the first ten years, the cumulative loss is worse by around 1½ percent GDP—i.e., roughly one-sixth worse purely because of communication.
  - Regarding the debt-to-GDP path, fiscal discretion leads to the worst outcome of all options considered.
- Credible communication also matters for medium-term fiscal consolidation:
  - In simulations, credible communication makes a large difference—short-run output losses are twice as large when consolidation is not credible.

### B. Authorities’ views on fiscal rules and communication
- Authorities were unconvinced of the need for a quantitative debt anchor in Canada, preferring a flexible framework focused on debt reduction that can respond to changing circumstances.
- Authorities cautioned that elevated uncertainties could make simple rules likely to be broken, while more complicated arrangements with escape clauses would be more difficult to communicate.
- Authorities found rules-based stimulus intriguing but raised concerns that automatically triggered spending could be activated at inappropriate times (e.g., when inflation is too high).
- On monetary policy communication, the BoC agreed on the importance of helping the market understand the Bank’s reaction function and noted it will publish Summaries of Deliberations beginning in January 2023.
  - The BoC queried staff’s recommendation to publish the policy rate path and sought evidence that publishing the rate path improves policy effectiveness and how to mitigate the risk that any path would be interpreted as a commitment.

---

### C. Enhancing Financial Regulation and Oversight — cryptoassets
- There is a need to establish a comprehensive regulatory regime for cryptoassets.
  - OSFI’s recent publication of an interim advisory on cryptoasset exposures is an important step.
  - Federal and provincial authorities should step up collaboration to guide the growth of these instruments—including the full range of stablecoins and unbacked cryptoassets—and ensure they do not pose a threat to financial stability.
  - Efforts to regulate cryptoassets should be coordinated closely with international regulatory bodies.
  - Finance Canada is preparing further regulatory initiatives in this domain.

*Source: Box 5 (concluded) and associated Policy Discussions from the provided IMF Canada chapter content.*

### 30.      The authorities continue to make progress in addressing most of the 2019 FSAP

### 1canea2022002 - 30.      The authorities continue to make progress in addressing most of the 2019 FSAP

### Financial sector oversight and FSAP follow-up
- Progress:
  - Authorities continue to make progress in addressing most of the 2019 FSAP recommendations (Annex III).
  - Interagency cooperation among federal and provincial financial regulators and supervisors continues to improve.
- Constraints and risks:
  - Identification and estimation of vulnerabilities within the financial system at large are constrained by persistent data gaps (e.g., with respect to some NBFIs as well as to SMEs).
  - Persistent fragmentation of data sources and legal restrictions prevent centralized data pooling and limit the scope of systemic risk analysis at the national level.
  - The FSAP recommended strengthening oversight of large public pension funds and increasing transparency of their financial disclosures; this recommendation is particularly relevant in the current context of volatile markets that could put pressure on pension funds’ liquidity via spikes in margin calls and potential dislocations in government bond markets.
- Policy recommendations (financial sector):
  - Put initiatives in place—via new legislation, if warranted—to overcome fragmentation of data sources and legal restrictions that prevent centralized data pooling and limit systemic risk analysis at the national level.
  - Do not defer decisions on strengthening oversight of large public pension funds and improving transparency of their financial disclosures.

### Anti-money-laundering / Combating the financing of terrorism (AML/CFT) and beneficial ownership
- Progress and remaining shortcomings:
  - Legal amendments in 2019 and 2020 strengthened AML/CFT obligations of financial institutions, particularly customer due diligence, identification of politically exposed persons (PEPs), and reporting of suspicious transactions linked to financial crimes.
  - Solicitor-client privilege prevents AML/CFT requirements from being placed on legal professionals; this is identified as an important shortcoming given lawyers’ involvement with high-risk clients and in company/trust formation and real-estate- and securities-related transactions, and should be remedied.
- Beneficial ownership registries:
  - A federal beneficial-ownership registry aimed at mitigating misuse of legal entities for criminal purposes:
    - Described as a welcome step.
    - Only 10 to 15 percent of Canadian companies are registered federally, underscoring the importance of achieving coverage of entities at the provincial level.
    - One passage states the federal registry will be operational starting in 2024.
    - Box 7 states the government has fast-tracked the establishment of a federal beneficial ownership registry, now expected to be operational by end-2023.
  - British Columbia has established a real-property beneficial ownership registry (Land Owner Transparency Registry) under the Land Owner Transparency Act; this is an innovative initiative to mitigate real-estate sector money-laundering risks.
- Policy recommendations (AML/CFT and beneficial ownership):
  - Remedy the solicitor-client privilege gap that prevents applying AML/CFT obligations to legal professionals.
  - Encourage provincial cooperation to achieve broad coverage of beneficial-ownership information beyond federally incorporated companies.
  - For a pan-Canadian approach, put in place mechanisms to ensure ease of access to data across federal and provincial registers, including interlinked platforms, use of the same data format across jurisdictions, or availability of centralized search options.
  - Federal government should incentivize provinces to establish real-property beneficial ownership registries to reduce regulatory arbitrage and mitigate cross-border money laundering in the real-estate sector.
  - Collect and publish beneficial ownership information for companies that enter into contracts with government departments to aid detection of conflicts of interest, collusion, or corruption in public procurement and to supplement other beneficial ownership information sources.

