## 1. Canadian Bank Regulatory Capital Requirements: Are they Tougher?

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### I. Macroeconomic and financial prospects and risks — summary findings
- Canada entered the global financial turmoil "on a strong footing" with sound financial regulation, conservative banking practices, fiscal prudence, and a credible monetary policy framework including a freely-floating currency.
- Through 2007: strong growth, price stability, fiscal and current account surpluses, historically low unemployment, and financial stability were recorded.
- Vulnerabilities identified: high household debt and regional real-estate bubbles.

### A. Entering the global crisis from a position of strength — key impacts and policy actions
- Economic impacts:
  - Real GDP contracted by 3.4 percent (saar) in the fourth quarter of 2008.
  - Headline inflation has fallen sharply, in part due to collapsing oil prices.
- Financial market impacts:
  - Credit and money-market spreads pushed to unprecedented highs; spreads remain below foreign levels.
  - Bank risk indicators have risen but remain below comparable levels abroad.
  - Pensions and insurers impacted by U.S. mortgage-related writedowns and the equity crash.
- Commodity and exchange-rate impacts:
  - Commodity prices retreated steeply, producing the first current account deficit in a decade.
  - The Canadian dollar fell from above parity in early 2008 to around 0.82 by end-2008.
- Policy responses:
  - Bank of Canada policy rate cut by 400 basis points to ½ percent since December 2007.
  - Expanded liquidity through enhanced facilities and unconventional measures; Bank officials refining framework to use quantitative easing if needed.
  - 2009 federal budget included a fiscal stimulus of 2.8 percent of GDP.
  - Authorities launched guarantees on wholesale borrowing, purchased mortgage-backed securities, and introduced additional financial-stability tools.

### B. Financial stability amid the turbulence — banking sector strengths and stresses
- Banking sector resilience factors:
  - Supervision meets best practice including revised Basel Core Principles.
  - Stringent capital requirements: Tier 1 capital generally significantly exceeds the required 7 percent target (Basel minimum is 4 percent).
  - Leverage ratio limited to 5 percent of total capital.
  - Low risk tolerance; smaller exposures to structured toxic assets and less reliance on volatile wholesale funding.
  - Conservative mortgage market: 5 percent of mortgages are non-prime; 25 percent are securitized; almost half of residential loans are guaranteed; remaining mortgages have LTV below 80 percent; mortgages with LTV above 80 percent must be insured for the full loan amount.
  - Regular federal reviews of financial sector legislation every five years; effective coordination via FISC.
  - Proactive measures: expanded liquidity facilities, liability guarantees, mortgage-backed securities purchases; several provinces provide unlimited deposit insurance for provincially-regulated credit unions.
- Notable strains:
  - Mid-2007 non-bank ABCP market froze; restructuring agreement brokered in January 2009.
  - In 2008, nonperforming assets of the "big six" banks doubled to C$10.2 billion and charge-offs increased by a third to C$5 billion (representing 0.3 and 0.2 percent of total assets, respectively).
  - Bank profits remained positive (C$3 billion total for the “big six” in the first quarter of 2009), down 20 percent from a year earlier.
  - Strains most evident among non-banks, including life insurers, pension funds, and mutual funds.
  - Major financial institutions maintain fairly strong ratings, some with negative outlooks.

### C. Macrofinancial linkages and credit conditions
- Credit and lending:
  - Credit flows held up through the turn of the year but have ebbed more recently.
  - Lending standards tightened to a record high in the fourth quarter of 2008 (data collection began in 1999); new credit growth has slowed.
  - Banks requested that new financial instruments be counted as regulatory capital, indicating potential capital constraints on lending.
- Household and corporate pressures:
  - Household debt—mostly mortgages—is at record highs; consumer bankruptcies have swelled and are expected to rise further as housing prices fall.
  - Corporate balance sheets stronger than households’ but debt and commercial paper issuance have fallen.
  - Continued house-price declines, particularly in the West, will constrain residential investment and demand for business credit.

### D. Outlook and risks — projections and scenarios
- Baseline forecast:
  - Staff’s baseline calls for a sharp contraction in real GDP in 2009—the worst since 1981 when GDP plunged by 2.9 percent—followed by a return to positive growth in 2010.
  - Output expected to shrink through the first half of 2009, rebounding with fiscal stimulus.
- Inflation outlook:
  - Headline inflation about zero on average in 2009, remaining well below the Bank of Canada’s inflation target range of 1–3 percent before rising gradually to 2 percent by early 2012.
  - Medium-term inflation expectations remain anchored at around 2 percent.
- Risks:
  - Downside: worse-than-expected U.S. real and financial conditions, prolonged low inflation or deflation, financial instability in Canada, larger-than-expected house-price declines.
  - Upside: larger-than-expected recovery in commodity prices improving domestic demand, growth, and inflation.

### II. Policy responses — priorities and recommendations
- General guidance:
  - Maintain accommodative monetary stance until recovery is firmly underway to dampen the downturn and hedge deflation risks.
  - Fiscal room exists for further stimulus if downside risks materialize; contingency policies for worsened financial stress are appropriate.
  - Heightened vigilance and readiness to deploy newly-formulated tools to support financial stability are warranted.
- Monetary policy recommendations:
  - Keep an accommodative stance; continue communication on price-stability outlook and downside inflation risks.
  - Consider unconventional measures (quantitative easing) if downside risks materialize, with attention to exit strategy and balance-sheet risks.
  - Bank officials view monetary policy as highly effective in Canada given anchored expectations and functioning transmission.
- Fiscal policy recommendations:
  - Focus on implementing the stimulus; automatic stabilizers should be allowed to operate.
  - Further fiscal expansion feasible given Canada's fiscal position, but implementation constraints (e.g., infrastructure) and the risk to underlying fiscal position from permanent tax cuts noted.
  - Stimulus should be quickly applicable and self-reversing where possible.
- Financial stability recommendations:
  - Consolidate and enhance securities regulation; move toward a national regulator as indicated in Budget 2009.
  - Maintain vigilance on non-banks, household leverage, and cross-institution spillovers; close federal-provincial supervisory cooperation.

### Exchange rate policy
- Staff supported the Bank’s floating exchange rate policy; the currency has served as an effective "shock absorber."
- Authorities: markets determine the exchange rate; interventions reserved for countering disorderly market conditions.
- Around two-thirds of the recent depreciation was explained by the plunge in commodity prices.
- Staff’s CGER exercise puts the Canadian dollar at near equilibrium.

### Safeguarding financial stability — measures introduced
- Liquidity and guarantee facilities:
  - Enhanced Term Purchase-and-Resale Agreements by the Bank of Canada, longer terms, wider counterparties, broader collateral.
  - Canadian Lenders Assurance Facility (CLAF) and Canadian Life Insurance Assurance Facility (CLIAF) (none yet drawn).
  - Purchases of insured mortgages to boost bank liquidity.
  - Canadian Secured Credit Facility to purchase securities backed by automobile loans and equipment leases (to become operational shortly).
  - Greater resources for Export Development Canada and Business Development Bank of Canada.
  - Business Credit Availability Program to ease credit constraints for creditworthy businesses.
  - CDIC additional tools: ability to establish a bridge bank and own shares in member financial institutions; borrowing limit raised from C$6 billion to C$15 billion.
  - Broader authority for the Minister of Finance for financial operations including capital injections.
- Mission advice and supervisory focus:
  - Close supervisory attention to bank exposures to U.S. assets, commodity-affected sectors, non-banks (insurers and pension plans), and households.
  - Cooperation among supervisors and between federal and provincial supervisors emphasized.
- Officials’ assessment:
  - Cautious confidence in financial stability given conservative structure and strong supervision; stress tests useful.
  - Banks maintain capital ratios well above Basel standards.

### Fiscal actions within a strong framework
- Context and targets:
  - Downturn plus fiscal stimulus break an 11-year string of federal surpluses.
  - Authorities targeted an annual reduction of C$3 billion in federal government debt (0.2 percent of GDP) since 2006, aiming to bring federal debt (around 29 percent of GDP) to 25 percent by 2011−12; stimulus and recession will delay target.
- Assessment of stimulus:
  - Mission supported authorities’ proactive fiscal response; January 2009 package described as appropriately large, timely, well diversified and structured.
  - Total measures (including supplementary provincial actions) amount to around 2 percent of GDP per year in 2009 and in 2010.
  - January stimulus relies mainly on infrastructure spending, support to vulnerable sectors (including housing) and provinces, boosts safety nets, provides training, and provides permanent tax relief, particularly to low- and middle-income households.
- Implementation and monitoring:
  - Quarterly monitoring framework; authorities aim to have the bulk of the 2009 stimulus available for implementation as early as April; "use it or lose it" clause to ensure spending completed by end-FY2010.
- Fiscal space and limits:
  - Fiscal room exists for further action if downside risks materialize; limits include implementation constraints and risks from larger permanent tax cuts.
  - Agreement that automatic stabilizers should be given full play and Canada could join further internationally coordinated stimulus to reduce leakages.
- Commitment to medium-term prudence:
  - Authorities committed to spending discipline and limiting program spending once recovery is underway; targets could be recalibrated when outlook clarifies.
- Specific fiscal figures (percent of GDP):
  - Fiscal Stimulus in 2007 Economic Statement: 0.7 (2008), 0.5 (2009), 0.5 (2010)
  - Budget 2009 Fiscal Stimulus: 1.5 (2008), 1.3 (2009), FEDERAL 1.2 (2009) / 1.0 (2010)
    - Expenditure 0.9 (2009) / 0.8 (2010)
      - Infrastructure Temporary 0.4 (2009) / 0.3 (2010)
      - Safety nets Temporary 0.2 (2009) / 0.2 (2010)
      - Housing/construction support Temporary 0.3 (2009) / 0.1 (2010)
      - Other Temporary 0.1 (2009) / 0.1 (2010)
    - Revenue 0.3 (2009) / 0.3 (2010)
      - PIT/exemptions/deductions Permanent 0.3 (2009) / 0.3 (2010)
    - PROVINCIAL (Leveraging) 0.3 (2009) / 0.3 (2010)
      - Infrastructure Temporary 0.3 (2009) / 0.3 (2010)
    - Supplementary provincial budgets 0.3 (2009) / 0.3 (2010)
      - Infrastructure Temporary 0.2 (2009) / 0.1 (2010)
    - TOTAL STIMULUS 0.7 (2008) / 2.3 (2009) / 2.1 (2010)
  - Note: Figures are in percent of GDP.

