Canada will spend more on debt costs due to higher interest rates, raising total payments to $56bn
Canada’s government will spend more on debt costs this year due to a higher-than-expected outlook for interest rates, as reported by BNN Bloomberg.
The country will allocate $1.9bn more on public debt charges in the 2024-25 fiscal year than planned in last month’s budget, according to new expenditure estimates submitted to lawmakers on Thursday.
This increase raises total debt payments to $56bn this year, a 3.5 percent increase compared to the forecasts outlined in April by Finance Minister Chrystia Freeland.
The increased costs are “primarily due to higher projected interest rates and higher borrowing requirements,” according to the supplementary estimates submitted by Treasury Board President Anita Anand.
These costs include an additional $764m in interest on debt that hasn’t yet matured and $1.1bn in “other interest costs.”
The larger debt payments highlight the sensitivity of Canada’s fiscal track to changes in the interest rate outlook. The Bank of Canada is expected to start cutting its benchmark overnight rate from five percent in the coming months.
However, there is mounting uncertainty about when and how deeply the US Federal Reserve will begin easing monetary policy amid stronger-than-expected economic growth and persistent inflationary pressures.
In the budget, the Finance Department assumed the three-month treasury bill rate would average 3.8 percent in 2024 and 2025, based on private sector forecasts collected in March. The yield on a 10-year Canadian government bond was expected to average 3.25 percent over those years.
Assuming no change to revenues and combined with lower payouts for elderly benefits, the updated numbers suggest a larger deficit than the $39.8bn forecast this year.
