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Virus crisis sends Canada deficit soaring
[OTTAWA] The coronavirus pandemic sparked an explosion in Canada's federal budget deficit, which hit more than US$3 billion for the current fiscal year, Finance Minister Bill Morneau said on Wednesday.
The total for the 2020-2021 fiscal year, which began April 1, is expected to hit C$343 billion (S$353.4 billion) - 10 times higher than estimates the minister gave before the crisis.
It is equal to 15.9 per cent of the Group of Seven nation's gross domestic product (GDP).
The health crisis forced several of Canada's main economic sectors to shut down from mid-March for more than two months, putting a significant dent in government tax revenue.
"Faced with the most profound downturn since the Great Depression, our government acted to support the economy," Mr Morneau said, giving an economic and fiscal snapshot to the House of Commons in Ottawa.
The Liberal government of Prime Minister Justin Trudeau put in place a US$230 billion crisis recovery plan, which Mr Morneau called the "most comprehensive and substantial peacetime investment in Canada's history."
As a result, though, the government's debt is going to explode, from US$765 billion in March 2020 to US$1.236 trillion by March 2021.
That means the federal debt-to-GDP ratio is expected to rise from 31 per cent in 2019-20 to 49 per cent in 2020-21, Mr Morneau said.
"The government is well-positioned to support Canadians and the Canadian economy to meet funding challenges in response to the Covid-19 pandemic," he nevertheless insisted.
International ratings agency Fitch recently stripped Canada of its perfect AAA debt rating - a move that was not followed by the other top agencies of record.
Private sector economists consulted by the finance ministry predicted the Canadian economy would shrink 6.8 per cent in 2020 - its biggest drop since the Great Depression.
They are, however, hoping for a 5.5 per cent rebound in 2021.