### Staff appraisal: outlook and policy priorities
- Overall assessment:
  - Canada better positioned than many countries to weather the crisis due to strong policy management supporting macroeconomic and financial stability.
  - Proactive steps to stimulate demand, ward off deflation, and enhance financial-stability toolkit.
- Key priorities:
  - Continued vigilance and readiness to respond if tail risks materialize.
  - Monetary policy: remain accommodative until disinflationary pressures abate; aggressive easing and expanded BoC facilities justified.
  - Fiscal policy: focus on stimulus implementation; further expansion feasible given credible medium-term structural-surplus commitment.
  - Financial stability: consolidate securities regulation; move toward a national regulator; vigilance to prevent adverse macro-financial feedback loops.

### Box 1 — Regulatory leverage and capital requirements (comparative facts)
- Among the G7, only Canadian and U.S. bank regulators impose leverage caps. Two large Swiss banks, UBS and Credit Suisse, will be subject to leverage caps in 2013.
- The Canadian leverage cap is calculated on total (Tier 1 and 2) capital, and the U.S. cap on Tier 1 capital.
- OSFI includes some off-balance sheet exposures in its definition of assets; U.S. leverage calculation does not. Canadian specified off-balance sheet exposures include direct credit substitutes, trade- and transaction-related contingencies, and repurchase agreements.

Regulatory Leverage Ratio Limits (maximums reported as given)
- Canada: Numerator = On-balance sheet assets plus specified off-balance sheet exposures; Denominator = Tier 1 & 2 Capital; Maximum = 20
- Switzerland: Numerator = On-balance sheet assets, but excluding domestic lending; Denominator = Tier 1 Capital; Maximum = 33⅓/25 (footnote explains Swiss minimums of 3 percent group-level and 4 percent individual institutions; cyclical tightening likely 4-5 percent)
- United States: Numerator = Only on-balance-sheet assets; Denominator = Tier 1 Capital; Maximum = 33⅓/25 (footnote: U.S. banks meeting certain criteria subject to 33 1/3 percent; others limited to 25 percent)

Tier 1 and Total Capital Requirements as Percent of Risk-Weighted Assets (as reported)
- Basel II: Tier 1 Capital: 4; Total Capital: 8
- Canada: Tier 1 Capital: 7; Total Capital: 10
- U.S.A.: Tier 1 Capital: 6; Total Capital: 10
- France: Tier 1 Capital: 4; Total Capital: 8
- Germany: Tier 1 Capital: 4; Total Capital: 8
- Italy: Tier 1 Capital: 4; Total Capital: 8
- Japan: Tier 1 Capital: 4/2 a; Total Capital: 8/4 (a: higher requirements apply to internationally active banks)
- U.K.: Tier 1 Capital: 4; Total Capital: 8

- Conclusion: Canada’s minimum capital requirements are tougher than called for by Basel II and tougher than those in other G7 countries listed.

### Box 4 — FSSA stress-test implications (selected figures and outcomes)
- Staff estimates possible bank capital losses of 1 to 2 percentage points in the next two years under the current outlook.
- Original FSSA stress test anticipated bank losses of 2.5−3.5 percentage points of capital under a more severe contraction.
- Housing corrections could cut bank capital by ½ to 1 percentage point in two years (staff estimates Western Canada overvalued by about 7 percent; FSSA separate test assumed 30 percent decline in Western Canada and 15 percent in Eastern Canada projecting about 4 percentage points of capital losses).
- Capital ratios (as of February 2009 for the six largest Canadian banks): tier 1 capital ratios above 9 percent; total capital ratios above 11 percent.
- Since the beginning of the turmoil Canadian banks raised over C$16 billion of tier 1 capital in markets.

Capitalization of Canadian banks (March 2009, Tier 1 / Total)
- Bank of Montreal: 10.2 / 12.9
- Bank of Nova Scotia: 9.5 / 11.4
- CIBC: 9.8 / 14.8
- National Bank of Canada: 10.0 / 14
- Royal Bank of Canada: 10.6 / 12.5
- Toronto Dominion: 10.1 / 13.6
- Basel Accord minima: 4 / 8
- Canadian target ratios: 7 / 10

### Box 5 — Fiscal risks and contingent liabilities (selected figures)
- If real GDP growth slows by 1 percentage point, the federal deficit would rise by C$3.1 billion (around one-fifth of 1 percent of GDP) per authorities’ calculations.
- If GDP inflation is a percentage point lower, the budget deficit would be 0.1 percent of GDP higher.
- A fall in real housing prices decreases revenues by 0.27 percent of GDP in the following year.
- Canada would lose around ¾ percent of GDP in revenues due to the decline in commodity prices.
- Authorities (including the Government of Ontario) pledged about C$4 billion in loans to the automobile sector in 2009 (contingent liability).
- Federal government will purchase, via auctions, up to C$125 billion in insured mortgage pools through CMHC.
- Federal government will purchase up to C$12 billion of securities backed by loans and leases on vehicles and equipment through the Canadian Secured Credit Facility.

### External sector and exchange-rate assessment (selected figures)
- Real and nominal effective exchange rates have fallen by around 17 percent since early 2008.
- CGER findings (exchange rates as of February 2009):
  - MB approach: Canadian dollar above fundamentals by about 4 percent (current account norm ~0.9 percent of GDP).
  - ES approach: currency about 6 percent below fundamentals.
  - ERER approach (staff preferred): currency at equilibrium.
- Implied volatility and forward-rate signals: short-maturity implied volatility significantly above past peaks; term structure of implied volatilities slopes downward.

### Annex I — Fund policy advice not discussed in the staff report (high-level points)
- Monetary policy:
  - Bank of Canada studying shift from inflation-targeting (IT) to price-level path (PLPT); staff cautioned benefits must be weighed against costs of abandoning effective IT framework.
  - Authorities do not plan changes to IT before the 2011 review.
- Fiscal policy:
  - Staff recommended harmonizing remaining provincial sales taxes with the GST base; protect saving up to a cap; lower METR on labor income; allow provinces greater flexibility in market-based mechanisms for health care.
  - Authorities: Ontario to join Harmonized Sales Tax Framework in July 2010; Tax Savings Account up to C$5,000 effective in 2009; personal tax relief since 2006.
- Financial policy:
  - Staff recommended closing short-term debt exemption exploited by non-bank ABCP issuers; provincial regulators proposed amending the short-term debt exemption.
- Labor and trade policy recommendations summarized; authorities’ positions noted.

### Annex III — Statistical and projection highlights (selected exact figures)
- Real GDP projections (annual):
  - 2008 = 0.5; 2009 (proj) = -2.5; 2010 (proj) = 1.2.
- Unemployment rate:
  - 2008 = 6.2; 2009 (proj) = 8.4; 2010 (proj) = 8.8; expected around 9¼ percent in mid-2010.
- CPI inflation (annual):
  - 2008 = 2.4; 2009 (proj) = 0.0; 2010 (proj) = 0.5.
- Exchange rate (U.S. cents/Canadian dollar) period average:
  - 2008 = 0.94; 2009 (proj) = 0.80; 2010 (proj) = 0.79; percent change: 2009 (proj) = -15.3.
- Interest rates (national accounts basis):
  - Three-month treasury bill: 2008 = 2.4; 2009 (proj) = 0.5; 2010 (proj) = 0.6.
  - Ten-year government bond yield: 2008 = 3.6; 2009 (proj) = 2.7; 2010 (proj) = 2.8.
- Fiscal indicators (national accounts basis, percent of GDP):
  - Federal fiscal balance: 2008 = 0.2; 2009 (proj) = -2.0; 2010 (proj) = -2.4.
  - General government balance: 2008 = 0.4; 2009 (proj) = -3.4; 2010 (proj) = -3.6.
- Table 2 (quarterly snapshot, selected sequence preserved):
  - Real GDP (quarterly series): -0.9, 0.6, 0.9, -3.4, -7.7, -1.6, 0.6, 1.1, 1.4, 1.6, 1.9, 1.9.
  - Unemployment rate (quarterly percent): 5.9, 6.1, 6.2, 6.4, 8.1, 8.9, 9.1, 9.3, 9.3, 9.3, 9.2, 9.2.
  - CPI inflation (y/y quarterly): 1.9, 2.3, 3.4, 1.9, 1.3, 0.1, -1.0, -0.2, 0.1, 0.4, 0.7, 0.9.
- Recent developments (post-staff report):
  - Real GDP declined by 0.1 percent in February after a 0.7 percent fall in January.
  - Unemployment rate rose to 8 percent in March.
  - Bank of Canada lowered its overnight rate by 25 basis points to ¼ percent on April 21.
  - Bank signaled target rate could remain at current level "until the end of the second quarter of 2010, conditional on the inflation outlook."

