Canadian Public Debt: A Comprehensive Analysis

Canadian public debt is a pressing concern for many citizens. As of 2022, Canada's net debt-to-GDP ratio stands at 49.3%, a significant increase from the 27.3% in 2007.

This rising debt has major implications for the country's economy and future generations. The Canadian public debt has more than doubled in the past decade, from $432 billion in 2007 to over $1.1 trillion in 2022.

The main drivers of this increase are government spending and a decline in revenue. The federal government's spending has consistently exceeded its revenue, leading to a substantial increase in debt.

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Rising interest rates can significantly increase government debt charges, making it harder for governments to manage their finances. From 2011 to 2021, falling interest rates meant that public debt charges decreased from $29 billion to $24 billion.

The average interest paid on the federal debt was 4.6% in FY2007–2008, but by FY2020-2021 it was a much lower 1.4%. Economist Don Drummond predicted that the interest rate on public debt would certainly rise from the low level it was at in 2020.

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Every one percentage point rise in the effective interest rate adds more than $10 billion per year to the federal deficit. This is a significant concern, especially with federal government debt over $1 trillion.

Slow economic growth can also reduce government tax revenue, making it harder for governments to pay off their debts. This is because slower growth of GDP relative to growth of debt will increase the ratio of debt to GDP.

As of 2019, the International Monetary Fund views exchange rate risk as low for Canada because 90% of general government outstanding marketable debt instruments are denominated in Canadian dollars. This means that the risk of exchange rate changes affecting government debt is relatively low.

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Canadian public debt is owned by a mix of domestic and foreign investors. In 1960, foreign investors held only 4% of the Canadian government debt.

The proportion of debt held by foreign investors has increased over time, reaching a peak of 30% in 2012-2013. This is a significant increase from the 15% held by foreign investors in 2009-2010.

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Compared to other G7 countries, Canada's debt held by foreign investors is in the mid-range. In 2013-2014, debt held by foreign investors was lower than or comparable to most G7 countries, including France, Germany, the United States, Italy, the United Kingdom, and Japan.

As of 2021, non-resident investors held 29% of Government of Canada securities, which is considered to be in the mid-range compared to other sovereigns in the G7.

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Canada's public debt is owned by a mix of domestic and foreign investors. In 1960, only 4% of the Canadian government debt was held by foreign investors.

The percentage of debt held by foreign investors has increased significantly over the years, reaching a peak of 30% in 2012-2013. From 2009-2010 to 2013-2014, the amount of debt held by foreign investors rose from 15% to 27%.

In comparison to other G7 countries, Canada's debt held by foreign investors was lower than or comparable to most in 2013-2014. France held 64%, Germany held 62%, the United States held 48%, Italy held 33%, the United Kingdom held 29%, and Japan held 8%.

Non-resident investors held 29% of Government of Canada securities in 2021 and 2022-2023, according to the Department of Finance. This is considered "in the mid-range compared to other sovereigns in the G7" in 2022-2023.

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Public debt sustainability is a pressing concern for many governments, including Canada's. The International Monetary Fund reported that the Canadian federal government experienced favorable economic conditions before the COVID-19 pandemic, leading to sizeable windfall gains.

Higher than anticipated revenue collections and lower projected interest rates contributed to these gains. Lower transfers to households also played a role in the federal government's improved financial situation.

However, not all provinces are in the same position. The Parliamentary Budget Officer's Fiscal Sustainability Report noted that while the federal government and some provinces, such as Quebec, Alberta, Saskatchewan, and Nova Scotia, have sustainable fiscal policies, this is not the case for all provincial and territorial governments.

The report's 75-year projection horizon suggests that the combination of public pension plans, the federal government, and provincial, territorial, and local governments are sustainable over that period.

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Canada's public debt is a complex issue, and comparing it to other countries can provide valuable insights. The International Monetary Fund (IMF) reports that in 2021, Canada's net debt-to-GDP ratio was 32%, and the gross debt-to-GDP ratio was 113%.

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One reason for this high debt ratio is that Canada's government includes financial assets, such as securities, loans, and equity holdings, in its calculations. These assets rose sharply during the COVID-19 pandemic, to 81% of GDP in 2021 from 64% in 2019.

Canada's government also includes accounts payable and receivable in its gross debt calculations, which is not common among advanced countries. This can affect the accuracy of international comparisons.

According to the IMF, Canada's general government gross debt to GDP ratio for 2022 was 106.6%, which is lower than Japan's 261.3%, Italy's 144.7%, the United States' 121.7%, and France's 111.1%. However, it is higher than Germany's 66.5% and the United Kingdom's 102.6%.

Here is a table showing the general government gross debt to GDP ratio for various countries in 2022:

The table shows that Canada's public debt is lower than many other countries, including Japan and Italy. However, it is still a significant concern for the Canadian government.

