Jesse Kline: Carney gets a little help from his international banking friends

Mark Carney, then-United Nations special envoy for climate action and finance, attends the 2022 IMF/World Bank annual meeting in Washington, D.C. Photo by Brendan Smialowski/AFP

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As the Liberals prepare to table their economic update next week, Prime Minister Mark Carney’s banker buddies are stepping in to defend his government’s high-spending ways.

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Speaking to Bloomberg News last week, Nigel Chalk, director of the International Monetary Fund’s Western Hemisphere department, said that among the G7 economies, “Canada’s probably in the strongest position fiscally,” and lauded the Carney government’s “very strong focus on the debt path.”

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He further argued that because Canada’s net debt-to-GDP ratio is relatively low compared to its G7 peers, Ottawa has fiscal room to manoeuvre, and that, “In the current circumstances, if you have fiscal space, it’s the time to use it.”

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Which sounds a lot like former finance minister Chrystia Freeland’s 2021 statement, made after doubling the national debt during the pandemic, that due to the “low interest rate environment” at the time, “not only can we afford these investments in Canada’s future, it would be short-sighted of us not to make them.”

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Since that time, not only have interest rates gone up, but the national debt keeps on climbing. Carney’s first budget, introduced last fall, projected a deficit of $78.3 billion. In nominal dollars, that’s the highest ever outside a pandemic year.

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It’s true that when the government applies a little accounting magic — subtracting assets it doesn’t actually own, like the Canada Pension Plan, from the gross debt, and pretending as though Canada isn’t a federation with highly indebted sub-national governments — our net-debt-to-GDP ratio works out to around 43 per cent, which looks good compared to other G7 countries.

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This is why the Liberals have long chosen to highlight Canada’s net debt as their preferred fiscal anchor, and previously promised that it would continue to fall, even as deficits spiked and the debt skyrocketed.

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Yet they have quietly given up on that pledge. Last year, the parliamentary budget officer warned that the federal debt-to-GDP ratio is “no longer projected to be on a declining path over the medium term.”

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The provincial governments have also been taking on debt at record pace, adding a near equal amount to the country’s gross government debt this year as Ottawa, according to economist Livio Di Matteo.

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Take away all the smoke and mirrors, and Canada’s position relative to other countries starts to erode.

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According to the IMF’s own data, Canada’s gross national debt was 113.5 per cent of GDP in 2025, which puts us in a stronger position than Japan (206.5 per cent), Italy (137 per cent), the United States (124 per cent) and France (116 per cent), but is far higher than the United Kingdom (102.3 per cent) and Germany (63 per cent).

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Limiting the comparison to the high-spending economies in the G7 is also misleading, as Canada’s gross debt-to-GDP ratio is well above the world average (94 per cent), along with the average for advanced economies (108 per cent) and the European Union (82.5 per cent).