### Transitioning to a low-carbon economy
- Targets and instruments:
  - Canada aims, by 2030, to cut emissions to 40-45 percent below 2005 levels.
  - Federal carbon tax planned to rise to CAD 170/ton by 2030.
  - Canada is the world’s eighth-largest CO2 emitter and has among the highest per-capita emissions of any major economy.
  - In terms of greenhouse gas emissions (including methane and nitrous oxide), Canada ranks third among G20 countries in 2019 with 19.6 ton of CO2 equivalent per capita.
- Opportunities and challenges:
  - Canada is well placed to play a crucial global role in mining ‘critical minerals’ needed for green technologies (e.g., solar panels, wind turbines, batteries, electric vehicles) due to natural endowments and reputation for high ESG standards.
  - Some green technologies and initiatives (e.g., improving carbon capture and storage) may require fiscal support such as tax credits, other policies to incentivize private green investments, and direct funding of public green investments.
  - Maintaining a prudent overall fiscal stance is important, especially as declining profitability of oil and gas could weigh on government revenue collections.
  - Industrial competitiveness issues should be carefully considered given differing international policy approaches; Canada could catalyze an international agreement on a carbon price floor differentiated by development level.
- Transition management and social considerations:
  - A comprehensive medium- to long-run strategy is needed to transition economy and workers away from carbon-intensive products and processes.
  - Policies should protect those— including First Nations—whose livelihoods may be most disrupted by decarbonization; focus areas include redeploying existing technical skills to greener activities, training in new skills, and public support for regional development and diversification initiatives where oil and gas are concentrated.
- Role of the Bank of Canada (BoC) and financial system:
  - The BoC could adjust eligibility criteria for collateral pledged by banks in market operations to reduce implicit carbon intensity.
  - The BoC could require an increasing share of collateral in secured transactions to be issued by companies complying with international standards for climate-related disclosures.
  - The BoC is closely studying implications of climate change for monetary policy and financial stability and is working with OSFI and financial institutions to improve assessment of climate-related financial risks.
- Authorities’ views:
  - Authorities reiterated commitment to carbon pricing while recognizing the need to avoid loss of competitiveness.
  - They intend to respond in kind to subsidies offered in the U.S. Inflation Reduction Act to remain an attractive destination for major new investments (e.g., electric vehicles and batteries).
  - A border carbon adjustment is under consideration but may be difficult to implement in practice.
  - Authorities welcome IMF work on an international carbon price floor and reconfirmed commitment to provide climate financing for developing nations.
  - Authorities see a future for Canadian oil and gas—particularly LNG as a bridge fuel—but agree on the need for an overarching strategy to manage the green transition.

### Staff appraisal and macroeconomic policy recommendations
- Current conjuncture and outlook:
  - During the pandemic, Canada’s economic outcomes have been better than in many comparators, but the conjuncture is extremely challenging.
  - Inflation is well above target and eroding real incomes; housing affordability is a major concern following a long boom that may now have peaked; the pandemic remains a source of risk.
  - The external position in 2021 was moderately weaker than the level implied by medium-term fundamentals and desirable policies.
  - Staff expect growth to remain subdued, housing to continue its correction, and the financial sector to remain resilient, but risks to growth are tilted to the downside and shocks could easily push the economy into a mild recession.
- Monetary and fiscal policy guidance:
  - Taming inflation is the key priority; tight macro policies are needed.
  - Bank of Canada (BoC) recommendations:
    - Maintain the policy rate at or above 4 percent for most of 2023.
    - Keep shrinking its balance sheet.
    - Continue clear communication of intentions.
  - Fiscal policy recommendations:
    - Fiscal policy should support the disinflation effort—further revenue windfalls should be saved.
    - Fiscal support for the needy should be kept temporary and targeted.
    - The pace of deficit reduction could be made even more ambitious in the next budget.
  - Supply-side and housing:
    - Further policy measures—particularly on the supply side—would help address housing affordability over time.
- Institutional and fiscal framework enhancements:
  - Adoption of a specific debt target, supported by an operational rule to determine how the fiscal position reverts to the debt anchor following shocks, could guide market expectations and enhance credibility and accountability.
  - Rules-based fiscal stimulus could be useful by strengthening households’ expectations of fiscal support in a downturn and speeding up delivery.
- Financial regulatory enhancements:
  - Establish a comprehensive regulatory regime for cryptoassets.
  - Address shortcomings in the AML/CFT framework (substantial advances already made).
  - Build on progress in improving interagency cooperation on financial oversight by removing obstacles to data sharing and cross-sectoral systemic risk analysis at the national level.
- Final assessment on climate policy:
  - Canada deserves substantial credit for ambitious plans to reduce its currently high CO2 emissions and for large commitments of climate finance for developing nations.
  - Given its climate ambition, Canada is well placed to catalyze an international agreement on a carbon price floor, but negative impacts on competitiveness will need to be addressed.
  - A comprehensive strategy will be needed to help the economy and workers transition away from carbon-intensive products and processes.

*CANADA — INTERNATIONAL MONETARY FUND.*

### 43.      Staff recommend that the next Article IV consultation be held on the standard 12-

### 1canea2022002 - 43. Staff recommend that the next Article IV consultation be held on the standard 12-month cycle.

### Recommendation
- Staff recommend that the next Article IV consultation be held on the standard 12-month cycle.

### Macroeconomic outlook and key projections
- Nominal GDP (2021): Can$ 2,496 billion (US$ 1,990 billion)
- GDP per capita (2021): US$ 52,079
- Population (2021): 38.0 million
- Main exports: Oil and gas, autos and auto parts, gold, lumber, copper.
- Real GDP (percent change):
  - 2019: 1.9
  - 2020: -5.2
  - 2021: 4.5
  - 2022: 3.3
  - 2023: 1.5
  - 2024: 1.6
  - 2025: 2.3
  - 2026: 1.9
  - 2027: 1.7
- CPI inflation (average):
  - 2019: 1.9
  - 2020: 0.7
  - 2021: 3.4
  - 2022: 6.9
  - 2023: 4.2
  - 2024: 2.4
  - 2025: 1.9
  - 2026: 1.9
  - 2027: 2.0
- Unemployment rate (average):
  - 2019: 5.8
  - 2020: 9.6
  - 2021: 7.4
  - 2022: 5.3
  - 2023: 5.9
  - 2024: 6.2
  - 2025: 6.1
  - 2026: 6.0
  - 2027: 6.0

