Canada financially secured for transition to green economy-Analysts
2023.02.24 07:57
Canada financially secured for transition to green economy-Analysts
By Ray Johnson
Budrigannews.com – Analysts said that Canada has the power to invest billions of dollars in the green transition over the next few years to keep its public finances on a sustainable path and make it more competitive with the United States.
According to Randall Bartlett, senior director of Canadian economics at Desjardins, Prime Minister Justin Trudeau has fiscal room in this year’s budget because tax revenue has held up, COVID-19 pandemic supports have ended, and the economy is performing better than anticipated.
Bartlett stated, “The long-term trend in the debt-to-GDP ratio is trending down.” The ratio may rise before falling again due to the weak nominal growth forecast for the fiscal year 2023/24. It was “just a blip on the path,” according to Bartlett.
To reassure the financial markets that the government is in control of its spending, Finance Minister Chrystia Freeland has set a goal of decreasing the net debt-to-GDP ratio each year.
Freeland, who is expected to present the budget in March or April, has stated that she will adopt a “fiscally prudent” strategy that will not hinder the central bank’s efforts to combat inflation, which was nearly three times the target of 2% in January.
However, she has also promised to make investments in response to the U.S. Inflation Reduction Act (IRA), which provides consumers and businesses with $369 billion in incentives to switch to a low-carbon economy. She stated that these investments will encourage individuals to develop Canada’s clean economy.
Since the IRA is already encouraging investment in the United States, many in the industry believe that Canada needs to do more to play a key role in the green transition. However, caution is warranted because borrowing costs are rising and the economy may enter a recession this year, reducing tax revenues.
Scotiabank’s head of resilience economics, Rebekah Young, stated, “At this point in the economic cycle, you’re better off saving if the spending isn’t needed.”
Freeland predicted that the deficit would gradually decrease and that the budget would be balanced by 2027/28.
Moody’s vice president and senior credit officer, William Foster (NYSE: According to Investors Service, Canada has pledged to get deficits “back on track” following the massive spending associated with the pandemic. Moody’s assigns Canada’s sovereign bonds the highest rating, “Aaa,” and projects a stable outlook.
Foster stated, “We decided to affirm the triple A rating and maintain a stable outlook… because our expectation is that the government will be committed to continuing on a fiscally responsible path.”
Bartlett thinks that Canada could spend an additional C$20 billion per year—roughly $14.9 billion—and maintain a net debt-to-GDP ratio below 45.5% in 2021/22, which was the lowest among the G7 countries.
Bartlett stated that investments in the green transition would provide investors and businesses with certainty and would not “be overly inflationary.”
Scotiabank’s Young stated that she anticipates an additional expenditure of “very ballpark” C$15 billion and a level debt-to-GDP ratio.
Young stated that future economic shocks could undermine growth, making it more difficult to reduce the ratio, so “they’ll build themselves a buffer.”
An additional C$7.5 billion to C$10 billion in annual expenditures would be permitted if that buffer were half of Bartlett and Young’s estimates.
The office of Freeland withdrew its request for comment regarding its potential spending in the budget.
These estimates take into account the newly announced C$46.2 billion ($34.64 billion) in healthcare expenditures for the following decade.
According to Flavio Volpe, president of the Automotive Parts Manufacturers’ Association, Canada has only one opportunity to attract investment into the supply chain for electric vehicles.
He stated, “By the 2030s, every single automaker in North America, and there are about 15 of them of consequence, must electrify.” They will all need to purchase batteries in bulk from facilities that do not currently exist.”
