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Canada: Staff Report for the 2017 Article IV Consultation—Informational Annex

Author(s):
International Monetary Fund. Western Hemisphere Dept.
Published Date:
July 2017
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Fund Relations

(As of May 31, 2017)

Membership Status: Joined 12/27/1945; Article VIII

General Resources Account:SDR MillionPercent of Quota
Quota11,023.90100.00
Fund holdings of currency10,048.7791.15
Reserve Tranche Position975.168.85
Lending to the Fund
New Arrangements to Borrow623.08
SDR Department:SDR MillionPercent of Allocation
Net cumulative allocation5,988.08100.00
Holdings5,635.3594.11

Outstanding Purchases and Loans: None.

Latest Financial Arrangements: None.

Projected Obligations to Fund:

(SDR Million; based on existing use of resources and present holdings of SDRs):

Forthcoming
20172018201920202021
Principal
Charges/Interest0.972.122.122.122.12
Total0.972.122.122.122.12

Implementation of HIPC Initiative: Not Applicable.

Implementation of Multilateral Debt Relief Initiative (MDRI): Not Applicable.

Implementation of Post-Catastrophe Debt Relief (PCDR): Not Applicable.

Exchange Rate Arrangements: The authorities maintain a “free floating” exchange rate regime. The exchange rate regime is free from exchange restrictions and multiple currency practices. The Canadian authorities do not maintain margins with respect to exchange transactions. However, the authorities may intervene to maintain orderly conditions in the exchange market. There are no taxes or subsidies on purchases or sales of foreign exchange. Canada has accepted the obligations of Article VIII, Sections 2, 3, and 4 (a), and maintains an exchange system that is free of restrictions on the making of payments and transfers for current international transactions. Canada maintains exchange restrictions for security reasons, based on UN Security Council Resolutions, that have been notified to the Fund for approval (most recently in June 10, 2014) under the procedures set forth in Executive Board Decision No. 144–(52/51).

Last Article IV Consultation: The Staff Report for the 2016 consultation with Canada was considered by the Executive Board on June 6, 2016 (IMF Country Report No. 16/146). Canada is on a 12-month consultation cycle.

2017 Article IV Consultation: Discussions took place in Toronto and Ottawa during May 15–26 and May 30–31, 2017. The team comprised Cheng Hoon Lim (head), Kotaro Ishi, Yulia Ustyugova (all WHD), Zsofia Arvai (MCM), and David Gentry (FAD). Messrs. Werner and Srinivasan (both WHD) and Ms. Horsman (ED) joined the mission for the concluding meeting in Ottawa. Ms. Young and Ms. Zorn (OED) accompanied the mission. The mission met with Finance Minister Morneau, Governor Poloz, Superintendent Rudin, Deputy Minister Rochon, Deputy Governors Lane and Schembri, other senior officials, regulators, provincial governments, representatives from the financial and business sector, academics, and think tanks. The press conference was held on May 31, 2017 in Ottawa.

FSSA Participation and ROSC Assessments

Canada: Financial System Stability Assessment-Volume II: Report on Observance of Standards in the Financial Systemwww.imf.org

June 30, 2000

Summary: The FSSA report concluded that Canada has a stable and highly advanced financial system, which is among the soundest in the world. It is supported by a well-developed regulatory system that shows a high degree of compliance with major international standards. The FSSA report made a few recommendations to further strengthen the regulatory framework and financial system’s resilience, most of which have already been addressed, including:

  • Introducing capital requirements for the guarantees in life insurance segregated fund (completed by end-2001);

  • Tabling legislation granting the Office of the Superintendent of Financial Institutions (OSFI) powers to remove a financial institution’s director or senior officer if the person is deemed not suitable to hold that office based on a number of criteria. The latter legislation brought Canada into broad compliance with the Basel Core Principles;

  • Making significant progress in harmonizing securities regulation and improving coordination among provincial securities regulators, including through a newly created association of securities regulators, the Canadian Securities Administrators. Although there remain multiple regulators at the provincial level, a Senate commission was created to develop specific recommendations on further harmonization and streamlining of securities regulation.

Canada: Report on the Observance of Standards and Codes—Fiscal Transparency ModuleIMF Country Report

No. 02/51, 03/12/02

Summary: The report found that fiscal management in Canada meets the requirements of the fiscal transparency code, and in a number of instances represents best practice. In particular, it highlighted the use of private sector economic forecasts. Fiscal management was also commended for its statistical integrity, impartial tax administration, open procurement, and a transparent regulatory process.

