The International Monetary Fund (IMF) is warning Canadian policymakers against removing the stimulus they provided during the COVID-19 pandemic too early.
“As the economy transitions from crisis mode to recovery, it is vitally important to keep the spread of COVID-19 under control, and to avoid a premature withdrawal of fiscal and monetary support,” the IMF said in the report, which focused on analyzing Canada’s policy response to the global pandemic.
The IMF said clear communication about how the federal government plans to unwind its relief policies will be key to managing expectations and maintaining policy credibility over the medium-term.
Canada took on more debt as a share of its Gross Domestic Product than other G7 countries to cushion its economy against the pandemic. The federal government predicted in its Fall Economic Statement last year that its debt load would top $1 trillion, or 55.5% of GDP, by 2024.
Now that the worst of the pandemic is largely believed to be over, the focus should turn to how Canada plans to pay down the accumulated debt, the IMF said.
"The recent sharp rise in public debt increases the importance of clearly specifying a medium-term fiscal anchor—something staff has long advocated—to guard against a potential weakening of credibility in the fiscal framework," the IMF said.
The federal government plans to release a budget this spring, more than two years since its last full fiscal update.