### Fiscal outlook and public debt dynamics
- General government consolidated indicators (percent of GDP, selected):
  - Revenue (consolidated): 2019: 40.7; 2020: 41.6; 2021: 41.0; 2022: 41.5; 2023: 41.2; 2024: 41.2; 2025: 41.2; 2026: 41.2; 2027: 41.3
  - Expenditures (consolidated): 2019: 40.7; 2020: 53.0; 2021: 46.0; 2022: 43.0; 2023: 42.3; 2024: 42.0; 2025: 41.8; 2026: 41.8; 2027: 41.7
  - Overall balance (consolidated): 2019: 0.0; 2020: -11.4; 2021: -5.0; 2022: -1.5; 2023: -1.1; 2024: -0.7; 2025: -0.6; 2026: -0.6; 2027: -0.4
  - Gross public debt (consolidated): 2019: 87.2; 2020: 117.8; 2021: 112.9; 2022: 101.9; 2023: 99.0; 2024: 97.1; 2025: 94.9; 2026: 93.3; 2027: 91.9
  - Net public debt (consolidated): 2019: 23.1; 2020: 33.6; 2021: 31.6; 2022: 30.6; 2023: 30.3; 2024: 30.0; 2025: 29.5; 2026: 29.0; 2027: 28.3
- Annex I DSA baseline projections and messages:
  - Staff assess the overall risk of sovereign stress in Canada to be low.
  - Gross general government consolidated debt stood at 113 percent of GDP at end-2021.
  - Excluding accounts payable, gross debt was 94½ percent of GDP in 2021.
  - General government holdings of financial assets: about 81 percent of GDP at end-2021.
    - Nearly one-third of these assets are highly liquid (currency, deposits, and bonds).
    - About one quarter of the total financial assets relate to pension fund investments.
  - Net debt stood at 31½ percent of GDP at end-2021.
  - Baseline projections:
    - Primary deficit at consolidated general government level projected to decline from 5½ percent of GDP in 2021 to ½ percent by 2027.
    - Gross debt-to-GDP ratio projected to decline from around 118 percent in 2020 to just below 92 percent by 2027.
    - Net debt ratio projected to decline to 28¼ percent by 2027 from its peak of 33½ percent in 2020.
    - Gross financing needs were about 22 percent of GDP in 2021 and are expected to remain in the range of 19–21 percent of GDP through the projection horizon.
  - Medium-term risk assessment: moderate debt stress and liquidity risk mechanically, but mitigated by large government financial assets.
  - Projection realism: recent projection errors for real GDP growth, primary balance, and inflation were moderate and broadly in line with other economies; large forecast errors occurred for the primary balance in 2020 and inflation in 2021.

### External sector and balance of payments (selected)
- Current account balance (percent of GDP):
  - 2019: -2.0
  - 2020: -1.8
  - 2021: 0.0
  - 2022: 0.5
  - 2023: -0.2
  - 2024: -0.4
  - 2025: -1.0
  - 2026: -1.5
  - 2027: -1.9
- Merchandise trade balance (percent of GDP):
  - 2019: -0.8
  - 2020: -1.8
  - 2021: 0.2
  - 2022: 1.4
  - 2023: 0.5
  - 2024: 0.1
  - 2025: -0.5
  - 2026: -0.9
  - 2027: -1.3
- Exports, goods (percent of GDP):
  - 2019: 25.8; 2020: 23.7; 2021: 25.5; 2022: 28.3; 2023: 26.7; 2024: 25.8; 2025: 25.1; 2026: 24.4; 2027: 23.6
- Imports, goods (percent of GDP):
  - 2019: 26.6; 2020: 25.5; 2021: 25.3; 2022: 26.9; 2023: 26.2; 2024: 25.7; 2025: 25.5; 2026: 25.2; 2027: 24.9
- Net international investment position (percent of GDP):
  - 2019: 34.3; 2020: 53.3; 2021: 60.3; 2022: 54.2; 2023: 51.0; 2024: 48.9; 2025: 46.0; 2026: 42.9; 2027: 39.6
- Gross external debt (percent of GDP):
  - 2019: 125.3; 2020: 142.5; 2021: 135.9; 2022: 129.9; 2023: 129.3; 2024: 129.7; 2025: 130.6; 2026: 131.4; 2027: 132.7

### Financial sector soundness indicators (selected)
- Total assets (billions of Canadian dollars): 2013: 3,854; 2014: 4,179; 2015: 4,666; 2016: 5,014; 2017: 5,277; 2018: 5,675; 2019: 6,116; 2020: 6,116; 2021: 6,116
- Total assets (percent of GDP): 2013: 202.6; 2014: 209.5; 2015: 234.4; 2016: 247.5; 2017: 246.5; 2018: 253.8; 2019: 264.6; 2020: 277.1; 2021: 245.3
- Capital Adequacy:
  - Total capital ratio: 2013: 14.3; 2014: 14.2; 2015: 14.2; 2016: 14.8; 2017: 14.8; 2018: 15.2; 2019: 15.3; 2020: 16.1; 2021: 17.1
  - Tier 1 ratio: 2013: 11.7; 2014: 11.9; 2015: 12.1; 2016: 12.5; 2017: 12.9; 2018: 13.2; 2019: 13.2; 2020: 13.9; 2021: 15.1
- Credit risk:
  - NPLs to Gross Loans: 2013: 0.6; 2014: 0.5; 2015: 0.5; 2016: 0.6; 2017: 0.4; 2018: 0.5; 2019: 0.5; 2020: 0.5; 2021: 0.4
- Profitability:
  - Return on assets: 2013: 1.1; 2014: 1.1; 2015: 1.0; 2016: 1.0; 2017: 1.1; 2018: 1.2; 2019: 1.1; 2020: 0.8; 2021: 1.1
  - Return on equity: 2013: 18.1; 2014: 18.0; 2015: 16.7; 2016: 16.0; 2017: 17.1; 2018: 17.3; 2019: 16.2; 2020: 13.2; 2021: 17.3
- Liquidity:
  - Liquid assets to total assets: 2013: 11.3; 2014: 10.9; 2015: 11.4; 2016: 10.9; 2017: 10.7; 2018: 10.6; 2019: 9.8; 2020: 15.4; 2021: 15.1
  - Customer deposits to loans: 2013: 99.8; 2014: 102.1; 2015: 104.1; 2016: 104.3; 2017: 102.7; 2018: 101.4; 2019: 100.7; 2020: 109.5; 2021: 113.1

