By Promit Mukherjee

OTTAWA (Reuters) – Canada's Finance Minister Chrystia Freeland declined to comment on whether the country would meet its deficit target for the last fiscal year, raising economists' expectations that the Liberal government may have missed the target.

Freeland is set to present a fiscal update in a mini-budget next week and emphasized that Canada's debt-to-gross-domestic-product (GDP) ratio is the key financial metric to focus on, asserting that target will be achieved.

Economists acknowledged the debt-to-GDP ratio's importance but warned that failing to meet the deficit target could harm the credibility of Prime Minister Justin Trudeau and his Liberal government, especially as polls show Trudeau lagging ahead of a required election by late October 2025.

Robert Asselin, senior vice president of policy at the Business Council of Canada, stated, "You can't pick and choose fiscal anchors as you go, and renege on a commitment you made only a year ago." A breach could lead to higher borrowing costs for federal and provincial governments, hinder growth, and raise concerns regarding the government's financial management.

Freeland reiterated the importance of maintaining a declining debt-to-GDP ratio for sustainable public finances but evaded further questions about the deficit. She promised that the government would meet its debt-to-GDP target in the forthcoming update.

With economists and opposition leaders calling for the delayed review of spending and revenue numbers for 2023-24, some anticipate that Canada has exceeded its deficit goal, complicating future fiscal targets. Randall Bartlett, senior director of Canadian economics at Desjardins, warned that a lack of fiscal credibility could push up borrowing costs, ultimately reducing overall economic activity.

Last year, after Canada failed to meet fiscal objectives twice, Freeland proposed three new fiscal anchors: keeping the 2023-24 deficit at or below C$40.1 billion ($28.31 billion), lowering the debt-to-GDP ratio from last year’s 42%, and maintaining a declining deficit-to-GDP ratio below 1% by 2026-27.

Dustin Reid, vice president and chief strategist of fixed income at Mackenzie Investments, cautioned that uncontrolled deficits could adversely affect the Canadian bond market and the Canadian dollar. Asselin added, "The fact of the matter is this government is losing control of public finances and Canadians are noticing."

($1 = 1.4166 Canadian dollars)