Canadian Debt – The Foreign Investment Choice

Canadians, as opposed to many nationals around the world, were long accustomed to hearing reports of budget surpluses. What was once a source of national pride will now seemingly become but memories in the nation’s historical archives. The recent recession has left both the national and provincial coffers in ruinous debt, and both are seeking ways to grapple with the need for cash to finance stimulus spending, the primary catalyst of the monumental deficits.

Ironically, while lawmakers must deal with the aftermath of the financial crisis and re-formulate fiscal policies in order to keep the deficits under control, investment bankers see this new situation as a unique opportunity to sell government bonds.

Based on recent figures, the combined national/provincial debt is estimated to reach $100 billion by the end of the current fiscal year. However, selling public debt in these staggering amounts is not as difficult as it may seem, even in a struggling global economy. Canadian debt is being gobbled up by foreign investors at a lightning pace.

It appears that international markets see investment in Canada as a wise choice. Among the Group of Seven countries, Canada has the best fundamentals; a strong, vibrant currency; and is rich in valuable natural resources. Once the dust settles from the recession, these factors will leave Canada well positioned. Wise investors see this as an ideal time to align their investment dollars with strong future potential.

Investment bankers admit that 2009 presented a highly volatile market, with each month differing sharply from its predecessor. But, when all is said and done, the nation’s top investment banks, working hand-in-hand with both the federal and provincial governments, have managed to sell the vast majority of government bonds issued, primarily in foreign markets.

The need for cash, combined with the demand for strong investments, led to some unique investment situations for both the federal and provincial governments. However, just as the aftermath of the recession demanded new ideas to deal with new situations, so did the investment world rise to the occasion and help the governments get the best deals possible.

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Ontario’s Growth Spurt

Get ready, Canada! Ontario is about to set a new record.

With the country now emerging from the recession, it’s time to take stock and assess the damages. As a province dependant heavily on its manufacturing sector, Ontario’s GDP was one of the worst performing, matching those of Newfoundland and Labrador, contracting in 2009 by 3.5%. However, as many companies have a need to restock depleted inventories, Ontario is now benefiting from a business boom. Economic forecasts predict that Ontario’s GDP will grow by 2.4% in 2010, outpacing the national rate that is projected at 2.3%. This will be the first time in eight years that Ontario has excelled in terms of national growth. This growth is expected to continue into 2011 and reach 2.8%, although national levels are expected to reach 3% next year. Economists fear, though, that restocking inventory will only provide temporary relief. As the warehouses and shelves are filled, orders will taper off and return to earlier levels.

The growth in the GDP is good news for a province that is burdened by a massive deficit, the largest of all the nation’s provinces. Higher energy prices as well as competitive foreign markets are making it difficult to cope with the deficit. On the other hand, the HST, due to take begin on July 1, is expected to help ease the deficit burden. Combined with the HST, new, lower corporate taxes are expected to attract investments and new jobs to the province.

While manufacturing will experience a temporary post-recession growth spurt, Canada’s abundant natural resources will still lead the way economically. Saskatchewan is expected to remain the leader among provinces, based on the strength of its oil, potash, agriculture and uranium sectors. British Columbia and Newfoundland, both of whom suffered during the recession, are also expected to experience significant economic expansion in the coming year.

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Canadian Recovery Indicators

Recent economic records this summer seem to indicate brighter days on the Canadian horizon. Earlier, analysts had predicted a $100 million surplus in July. The reality, though, was quite different. Rather than a surplus, Canada experienced a near record deficit in July 2009 of $1.43 billion. This was surpassed only by the May 2009 deficit of $1.45 billion. Despite these figures, economic analysts seem buoyed by the surge in imports. The sharp rise in imports and exports seem to indicate that recovery from the global financial crisis is on the horizon.

Import figures for July reflected an overall 8.3 percent increase from the previous month. This positive figure included a 10.9 percent increase in machinery and equipment imports, an impressive 18.7 percent rise in automotive products, and a similarly encouraging 18.6 percent rise in energy products.

Exports rose by 3.3 percent in July, primarily due to increased shipments of equipment, machinery, and automotive products. 73 percent of all Canadian exports in July were to the United States but, due to the sluggish American economy, this figure was down a whopping 35.2 percent from July 2008.

In order to stimulate the economy, the Bank of Canada has promised to leave interest rates at their current record low. The recent trade figures have not caused the Bank to change its current position. Responding to the Bank’s announcement regarding interest rates, the Canadian dollar rose to 92.46 U.S. cents from 92.10 U.S. cents.

Analysts insist that the increasing deficit is not a prime cause of long term concern. The true indicator is the rapid acceleration in trade volumes. The rises in imports and exports indicate increased commercial activity and the true beginnings of economic recovery.

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Alberta Faces Record Deficit

With natural gas prices continuing to fall, Alberta’s energy boom has come to an end. The immediate result is a growing deficit that has no immediate relief in sight. The latest forecast, revised from earlier predictions this year, indicate a record $7 billion deficit by year’s end. Some economists believe that continuing weak gas prices will send the deficit above the $8 billion mark. This dour prediction is based on the assumption that the province is being overly optimistic about tax revenues. It is widely believed among economists that corporate taxes will fall well below figures recently published by the province’s Progressive Conservative government.

Alberta’s Finance Minister Iris Evans has issued orders to provincial offices to trim $430 million from provincial programs. The government itself is seeking to trim $2 billion from next year’s budget.