The report found several areas where further improvements would be desirable, including: (i) the preparation of timely, current year estimates of federal and provincial budgets on a comparable basis, (ii) a comprehensive account of the procedures for the budget cycle and expenditure management system, (iii) systematic reporting of the use of reserves for non-economic contingencies, (iv) resumption of publication of reconciled national and public accounts forecasts of major aggregates over the forecast horizon, and (v) publication by all governments of quasi-fiscal activities.

Many of these issues have been addressed, including: (i) the release by Statistics Canada of consolidated data for federal and provincial budgets for 2001–02 (on a Financial Management System basis); (ii) the publication of comprehensive descriptions of budget and expenditure management procedures, including a joint document entitled “Budgeting in Canada” by the Government and the OECD, detailed accounts of policies and procedures on expenditure management at the website of the Treasury Board Secretariat, and the explanation of the budget cycle and process in Budget and Update documents; and (iii) publication of reconciled national and public accounts forecasting.

Canada: Report on the Observance of Standards and Codes—Data ModuleIMF Country Report No. 03/328,

10/23/03

Summary: Canada’s macroeconomic statistics are comprehensive, timely, and accurate and thus adequate to conduct effective surveillance of economic and financial policies. Official institutions responsible for the compilation and dissemination of the macroeconomic datasets are supported by adequate legal and institutional frameworks. These frameworks protect confidentiality and ensure that statistical work is conducted within a quality assurance program and with sufficient resources. Integrity is ensured by the professionalism of the staff, transparency in statistical policies and practices, and the provision of ethical guidelines for staff. Compilers generally follow internationally accepted guidelines in the production of the macroeconomic statistics, which is well-supported by excellent efforts to develop source data that facilitate a high degree of accuracy and reliability. Statistics are generally relevant, well documented, available with good frequency on a timely basis, and readily accessible to users, who trust them as objective.

While recognizing the high quality of the macroeconomic data, the report makes recommendations to further strengthen the statistical system, most of which are already being addressed, including these priorities:

  • Articulate the roles of Statistics Canada and the Bank of Canada in producing financial sector statistics and explore possibilities for more data sharing of monetary and financial statistics;

  • Estimate consumption of fixed capital at replacement cost rather than historic costs now used for the corporate sector in the Canadian System of National Accounts (CSNA);

  • Disseminate information on the sources and methods used in compiling quarterly public sector statistics for the quarterly CSNA; and

  • Reclassify certain transactions that are not recorded in line with the 5th edition of the Balance of Payments Manual (BPM5).

Canada: Report on the Observance of Standards and Codes–FATF Recommendations for Anti–Money Laundering and Combating the Financing of TerrorismIMF Country Report No. 08/372,

12/11/08

Summary: Canada’s anti–money laundering and combating the financing of terrorism (AML/CFT) framework was last assessed by the Financial Action Task Force (FATF) and the Asia Pacific Group on Money Laundering (APG) in March 2007. Shortcomings were identified in particular with respect to the scope of customer due diligence, the implementation of AML/CFT supervision, and the effectiveness of the financial intelligence unit (FINTRAC). Since 2007, Canada submitted six follow-up reports to the FATF, the last one in February 2014, and took a number of steps to strengthen the framework in these areas. The next mutual evaluation of Canada will be conducted by the Fund and is scheduled in the fourth quarter of 2015.

Canada: Financial System Stability Assessment-UpdateIMF Country Report No. 08/59,

02/13/08

Summary: The FSSA update concluded that Canada’s financial system is mature, sophisticated, and well-managed. Financial stability was underpinned by sound macroeconomic policies and strong prudential regulation and supervision, and well-designed deposit insurance and arrangements for crisis management and failure resolution. The banking system appeared sound, with stress tests showing that the major banks could withstand sizeable shocks, although they did faces some challenges related to the global financial turmoil that started in mid-2007. Also, there were some concerns about bank attempts to build on their secure domestic position, to enter highly competitive foreign markets or complex activities. The update reiterated the advantages of moving towards a single securities regulator, including the streamlining of policy development, reductions in compliance costs, and improved enforcement. However, it also recognized the significant improvements to the regulatory system from the creation of the Canadian Securities Administrators (CSA), and the implementation of the passport system.

