(February 1 – 16:00 ET) – Canada’s fiscal and monetary policies has received praise in a new report from the International Monetary Fund.

The IMF says that sound macroeconomic and structural policies have created, “a solid foundation for the sustained expansion of the Canadian economy. The strong policy framework in place has positioned the real and financial economy to cope with any new major economic shock, including a slowdown in U.S. growth.”

The IMF stresses that monetary policy, rather than fiscal policy such as tax cuts, should be the method of maintaining the momentum. It suggests that the Bank of Canada should be poised to cut rates further.

In general, the IMF favours the tax cuts recently implemented by the government, but notes that surpluses should go to paying down debt. It also cautioned the provinces against higher spending. “Such decisions need to be framed in a longer-term perspective, reflecting the large potential fiscal costs arising from population aging and continuing growth in demand for health care, which is a major provincial responsibility. The IMF staff believes that it is essential for the provinces to begin to take steps to provide for these future needs, while at the same time continuing to improve the delivery and control the cost of medical services.”

It criticizes the government for not sticking to its reforms of the Employment Insurance. It says, “Frequent use of the system, along with the provision of extended EI benefits for high unemployment regions for a prolonged period of time, has had adverse effects on the behavior of both workers and employers, has significantly raised reservation wages in high unemployment regions, and has reduced labor mobility.”

The IMF lauded the work of Canada’s banking regulators, “With its emphasis on a consolidated, risk-centered approach to supervision, the Office of the Superintendent of Financial Institutions has been well-positioned to address the challenges that it has faced, as illustrated by its recent decision on establishing capital requirements for the guarantees on life insurance segregated funds.

The IMF also praises the proposed new financial sector legislation, and encourages the government to work toward freer.

“Once again, the IMF has recognized Canada’s economic track record as very positive,” Finance minister Paul Martin said. “Particularly welcome is the IMF’s opinion that Canada is well positioned to weather turbulence from a slowing in U.S. growth.”
-IE Staff