The government is unlikely to meet its objective of keeping deficits within 1% of GDP each year from 2026-27 to 2029-30, the Parliamentary Budget Officer (PBO) reported Thursday. It put the likelihood at 18%. The PBO has completed its stress test of the fiscal plan presented in the 2024 Fall Economic Statement (FES).
However, Ottawa is more likely than not to achieve its fiscal anchor in the medium term. The PBO reported, “there is a 61% chance that the federal debt-to-GDP ratio in 2029-30 will be below its 2023-24 level of 42.1%.”
The government would need to find $50 billion in revenue or reduce spending in that amount by 2029-30 to increase its odds of achieving the fiscal anchor to 80%, the PBO estimated.
This comes after the International Monetary Fund (IMF) released its October 2024 Fiscal Monitor detailing high and rising levels of global public indebtedness. It noted that much larger fiscal adjustments than currently planned will be needed to stabilize or reduce debt.
The PBO applied the same stochastic debt sustainability framework as the IMF for its stress test of the federal government’s 2024 FES. This approach generated a distribution of 10,000 paths of the government’s debt-to-GDP ratio based on future outcomes of the effective interest rate on government debt, the nominal GDP growth rate and the government’s operating balance.