Will Canada's Rising Debt Hit the Proverbial `Wall'? Survey Shows Debt Level Is Second Worst among Industrial Nations

Article excerpt

TIME yourself. When you finish reading this, the interest due on Canada's federal debt will have risen US$306,000. That is $61,000 per minute, $3,660,000 per hour, and an awful lot per year.

Of course, Canada's version of rocketing into the indebtedness stratosphere may not impress Americans numbed by New York City's digital debt clock. The clock piles up United States debt at a considerably faster rate than it accumulates in Canada.

But Canadians have reason to be concerned, economists say, because with an economy and population one-tenth the size of the US, Canada is in much worse financial shape for its size.

Canada's net public debt (gross debt with the government's liquid assets deducted) is about $551 billion (Canadian; US$393 billion). This includes an increase of $40 billion (Canadian) this year, the size of the fiscal 1995 deficit.

Now some Canadian economists argue that if federal spending doesn't slow soon, Canada could hit "the wall" - what happens if investors stop buying Canadian bonds that finance the nation's debt.

Could Canada hit the wall?

"We think it's highly likely," says Robin Richardson, a researcher with the Fraser Institute, a Vancouver think tank.

Fraser has evaluated debt levels for 185 countries, putting Canada in its worst of three categories. Canada ranks above Burundi but below Morocco. The US made the second group, although Mr. Richardson says it could drop lower next year.

The key gauge of debt level is a nation's debt measured as a percentage of gross domestic product. Canadian debt is about 65 percent of GDP, according to the Organization for Economic Development. But Richardson and other Canadian economists say this number is a gross understatement.

When unfunded federal and provincial public employee pensions and other off-balance sheet debt is included, the debt-to-GDP ratio grew to 107 percent this year, according to the Fraser Institute, and 105 percent ($780 billion, Canadian), according to the Toronto Dominion Bank.

The bottom line is that Canada this summer leapt the 100-percent-of-GDP barrier and is now vying with Italy (113 percent debt-to-GDP) for the dubious prize of most indebted of the Group of Seven (G-7) major industrialized nations. …


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