*Source: IMF staff report contained in document _cr09162.*

### 1. Canadian Bank Regulatory Capital Requirements: Are they Tougher? ..........................17

### 1. Canadian Bank Regulatory Capital Requirements: Are they Tougher? ..........................17

### I. Macroeconomic and financial prospects and risks — summary findings
- Canada entered the global financial turmoil "on a strong footing" with sound financial regulation, conservative banking practices, fiscal prudence, and a credible monetary policy framework including a freely-floating currency.
- Through 2007 strong growth, price stability, fiscal and current account surpluses, historically low unemployment, and financial stability were recorded (Figure 1; Figure 2).
- Vulnerabilities included high household debt and regional real-estate bubbles.

### A. Entering the global crisis from a position of strength — key impacts and policy actions
- Economic impacts:
  - Real GDP contracted by 3.4 percent (saar) in the fourth quarter of 2008.
  - Headline inflation has fallen sharply, in part due to collapsing oil prices.
- Financial market impacts:
  - Credit and money-market spreads pushed to unprecedented highs (Figure 4), though spreads are below foreign levels.
  - Bank risk indicators have risen but remain below comparable levels abroad (Figure 5).
  - Pensions and insurers impacted by U.S. mortgage-related writedowns and the equity crash (Figure 6).
- Commodity and exchange-rate impacts:
  - Commodity prices retreated steeply, producing the first current account deficit in a decade and contributing to regional slowdowns.
  - The Canadian dollar fell from above parity in early 2008 to around 0.82 by end-2008.
- Policy responses undertaken:
  - Bank of Canada policy rate cut by 400 basis points to ½ percent since December 2007.
  - Bank of Canada expanded liquidity through enhanced facilities.
  - 2009 federal budget included a fiscal stimulus of 2.8 percent of GDP.
  - Authorities launched guarantees on wholesale borrowing, purchased mortgage-backed securities, and introduced additional financial-stability tools (Table 1).

### B. Financial stability amid the turbulence — banking sector strengths and stresses
- Reasons for banking sector resilience:
  - Sound supervision and regulation; 2008 FSSA Update found framework meets best practice in many dimensions, including the revised Basel Core Principles for banking supervision.
  - Stringent capital requirements: Tier 1 capital generally significantly exceeds the required 7 percent target (which in turn exceeds the Basel Accord minimum of 4 percent).
  - Leverage ratio limited to 5 percent of total capital.
  - Low risk tolerance and conservative balance-sheet structures; smaller exposures to structured toxic assets and less reliance on volatile wholesale funding.
  - Conservative residential mortgage market: 5 percent of mortgages are non-prime and 25 percent are securitized.
  - Almost half of residential loans are guaranteed; remaining mortgages have loan-to-value ratio (LTV) below 80 percent; mortgages with LTV above 80 percent must be insured for the full loan amount.
  - Mortgage interest is nondeductible, encouraging repayment.
  - Regular federal reviews of financial sector legislation every five years; effective coordination via the Financial Institutions Supervisory Committee (FISC).
  - Proactive measures: expanded liquidity facilities, liability guarantees, mortgage-backed securities purchases; several provinces provide unlimited deposit insurance for provincially-regulated credit unions.
- Notable strains:
  - Mid-2007 non-bank ABCP market froze; restructuring agreement brokered in January 2009.
  - In 2008, nonperforming assets of the "big six" banks doubled to C$10.2 billion and charge-offs increased by a third to C$5 billion (representing 0.3 and 0.2 percent of total assets, respectively).
  - Bank profits remained positive (C$3 billion total for the “big six” in the first quarter of 2009), down 20 percent from a year earlier.
  - Strains were most evident among non-banks, including life insurers, pension funds, and mutual funds (Figure 6).
  - Major financial institutions maintain fairly strong ratings, some with negative outlooks.

### C. Macrofinancial linkages and credit conditions
- Credit and lending:
  - Credit flows held up through the turn of the year but have ebbed more recently (Figure 7).
  - Lending standards tightened to a record high in the fourth quarter of 2008 (data collection began in 1999); new credit growth has slowed.
  - Banks requested that new financial instruments be counted as regulatory capital, indicating potential capital constraints on lending.
- Household and corporate balance-sheet pressures:
  - Household debt—mostly mortgages—is at record highs (Figure 8); consumer bankruptcies have swelled and are expected to rise further as housing prices fall (Figure 9).
  - Corporate balance sheets stronger than households’ but debt and commercial paper issuance have fallen (Figure 10).
  - Continued house-price declines, particularly in the West, will constrain residential investment and demand for business credit.

### D. Outlook and risks — projections and scenarios
- Baseline forecast:
  - Staff’s baseline calls for a sharp contraction in real GDP in 2009—the worst since 1981 when GDP plunged by 2.9 percent—followed by a return to positive growth in 2010.
  - Output expected to shrink through the first half of 2009, rebounding with fiscal stimulus.
- Inflation outlook:
  - Headline inflation about zero on average in 2009, remaining well below the Bank of Canada’s inflation target range of 1–3 percent before rising gradually to 2 percent by early 2012.
  - Medium-term inflation expectations remain anchored at around 2 percent.
- Forecast differences:
  - Authorities’ projections (January forecasts by the Bank of Canada and Finance) were less pessimistic than staff’s; differences reflect negative data released since January and staff’s below-consensus outlook for U.S. growth.
- Downside and upside risks:
  - Downside risks: worse-than-expected U.S. real and financial conditions leading to weaker growth and risk of prolonged low inflation or deflation; financial instability in Canada; larger-than-expected house-price declines.
  - Upside risk: larger-than-expected recovery in commodity prices improving domestic demand, growth, and inflation.

### II. Policy responses — priorities and recommendations
- General guidance:
  - Maintain accommodative monetary stance until economic recovery is firmly underway to dampen the downturn and hedge deflation risks.
  - Fiscal room exists for further stimulus if downside risks materialize; contingency policies to address worsened financial stress are appropriate and authorities should be ready to act further if needed.
  - Heightened vigilance and readiness to deploy newly-formulated tools to support financial stability are warranted.
- Monetary policy (warding off deflation risks):
  - Staff welcomed monetary easing to date and agreed that keeping an accommodative stance is appropriate.
  - Continued communication on the price-stability outlook and downside inflation risks is recommended to signal commitment to an easy stance as long as needed.
  - Bank of Canada measures have included elements of unconventional easing; officials are refining the monetary policy framework with a view to using quantitative easing measures, if needed.
  - Bank officials noted that monetary policy is highly effective in Canada owing to well-anchored medium-term inflation expectations and a functioning monetary transmission mechanism.
  - Bank officials will monitor economic and financial developments to evaluate measures required to meet the 2-percent inflation target over the medium term; they consider deflationary risks to be quite low.

*Source: IMF staff report (excerpt).*

### 14.      Staff supported the Bank’s floating exchange rate policy, noting that the

### _cr09162 - 14.      Staff supported the Bank’s floating exchange rate policy, noting that the

### Exchange rate policy
- Staff supported the Bank’s floating exchange rate policy, noting that the currency has served as an effective “shock absorber.”
- Authorities reiterated policy of letting markets determine the exchange rate and observed that currency interventions were generally ineffective in developed-country markets; for Canada they would be reserved for countering disorderly market conditions.
- Authorities pointed to the adjustment in the Canadian dollar in recent years as evidence of its flexibility, noting that around two-thirds of the recent depreciation was explained by the plunge in commodity prices.
- Staff’s CGER exercise puts the Canadian dollar at near equilibrium (Box 3).

### Safeguarding financial stability to underpin growth
- Staff welcomed the authorities’ proactive response to financial strains and noted enhancements to the toolkit for dealing with financial instability, notably in Budget 2009.
- Many measures are precautionary; some (particularly guarantees on bank liabilities) have been adopted in part to level the international playing field.
- Measures include:
  - Provision of liquidity through enhanced Term Purchase-and-Resale Agreements by the Bank of Canada, including at longer terms, for a wider set of counterparties, and with a broader range of accepted collateral;
  - Facilities to guarantee bank and insurance liabilities under the Canadian Lenders Assurance Facility (CLAF) and Canadian Life Insurance Assurance Facility (CLIAF) (none yet drawn);
  - Purchases of insured mortgages to boost bank liquidity and support housing finance;
  - Purchases of securities backed by automobile loans and equipment leases through the Canadian Secured Credit Facility to bolster financing for businesses and consumers (to become operational shortly);
  - Greater resources for Export Development Canada and the Business Development Bank of Canada to raise financing for corporations;
  - Increased collaboration between financial Crown corporations and private sector lenders and insurers under the new Business Credit Availability Program to ease credit constraints for creditworthy businesses;
  - Additional tools for the Canadian Deposit Insurance Corporation (CDIC), including ability to establish a bridge bank and own shares in member financial institutions; and a boost in its borrowing limit from C$6 billion to C$15 billion;
  - Broader authority for the Minister of Finance to maintain financial stability via various financial operations (including capital injections).
- Mission advice and supervisory focus:
  - Continued vigilance due to the ongoing Canadian credit cycle and international risks (Box 4).
  - Close supervisory attention to bank exposures to U.S. assets; most U.S. operations are in the retail sector and banks have provisioned or taken write-downs against specific concentrated exposures.
  - Vigilance on exposures to commodity-affected sectors, non-banks (especially insurers and pension plans), and households, with focus on cross-institution spillovers and macroprudential risks related to high household debt.
  - Close cooperation among supervisors is especially useful given dominance by a few large and highly interconnected players; cooperation between federal and provincial supervisors important because certain institutions (like credit unions) are regulated at the provincial level.
- Officials’ assessment:
  - Expressed cautious confidence in financial stability based on a conservative financial system structure, effective supervision, and relatively strong underlying fundamentals, while noting no room for complacency.
  - Stress tests undertaken under the FSSA had proven useful.
  - Banks maintain capital ratios well above Basel standards.
- Regulatory reform:
  - Staff supported plans to move toward centralized securities supervision, following recommendations of an Expert Panel on Securities Regulation; Budget 2009 noted intentions to table a national securities act this year to lay groundwork for a national regulator, which could become operational by Fall 2011.
  - Staff noted risks of the current passport system of 13 provincial and territorial securities supervisors, including regulatory arbitrage and gaps in oversight for effectively national markets.
- Relief measures for life insurers and pension funds:
  - Discussed easing capital requirements for life insurers’ segregated funds and increasing from five to ten years the time companies are allotted to make up funding shortfalls in defined-benefit pension plans.
  - These measures are temporary; authorities plan to enact pension reforms (including on solvency funding rules) by end-2009.
  - Outlook: guaranteed insurance products and defined benefit plans likely to play smaller roles going forward due to exposure to market risk.
- Housing market measures:
  - Expanded Canada Mortgage Bond (CMB) program to include a CMB with a 10-year maturity; two issues, the most recent on February 18, provided an additional C$4.5 billion in liquidity to financial institutions.
  - Government reduced maximum loan amortization period from 40 to 35 years and required down payments of at least five percent for federally-insured mortgages.