### Sovereign risk and stress assessment (Annex I summary)
- Overall staff assessment: overall risk of sovereign stress in Canada is low.
- Factors supporting low risk:
  - Government sizable financial assets (about 81 percent of GDP at end-2021).
  - Strength of institutions and high market confidence.
  - Benchmark 10-year bond yields around 3.6 percent in early November 2022, about 60 basis points below U.S. 10-year Treasury yields.
- Mechanical modules:
  - Debt fanchart module: indicates a moderate risk signal mechanically.
  - GFN Financeability Module: medium-term liquidity risks assessed as moderate.
  - Final staff judgment: low overall risk given mitigating large financial asset holdings.
- Accounting and comparability notes:
  - Canada’s consolidated gross debt includes accounts payable (about 18 percent of GDP at end-2021).
  - Canada reports net debt as total liabilities less total assets and equity, including equity assets; other advanced economies often remove accounts payable/receivable and equity holdings for comparability.
  - General government debt reported does not include unfunded pension liabilities.

*Source: IMF staff report content (tables and Annex I) contained in the provided PDF excerpt.*

### Annex I. Figure 3. Canada: Public Debt Structure Indicators

### Annex I. Figure 3. Canada: Public Debt Structure Indicators

### Baseline Scenario: Public Debt and Change in Public Debt (Percent of GDP unless indicated otherwise)
- Public debt:
  - Actual 2021: 112.9
  - 2022: 101.9
  - 2023: 99.0
  - 2024: 97.1
  - 2025: 94.9
  - 2026: 93.3
  - 2027: 91.9
  - 2028–2031: n.a.
- Change in public debt:
  - 2022: -4.9
  - 2023: -10.9
  - 2024: -2.9
  - 2025: -1.9
  - 2026: -2.3
  - 2027: -1.6
  - 2028: -1.4
  - 2029–2031: n.a.

### Contribution of Identified Flows to Change in Public Debt (Percent of GDP)
- Contribution of identified flows:
  - 2022: -5.9
  - 2023: -7.6
  - 2024: -0.5
  - 2025: 0.4
  - 2026: -0.2
  - 2027: 0.4
  - 2028: 0.5
  - 2029–2031: n.a.
- Primary deficit:
  - 2022: 5.5
  - 2023: 2.0
  - 2024: 1.2
  - 2025: 0.7
  - 2026: 0.6
  - 2027: 0.6
  - 2028: 0.5
  - 2029–2031: n.a.
- Noninterest revenues:
  - 2022: 37.9
  - 2023: 38.4
  - 2024: 38.3
  - 2025: 38.3
  - 2026: 38.3
  - 2027: 38.4
  - 2028: 38.5
  - 2029–2031: n.a.
- Noninterest expenditures:
  - 2022: 43.4
  - 2023: 40.4
  - 2024: 39.5
  - 2025: 39.0
  - 2026: 38.9
  - 2027: 39.0
  - 2028: 39.0
  - 2029–2031: n.a.
- Automatic debt dynamics:
  - 2022: -11.4
  - 2023: -9.6
  - 2024: -1.7
  - 2025: -0.3
  - 2026: -0.8
  - 2027: -0.2
  - 2028: 0.0
  - 2029–2031: n.a.

### Components of Automatic Debt Dynamics (Percent of GDP)
- Real interest rate and relative inflation (contribution):
  - 2022: -5.4
  - 2023: -6.0
  - 2024: -0.2
  - 2025: 1.2
  - 2026: 1.4
  - 2027: 1.5
  - 2028: 1.5
  - 2029–2031: n.a.
- Real interest rate:
  - 2022: -5.8
  - 2023: -6.6
  - 2024: -0.3
  - 2025: 1.3
  - 2026: 1.4
  - 2027: 1.6
  - 2028: 1.6
  - 2029–2031: n.a.
- Relative inflation:
  - 2022: 0.4
  - 2023: 0.5
  - 2024: 0.1
  - 2025: 0.0
  - 2026: 0.0
  - 2027: -0.1
  - 2028: -0.1
  - 2029–2031: n.a.
- Real growth rate:
  - 2022: -5.1
  - 2023: -3.6
  - 2024: -1.5
  - 2025: -1.6
  - 2026: -2.2
  - 2027: -1.8
  - 2028: -1.6
  - 2029–2031: n.a.
- Real exchange rate: -0.9 (further year-by-year details in source truncated)

### Other Identified Flows and Residual (Percent of GDP)
- Other identified flows:
  - 2022–2028: 0.0 (all listed years)
  - 2029–2031: n.a.
- Contingent liabilities:
  - 2022–2028: 0.0 (all listed years)
  - 2029–2031: n.a.
- Other transactions:
  - 2022–2028: 0.0 (all listed years)
  - 2029–2031: n.a.
- Contribution of residual:
  - 2022: 1.0
  - 2023: -3.3
  - 2024: -2.4
  - 2025: -2.3
  - 2026: -2.1
  - 2027: -1.9
  - 2028: -1.9
  - 2029–2031: n.a.

### Gross Financing Needs (GFN) and Debt Service (Percent of GDP)
- Gross financing needs:
  - 2022: 22.4
  - 2023: 20.1
  - 2024: 21.0
  - 2025: 20.5
  - 2026: 20.6
  - 2027: 20.5
  - 2028: 19.7
  - 2029–2031: n.a.
- Of which: debt service:
  - 2022: 20.0
  - 2023: 21.2
  - 2024: 22.8
  - 2025: 22.8
  - 2026: 22.8
  - 2027: 22.8
  - 2028: 22.0
  - 2029–2031: n.a.
- Local currency debt service (selected years shown as n.a./values):
  - 2023: 19.9
  - 2024: 21.6
  - 2025: 21.8
  - 2026: 22.0
  - 2027: 22.0
  - 2028: 21.4
  - 2022 and 2029–2031: n.a.
- Foreign currency debt service:
  - 2023: 1.3
  - 2024: 1.2
  - 2025: 0.9
  - 2026: 0.9
  - 2027: 0.8
  - 2028: 0.6
  - 2022 and 2029–2031: n.a.

