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The National Debt Of Canada
Canada’s national debt is counted as the debts of the government of the Kingdom of Canada’s central federal government, based in Ottawa. The national debt figure includes all public debt, encompassing the accounts of Canada’s provinces and territories as well as the central government. The account of debts is limited to loans and financial instruments undertaken by the central and provincial governments. According to the IMF, by the end of 2017, Canada’s national debt was just shy of 90% of GDP.
The table below shows how Canada’s debt has evolved and the amount of interest paid each year.
C$ bn Net Debt Interest on Debt Accumulated Deficit 2009–10 193,589 9,119 130,957 2010–11 214,511 10,005 144,573 2011–12 236,230 10,587 158,410 2012–13 252,823 10,878 167,132 2013–14 267,968 11,155 176,634 2014–15 285,403 11,221 187,511 2015–16 295,372 11,589 192,029 2016–17 301,648 11,709 193,510 2017–18 308,203 11,965 192,449 2018–19 325,041 12,543 199,153
This constant rise in the Canadian national debt is a worrying trend. Ordinarily, governments should aim to reign in debt during boom years when tax receipts are high, but Canada has continued to borrow through the good times, leaving it little room for maneuver if the economy turns sour.
What is included in Canada’s national debt?
Not all obligations are included in the national debt. The table below clarifies what is and isn’t included.
Canadian Government Obligation Government Department Included in National Debt? Government-issued bonds Department of Finance Yes Short-term debt instruments Department of Finance Yes Provincial government debt Provincial financing authorities Yes Civil Service pension obligations All No National Pension obligations Canada Pension Plan Investment Board No National bank guarantee scheme Department of Finance No Accounts Payable (unpaid bills) All No
Canadian Provincial Debt
The provinces of Canada have a great deal of autonomy. They are responsible for running Health, Education, and Social Security systems, all of which cost a great deal of money and incur debts. The figures below refer to “net debt.” The IMF calculations on Canada’s debt to GDP ratio work on “gross debt.”
Government Percent of Debt to GDP for the Fiscal Year 2016/2017 Percent Increase between 2007-2017 Alberta 3.3 124.7 British Columbia 15.1 25.2 Manitoba 34.1 60.7 New Brunswick 42.4 69.8 Newfoundland & Labrador 49.5 41.3 Nova Scotia 36.9 3.4 Ontario 40.2 54.5 Prince Edward Island 34.7 19.1 Quebec 48.1 18.4 Saskatchewan 11.5 2.9 Federal 36.1 10.1 Combined Federal & Provincial 67.5 24.5
The rate of increase in provincial debt has not been uniform. For example, Alberta’s debt has increased by almost 125% whereas Saskatchewan’s debt has increased by ust under 3%.
Each province of Canada raises its own debt through debt instruments. For example, the Province of Ontario owes C$348.8 billion outstanding and some of that debt is denominated in foreign currencies. These are:
- U.S. dollars
- Swiss francs
- Australian dollars
- Pound Sterling
- Japanese yen
The currencies in which Ontario’s debt instruments are issued are shown below in order of magnitude, with the equivalent sum in Canadian dollars alongside.
- Canadian Dollars — C$278.3 billion
- U.S. Dollars — C$40.4 billion
- Euros — C$13.6 billion
- Swiss Francs — C$2.2 billion
- Australian Dollars — C$1.5 billion
- Pound Sterling — C$0.9 billion
- Japanese Yen — C$0.5 billion
These figures are for just one province of Canada. This shows that a single province in the country manages a debt that is as large as that of many small industrialized countries. So, the composition of Canada’s national debt is complicated and involves many different agencies that are authorized to issue bonds. In the case of Ontario, the debt of the province is managed by the Ontario Financing Authority.
Although it is not counted as part of the national debt, the federal government and each province maintains a count of non-public debt. The main source of this debt is the national pension scheme, which is called the Canada Pension Plan Investment Board (CPPIB).
Government obligations to future pension payments are not recorded.
Who manages Canada’s national debt?
The federal debt is the responsibility of the central government’s Department of Finance. This ministry issues three types of debt-raising instruments:
- Treasury bills for short-term finance
- Government bonds for long-term finance
- Savings bonds for the retail market
Of these three sources, both Treasury bills and bonds raise equal amounts of money. This is unusual because most governments tend to raise much more in bonds than in Treasury bills. Short-term financing is generally more expensive than long-term debt and usually only used to smooth out the irregular remittances of tax and excise incomes. This source of debt is more likely to be high in countries such as Argentina or Turkey where traders have lost confidence in the government to repay debts over the longer term. However, Canada has an excellent credit rating, so it shouldn’t need to resort to short-term instruments in such large measure.
A Treasury bill doesn’t pay any interest, but it is sold at a discount and redeemed at full face value. As this is a short-term financing device, Treasury bills do not have a maturity period of longer than one year minus one day. The one year period is the minimum maturity for a debt instrument to be defined as “long-term.”
Savings bonds are a useful mechanism for the government to diversify into the retail market. However, these bonds only provide a very small source of funds for the Canadian government.
The chart below shows how Canada raises its financing by instrument type. As you can see from these three sample years, the issuance of Treasury bills is consistently high.
The government of Canada offers three types of bonds:
- Benchmark bonds
- Real Return Bonds
- Canadian Savings Bonds
The Canadian Savings Bond is officially considered a debenture rather than a bond. These were issued by the Bank of Canada, but were discontinued in 2017.
The benchmark bond is the classic government bond with maturity terms of between 2 years and 50 years. These bonds pay a fixed rate of interest each year and are redeemed at full face value on maturity.
The Real Return Bond is Canada’s inflation-linked bond. The face value of these bonds increases each year in line with inflation. The bond pays the same interest rate every year throughout its life. However, as that percentage is applied to a larger capital amount each year, the interest paid on these bonds increases with inflation as well.
As with the provinces, some government bonds are issued in foreign currencies. The table below shows the planned and actual debt raising actions of the Department of Finance for 2017. All figures are shown in billions of Canadian Dollars.
Sources of borrowings Planned Actual Difference Payable in Canadian currency Treasury bills 134 137 3 Bonds 133 133 0 Retail debt 1 2 1 Total payable in Canadian currency 268 272 4 Payable in foreign currencies 10 4 -6 Total cash raised through borrowing activities 278 276 -2
Canada’s Department of Finance got its projections pretty close to what the government actually needed to borrow in the end. This is another good sign that Canadian debt is worth investing in because a government that has statisticians that can actually predict borrowing requirements is less likely to be caught out by events and more likely to manage its debt responsibly.
What facts should you know about Canada's national debt?
- You could wrap $1 bills around the Earth 3,652 times with the debt amount.
- If you lay $1 bills on top of each other they would make a pile 102,447 km, or 63,658 miles high.
- That's equivalent to 0.27 trips to the Moon.