### Fiscal actions within a strong framework
- Context:
  - Economic downturn coupled with fiscal stimulus will break an 11-year string of federal surpluses.
  - Strong framework and conservative forecasting halved the net federal debt/GDP ratio in 10 years.
  - Since 2006, authorities targeted an annual reduction of C$3 billion in federal government debt (0.2 percent of GDP), aiming to bring federal debt (now at around 29 percent of GDP) to 25 percent by 2011−12; fiscal stimulus and recession will foster deficits and delay achieving the 25-percent-of-GDP debt target.
- Assessment of stimulus:
  - Mission supported authorities’ proactive fiscal response; January 2009 fiscal package described as appropriately large, timely, well diversified and structured, with a large direct spending component and matching provincial resources on infrastructure.
  - Total measures (including supplementary provincial actions) amount to around 2 percent of GDP per year in 2009 and in 2010.
  - January stimulus relies mainly on infrastructure spending, support to vulnerable sectors (including housing) and provinces, boosts safety nets, provides training for job reallocation, allows automatic stabilizers to operate, and provides permanent tax relief, particularly to low- and middle-income households.
  - Budget cuts external tariffs.
  - Authorities expressed concern with “Buy American” provisions in the latest U.S. budget proposal.
- Implementation and monitoring:
  - Near-term focus on implementing current stimulus package.
  - Framework for quarterly monitoring of budget deployment (first review completed in mid-March) to assess implementation and impact.
  - Authorities aim to have the bulk of the 2009 stimulus available for implementation as early as April; a “use it or lose it” clause aims to ensure all spending is completed by end-FY2010.
- Fiscal space and limits:
  - Mission observed fiscal room exists for further action if downside risks materialize; Canada’s enviable fiscal position (lowest debt to GDP ratio in the G-7 and among the lowest 10-year bond yields among industrial countries) makes further stimulus feasible.
  - Limits discussed:
    - Infrastructure spending may face implementation constraints.
    - Larger permanent tax cuts could risk the underlying fiscal position.
    - Temporary tax cuts would have limited effectiveness.
  - Agreement that automatic stabilizers should be given full play and Canada could join further internationally coordinated stimulus to reduce leakages.
- Commitment to medium-term prudence:
  - Mission welcomed authorities’ commitment to medium-term fiscal prudence and debt reduction; Budget 2009 noted aim to avoid long-term structural deficits.
  - Officials stressed commitment to spending discipline (notably, caps on the public wage bill) and limiting program spending once recovery is underway.
  - Considerable uncertainty complicates setting numerical debt targets; targets could be recalibrated when the outlook is clearer.
  - Mission welcomed creation of the Parliamentary Budget Office with mandate to support parliamentary committees.
- Specific fiscal figures (as reported):
  - Fiscal Stimulus in 2007 Economic Statement: 0.7 (2008), 0.5 (2009), 0.5 (2010)
  - Budget 2009 Fiscal Stimulus: 1.5 (2008), 1.3 (2009), FEDERAL 1.2 (2009) / 1.0 (2010)
    - Expenditure 0.9 (2009) / 0.8 (2010)
      - Infrastructure Temporary 0.4 (2009) / 0.3 (2010)
      - Safety nets Temporary 0.2 (2009) / 0.2 (2010)
      - Housing/construction support Temporary 0.3 (2009) / 0.1 (2010)
      - Other Temporary 0.1 (2009) / 0.1 (2010)
    - Revenue 0.3 (2009) / 0.3 (2010)
      - PIT/exemptions/deductions Permanent 0.3 (2009) / 0.3 (2010)
    - PROVINCIAL (Leveraging) 0.3 (2009) / 0.3 (2010)
      - Infrastructure Temporary 0.3 (2009) / 0.3 (2010)
      - Housing support Temporary 0.0 (2009) / 0.0 (2010)
    - Supplementary provincial budgets 0.3 (2009) / 0.3 (2010)
      - Infrastructure Temporary 0.2 (2009) / 0.1 (2010)
    - TOTAL STIMULUS 0.7 (2008) / 2.3 (2009) / 2.1 (2010)
  - Note: Figures are in percent of GDP and sources cited as Finance Canada; Provincial Budgets; Fund staff estimates.

### Staff appraisal: outlook and policy priorities
- Overall assessment:
  - Canada is better positioned than many countries to weather the crisis due to strong policy management supporting macroeconomic and financial stability.
  - Proactive steps taken to stimulate demand, ward off deflation, and enhance the toolkit for financial strains.
- Risks and priorities:
  - Sharp deterioration in global environment and strong international linkages create a challenging period; employment, income, and investment will come under substantial pressure.
  - With economic slack widening, core inflation will ebb to low levels.
  - Downside risks predominate, including negative spillovers if the global environment worsens more than expected.
  - Key policy priorities: continued vigilance and readiness to respond if tail risks are realized.
- Monetary policy recommendation:
  - Monetary policy should remain accommodative until disinflationary pressures abate.
  - Aggressive monetary easing and expanded BoC facilities are justified; maintaining an easy stance will limit downside risks to inflation and inflation expectations.
  - Continued clear communication of commitment to price stability; unconventional measures could help if downside risks materialize.
- Fiscal policy recommendation:
  - Fiscal policy has provided significant stimulus; focus rightly on implementation.
  - Canada’s sound fiscal situation allows for further expansionary measures if necessary; automatic stabilizers can be given full play.
  - Further fiscal expansion would not put at risk debt sustainability given credible commitment to medium-term structural surpluses; debt targets could be recalibrated once the outlook clears.
- Financial stability recommendation:
  - Canada’s financial stability amid turbulence reflects effective supervision and regulation, limits on leverage, and capital ratios well above Basel standards.
  - Consolidating and enhancing securities regulation would strengthen the financial stability framework; moving toward a national regulator as indicated in Budget 2009 is an important step.
  - Vigilance needed to forestall adverse macro-financial feedback loops; proactive steps and close consultation among federal and provincial supervisors are essential to manage risks to individual institutions, cross-institution spillovers, and macro-prudential risks related to high household debt.

*Source: IMF staff report contained in document _cr09162.*

### 36.      It is recommended that the next consultation occur on the usual 12-month cycle.

### _cr09162 - 36.      It is recommended that the next consultation occur on the usual 12-month cycle.

### Recommendation
- It is recommended that the next consultation occur on the usual 12-month cycle.

### Box 1. Canadian Bank Regulatory Capital Requirements: Are They Tougher?
- Among the G7, only Canadian and U.S. bank regulators impose leverage caps. Two large Swiss banks, UBS and Credit Suisse, will be subject to leverage caps in 2013.
- The Canadian leverage cap is calculated on total (Tier 1 and 2) capital, and the U.S. cap on Tier 1 capital.
- OSFI includes some off-balance sheet exposures in its definition of assets, whereas the U.S. leverage calculation does not. These off-balance sheet exposures include credit derivatives, financial standby letters of credit, guarantees, and surety arrangements.

Table 1: Regulatory Leverage Ratio Limits
- Canada
  - Numerator: On-balance sheet assets plus specified off-balance sheet exposures a
  - Denominator: Tier 1 & 2 Capital
  - Maximum: 20
- Switzerland
  - Numerator: On-balance sheet assets, but excluding domestic lending
  - Denominator: Tier 1 Capital
  - Maximum: 33⅓/25 b
- United States
  - Numerator: Only on-balance sheet assets
  - Denominator: Tier 1 Capital
  - Maximum: 33⅓/25 c

Footnotes from source text:
- a. Canadian specified off-balance sheet exposures include direct credit substitutes (see above), trade- and transaction-related contingencies, and repurchase agreements.
- b. The Swiss minimum leverage ratio (excluding domestic lending) will be 3 percent (at group level) and 4 percent (for the individual institutions). The leverage ratio will be tighter in good times (most likely 4-5 percent). The determination of this cyclical adjustment is not linked to macroeconomic conditions but the supervisory assessment once leverage increases above 20.
- c. U.S. banks that meet certain criteria of strength and sophistication are subject to a 33 1/3 percent maximum leverage ratio. All others are limited to 25 percent.

- Canada’s minimum capital requirements are tougher than called for by Basel II, and all other G7 bank regulators.
- Canadian banks have to hold Tier 1 capital of at least 7 percent (versus 6 percent in the United States) of risk-weighted (RWA) assets, and 10 percent (versus 8 percent in most other G7 countries) of RWA as total capital.

