A sizeable chunk of Canada’s debt will be refinanced this year with increased interest rates, something that the Conservatives argue could have been avoided if the Trudeau government had invested more into long-term bonds when rates were lower.
Canada’s current debt is a little over $1.4 trillion, now more than double what it was when the Liberal government first took power in 2015.
The majority of the money borrowed under the Trudeau government was done so using bonds that ranged between two and 30 years, with the bulk of the borrowing done during the COVID-19 pandemic using shorter-term bonds.
The Bank of Canada’s central rate dropped to 0.25% during the pandemic but now sits at 5%.
Among the national debt owed, about one-third or $414 billion will be refinanced this year.
Conservative MP Adam Chambers argued that the Liberals could have done more to ensure its borrowing didn’t get too reckless by issuing bonds for longer terms at cheaper rates years ago.
Chambers contrasted Canada’s borrowing habits with those of Mexico during a House of Commons finance committee meeting earlier this month, which has relied on longer-term bonds for its national debt.
“The government of Mexico’s average yield to maturity of their debt is around 18 years; 59% of Mexico’s debt is in 10-year bonds or longer,” said Chambers. “60% of the debt we issued during COVID was three years or under. That’s all renewed now. At 4% or 5% interest rates instead of being locked in at, say, 1% for 10 years.”
Ottawa intends to borrow an additional $70 billion in 2024 in new debt and the current interest on Canada’s debt-servicing costs sits at $54 billion this year, which is projected to rise to $64.3 billion by 2030.
Finance Minister Chrystia Freeland defended the government’s approach at the committee, claiming that Mexico’s balance sheet is much poorer than Canada’s.
“It’s an interesting choice to contrast Canada’s fiscal position, our credit rating, our debt management with that of Mexico,” said Freeland. “I haven’t talked to every single person in Mexico, but I talked to their government a lot. They would cheerfully trade their position for ours, given our triple-A credit rating.”
The average number of years to maturity on Canadian government debt is 6.9, giving the country a AAA credit rating.
Ontario’s provincial government recently extended the long-term financing of its debt, issuing about a third of its debt in 30-year bonds, the equivalent of about $137 billion.
However, only a fraction of the federal government’s debt is in terms of such length.
About 36% of Canada’s federal debt was in longer-term bonds in 2022-23, which is anything over 10 years, whereas 45% of it was longer-term for the previous fiscal year.
The federal government projects having about 33% in longer-term bonds in 2025, with the majority of Canada’s debt currently in bonds that are less than five years.
According to Chambers, the government had a chance to lock in its debts at lower rates which could have saved taxpayers anywhere from $7 billion to $10 billion per year.
“The truth is, the decision of the government during COVID to issue short term debt was absolutely negligent,” Chambers told the committee.
Anonymous officials within the Finance Department told the National Post that the government had attempted to borrow on longer-terms but that there was little opportunity to do so during the pandemic.