### Memo: Macroeconomic and Interest Rate Assumptions (Percent unless indicated)
- Real GDP growth (percent):
  - 2021: 4.5
  - 2022: 3.3
  - 2023: 1.5
  - 2024: 1.6
  - 2025: 2.3
  - 2026: 1.9
  - 2027: 1.7
  - 2028–2031: n.a.
- Inflation (GDP deflator; percent):
  - 2021: 8.1
  - 2022: 9.2
  - 2023: 3.2
  - 2024: 1.8
  - 2025: 1.5
  - 2026: 1.3
  - 2027: 1.3
  - 2028–2031: n.a.
- Nominal GDP growth (percent):
  - 2021: 13.0
  - 2022: 12.8
  - 2023: 4.7
  - 2024: 3.4
  - 2025: 3.9
  - 2026: 3.2
  - 2027: 3.0
  - 2028–2031: n.a.
- Effective interest rate (percent):
  - 2021: 2.5
  - 2022: 2.6
  - 2023: 2.9
  - 2024: 3.1
  - 2025: 3.1
  - 2026: 3.1
  - 2027: 3.0
  - 2028–2031: n.a.

### Staff Commentary on Baseline and Net Debt
- Interest revenue:
  - Staff note: Canada has sizable interest revenue (around 2-3 percent of GDP per year), which is counted as a residual in contributions to debt dynamics.
- Net debt-to-GDP:
  - Net debt-to-GDP ratio stood at 31½ percent of GDP at end-2021.
  - Projected to fall to 28¼ percent of GDP by the end of the projection horizon.
- Residual dynamics:
  - The large contribution of the residual to debt accumulation in the past five years was driven mostly by unprecedented liquidity support measures implemented in 2020 (funding for emergency loans, tax deferral, and purchase of assets, notably mortgages).
  - These loans and deferrals are expected to be paid off in the next five years, resulting in large negative contribution of the residual to debt accumulation.

### Realism of Baseline Assumptions (Key Findings from Forecast Track Record and Realism Analysis)
- Forecast track record and realism diagnostics:
  - Past forecast errors do not reveal any systematic biases.
  - Realism analysis does not point to major concerns.
- Fiscal adjustment and debt reduction:
  - Projected fiscal adjustment and debt reduction reflect largely the withdrawal of sizable fiscal support implemented during the COVID-19 pandemic.

### Medium-Term Risk Analysis: Debt Fanchart and GFN Financeability Indexes (Percent of GDP unless otherwise indicated)
- Indicator values:
  - Fanchart width: 41.9 0.6
  - Probability of debt not stabilizing (pct): 68.3 0.6
  - Terminal debt level x institutions index: 15.3 0.3
  - Debt fanchart index: ...1.5
  - Average GFN in baseline: 20.4 7.0
  - Bank claims on government (pct bank assets): 6.1 2.0
  - Chg. in claims on govt. in stress (pct bank asset): 0.3 0.1
  - GFN financeability index: ...9.1
- Risk probabilities (2022–2027):
  - Prob. of missed crisis, 2022-2027 (if stress not predicted): 9.1 pct.
  - Prob. of false alarm, 2022-2027 (if stress predicted): 42.0 pct.
- Staff commentary:
  - Both the debt fanchart and the GFN Modules point to moderate level of risk.
  - The overall risk is mitigated by the government's large financial asset holdings.

*Source: IMF Staff.*

### Annex III. State of Progress in the Implementation of 2019 FSAP

### Annex III. State of Progress in the Implementation of 2019 FSAP

### Capital requirements for mortgage exposures
- 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 October 2022:
  - OSFI:
    - CAR Guideline updated to include a more risk sensitive approach for risk weighting mortgages under the Standardized Approach (SA) with more granularity with respect to LTV ratios.
    - Higher risk mortgages (e.g. those that rely on rental income) will be subject to higher capital requirements.
    - Updated CAR Guideline (effective Q2/2023) includes a new requirement that all IRB bank PD models be based on data samples that include a minimum of 10% of data from stress periods.
    - Project underway to review capital requirements for multi-unit properties within the Mortgage Insurer Capital Adequacy Test (MICAT).
  - AMF:
    - Revised the Standard Approach (SA) and Internal Ratings Based (IRB) Approach used to determine risk-weighted assets for mortgage exposures in its Capital Adequacy Requirements Guideline.
    - For the SA approach, a new loan-to -value (LTV) bucket has been introduced for uninsured mortgage loans and more conservative risk-weights must be applied.
    - On the IRB approach, a new “Loss Given Default (LGD) downturn” has been introduced to account for through-the-cycle risks, to account for possible real estate bubbles in determination of risk weighted assets on mortgage exposures.
    - Changes in process of being published and will be effective in January 2023.

### Policy framework for managing a housing market downturn
- Recommendation: Develop the policy framework for managing a housing market downturn (BOC, AMF, BCSC, OSC).
- Timeframe: NT
- Progress by October 2022:
  - OSFI:
    - Introduced a crisis preparedness framework to improve internal preparedness of idiosyncratic events at a DTI.
    - Training provided in spring 2022; work continues to incorporate systemic concerns and overall governance.
  - AMF:
    - Updated Residential Hypothecary Lending Guideline twice in the last two years.
    - June 2021 change: rate used in calculation of debt service for uninsured mortgages changed to the greater of the contractual mortgage rate plus 2 % and a fixed floor rate initially established at 5.25 %. Introduced annual review of proposed rates, or as needed.
    - June 2022 change: removed reference to fixed rates in formula for qualifying rate for uninsured mortgages to allow quick adaptation to market volatility; reserve and the floor rate will now be determined by the AMF in the guideline.
    - Added expectation to require updates to residential property value used for calculating LTV and determining lending thresholds within LTV limits.