Table 2: Tier 1 and 2 Capital Requirements as a Percent of Risk-Weighed Assets
- Basel II
  - Tier 1 Capital: 4
  - Total Capital: 8
- Canada
  - Tier 1 Capital: 7
  - Total Capital: 10
- U.S.A.
  - Tier 1 Capital: 6
  - Total Capital: 10
- France
  - Tier 1 Capital: 4
  - Total Capital: 8
- Germany
  - Tier 1 Capital: 4
  - Total Capital: 8
- Italy
  - Tier 1 Capital: 4
  - Total Capital: 8
- Japan
  - Tier 1 Capital: 4/2 a
  - Total Capital: 8/4
- U.K.
  - Tier 1 Capital: 4
  - Total Capital: 8

Footnote:
- a. The higher (lower) requirements apply to internationally active (domestically oriented) Japanese banks.

Notes:
- These comparisons do not account for potential differences in Tier 1 and 2 capital definitions from country to country, although these are believed to be immaterial.
- Supervisors may impose undocumented higher capital requirements on some banks (e.g., systemically important and/or large complex institutions).

### Box 2. International Spillovers
- The slowdown is likely to result in significant aftershocks in many countries that rely on Canadian remittances.
- Canada accounts for almost a fifth of its population in immigrants; the current slowdown could have important implications on remittances and income in many countries.
- The downturn and currency depreciation would affect tourism-dependent economies, especially in the Caribbean.
  - Canadian residents represent 10 percent of Caribbean tourism flows—annual growth of 10 percent for Canadian tourists, compared to 2.8 percent and 4.3 percent for U.S. and European tourists respectively.
- Canadian financial strains could have repercussions abroad:
  - Several Canadian banks have expanded U.S. operations.
  - Scotia, RBC, and CIBC have large retail presences in the Caribbean, holding about half of retail deposits in the Eastern Caribbean.
  - A few banks operate in Latin America.
  - Major insurers are among the world’s largest; Manulife is noted as the largest insurance company in North America by market capitalization and the fourth largest globally.
- Chart/data highlights preserved from source:
  - Canadian Banks' Position in North America — Market Capitalization (current; US $ billions): JP Morgan 99.9; Wells Fargo 60.3; Goldman Sachs 53.5; Royal Bank of Canada 51.7; Bank of America 43.7; Toronto Dominion 36.9; The Bank of NY Mellon 32.5; Bank of Nova Scotia 31.5; US Bancorp 25.6; Bank of Montreal 17.8; CIBC 17.5; Citigroup 13.9; PNC 13.0; BB&T 9.5.
  - Estimated Remittances from Canada, 2005 (In percent of receiving country's GDP): includes countries such as Nicaragua, Romania, Moldova, Jordan, Bosnia Herzegovina, Vietnam, Grenada, Serbia, El Salvador, Uganda, Sri Lanka, Philippines, Haiti, Jamaica, Guyana, Lebanon.
  - Tourism Arrivals in Select Caribbean Destinations, 2008 (annual percentage change) and Canada's Tourism Share 1/ table entries (examples): Cuba 8.2; Dominican Republic -3.6; Jamaica -5.1; Bermuda -1.9; Barbados 0.8; St. Lucia -2.2; Belize -2.5; St. Marteen 9.7; Cayman Islands 11.6; Antigua and Barbuda 1.8.
  - Source: BIS; and Fund staff calculations; World Bank; and WEO; Caribbean Tourism Organization.

### Box 3. Exchange Rate Assessment
- The Canadian dollar has depreciated considerably following the plunge in commodity prices.
  - The loonie is close to a 4-year low against the U.S. dollar and close to a 7-year low against the Japanese yen.
- In effective terms, the nominal and real exchange rates have fallen by around 17 percent since early 2008, with most depreciation occurring during the financial market turmoil.
- Bank of Canada intervention history:
  - Last intervened in foreign exchange markets in September 1998.
  - Prior to September 1998, policy was to intervene systematically; since September 1998, intervention is discretionary.
- Three CGER approaches applied to assess the Canadian dollar relative to its medium-term equilibrium:
  - (i) Macroeconomic balance (MB) — gap between projected medium-term current account and a “CA norm”.
  - (ii) Equilibrium real exchange rate (ERER) — reduced-form function of medium-term fundamentals (NFA, productivity differential, terms of trade).
  - (iii) External sustainability (ES) — difference between actual current account and balance that stabilizes NFA at a benchmark.
- Findings (exchange rates as of February 2009):
  - MB approach: the Canadian dollar is above fundamentals by about 4 percent. This hinges on an estimated current account norm of around 0.9 percent of GDP.
  - ES approach: implies the currency is about 6 percent below fundamentals.
  - ERER approach (staff’s preferred): suggests the currency is at equilibrium, with terms of trade, productivity differential, and net foreign assets as main determinants.
- Derivative market signals:
  - Implied volatility on loonie/dollar option contracts is significantly above past peaks at short maturities.
  - The term structure of implied volatilities slopes downward, suggesting less uncertainty about exchange rate moves over longer horizons.
  - Forward CAD interest rates have moved in line with the U.S. dollar.
  - “Risk reversals” put no premium on Canadian dollar appreciation versus the U.S. dollar.
- Notes and data series preserved:
  - Nominal and Real Effective Exchange Rate (monthly percentage change) chart timeframe: Jan-07 to Jan-09.
  - Option-Implied Volatility for Canadian Dollar- U.S. Dollar Exchange Rate at Various Maturities: dates 4/1/2008, 7/1/2008, 4/1/2009; maturities ON1W1M2M3M6M1Y.
  - Forward interest rates chart dates span 4/10/06 to 4/10/09 with USD 3x6 FRA and CAD 3x6 FRA series.
- Footnotes:
  - For further methodology details see IMF (2008), "Exchange Rate Assessments: CGER Methodologies," Occasional Paper No. 261.
  - Implied volatility is an estimate of market uncertainty about future asset-price moves extracted from option prices.

### Box 4. Canadian Bank Losses: Implications from FSSA Stress Tests
- Adapting the macroeconomic stress test from the 2008 Financial System Stability Assessment (FSSA) of Canada to the current outlook, staff estimates possible bank capital losses of 1 to 2 percentage points in the next two years.
- The original FSSA stress test envisaged a contraction of U.S. and Canadian GDP twice as large but with a faster rebound, broadly similar unemployment, and pronounced U.S. deflation.
  - The stress test anticipated bank losses of 2.5−3.5 percentage points of capital.
  - Extrapolating linearly, the current macroeconomic outlook can result in losses of about 1 to 2 percentage points of capital.
- Housing corrections:
  - Corrections in housing prices could cut bank capital by ½ to 1 percentage point in two years.
  - The FSSA separate test assumed declines in real estate prices of 30 percent in Western Canada and 15 percent in Eastern Canada, projecting bank losses of about 4 percentage points of capital.
  - Staff currently estimates that residential real estate in Canada is overvalued by about 7 percent in Western Canada, but in line with fundamentals in Eastern Canada.
  - Using FSSA parameters, a housing correction would lead to bank losses of about ½ to 1 percentage point of capital, accounting for possible modest price overshooting on the downside.
- Under a stress scenario, banks could approach or breach national capital thresholds and need to raise additional capital.
  - As of February 2009, the six largest Canadian banks had tier 1 capital ratios above 9 percent (compared to the Basel Accord minimum of 4 percent and a national target of 7 percent).
  - Total capital ratios were above 11 percent (compared to the Basel Accord minimum of 8 percent and a national target of 10 percent).
  - Although banks are likely to remain comfortably above the Basel minima, some may approach or even breach national targets without new capital.
  - Since the beginning of the turmoil Canadian banks raised over C$16 billion of tier 1 capital in markets, which has more than offset the effects of provisions and writedowns on capital ratios.
  - With uncertain market outlook, the facility for public capital injections could be tapped if needed.

FSSA Stress Test Assumptions Versus IMF Forecast (selected figures)
- United States
  - GDP growth (YOY): -6.2 2008Q1; 3.2 2009Q1; -3.4 2009Q2; -0.6 2010Q2
  - Unemployment rate: 7.7 2008Q1; 8.0 2009Q1; 8.7 2009Q2; 10.3 2010Q2
  - Core CPI inflation: -2.0 2008Q1; -0.7 2009Q1; 0.6 2009Q2; -0.8 2010Q2
- Canada
  - GDP growth (YOY): -4.3 2008Q1; 2.0 2009Q1; -3.0 2009Q2; 1.2 2010Q2
  - Unemployment rate: 8.0 2008Q1; 9.4 2009Q1; 8.9 2009Q2; 9.3 2010Q2
  - Core CPI inflation: -0.6 2008Q1; 0.3 2009Q1; 1.5 2009Q2; 0.4 2010Q2

Capitalization of Canadian banks (March 2009, Source: Bloomberg)
- Tier 1 / Total
  - Bank of Montreal: 10.2 / 12.9
  - Bank of Nova Scotia: 9.5 / 11.4
  - CIBC: 9.8 / 14.8
  - National Bank of Canada: 10.0 / 14
  - Royal Bank of Canada: 10.6 / 12.5
  - Toronto Dominion: 10.1 / 13.6
- Basel Accord minima: 4 / 8
- Canadian target ratios: 7 / 10

### Box 5. Fiscal Risks
- There are increasing risks to the fiscal outlook stemming from a more protracted recession and deflation, worsening financial conditions, declining asset and commodity prices, and sectoral problems.
- Recession and deflation:
  - Authorities’ calculations suggest that, if real GDP growth slows by 1 percentage point, then the federal deficit would rise by C$3.1 billion (around one-fifth of 1 percent of GDP).
  - If GDP inflation is a percentage point lower, then Canada’s budget deficit would be 0.1 percent of GDP higher.
- Public support to financial sector:
  - Preemptive measures to support financial stability have had minimal fiscal impact thus far but represent contingent liabilities.
  - While the need for public capital injections appears remote, this option cannot be ruled out.
- Rollover/liquidity squeeze:
  - Staff analysis suggests Canada’s medium-term public net debt position will not exhibit stresses under various scenarios, but markets may require higher interest rates if government bond supply increases sharply.
  - Around half of net debt matures within one year, raising near-term gross funding requirements; debt roll-over risks remain minimal.
- Worsening pension plans performance:
  - Investments in equities and mutual funds exceed 10 percent of GDP for large public and private pension funds.
  - The Quebec pension plan incurred a record loss of around US$7 billion (a fourth of its net assets) in 2008 on asset sales and writedowns tied to insolvent issuers of Canadian commercial paper.
  - The largest risk stems from possible support for private pensions given rising unfunded liabilities.
- Asset and commodity price declines:
  - Staff estimates for G-20 countries suggest that a 10 percent decline in equity prices decreases cyclically-adjusted revenues by 0.07.