Canada: Financial System Stability Assessment-UpdateIMF Country Report No. 14/29,

02/03/14

Summary: The FSSA Update found that Canada’s financial system successfully navigated the global financial crisis, and stress tests suggest that major Canadian financial institutions are resilient to credit, liquidity, and contagion risks arising from a severe stress scenario. Elevated house prices and high household debt remain an area of concern (despite the substantial level of government-guaranteed mortgage insurance), though targeted prudential and macro-prudential measures are proving to be effective. The regulatory and supervisory framework demonstrates strong compliance with international standards. Nevertheless, the Update called for more clarity around the legal independence of OSFI and for assigning stronger prudential responsibilities to this regulator. In the securities markets, provincial regulators and the federal government have made significant progress in implementing a robust and harmonized framework, but challenges remain in enforcement, risk identification, and timely policy making. The FSSA Update argued that the federal system of safety nets is credible, although there is no single body with an explicit mandate to take a comprehensive view of systemic risks or to undertake crisis preparedness. Improving cooperation between federal and provincial authorities would further reinforce system-wide oversight arrangements.

Canada: Report on the Observance of Standards and Codes-FATF Recommendations for Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT)IMF Country Report No. 16/293,

09/15/16

Summary: This report evaluates the observance of standards and codes on Financial Action Task Force recommendations for anti-money laundering and combating the financing of terrorism (AML/CFT) in Canada. The findings reveal that the Canadian authorities have a good understanding of most of Canada’s money laundering and terrorism financing risks. AML/CFT cooperation and coordination are generally good at the policy and operational levels. All high-risk areas are covered by AML/CFT measures, except legal counsel, legal firms, and Quebec notaries. This constitutes a significant loophole in Canada’s AML/CFT framework. Law enforcement results are not commensurate with the money-laundering risk, and asset recovery is low.

Technical Assistance: Not Applicable.

Resident Representative: Not Applicable.

Statistical Issues

The quality, coverage, periodicity, and timeliness of Canada’s economic data are considered to be adequate both in the context of the Article IV consultation and for purposes of ongoing surveillance. Canada has subscribed to the Fund’s Special Data Dissemination Standard (SDDS), and its metadata are posted on the Fund’s Dissemination Standards Bulletin Board (DSBB). The data ROSC was published on October 23, 2003.

Real Sector. Statistics Canada provides timely and adequate data in monthly, quarterly, and annual frequency thereby facilitating the analyses of economic developments and policy assessments within a quantitative macroeconomic framework. In October 2012, Statistics Canada started aligning the Canadian System of National Accounts (CSNA) with the SNA2008 international standard. The changes introduced in the CSNA2012 included, among others, capitalization of research and development, move to replacement cost-based valuation of consumption of fixed capital, and valuing equity more consistently at market price. Additional changes were introduced with the 2014 release of the CSNA, which for the most part did not have a significant impact on GDP and represented the development of new accounts, improved integration between the CSNA and Government Finance Statistics, additional detail, and presentational changes that better align with international standards (see, Statistics Canada). In 2015 Statistics Canada carried out comprehensive revision to the Canadian System of Macroeconomic Accounts (CSMA). The four main sources of revision with that release of the CSMA were: the integration of Government Finance Statistics, the improved treatment of defined benefit pension plans, the measurement of financial services purchased by households’, and updated measures of national wealth.

Fiscal Sector. Statistics Canada provides quarterly data (a Statement of Government Operations along with a Balance Sheet) on the general government and its subsectors following the Government Finance Statistics Manual 2001 (GFSM 2001) recommendations. In November 2014, Statistics Canada published the provisional (unconsolidated) data on Canadian Government Finance Statistics (CGFS) for 2008–2012. This covers the statement of operations for all components of general government, as well as federal and provincial and territorial government business enterprises. Data on the functional expenses were also released. Subsequently, in February 2015, estimates for financial flows and the balance sheet of the general government and government business enterprises for 2007–2012 were published. Statistics Canada published Consolidated Government Finance Statistics data for 2008-2014 for the first time in March 2016 and for 2015 in March 2017. In addition, the Department of Finance Canada provides monthly and annual data on the federal government’s budget (according to the national presentation) and tax policies. The provided data enable adequate assessment of the impact of fiscal policy measures on Canada’s economic performance.

