Standing Committee on Public Accounts (PACP) Department of Finance Appearance on the Public Accounts of Canada 2024

Debt Management Strategy 2023-24

Issue

The Deputy Minister will appear before the Standing Committee on Public Accounts to discuss the recent tabling of the Public Accounts for 2023-24.

Key points

• In 2023-24, the total domestic borrowing program was $471 billion, including both bonds and treasury bills.
• Debt charges accounted for 1.6 per cent of GDP, which is below the historical average of 3.5 per cent since 1981.

2024-25 Debt Management Strategy Update – FES 2024

• As updated in the Fall Economic Statement (FES) 2024, the domestic borrowing program for 2024-25 is now estimated to be $536 billion, including both bonds and treasury bills.
  • This is $36 billion higher than estimated in Budget 2024.
  • Public debt charges are now expected to reach $53.7 billion for 2024-25, or 1.8 per cent of GDP.
  • Increased borrowing is driven by larger non-budgetary transaction components of financial requirements.
  • The additional financial requirements will be allocated across the curve.

Anticipated Questions and Answers

1. Why did the government need to increase borrowing over the course of 2023-24?

   The government's cash needs increased, reflecting increased financial requirements, timing differences between large outgoing payments and incoming receipts and participation in the Canada Mortgage Bond market as early as February 2024.

2. What is the government's average term to maturity?

   The average term to maturity was 6.7 years in 2023-24, down from 6.9 in 2022-23. The average term to maturity is expected to rise to 6.8 by the end of fiscal year 2024-25.  

3. What is the current Parliamentary maximum borrowing limit under the Borrowing Authority Act?

   The aggregate maximum borrowing amount is $2,126 billion. As of March 2024, the estimated total market debt was $1,710 billion.

   The Governor-in-Council set an annual borrowing limit for 2024-25 is $604 billion.

4.  What happened to COVID related debt?

   The extraordinary borrowing period ended on May 6, 2021. Borrowings raised under the extraordinary borrowing authority are now counted as regular debt against the maximum borrowing limit consistent with an amendment to the BAA (Borrowing Authority Act) in June 2022.

FES 2024 related

5. Why does the government need to increase borrowing?

   Most of the increase of financial requirements is attributable to non-budgetary items that increased by $27.3 billion, while the deficit for 2024-25 was revised upwards (by $8.5 billion), compared to what was projected in Budget 2024. The non-budgetary increases were due almost entirely to Enterprise Crown corporations and Accounts payable accruals and allowances.

6. Will this impact Canada's AAA credit rating?

   Canada remains among the top-rated countries in the G7. Credit rating agencies have been assessing issuers in light of global macroeconomic and fiscal conditions, and we have an ongoing dialogue with our ratings agencies.

   The IMF's October 2024 World Economic Outlook noted it expects Canada's net -general government debt-to-GDP ratio to remain by far the lowest among G7 countries and lower than some other AAA countries.

   As noted in Annex 1, the federal debt-to-GDP ratio remains on a downward trajectory, and the service cost of our debt, at 1.8 per cent of GDP, remains near historic lows.

7. Will increased borrowing cause Canada to breach its annual borrowing limit?

   The increase is borrowing needs is well within Cabinet's approved borrowing limit of $604 billion.

8. Will this increase cause Canada to breach the Parliamentary Borrowing Authority?

   The increase in the 2024-2025 borrowing limit is consistent with the legislated maximum borrowing limit of $2,126 billion set out in the Borrowing Authority Act.

9. Has Government purchases impacted market functioning for the CMB market? / Will the Government make changes to its purchases?

   The Government of Canada purchases balance multiple objectives and leave a material portion of CMB issuance for market participants.

   CMB spreads, while decreasing, continue to remain within historic norms.

   The government will continue to communicate with market participants to ensure the pace and the volume of purchases are appropriate for market conditions.

   To ensure that the market has access to the bonds, notably for hedging purposes, the government is also working towards setting up a securities lending facility to lend its holdings to the market to support liquidity conditions.

10. How much is the Government making on CMB purchases?

    As of the end of December 13, 2024, the Bank of Canada holds $29 billion CMBs, and the weighted average initial spread is 30.4 basis points. (Meaning that we earn 0.304 per cent more in interest than our cost of borrowing, on average). This equates to approximately $88 million dollars on an annualized basis and will grow as the stock of CMBs held by the government grows.^{Footnote 1}

    Details of the Government purchases are available on the Bank of Canada's website: Canada Mortgage Bonds: Government purchases and holdings