*Source: _cr09162 - 36.      It is recommended that the next consultation occur on the usual 12-month cycle.*

### 0.08 percent of GDP in the current and subsequent year, while a similar fall in real housing

### _cr09162 - 0.08 percent of GDP in the current and subsequent year, while a similar fall in real housing

### Fiscal impacts and contingent liabilities
- A fall in real housing prices decreases revenues by 0.27 percent of GDP in the following year.
- Canada would lose around ¾ percent of GDP in revenues due to the decline in commodity prices.
- Authorities (including the Government of Ontario) have pledged about C$4 billion in loans to the automobile sector in 2009, representing a contingent liability to the fiscal accounts given large sectoral risks.

### Macroeconomic context and growth impact
- Growth has declined, driven by a drag from net exports and more recently softening domestic demand.
- Contributions to real GDP growth (selected quarterly contributions shown in figures):
  - Domestic demand, net exports, and real GDP growth contributions depicted for Dec-06, Jun-07, Dec-07, Jun-08, Dec-08.
- WEO growth forecast comparisons show marked downside revisions for 2009–2010 (Spring 2008 vs Fall 2008 vs current).

### Financial market strains and policy responses
- Financial strains increased to unprecedented levels, particularly since September, translating into large stock losses and increased market volatility.
- The non-bank ABCP market was the first to feel the global financial crisis.
- Central bank and official sector liquidity and collateral measures (selected initiatives noted):
  - Increased size and frequency of term Purchase and Resale Agreements (PRA).
  - Introduced new facilities: money market term PRA; Term Loan Facility (TLF) for LVTS participants using non-mortgage loan portfolios as collateral.
  - Increased U.S.-dollar swap agreements with 14 central banks, in some cases to unlimited amounts.
  - Created discount window facility with maximum maturity lengthened to 1 year.
  - Broadened collateral eligibility for lending and repo operations; accepted ABCP from affiliated dealers on a temporary basis.
- Deposit insurance and guarantee measures (selected points):
  - Canada Deposit Insurance Corporation (CDIC) insures savings up to $100,000; some provinces provide higher or unlimited insurance for credit unions.
  - Canadian Lenders Assurance Facility insures new issues of certain senior unsecured wholesale debt up to 3 years to a maximum of 125% of wholesale debt maturing during the six-month period beginning November 1, 2008 or 20% of Canadian deposits as of the end of the most recent quarter up to and including October 31, 2008. A base fee of 110 basis points, plus a surcharge of 25 basis points for those institutions whose debt obligations do not meet the minimum credit rating requirements, applies. Instruments issued in currencies other than Canadian dollars are subject to an additional surcharge of 20 basis points.
- Capital and asset support measures (selected items):
  - No capital injections announced (Canada) as of the report text.
  - Federal government will purchase, via auctions, up to C$125 billion in insured mortgage pools through the Canada Mortgage and Housing Corporation.
  - The federal government will purchase up to C$12 billion of securities backed by loans and leases on vehicles and equipment through the "Canadian Secured Credit Facility."
  - A similar Canadian Life Insurers Assurance Facility has been announced to support funding needs of the life insurance industry.

### Resilience of banking sector and non-bank financial sector impacts
- Canada's banking sector exhibited relative resilience:
  - CDS spreads on Canadian banks are lower than on U.S. banks.
  - Equity-implied default probabilities for Canadian banks are lower than for U.S. banks.
  - Profitability rates for top Canadian banks are higher than U.S. peers in the sample.
  - Greater reliance on retail depository funding and limited exposure to the United States contributed to resilience.
- Non-bank financial sector strains:
  - Insurance sector and pension plans have been affected by the crisis, but stock prices in Canada's insurance sector remain stronger than in the U.S.
  - Equity-implied CDS spreads for insurers have increased.
  - Decline in global equity prices led to record redemptions of mutual funds; mutual fund net sales by asset class show large outflows in late 2008 and early 2009.

### Household and housing sector risks
- Household balance-sheet and solvency indicators:
  - Household debt is at historical highs; ratio of household debt to disposable income is shown rising (Canada 3/ series).
  - Personal net worth (in percent of disposable income) and total liabilities (in percent of disposable income) levels illustrate vulnerability.
  - Insolvency (bankruptcy) rates and consumer bankruptcies have increased, exacerbated by the recession.
- Housing market indicators:
  - Real resale house price indices (1990=100) show significant appreciation for Canada compared to OECD peers.
  - Mortgage-backed securities in percent of residential mortgage credit: Canada shows very limited securitization relative to the United States.
  - Residential mortgage credit by lending institutions (billions of dollars) indicates most mortgages are originated by banks; securitization remains limited.
  - Housing starts and building permits have declined (series in thousands; SAAR).
  - Cumulative change in existing home sales, 2000-2008, by province shows uneven impacts across regions.
- Risks from declining income growth and softening housing market raise downside risks to consumption and GDP growth through weaker household spending and higher insolvencies.

### Corporate sector and credit flows
- Corporate indicators and credit conditions:
  - Historically high profit margins and strong balance sheets for Canadian businesses, but firms' expectations of future sales growth have weakened.
  - Bank lending standards for business borrowing have sharply tightened in recent months (balance of opinion measures).
  - Issuance of corporate paper has slumped; ST corporate paper growth and business credit from banks show sharp declines.
  - New net financing by nonfinancial corporations shows shifts between retained earnings and external sources across Canada, United States, and Euro Area.
- Credit flow indicators:
  - Household and business borrowing flows and net external funding indicators show substantial retrenchment in 2008–2009 compared with prior years.

### External sector and terms of trade
- Commodity price collapse and trade effects:
  - Strong commodity prices had supported current account surpluses prior to the crisis; the collapse in commodity prices has contributed to deteriorating external balances.
  - The nominal trade balance has been largely driven by commodity prices while real trade balance deteriorated with rapidly rising import volumes given the strong Canadian dollar until mid-2008.
  - Net international investment position and net investment income balances reflect declining net foreign liabilities and lower income payments as commodity boom boosted net direct investment inflows earlier.
- Selected indicators (Table excerpts):
  - Current account balance (in percent of GDP): series show 1.4, 0.9, 0.6 for 2006–2008, then projected -1.7 for 2009.
  - Merchandise trade balance and export/import volumes show sharp swings in 2008–2009 (export volume: -19.7, -42.0 in quarterly series; import volume: -24.0, -39.9).

### Projections, indicators, and vulnerabilities (selected quantitative highlights preserved exactly)
- Table 2 (quarterly SIMPLIFIED snapshot):
  - Real GDP: -0.9, 0.6, 0.9, -3.4, -7.7, -1.6, 0.6, 1.1, 1.4, 1.6, 1.9, 1.9 (quarterly sequence in table).
  - Unemployment rate (percent): 5.9, 6.1, 6.2, 6.4, 8.1, 8.9, 9.1, 9.3, 9.3, 9.3, 9.2, 9.2.
  - CPI inflation (y/y): 1.9, 2.3, 3.4, 1.9, 1.3, 0.1, -1.0, -0.2, 0.1, 0.4, 0.7, 0.9.
  - Output gap (in percent of potential output): 0.6, 0.2, -0.1, -1.4, -3.7, -4.5, -4.7, -4.8, -4.9, -4.8, -4.8, -4.7.
- Table 3 (annual projections and historical averages):
  - Real GDP (annual): 3.1 (2006), 2.7 (2007), 0.5 (2008), -2.6 (2009 projection), 1.2 (2010 projection), 2.5 (2011 proj.), 3.9 (2012 proj.), 3.4 (2013 proj.), 2.5 (2014 proj.).
  - General government financial balance (Canada): 0.9, -0.1, 0.9, 1.5, 1.3, 1.4, 0.4, -3.1, -3.5 (period series).
- Table 5 (vulnerability indicators, select series):
  - Return on total shareholders' equity (in percent): 9.3, 14.7, 16.7, 14.6, 21.7, 19.6, 10.8 (series by year).
  - Total capital ratio: 12.4, 13.4, 13.3, 12.9, 12.5, 12.1, 12.7.
  - Household credit (growth rate, percent): 7.1, 8.5, 10.3, 11.1, 10.6, 11.0, 11.0.

### Key policy implications and measures observed in the report
- The report documents a comprehensive set of monetary and liquidity operations, collateral broadening, and temporary facilities to support term funding and short-term debt markets.
- Deposit insurance enhancements and targeted guarantee programs were implemented to limit run and rollover risks in the banking sector and to support wholesale funding.
- Specific asset purchase and lending facilities were introduced to support mortgage pools, vehicle and equipment loan markets, and commercial paper funding.
- The fiscal position includes contingent liabilities related to sectoral support (e.g., C$4 billion automobile sector loans) and sizable planned asset purchase programs (C$125 billion insured mortgage pools).