### Systemic risk oversight and federal-provincial coordination
- 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 by October 2022:
  - BOC:
    - Systemic Risk Surveillance Committee (SRSC) continues to meet regularly to facilitate information sharing and assessment of vulnerabilities.
    - SRSC formed subgroups on liquidity mismatch in open-ended investment funds and on investor demand for housing.
    - Bank of Canada continues to include a box in its FSR on the activities of the HoA during the prior year.

### Systemic risk surveillance, data collection, and data gaps
- 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 by October 2022:
  - BOC:
    - SRSC discussions focused on vulnerabilities that can be informed by members’ data; cooperative SRSC approach delivers value but faces limitations.
    - Identified issues:
      - In some instances, no SRSC member has access to required data (e.g. high frequency holdings data for some NBFI).
      - Distributed data across agencies limits cross-market analysis and forming a complete view of vulnerabilities (e.g. risk taking may cross cash and derivatives markets).
      - Not all agencies have the same expertise to analyze data to identify vulnerabilities.
  - OSFI:
    - Worked with industry to develop and expand data sets for key portfolios (including granular reporting on RESL exposures and leveraged lending exposures).
    - Discussions and information sharing between agencies where other FISC agencies have expanded or acquired data sets.

### Enhanced risk monitoring and Canada-wide surveillance
- 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 by October 2022:
  - AMF:
    - Ensures D-SIFI cooperative participants regularly participate in the BOC’s macro stress-test (MST) exercises; BOC feedback is valuable to AMF supervision.
    - Actively participates at semi-annual SRSC meetings.
    - Active member of CUPSA (Credit Union Prudential Supervisory Association), working on an effective risk data sharing mechanism with its members.
  - CSA:
    - Actively participates in semi-annual SRSC meetings.

### Oversight and transparency of large public pension funds
- Recommendation: Strengthen oversight of large public pension funds, and increase transparency of their financial disclosures (DOF, provincial governments).
- Timeframe: NT
- Progress by October 2022:
  - Plans continue to consider whether enhanced oversight and increased transparency are necessary; no timeline to date.

### Autonomy and governance of financial sector authorities; oversight of FMIs
- Recommendation: Strengthen autonomy and governance of financial sector authorities, including BOC and OSFI (powers), and FICOM (overall); clarify roles and responsibilities of authorities overseeing systemically important FMIs (DOF, provincial governments; BOC; AMF, BCSC, OSC).
- Timeframe: MT
- Progress by October 2022:
  - DOF / OSFI:
    - OSFI has required autonomy and governance to carry out its mandate; OSFI’s guidelines are enforceable in practice.
  - BoC and provincial authorities:
    - Continue to cooperate effectively in oversight of systemically important FMIs; current arrangements with overlapping responsibilities reflect federal-provincial division of powers; no changes made in response to FSAP recommendation.
  - AMF:
    - MoUs with BoC and CDIC signed in 2018 are fully operational and effective; holds technical and quarterly meetings.
    - In discussions with Québec Minister of Finance to formalize the Resolution Board; drafting internal regulations, a governance charter, and a coordination framework for resolution planning and managing.
  - CSA:
    - Coordinates and cooperates with BoC; existing MOU “Respecting the Oversight of Certain Clearing and Settlement Systems” established in 2014 among AMF, BCSC & OSC and the BoC.
    - New MoU “Respecting the Resolution of Certain Clearing and Settlement Systems” among the BOC, OSC, AMF, BCSC effective January 13, 2022.
    - CSA and BOC met frequently (at least bi-weekly) during onset of covid-19 pandemic and continue to meet frequently.

### Cooperative Capital Markets Regulatory System
- Recommendation: Complete the Cooperative Capital Markets Regulatory System initiative (DOF, provincial governments).
- Timeframe: MT
- Progress by October 2022:
  - CSA:
    - Work has ceased on the Capital Markets Regulatory Authority and no future progress is expected.
    - CSA continues harmonizing regulation of Canadian financial markets.
    - In its 2022-2025 Business Plan, CSA undertook to continue enhancing collaboration with federal and provincial agencies on monitoring systemic risks and on enforcement matters.

### Inter-agency cooperation and MoUs
- Recommendation: Enhance inter-agency cooperation, particularly between federal and provincial authorities, with additional MoUs (OSFI, AMF, other relevant provincial authorities).
- Timeframe: NT
- Progress by October 2022:
  - OSFI:
    - Heads of Agencies Committee (HoA) meets regularly to share information; Terms of Reference available at Bank of Canada website.
    - Committee supported by sub HoA and SRSC.
  - AMF:
    - Participates in HoA quarterly meetings; meets regularly with provincial authorities via CUPSA and Canadian Consumer Protection for Financial Institution Failures.
    - MoUs signed in 2018: AMF holds technical and quarterly meetings with BoC and CDIC.
    - Discussions on a potential MoU with OSFI ongoing; pandemic put work on hold for two years; informal mutual sharing of information has increased; legal departments reviewing Québec legislation on protection of information that could be shared by OSFI to the AMF.
  - CSA:
    - In spring 2022, HoA members signed an MoU for protection of confidential information shared among the HoA.

### Credit risk of mortgage exposures and loan forbearance framework
- 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 by October 2022:
  - OSFI:
    - On June 28, 2022, issued a supplementary Advisory to Guideline B-20 clarifying treatment of certain innovative real estate secured lending products, reinforcing LTV limits for combined mortgage-HELOC loan plans (CLPs) and reverse mortgages.
  - AMF:
    - Working on a Non-Performing Loans and Forbearance Guideline expected to come into effect in April 2023.

### Insurance group-wide supervision and group-side powers
- 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 by October 2022:
  - AMF:
    - Legislative amendments required; discussions with Québec Ministry of Finance ongoing about possible amendments to address AMF’s lack of legal powers over unregulated holding companies and to enhance group-wide supervision capability.