The province’s premier Ed Stelmach warned that the deficit is likely to remain in place for at least two years following the recession. However, he also announced that the deficit will be offset by $17 billion in emergency savings in the provincial Sustainability Fund. This amount will likely deplete the fund. However, it will enable the Premier to not implement any tax increases nor will the province have to cut jobs. The weakened economy has already contributed to a predicted jobless rate of 22,000 this year. Adding to the gloomy outlook is a forecast of negative 2.5 percent growth for the current year.

Despite a sorry economic forecast, the province is pleased to note that its population is continuing to grow. Economic hardships in other regions of the nation have caused a migration to Alberta. The premier announced that his province’s population is expected to grow by 50,000 residents this year.

On the positive side, the provincial Heritage Savings Trust Fund suffered a $3 billion beating when the stock markets plunged. Recently, though, the Fund has shown a $1 billion recovery, allowing the province to transfer $730 million from the Fund’s profits to the province’s general revenues.

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Canadian Taxpayers Association: Alberta Should Cut Spending

As Alberta’s deficit continues to grow, political pundits and economists have much to say about the cause and effect of the province’s financial woes.

According to a recognized expert at the University of Alberta, Alberta is the highest-spending province in Canada. A major blunder has been the financing of all this spending in an irresponsible fashion. The primary funding source has been income from the province’s non-renewable natural resources. Non-renewable indicates that the income will stop flowing when the resources are no longer present.

A recent statement issued by the Canadian Taxpayers Association calls upon the province to cut its spending immediately. While the province intends to finance its deficit from emergency savings funds, this will literally wipe out these funds, leaving nothing out aside for a “rainy day.”

Alberta Premier Ed Stelmach has stated unequivocally that he has no intention of raising taxes, nor does he intend to cut jobs from the province’s payrolls. Moreover, he has announced that the province intends to move forward with $20 billion in building projects planned for the next five years. The province’s population has grown by more than one million residents in the last two decades. More schools and hospitals are needed as well as assisted living facilities for a growing elderly population.

While numerous companies in the private sector, facing financial hardships, have worked with their employees to take a rollback in wages rather than face job loss, the province’s employee unions have yet to be approached officially to discuss wage concessions. Considerable savings to provincial spending could be realized by coming to agreements with the province’s 21,000 employees.

The provincial leadership has been rather reticent about necessary cost-cutting measures. Experts feel that residents may not take kindly to having surprises revealed at the last minute. Recovery may take several years but few feel that it will happen without specific government intervention.

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Introducing CanNor, Canadian Northern Development Agency

Following promises made in last fall’s election campaign and, more recently, in last November’s throne speech, Canadian Prime Minister Stephen Harper revealed that the headquarters for the new Canadian Northern Development Agency (CanNor) will be built in Iqaluit, capital of Nunavut.

The Prime Minister’s announcement was made during a recent tour of the North, his third tour of the region this summer. CanNor will deliver funding for economic development, advocacy, and research. The newly established agency will receive $50 million in federal funds over the next five years.

The decision to locate the new agency’s headquarters in Iqaluit has been met opposition from several senior government officials, stating difficulties finding enough housing and staff. Mr. Harper responded that challenges such as these are exactly the reason for establishing an economic development agency and, therefore, the government must place the agency directly where the challenges are the greatest.

CanNor will also have satellite offices located in Whitehorse and Yellowknife, as the agency is designed to work cooperatively with all the Northern territories. The new agency will take over some existing federal programs and will develop new programs adapted to the territories’ realities.

As several other nations have their sights on the resource-rich northern territories, the Harper government is determined to concretize Canadian sovereignty over the region. Establishment of this stand-alone regional economic development agency will allow the Federal government to work with the region to help it reach its full potential, both human and economic.

The Premiers of both the Yukon and Northwest territories welcomed Mr. Harper’s announcement but added that additional key economic developments are crucial to their respective territories in order to strengthen the entire Arctic region.
 
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Breaking the Arctic Ice

Canadian Prime Minister Stephen Harper has been investing time, money, and energy to assert Canadian sovereignty over Arctic territories that are sparsely populated yet richly endowed in natural resources.

The Prime Minister recently visited the community of Iqaluit, the capital of Nunavut. Nunavut’s population is thinly spread over a territory equal in size to both Alaska and Texas combined. Poverty and suicide are quite rampant in these northern communities, as are serious problems of substance abuse. Unfortunately, there are limited resources available for treatment centres. This issue was one of several discussed with the Prime Minister on his visit.

Canada is not the only nation looking towards these northern regions. The area is rich in natural resources, including huge oil deposits. The U.S. Geological Service estimates that the Arctic regions contain enough oil to supply global demand for three years. Global warming has contributed to an erosion of sea ice thus making passage to the Arctic via the Northwest Passage easier. Canada claims that the Northwest Passage is sovereign Canadian territory while the U.S. claims that it is an international waterway. Joining the U.S. claim are other countries with eyes trained on the Arctic and its treasure trove of natural resources. Russia and Denmark have been heard to lay sovereignty claims to areas in the Arctic in recent years.

Prime Minister Harper’s move to enhance the communities of the Arctic is intended to spur economic and social growth, thus creating a contiguous territory. His government intends to relinquish much regional economic planning to local regional councils. Nunavut Premier Eva Aariak has called on Ottawa to give the Arctic region more control over its offshore energy resources as well as its derived benefits.

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