Canada urged to focus on boosting economy than managing debt

Analysts say Canada should focus on implementing measures to boost economic growth and incentives to get people back to work instead of managing its budget deficit.

Due to the country's growing debt, Fitch downgraded Canada's rating over a week ago.

Craig Wright, the chief economist at Royal Bank of Canada, says that the only solution for large deficits is growth, which requires a pro-growth action plan.

He added that government spending should be toward the "economy of the future" than the "economy of the past."

Further stimulus measures such as a green growth strategy and investing in infrastructure, such as smart infrastructure, would be necessary.

Michael Heydt, DBRS' lead sovereign analyst on Canada, said that fiscal policymakers should be sure that a recovery is underway before they tackle debt consolidation.

He also warned about the potential structural damage to the country's economy if the slowdown lingers.

CIBC Capital Markets's Royce Mendes, a senior economist, said that it is an apparent mistake for the country to turn too quickly toward austerity as its economy requires more support.

With Canada's economy expected by the IMF to contract by 8.4 percent this year, the country is rolling out over C$150 billion in direct economic aid, including financial assistance to workers impacted by the pandemic.

Canada lost triple-A ratings in June when Fitch downgraded it for the billions of dollars it has allocated to help counter the COVID-19-triggered downturn.

Fitch expects Canada's government debt to rise from 88.3 percent in 2019 to 115.1 percent of GDP in 2020.

The country was able to retain its highest debt rating from Moody's, Standard & Poor's, and DBRS.

On Wednesday, Canadian Finance Minister Bill Morneau will outline the current balance sheet to show a new official deficit estimate.