Provinces Will Require Support to Finance Increased Borrowing: Crisis Working Group on Monetary and Financial Measures

April 7, 2020 - Many provinces will face greater difficulties financing the revenue gaps and spending demands from COVID-19 as funding pressures continue to mount. While subnational governments have so far been successful in financing their increased borrowing, many provinces are in worse shape relative to their fiscal positions before the last financial crisis. Furthermore, the loss of provincial revenue from tax deferments will require increased debt financing, putting additional funding pressures on governments whose financial positions are already precarious. 

First and foremost, federal officials must support the functioning of markets for provincial debt. To this end, the Crisis Working Group on Monetary and Financial Measures recommends:  

• The Bank of Canada, while already purchasing provincial money-market securities, will likely also need to purchase longer-term provincial debt.
• The Bank must not be seen to support one province over another, and this will require a clear, simple, rules-based approach to Bank of Canada interventions in provincial debt markets.

If specific provinces require additional support beyond these central bank interventions, the most appropriate response would be to make use of the fiscal stabilization fund, which is designed to help provinces whose economies are experiencing large negative shocks.

For more information, please contact: Jeremy Kronick, Associate Director, Research, C.D. Howe Institute; Laura Bouchard, Communications Manager, C.D. Howe Institute: Phone: 416-865-9935; email: lbouchard@cdhowe.org