Canada:
Will Trudeau's Government Breach The David Dodge Rule?
01 September 2023
Bennett Jones LLP
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The Financial Post reports on why the sharp
escalation of global bond yields in recent weeks raises the
prospect we may be in the middle of a structural shift to a world
of permanently higher borrowing costs. This poses a problem for
Canada's federal government, whose heavy borrowing over the
past three years was premised on the idea that interest rates would
remain at historically low levels.
The Post says that, "As a guardrail for policy, former Bank
of Canada Governor David Dodge has proposed a 10 percent prudence
rule as an anchor for the federal government, whereby debt service
charges are kept at no more than one-tenth of revenue.
The March budget had projected interest payments would remain
below that threshold throughout the forecasting horizon. But the
increase in global bond yields has put it on a path to breach
Dodge's rule, perhaps permanently, without additional fiscal
adjustments.
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