*Source: International Monetary Fund, CANADA Staff Report for the 2009 Article IV Consultation — Informational Annex (April 17, 2009), extracted content unit.*

### Annex I. Canada—Fund Policy Advice Not Discussed in the Staff Report

### Annex I. Canada—Fund Policy Advice Not Discussed in the Staff Report

### Monetary Policy
- Issue: The Bank of Canada is contemplating shifting its target away from annual inflation (IT) to a price level path (PLPT).
- Staff view:
  - Benefits of PLPT include reducing uncertainty about future price levels and avoiding the price level drift that occurs under IT, which tends to hurt agents who receive income fixed in nominal terms or who are risk averse and enter into long-term, nominal contracts (e.g. home mortgages).
  - Canada’s current IT framework has been very successful; at the same time Canada may already be reaping some of the benefits of price level targeting in terms of anchoring expectations about the future price level.
  - Benefits of a formal shift to PLPT should be weighed against the costs of abandoning an effective and credible IT framework.
  - Since the introduction of IT, a unique combination of shocks has aligned Canada’s inflation (on average at the 2-percent target) to the outcome of a PLPT regime, minimizing credibility risks from a regime switch.
- Authorities’ position:
  - The Bank of Canada is studying possible gains but does not plan changes to the IT regime before the 2011 review.

### Fiscal Policy
- Issue: High marginal effective rates (METRs) on capital, saving, and labor income; federal-provincial health transfer agreement.
- Staff recommendations:
  - Harmonize remaining provincial sales taxes with the GST base, including by providing explicit incentives to provinces to move towards that direction.
  - Protect all types of saving from taxes up to a cap, and support wealth creation by moving personal income taxes closer to a consumption tax.
  - Further lower METR on labor income.
  - Allow provinces greater flexibility in using price and other market-based mechanisms to help align the demand and supply for health care and reduce costs over time.
- Authorities’ position:
  - Willing to work with the remaining provinces on harmonization—Ontario has signed a Memorandum of Agreement with the federal government to join the Harmonized Sales Tax Framework in July 2010.
  - Creation of the Tax Savings Account for up to C$5,000, effective in 2009.
  - Provided significant personal tax relief since 2006, including increasing the basic personal amount, raising the income level at which the National Child Benefit supplement for low-income families is fully phased out and the income level at which the base benefit of the Canada Child Tax Benefit begins to be phased out.
  - The Canada Health Act allows for private service delivery, and provinces are actively exploring different approaches to improve competition.
  - Note: Even low user fees could reduce access to health care by the poor.

### Financial Policy
- Issue: Distribution of ABCP exempt from securities regulators' registration and prospectus requirements may have contributed to damage from the seizure of the third-party ABCP market.
- Staff recommendation:
  - The short-term debt loophole that was exploited by non-bank ABCP issuers should be closed.
- Authorities’ position:
  - Provincial regulators have proposed amending the short-term debt exemption so that it is unavailable to ABCP.

### Labor Markets
- Issue: Canada maintains an Employment Insurance System that offers generous seasonal, regional, and family leave benefits, funded by payroll tax.
- Staff recommendation:
  - Consider funding social benefits of the Employment Insurance System through general revenues and curbing extended regional benefits.
- Authorities’ position:
  - Recent reforms to the Employment Insurance System have improved its funding.
  - No significant changes in benefits are currently being considered, apart from the temporary extension by 5 weeks given the downturn.

### Trade Policy
- Issue: Canada can play an important role in the Doha negotiations; barriers to interprovincial trade and labor mobility hamper competition and innovation; stringent FDI review process might hinder international investment.
- Staff recommendations:
  - Canada needs to widen market access for agricultural goods, including those subject to “supply management” schemes.
  - Free mobility in goods, services and regulated professions between all provinces along the lines of the Trade, Investment and Labor Mobility Agreement (TILMA) between Alberta and British Columbia.
  - Remove stringent rules in FDI flows.
- Authorities’ position:
  - Canada remains committed to a successful completion of the Doha round; though it will continue to support supply management schemes.
  - Pursuing bilateral free trade agreements, more recently with Colombia and Peru.
  - In January 2009, the First Ministers agreed on a full labor mobility by April 2009, and the federal government has streamlined immigration procedures.
  - Ministers agreed to identify priority areas for progress on harmonizing business regulations and standards.
  - Revisions to the Investment Act along the recommendations of the Competition Policy Review Panel are under way.

### Annex III. Statistical Issues

### Annex III. Statistical Issues

### Overview
- The quality, coverage, periodicity, and timeliness of Canada’s economic data are considered to be excellent for Article IV consultation and ongoing surveillance.
- Canada has subscribed to the Fund’s Special Data Dissemination Standard (SDDS); metadata are posted on the Fund’s Dissemination Standards Bulletin Board (DSBB).

### Real Sector
- Statistics Canada provides timely and adequate monthly, quarterly, and annual data facilitating quantitative macroeconomic analysis.
- Methodological change: In May 2001, Statistics Canada transitioned from Laspeyres methodology to Fisher index formulae for estimating real expenditure-based GDP to improve comparability with other G-7 countries.
- Key real-sector developments and projections:
  - Real GDP contracted by 3.4 percent (seasonally adjusted annual rate) in Q4 2008.
  - Real GDP projected to fall 2½ percent year-over-year in 2009 and to recover by 1.2 percent in 2010.
  - Net external trade contribution to growth: table shows Net exports (contribution) for 2009 = 0.4 and 2010 = -0.1.
  - Total domestic demand: 2009 = -3.2; 2010 = 1.3.
  - Private consumption: 2009 = -2.3; 2010 = 0.7.
  - Private fixed domestic investment: 2009 = -11.1; 2010 = -0.3.
  - Private investment rate (percent of GDP): 2009 = 18.6; 2010 = 18.1.
  - Public investment: 2009 = 10.4; 2010 = 8.9.
  - Change in business inventories (contribution): 2009 = -0.4; 2010 = 0.0.
  - GDP (current prices): 2009 = -3.9; 2010 = 2.5.

### External Sector
- Statistics Canada provides quarterly data on balance of payments, external debt, and the international investment position (IIP).
- Finance Canada provides monthly data on Official International Reserves in a format comparable to the IMF reserve data template.
- Recent external developments:
  - In late 2008 Canada’s current account turned negative for the first time in a decade.
  - Terms of trade fell by over 30 percent (seasonally adjusted annual rate).
  - Real exports plummeted by about 20 percent (saar), reflecting a sharp deterioration in manufacturing trade and past currency appreciation.
  - The Canadian dollar acted as a shock absorber: 35-percent appreciation in real effective terms during 2002 to 2007 and a 12-percent depreciation in Q4 2008.
- Selected balance-of-payments indicators (from table):
  - Current account balance (percent of GDP): 2008 = 0.6; 2009 (proj) = -0.9; 2010 (proj) = -0.7.
  - Merchandise trade balance (percent of GDP): 2008 = 2.9; 2009 (proj) = 1.1; 2010 (proj) = 1.5.
  - Export volume: 2008 = -5.0; 2009 (proj) = -14.5; 2010 (proj) = 0.6.
  - Import volume: 2008 = 1.0; 2009 (proj) = -16.0; 2010 (proj) = 1.3.
  - Invisibles balance (percent of GDP): 2008 = -2.3; 2009 (proj) = -2.0; 2010 (proj) = -2.2.
  - Gross external debt and International Investment Position: data reported through 2008 Q4 with Q-frequency reporting and publication.

### Monetary Sector and Financial Stability
- The Bank of Canada (BoC) provides timely daily, weekly, monthly, and quarterly monetary data.
- Policy and actions:
  - The BoC cut policy rates by 425 basis points since December 2007 to ¼ percent.
  - The BoC committed to keep the policy interest rate at its current level through the end of the second quarter in 2010 (conditional on the inflation outlook).
  - The BoC expanded liquidity facilities, increased the length of repo facilities, and announced a framework for quantitative and credit easing to be deployed if downside risks materialize.
  - Any unconventional measures would be assessed at each monetary policy meeting with attention to risks to the Bank’s balance sheet and the exit strategy.
- Financial-system resilience and risks:
  - No institution has failed or required public capital injection; banks have raised capital in markets.
  - The crisis widened interbank spreads, tightened credit conditions, and raised borrowing costs; equity market declines strained life insurers, pension funds, and mutual funds.
  - Authorities launched guarantees on wholesale borrowing, purchased mortgage-backed securities, and obtained mandates for public capital injections and a bridge bank (if needed).
  - Directors recommended continued vigilance, with particular focus on exposures to commodity-affected sectors, non-banks (insurers and pension plans), and highly indebted households, and attention to cross-institution spillovers.

### Fiscal Sector and Policy Response
- The Department of Finance Canada provides monthly and annual federal budget, tax policy, and regulatory data enabling assessment of fiscal policy impacts.
- Fiscal stimulus and fiscal position:
  - Authorities tabled further fiscal stimulus of around 2.8 percent of GDP in January 2009; supplementary provincial actions increase total stimulus among the largest across G-20 countries.
  - The stimulus focuses on infrastructure spending, support to vulnerable sectors, enhanced social safety nets, retraining programs, and tax reductions/incentives.
  - The package and downturn will end an 11-year string of fiscal surpluses; Canada has the lowest debt-to-GDP ratio among G-7 countries.
  - Fiscal monitoring: deployment of stimulus is monitored via quarterly parliamentary reviews.
- Selected fiscal indicators (national accounts basis, percent of GDP):
  - Federal fiscal balance: 2008 = 0.2; 2009 (proj) = -2.0; 2010 (proj) = -2.4.
  - Provincial fiscal balance: 2008 = -0.4; 2009 (proj) = -1.8; 2010 (proj) = -1.5.
  - General government balance: 2008 = 0.4; 2009 (proj) = -3.4; 2010 (proj) = -3.6.
- Executive Board perspectives on fiscal policy:
  - Directors commended the bold and timely federal stimulus as appropriately sized, diversified, and well structured.
  - Canada is well-positioned to participate in further internationally coordinated stimulus if warranted, given strong fiscal position and authorities’ commitment to medium-term structural surpluses.
  - Directors emphasized ensuring any further measures are quickly applicable and self-reversing, and supported allowing automatic stabilizers to operate.
  - Looking beyond the crisis, directors saw scope to recalibrate debt targets once the outlook clarifies to maintain fiscal credibility and to create space for future aging- and health-care-related costs.

