In preliminary findings report, the International Monetary Fund has credited Canada for a “multipronged” approach to addressing climate change but warned that the nation’s green subsidies could stoke an international race to the bottom.
According to the report, “Canada’s actions to meet its climate commitments and to incentivize investment in green sectors are welcome, although the design of some incentives could pose some risks”.
The financial body hailed Canada’s climate action, including its carbon-pricing regime and 2023 federal budget investments in the green economy.
However, it called for better international co-ordination to avoid a “race to the bottom” where countries compete over investments with even larger subsidies.
The report said “Moreover, the current strong focus on electric vehicles — and their batteries in particular — as key to Canada’s green industrial development will require a cautious approach given rapid technological change”.
It also recommended that Canada should consider a standard incentive regime to promote fairness and transparency, instead of negotiating company-specific packages.
IMF’s staff also provided some analysis of the current economic situation in Canada, noting the Bank of Canada’s recent rate hike was warranted, given the economy has more steam than anticipated.
Harping on the fiscal policy front, the body recommended that government spending should remain tight to help bring inflation down. It also recommended better fiscal anchors, or rules, to balance spending with revenues.
The report said “While Canada’s public debt is relatively low in international comparison, it remains substantially above pre-pandemic levels”.
According to the agency, Canada needs to work to rebuild its fiscal buffer, which would allow government to address any future crises that require higher spending.
The IMF also called for more action to address housing affordability and boost supply, including increased co-ordination on housing policy between levels of government and stakeholders.
“While the Housing Accelerator Fund, introduced in the 2022 budget to provide incentives for municipalities to expand housing supply, is a step in the right direction, more needs to be done to expedite permitting and promote densification,” the report says.
Reacting to the IMF’s report, Finance Minister Chrystia Freeland welcomed the IMF’s findings, which she said “highlighted Canada’s resilient economy, stable fiscal outlook, clean economy plan and actions to improve housing affordability.”
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