Carney's Economic Ambitions Clouded by Rising Debt Concerns

Canada's Prime Minister Mark Carney has been touting the country's economic potential and vowing to make it more competitive for businesses and strategic sectors. However, a closer look at the government's plans reveals a worrying trend of increasing debt. As international bond markets show signs of nervousness over global inflationary risks and public debt growth, Canada is paying more to borrow money.

The country has been actively deploying industrial policy tools to navigate challenges such as national security, sovereignty, reliability of supply chains, energy security, and climate change. This includes tax credits or direct aid to businesses and workers, which have a one-to-one impact on the budget deficit. The financing of businesses or public investment in large projects by the Canada Infrastructure Bank, the Canada Growth Fund, or the proposed Canada Strong Fund also require public borrowing.

Experts warn that this could lead to serious complications for the country's economy. International bond markets are showing signs of nervousness over global inflationary risks and the rapid growth of public debt in the United States and worldwide. As a result, it is costing more for governments to borrow. The government of Canada now pays an interest rate of just over 4 per cent on a ten-year bond, compared with about 1.5 per cent before COVID-19.

Prime Minister Carney has emphasized the importance of maintaining focus and discipline in managing the country's finances. However, critics argue that public intervention and borrowing must be directed at growing the capacity and resilience of the economy. Interventions should be transparent to taxpayers and markets, and creative forms of public financing can lower capital costs or mitigate risk for enterprises.

The question is not whether industrial policy, but how industrial policy is implemented. Recent announcements such as the West Coast pipeline project and the hydro and wind resource development in Labrador have sparked positive notes across the country. However, details of the pledged public support remain scant, and it will be necessary to explain the structure, expected returns, and risks of the investments.