### OTC derivatives, duties towards clients, and market-wide stress capacity
- 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 by October 2022:
  - Derivatives:
    - CSA developed a Business Conduct Rule and published it for a third comment period in January 2022.
    - In April 2018 published for consultation a Registration Rule to help protect participants in the OTC derivatives markets.
    - CSA is focusing on completing the Business Conduct rule, which is scheduled for the first half of

*As reported by the Canadian authorities, progress status as of October 2022.*

### 2023. The Registration rule will be the next priority.

### 1canea2022002 - 2023. The Registration rule will be the next priority.

### Trade Reporting and Registration Rule
- Amendments to the Trade Reporting Rules are proposed to:
  - update trade repository governance, risk and operational requirements;
  - better align with Principles for Financial Market Infrastructures.
- The CSA will work to finalize the rule in the first half of 2024.

### Mandatory Clearing
- Mandatory Clearing Rules have been in effect since September 1, 2022.

### Client Focused Reform (CFR)
- CFRs require registrants to promote the best interests of clients and put clients’ interests first.
- Applicability:
  - relevant to all categories of registered dealers and registered advisers;
  - some application to investment fund managers.
- Key requirements:
  - establish a process for identifying material conflicts of interest;
  - implement the KYC, KYP, suitability, and relationship disclosure reforms.
- Implementation dates:
  - CFR conflicts of interest requirements came into force on June 30, 2021;
  - remaining requirements came into force on December 31, 2021.

### Oversight of High-Impact Firms
- CSA view: oversight of impact firms is sufficient, with continued consideration of process improvements.
- Jurisdictional approaches:
  - Ontario has a formal process for determining high-impact firms;
  - other jurisdictions have informal processes that the Committee is finalizing.

### Market Disruption Coordination and Testing
- CSA Market Disruption Plan tests:
  - first tested on September 18, 2019 (focused on dissemination of information and responses among CSA staff);
  - tested again on October 26, 2021 (included communication and coordination with other regulators and FMIs).
- Outcomes: Both tests were successful; CSA participants executed the Plan as expected and coordination and communication were efficient and effective.
- Cybersecurity exercise participation:
  - A number of CSA jurisdictions and the Bank of Canada participated in the Quantum Dawn V cybersecurity exercise (SIFMA’s biennial drill);
  - SIFMA’s 2019 test invited Canadian capital market stakeholders to participate;
  - CSA staff participated as observers in SIFMA’s November 2021 exercise.

### Crisis Preparedness, Recovery, Resolution, and ELA (Recommendations and Progress)
- Recommendation: Task the SAC with responsibility for overseeing Canada-wide crisis preparedness and perform federal coordination roles; strengthen CDIC’s operational independence (MoF; SAC; DOF). Timeframe: NT.
  - 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.
- 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.
  - OSFI: All D-SIBs must have recovery plans; OSFI uses a range of criteria to determine which other banks must prepare recovery plans.
  - AMF:
    - Recovery and resolution plans for Desjardins Group are continually updated by Desjardins Group and the AMF.
    - For the valuation framework: assisted by an external firm; one of the five deliverables planned over a two-year period (summer 2021/23) has been completed (a technical report on approaches and methods); work on the second deliverable has begun.
    - Introduction of depositor preference is under federal purview; AMF intends to suggest discussing this topic with the federal government as part of the MoU with CDIC.
    - Strengthening resolution powers: a legislative inventory was shared with the Québec Ministry of Finance in summer 2022; request includes formal power to require changes to improve a financial institution’s resolvability.
    - Because the AMF no longer has the power to write down shares and liabilities (legislative amendment passed in December 2021), the Resolution Board still has to be formalized; operating rules, governance charter, and a coordination framework between the AMF and the Board during resolution planning and management are being developed.
    - Discussions with the Québec Ministry of Finance to formalize backstop funding arrangements are ongoing.
- 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.
  - Bank of Canada (BOC): completed its first ELA test draw with a provincially regulated financial institution; test focused on legal and operational preparedness to provide collateral and receive/repay funds.
  - Information-sharing MoUs: QC: 2018; BC and ON: 2020; ongoing engagement with provincial regulators to inform ELA preparedness.
  - The Bank is engaged with ON and BC to negotiate indemnity agreements, a condition for PRFIs to be eligible for ELA.
  - AMF: third iteration of the Resolution plan for Desjardins Group and the 2022/26 work plan were submitted to the BOC in June 2022; work plan calls for meetings between the AMF and the BOC to operationalize ELA (processes, legal and financial documentation); a simulation exercise of ELA payment to Desjardins Group was planned in October 2022 by the BOC.
  - Engagement also continues with other provinces with MoUs (AB, SK, MB, NS, NB).

- 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.
  - BOC:
    - routinely involved in testing Swapline facilities for foreign vs domestic currency liquidity with several major central banks; tests include trade confirmation, settlement, and reversal of foreign vs domestic currency flows at small nominal amounts;
    - drafted program terms and conditions for a US dollar repo facility should such a facility need to be implemented.

- Note on annotations:
  - Institutions in parentheses denote agencies with leading responsibilities.
  - The * denotes macro-critical.
  - Timeframe codes: NT stands for near-term (within one year) and MT stands for medium-term (within 2–3 years).

### Fund Relations (As of November 7, 2022)
- 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   7,867.19   71.36
  - Reserve Tranche Position   3,167.32   28.73
  - Lending to the Fund
  - New Arrangements to Borrow   51.70
- SDR Department (SDR Million; Percent of Allocation):
  - Net cumulative allocation   16,553.99   100.00
  - Holdings   17,376.78   104.97
- 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 2022 2023 2024 2025 2026
  - Principal
  - Charges/Interest   0.21   0.21   0.21   0.21
  - Total   0.21   0.21   0.21   0.21
- Implementation of HIPC Initiative: Not Applicable.
- Implementation of MDRI: Not Applicable.
- Implementation of PCDR: Not Applicable.
- Exchange Rate Arrangements:
  - Authorities maintain a “free floating” exchange rate regime.
  - Canadian authorities do not maintain margins with respect to exchange transactions, but may intervene to maintain orderly conditions in the exchange market.
  - No taxes or subsidies on purchases or sales of foreign exchange.
  - Canada has accepted the obligations of Article VIII, Sections 2, 3, and 4 (a), and maintains an exchange system free of restrictions on payments and transfers for current international transactions and multiple currency practices.
  - Canada maintains exchange restrictions for security reasons, based on UN Security Council Resolutions, notified to the Fund (most recently in June 10, 2014).