Financial Sector. The Bank of Canada and OSFI provide monthly and quarterly data on the broad range of financial variables. However, the 2013 FSSA Update recommended that financial sector data collection and dissemination should be expanded with a view to enhancing coverage, regularity, and availability of time-series to facilitate analysis.

Monetary Sector. The Bank of Canada provides timely and adequate coverage of daily, weekly, monthly, and quarterly data related to the monetary sector.

External Sector. Statistics Canada provides timely information on a quarterly frequency on the balance of payments, external debt, and the international investment position. Department of Finance Canada provides monthly data on Official International Reserves in a format comparable to the IMF’s reserve data template, thus enabling adequate surveillance.

Canada: Table of Common Indicators Required For Surveillance
Date of latest observationDate receivedFrequency of Data6Frequency of Reporting6Frequency of Publication6Memo Items:
Data Quality–Methodological soundness7Data Quality–Accuracy and reliability8
Exchange RatesSame daySame dayDDD
International Reserve Assets and Reserve Liabilities of the Monetary Authorities1June 15, 2017June 16, 2017WWW
Reserve/Base MoneyJune 14, 2017June 16, 2017WWWLO, O, LO, LOO, O, O, O, O
Broad MoneyEnd April, 2017May 29, 2017MMM
Central Bank Balance SheetJune 14, 2017June 16, 2017WWW
Consolidated Balance Sheet of the Banking SystemEnd April, 2017May 29, 2017MMM
Interest Rates2Same daySame dayDDD
Consumer Price IndexApril 2017May 19, 2017MMMO, O, O, OO, O, O, O, NA
Revenue, Expenditure, Balance and Composition of Financing3 –General Government42017 Q1May 31, 2017QQQO, O, O, OO, O, O, O, O
Revenue, Expenditure, Balance and Composition of Financing3- Central GovernmentMar 2017May 26, 2017MMM
External Current Account Balance2017 Q1May 30, 2017QQQO, O, LO, OO, O, O, O, O
Exports and Imports of Goods and ServicesApril 2017June 2, 2017MMM
GDP/GNP2017 Q1May 31, 2017QQQO, O, O, LOO, O, O, O, O
Gross External Debt2017 Q1June 13, 2017QQQ
International Investment Position52017 Q1June 13, 2017QQQ

Any reserve assets that are pledged or otherwise encumbered should be specified separately. Also, data should comprise short-term liabilities linked to a foreign currency but settled by other means as well as the notional values of financial derivatives to pay and to receive foreign currency, including those linked to a foreign currency but settled by other means.

Both market-based and officially-determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.

Foreign, domestic bank, and domestic nonbank financing.

The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments.

Includes external gross financial asset and liability positions vis-à-vis nonresidents.

Daily (D); weekly (W); monthly (M); quarterly (Q); annually (A); irregular (I); and not available (NA).

Reflects the assessment provided in the data ROSC published on October 23, 2003 and based on the findings of the mission that took place during January 22–February 5, 2003 for the dataset corresponding to the variable in each row. The assessment indicates whether international standards concerning (respectively) concepts and definitions, scope, classification/sectorization, and basis for recording are fully observed (O), largely observed (LO), largely not observed (LNO), not observed (NO); and not available (NA).

Same as footnote 8, except referring to international standards concerning (respectively) source data, assessment of source data, statistical techniques, assessment and validation of intermediate data and statistical outputs, and revision studies.

Any reserve assets that are pledged or otherwise encumbered should be specified separately. Also, data should comprise short-term liabilities linked to a foreign currency but settled by other means as well as the notional values of financial derivatives to pay and to receive foreign currency, including those linked to a foreign currency but settled by other means.

Both market-based and officially-determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.

Foreign, domestic bank, and domestic nonbank financing.

The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments.

Includes external gross financial asset and liability positions vis-à-vis nonresidents.

Daily (D); weekly (W); monthly (M); quarterly (Q); annually (A); irregular (I); and not available (NA).

Reflects the assessment provided in the data ROSC published on October 23, 2003 and based on the findings of the mission that took place during January 22–February 5, 2003 for the dataset corresponding to the variable in each row. The assessment indicates whether international standards concerning (respectively) concepts and definitions, scope, classification/sectorization, and basis for recording are fully observed (O), largely observed (LO), largely not observed (LNO), not observed (NO); and not available (NA).

Same as footnote 8, except referring to international standards concerning (respectively) source data, assessment of source data, statistical techniques, assessment and validation of intermediate data and statistical outputs, and revision studies.

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