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Canada: Staff Report for the 2011 Article IV Consultation—Informational Annex

Author(s):
International Monetary Fund
Published Date:
December 2011
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I. FUND RELATIONS

(As of October 31, 2011)

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

II. General Resources Account:

SDR

Million
Percent

of Quota
Quota6,369.20100.00
Fund holdings of currency4,708.7873.93
Reserve position in Fund1,660.4826.07
Lending to the Fund742.86

III. SDR Department:

SDR

Million
Percent of

Allocation
Net cumulative allocation5,988.08100.00
Holdings5,880.3798.20

IV. Outstanding Purchases and Loans: None.

V. Financial Arrangements: None.

VI. Projected Obligations to Fund:

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

20102011201220132014
Principal

Charges/Interest
0.090.410.410.410.41
Total0.090.410.410.410.41

VII. Implementation of HIPC Initiative: Not applicable.

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

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

X. 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 December 2007) under the procedures set forth in Executive Board Decision No. 144-(52/51).

XI. Last Article IV Consultation: The Staff Report for the 2010 consultation with Canada was considered by the Executive Board on December 22, 2010 (IMF Country Report No. 10/377). Canada is on a 12-month consultation cycle.

XII. The 2011 Article IV discussions were conducted in Ottawa and Toronto from October 11–24 by G. Milesi-Ferretti (head), O. Celasun, P. Medas, J. Dagher (all WHD), G. Blondy (FAD), and A. Costa (MCM). Mr. Gilbert Terrier joined the mission for the meetings in Ottawa and Mr. Nicolas Eyzaguirre for the concluding meeting with Minister of Finance Flaherty and Bank of Canada Governor Carney in Ottawa on October 24. Ms. Beaton (Senior Advisor) attended the meetings and Mr. Hockin (Executive Director) participated in some of the meetings. A press conference was held on October 31. Outreach activities included discussions with the private sector and think tanks.

XIII. FSSA Participation and ROSC Assessments

Canada-Financial System Stability Assessment–Volume II: Report on Observance of Standards in the Financial System

www.imf.org

Summary: The FSSA report concluded that Canada has a stable and highly advanced financial system, which is among the soundest in the world. Moreover, it is supported by a well-developed regulatory system that shows a high degree of compliance with major international standards. Nevertheless, 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 Module

IMF 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 Module

IMF 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 Terrorism

IMF Country Report No. 08/372, 12/11/08

Summary: Canada underwent a detailed FATF evaluation of its anti-money laundering and combating the financing of terrorism (AML/CFT) framework in 2007. Shortcomings were identified with respect to the scope of customer due diligence, AML/CFT supervision, and the Canadian financial intelligence unit. Since then, a number of steps have been taken to strengthen the framework in these three areas, resulting in significant improvements.

Canada: Financial System Stability Assessment-Update

IMF 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.

XIV. Technical Assistance: Not applicable.

XV. Resident Representative: Not applicable.

II. STATISTICAL ISSUES

The quality, coverage, periodicity, and timeliness of Canada’s economic data are considered to be excellent 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 analysis of economic developments and assessment of policy proposals within a quantitative macroeconomic framework. In May 2001, Statistics Canada effected a smooth transition from Laspeyres methodology for estimating real expenditure-based GDP to Fisher index formulae, which enabled more accurate comparison between Canada and other G-7 countries.

Fiscal Sector. Statistics Canada provides quarterly data (a Statement of Government Operations along with a Balance Sheet) on the consolidated general government and its subsectors following the Government Finance Statistics Manual, 2001 (GFSM 2001) recommendations. In addition, the Department of Finance Canada provides monthly and annual data on the federal government’s budget, tax policies, rules and regulations for Canada’s banks and other financial institutions, according to the national presentation. The provided data enable adequate assessment of the impact of fiscal policy measures on Canada’s economic performance.

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 (IIP). Finance Canada provides monthly data on Official International Reserves in a format comparable to the IMF’s reserve data template, thus enabling adequate surveillance. Data are published at http://www.fin.gc.ca/finsearch/finresultse.asp?Who=News.

Canada: Table of Common Indicators Required for Surveillance
Date of latest

observation

(For all dates

in table,

please use

format

dd/mm/yy)
Date

received
Frequency

of

Data6
Frequency

of

Reporting6
Frequency of

Publication6
Memo Items:
Data Quality –

Methodological

soundness7
Data Quality

– Accuracy

and

reliability8
Exchange RatesSame daySame dayDDD
International Reserve Assets and Reserve Liabilities of the Monetary Authorities1Nov 3, 2011Nov 5, 2011WWW
Reserve/Base MoneyOct 2011Oct 2011WWWLO, O, LO, LOO, O, O, O, O
Broad MoneySep 2011Oct 2011MMM
Central Bank Balance SheetOct 21, 2011Oct 27, 2011WWW
Consolidated Balance Sheet of the Banking SystemAug 2011Sep 2011MMM
Interest Rates2Same daySame dayDDD
Consumer Price IndexSep 2011Oct 2011MMMO, O, O, OO, O, O, O, NA
Revenue, Expenditure, Balance and Composition of Financing3 – General Government42011 Q2Sep 2011QQQO, O, O, OO, O, O, O, O
Revenue, Expenditure, Balance and Composition of Financing3– Central GovernmentJuly 2011Aug 2011MMM
External Current Account Balance2011Q2Oct 2011QQQ
Exports and Imports of Goods and ServicesAug 2011Oct 2011MMMO, O, LO, OO, O, O, O, O
GDP/GNP2011 Q2Sep 2011QQQO, O, O, LOO, O, O, O, O
Gross External Debt2011 Q2Aug 2011QQQ
International Investment Position52011 Q2Oct 2011QQQ

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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