### 2022 Article IV Consultation (timing and participants)
- Last Article IV Consultation: Staff Report for the 2021 consultation considered by the Executive Board on March 12, 2021 (IMF Country Report No. 19/175). Canada is on a 12-month consultation cycle.
- FSAP: took place in 2000, updated in 2008, 2014, and 2019.
- 2022 Article IV Consultation discussions took place in Ottawa and by video conference during September 20-27 and October 3-7.
- Mission team composition and supervision: listed personnel from WHD, MCM, LEG, OED; supervised by N. Chalk and L. Cubeddu (both WHD).
- Authorities and stakeholders met: Deputy Prime Minister and Minister of Finance Freeland; Governor Macklem; Deputy Minister Sabia; Senior Deputy Governor Rogers; Deputy Governors Beaudry, Gravelle, and Kozicki; Superintendent Routledge; senior officials from federal and provincial governments, the Bank of Canada, and regulatory bodies; representatives from financial and business sectors, academics, and think-tank experts.
- Concluding statement issued on October 12, 2022.

### Statistical Issues (Summary)
- General: Data provision is adequate for surveillance.
- Real Sector:
  - Statistics Canada provides timely monthly, quarterly, and annual data.
  - CPI disseminated monthly; weights based on 2020 HFCE expenditure data; Statistics Canada is working toward updating CPI weights on an annual basis.
  - Producer price indices disseminated monthly and quarterly for raw materials, industrial products, and services.
  - Residential property: monthly price index for new houses; quarterly price index for new condominium apartments.
  - CSNA uses a Residential Property Price Index (RPPI) compiled by a commercial data source covering new and second-hand dwellings.
- Fiscal Sector:
  - Statistics Canada provides timely quarterly and annual data (Statement of Government Operations and Balance Sheet) on general government and subsectors, following GFSM 2014.
  - Compiles functional classification of expenditure.
  - Department of Finance Canada provides monthly and annual federal budget data (national presentation) and tax policies.
- Financial Sector:
  - Bank of Canada disseminates balance sheet data for the central bank (weekly) and chartered banks (monthly).
  - Reports some Financial Access Survey (FAS) key series, including commercial bank branches per 100,000 adults and ATMs per 100,000 adults.
- Financial Soundness Indicators:
  - Canada reports all core FSIs and some additional FSIs for all sectors.
- External Sector:
  - Statistics Canada provides timely quarterly balance of payments, external debt, and international investment position.
  - Canada provides data for CPIS, CDIS, Data Template on International Reserves and Foreign Currency Liquidity, and Currency Composition of Official Foreign Exchange Reserves.
- Data Standards and Quality:
  - Canada adherent to SDDS Plus since April 11, 2017; publishes data on its National Summary Data Page.
  - Latest SDDS Plus Annual Observance Report available on Dissemination Standards Bulletin Board.
  - Completed transition plan under SDDS Plus for residential real estate price index and debt securities data categories in 2022.
  - Uses timeliness flexibility options for central government operations and debt.
  - A data module ROSC for Canada was published in May 2002.

### Table of Common Indicators Required for Surveillance (as of November 10, 2022) — selected timestamps and frequencies
- 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: October 23, 2022; Date received: November 7, 2022; Frequency: W (Data/Reporting/Publication).
- Reserve/Base Money: Date of latest observation: September, 2022; Date received: November 7, 2022; Frequency: M (Data/Reporting/Publication).
- Broad Money: Date of latest observation: September, 2022; Date received: November 7, 2022; Frequency: M (Data/Reporting/Publication).
- Central Bank Balance Sheet: Date of latest observation: November 2, 2022; Date received: November 7, 2022; Frequency: W (Data/Reporting/Publication).
- Consolidated Balance Sheet of the Banking System: Date of latest observation: August 31, 2022; Date received: October 21, 2022; Frequency: M (Data/Reporting/Publication).
- Consumer Price Index: Date of latest observation: October 2022; Date received: November 7, 2022; Frequency: M (Data/Reporting/Publication).
- Revenue, Expenditure, Balance and Composition of Financing – General Government: Date of latest observation: 2022 Q2; Date received: November 7, 2022; Frequency: Q (Data/Reporting/Publication).
- Revenue, Expenditure, Balance and Composition of Financing – Central Government: Date of latest observation: August 2022; Date received: October 27, 2022; Frequency: M (Data/Reporting/Publication).
- Stock of Central Government and Central Government-Guaranteed Debt: Date of latest observation: 2022 Q2; Date received: November 7, 2022; Frequency: Q (Data/Reporting/Publication).
- External Current Account Balance: Date of latest observation: 2022 Q2; Date received: November 7, 2022; Frequency: Q (Data/Reporting/Publication).
- Exports and Imports of Goods and Services: Date of latest observation: 2022 Q2; Date received: November 7, 2022; Frequency: Q (Data/Reporting/Publication).
- GDP/GNP: Date of latest observation: 2022 Q2; Date received: November 7, 2022; Frequency: Q (Data/Reporting/Publication).
- Gross External Debt: Date of latest observation: 2022 Q2; Date received: November 7, 2022; Frequency: Q (Data/Reporting/Publication).
- International Investment Position: Date of latest observation: 2022 Q2; Date received: November 7, 2022; Frequency: Q (Data/Reporting/Publication).

*Source: Staff Report for the 2022 Article IV Consultation — Informational Annex (Prepared by the Western Hemisphere Department), November 17, 2022.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2022/english/1canea2022002.pdf_