### Key Macroeconomic Projections and Indicators
- Real GDP (annual change, percent): 2008 = 0.5; 2009 (proj) = -2.5; 2010 (proj) = 1.2.
- Unemployment rate: 2008 = 6.2; 2009 (proj) = 8.4; 2010 (proj) = 8.8; expected to reach around 9¼ percent in mid-2010.
- Consumer Price Index (annual change, percent): 2008 = 2.4; 2009 (proj) = 0.0; 2010 (proj) = 0.5.
- GDP deflator (annual change, percent): 2008 = 3.8; 2009 (proj) = -1.4; 2010 (proj) = 1.3.
- Exchange rate (U.S. cents/Canadian dollar) period average: 2008 = 0.94; 2009 (proj) = 0.80; 2010 (proj) = 0.79; percent change: 2008 = 0.8; 2009 (proj) = -15.3; 2010 (proj) = -1.2.
- Interest rates (national accounts basis): Three-month treasury bill: 2008 = 2.4; 2009 (proj) = 0.5; 2010 (proj) = 0.6. Ten-year government bond yield: 2008 = 3.6; 2009 (proj) = 2.7; 2010 (proj) = 2.8.

### Data Timeliness, Frequency, and Quality Assessments (selected)
- Exchange Rates: same-day receipt; frequency D; frequency of reporting D; frequency of publication D.
- International Reserve Assets and Reserve Liabilities of the Monetary Authorities: Date of latest observation Feb 27, 2009; Date received Mar 4, 2009; Frequency reported W; Frequency published W; Frequency of data W.
- Reserve/Base Money: Date of latest observation Feb 2009; Date received Mar 2009; Frequency reported W; Frequency published W; Frequency of data W.
- Broad Money: Date of latest observation Jan 2009; Date received Mar 2009; Frequency reported M; Frequency published M; Frequency of data M; Data Quality – Methodological soundness: LO, O, LO, LO; Data Quality – Accuracy and reliability: O, O, O, O, O.
- Consumer Price Index: Date of latest observation Jan 2009; Date received Feb 2009; Frequency reported M; Frequency published M; Frequency of data M; Data Quality – Methodological soundness: O, O, O, O; Data Quality – Accuracy and reliability: O, O, O, O, NA.
- GDP/GNP: Date of latest observation 2008 Q4; Date received Mar 2009; Frequency reported Q; Frequency published Q; Frequency of data Q; Data Quality – Methodological soundness: O, O, O, LO; Data Quality – Accuracy and reliability: O, O, O, O, O.
- Revenue, Expenditure, Balance and Composition of Financing – General Government: Latest obs 2008 Q4; Date received Mar 2009; Frequency Q; Methodological soundness: O, O, O, O; Accuracy/reliability: O, O, O, O, O.

### Executive Board Assessment — Policy Messages
- Commended Canada’s macroeconomic track record, strong policy framework, and proactive crisis response.
- Saw the near-term outlook as challenging with downside risks—vigilance and readiness to act are required if tail risks materialize.
- Monetary policy:
  - Supported BoC’s aggressive easing, expanded facilities, and framework for low-rate policy; recommended maintaining a highly accommodative stance to limit downside risks.
  - Endorsed clear communication on sustained accommodative stance and noted the possibility of further unconventional measures in downside scenarios, with attention to exit strategy and balance sheet risks.
- Exchange-rate policy:
  - Agreed that a freely-floating exchange rate has served Canada well and that the Canadian dollar is broadly in line with fundamentals.
- Fiscal policy:
  - Welcomed the federal stimulus as timely, appropriately sized, diversified, and well structured; implementation should be the near-term focus, with quarterly monitoring.
  - Supported the use of fiscal space if needed and emphasized measures that are quickly applicable and self-reversing.
- Financial stability:
  - Noted resilience of Canadian banks and commended proactive authorities’ measures; urged continued vigilance, focus on nonbanks and household leverage, and progress on securities-regulation consolidation.

*Source: Annex III. Statistical Issues; Public Information Notice No. 09/66 — IMF Executive Board Concludes 2009 Article IV Consultation with Canada; Data as available on April 16, 2009.*

### 1. This statement reports on developments since the staff report was issued. They

### _cr09162 - 1. This statement reports on developments since the staff report was issued. They

### Recent economic developments
- Real GDP declined by 0.1 percent in February compared with an 0.7 percent fall in January, "mostly reflecting lower production in good-producing industries, such as construction."
- The unemployment rate rose to 8 percent in March—a seven-year high—although the pace of job losses eased from February.
- Headline inflation decelerated from 1.4 percent to 1.2 percent (y/y) in March.
- Core inflation registered 2 percent.
- Medium-term inflation expectations, as reflected in the April Consensus Economic survey, "remain anchored to the Bank’s 2-percent target."
- Housing starts and sales recovered in March on low home prices and interest rates, while non-residential construction declined.
- Bank of Canada’s Spring Business Outlook Survey reported widespread expectations of slowing sales, with the balance of opinion "slightly less pessimistic than in the prior survey."

### Monetary policy and central bank actions
- On April 21, the Bank of Canada lowered its target for the overnight interest rate by 25 basis points to ¼ percent.
- The Bank’s April 23 Monetary Policy Report:
  - Laid out a framework for conducting monetary policy at low interest rates.
  - Noted the target rate could be expected to remain at its current level "until the end of the second quarter of 2010, conditional on the inflation outlook."
  - Lengthened its repo facilities to a maximum maturity of one year.
  - Described less conventional tools, such as quantitative and credit easing, that could be deployed in future.
  - Elaborated guiding principles: focus on achieving the inflation target, maximum economic impact, neutrality across sectors and assets, and prudence regarding risks to the Bank’s balance sheet.
  - Stated the need for further measures would be assessed at each monetary policy meeting.

### Growth forecasts and staff projections
- The Bank of Canada lowered its projections for Canadian growth from -1.2 to -3 percent for 2009 and from 3.8 to 2.5 percent for 2010, with risks to growth balanced and risks to inflation on the downside.
- Staff’s growth projection for 2009: -2½ percent (year-over-year), described as between the latest Bank of Canada forecast (-3 percent) and the April consensus (-2.3 percent).
- Staff’s projection for 2010: 1.2 percent, "well below Bank of Canada and Consensus forecasts, mainly on expectations of a slower U.S. recovery."
- On the basis of recent data, staff has left the growth projection for 2009 broadly unchanged.

### Fiscal implementation and outcomes
- Budget implementation is on track; most of the funds for Budget 2009 have been appropriated and spending will come on stream this quarter.
- Data for the first 11 months of the fiscal year 2008/09 (April 2008 to February 2009) indicate a surplus of C$1.3 billion (less than one-tenth of 1 percent of GDP), compared to a small deficit estimated in the January Budget, "on stronger than expected personal and other income taxes."

### Financial conditions and credit markets
- Financial conditions remain more favorable than elsewhere, but credit conditions are still tight.
- Major Canadian banks have raised preferred shares in recent weeks but have reported ongoing credit losses.
- The Bank of Canada Loan Officer Survey shows the pricing and availability of business credit tightened further in 2009Q1, albeit at a slower pace than in 2008Q4.
- Credit spreads remain elevated, while stock prices have been volatile.

### Key statistics (selected figures from Table 1)
- Real GDP (year series shown): 2006: 3.1; 2007: 2.7; 2008: 0.5; 2009: -2.5; 2010: 1.2; 2011: 2.5; 2012: 3.8; 2013: 3.4; 2014: 2.5
- Q4/Q4 Real GDP: 2006: 2.2; 2007: 2.8; 2008: -0.7; 2009: -1.9; 2010: 1.7; 2011: 3.1; 2012: 4.0; 2013: 3.0; 2014: 2.2
- Unemployment rate (percent): 2006: 6.3; 2007: 6.0; 2008: 6.2; 2009: 8.4; 2010: 8.8; 2011: 8.0; 2012: 6.3; 2013: 6.2; 2014: 6.1
- CPI inflation (y/y): 2006: 2.0; 2007: 2.1; 2008: 2.4; 2009: 0.0; 2010: 0.5; 2011: 1.4; 2012: 2.1; 2013: 2.4; 2014: 2.1
- Core CPI inflation (y/y): 2006: 1.9; 2007: 2.1; 2008: 1.7; 2009: 1.3; 2010: 0.4; 2011: 0.8; 2012: 1.7; 2013: 2.2; 2014: 2.0
- Federal fiscal balance (NA basis, in percent of GDP): 2006: 0.7; 2007: 1.0; 2008: 0.2; 2009: -2.0; 2010: -2.4; 2011: -1.6; 2012: -0.9; 2013: -0.5; 2014: 0.0
- Three-month treasury bill (percent): 2006: 4.0; 2007: 4.2; 2008: 2.4; 2009: 0.5; 2010: 0.6; 2011: 2.6; 2012: 4.3; 2013: 4.8; 2014: 4.8
- Ten-year government bond yield (percent): 2006: 4.2; 2007: 4.3; 2008: 3.6; 2009: 2.7; 2010: 2.8; 2011: 4.2; 2012: 5.2; 2013: 5.5; 2014: 5.5
- Current account balance (in percent of GDP): 2006: 1.4; 2007: 0.9; 2008: 0.6; 2009: -0.9; 2010: -0.7; 2011: -0.3; 2012: 0.1; 2013: 0.4; 2014: 0.9

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2009/_cr09162.pdf_