Canada's public debt has been a topic of concern for many years. The country's debt-to-GDP ratio was 77% in 2010, following six straight years of budget deficits under Stephen Harper's government.

The COVID-19 pandemic had a significant impact on Canada's public debt, with the sum of all government liabilities reaching $2,852 billion in 2020, or 129.2% of GDP. This was a historic high, and interest payments on debt were relatively low due to low interest rates.

Interest payments on public debt were projected to rise for the federal government and nine of ten provinces by mid-2021. For the fiscal year ending 31 March 2022, interest expense on government debt liabilities was $64.6 billion, or 6.8% of every dollar of revenue.

The federal government's net debt-to-GDP ratio was 35.4% by 2022Q2, down from 36.8% in Q1. Canada's national government debt reached 1,519.8 USD bn in Mar 2024, compared with 1,423.3 USD bn in the previous year.

Here's a summary of Canada's government debt by quarter:

Canada's government debt has been on the rise, especially during the COVID-19 pandemic. The country's debt-to-GDP ratio increased to 129.2% in 2020, reaching a staggering $2,852 billion in gross debt.

The pandemic led to a significant increase in government liabilities, with the federal government posting a historic deficit of $325.5 billion in 2020. This deficit was financed through the issuance of financial instruments, including federal short-term paper and bonds.

Interest rates were at an historic low during the pandemic, making it easier for the government to finance its massive deficit. However, this also means that interest payments on debt will likely rise in the future.

Here's a rough breakdown of Canada's government debt over the years:

By 2024, Canada's National Government Debt had reached a staggering $1,519.8 billion USD, a significant increase from the previous year's $1,423.3 billion USD.

Canada's government debt has been on the rise, reaching 1,519.8 USD billion in March 2024, a significant increase from the previous year's 1,423.3 USD billion.

The government budget balance in 2025 Q2 was a deficit of 58.8 billion CAD, a substantial decrease from the previous quarter's deficit of 38.5 billion CAD.

In 2020, the COVID-19 pandemic led to a historic deficit of 325.5 billion CAD, with the government issuing a record 234.4 billion CAD in short-term paper and 65.7 billion CAD in federal bonds.

Interest payments on public debt represented approximately 1% of GDP early in the pandemic, compared to 6% in 1995.

Here's a breakdown of Canada's government debt and deficit in 2025 Q2:

The net debt-to-GDP ratio increased to 129.2% in 2020, and then began a slight decline, reaching 35.4% by 2022Q2.

The mathematics of debt interest is inescapable, and it's not just about balancing the budget. Even with an operating surplus, the total debt will continue to grow until revenues equal total spending.

This means that just ensuring revenue equals program spending is not enough to tackle public debt. The International Monetary Fund's 2019 staff report highlighted the Canadian federal government's favorable economic conditions, but also noted that provincial governments faced significant pressures, including rising health care spending.

Procrastination costs, and the longer governments wait to address the debt path, the more drastic the measures will be to correct the problem. The Parliamentary Budget Officer's 2022 Fiscal Sustainability Report emphasized that while some governments have sustainable fiscal policies, others do not.

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Mathematics plays a crucial role in sustainability, and there are alternative measures that can help reduce our environmental impact.

One such measure is using mathematical models to optimize resource allocation, as seen in the example of the water management system in the Colorado River Basin, which uses mathematical models to predict water demand and supply.

Mathematical modeling can also help identify areas where resources are being wasted, such as in the case of food waste, where mathematical models can help predict and prevent waste.

By applying mathematical concepts like game theory, we can create more sustainable systems that balance individual and collective interests, as demonstrated in the example of the sustainable fishing practices in the Alaskan fisheries.

Mathematical modeling can also help us develop more efficient transportation systems, such as the use of mathematical models to optimize traffic flow and reduce congestion.

Incorporating mathematical thinking into our daily lives can help us make more sustainable choices, such as using mathematical models to calculate our carbon footprint.

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The Mathematics of Interest is a crucial aspect of understanding sustainability. It's not just about balancing the books, but about making sense of the numbers to make informed decisions.

Mathematics has a lesson for governments: procrastination costs. The longer one waits to take steps to alter the debt path, the more draconian the eventual measures will have to be.

Even if tax revenues exceed program spending, the debt will continue to grow until revenues equal total spending. This means that an operating surplus doesn't necessarily mean a decrease in debt.

The impact of interest rates on public debt charges is significant. Rising interest rates increase public debt charges, raising government expenditures. For instance, a one percentage point rise in the effective interest rate adds more than $10 billion per year to the federal deficit.

The average interest paid on the federal debt was 4.6% in FY2007–2008, and by FY2020-2021 it was 1.4%. This drop in interest rates meant that while public debt rose, public debt charges decreased from $29 billion to $24 billion between 2011 and 2021.

Economist Don Drummond noted that the interest rate on public debt would certainly rise from its low level in 2020, which was far below post-war experience. This highlights the importance of considering interest rates when evaluating sustainability.

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