Assessing the Potential Risks to the Sustainability of the Government of Canada’s Current Fiscal Plan 5 The Debt Ratio and the Interest Cost Ratio In this paper we use the debt-to-GDP ratio and the that any such threshold “depends on investor interest cost-to-revenue ratio as tools for assessing perception, the state of financial markets, and the potential risks to fiscal stability, and hence the. [...] Assessing the Potential Risks to the Sustainability of the Government of Canada’s Current Fiscal Plan 24 ANNEXE 1: The Debt Ratio and the Interest Cost Ratio and their Drivers: 1977 to 2020 A number of fiscal gauges help evaluating the measure proceeds from the accumulation of the degree of risk to public finance stability. [...] As a result, the effective interest Drivers of Changes in the Debt-to-GDP Ratio rate on the interest-bearing debt, calculated as the ratio of interest costs in period t to the average of Common measures of the federal debt comprise the interest-bearing debt at the end of periods t-1 accumulated deficit, net debt, total gross debt, and t, is much closer to market interest rates than and interest-be. [...] Assessing the Potential Risks to the Sustainability of the Government of Canada’s Current Fiscal Plan 30 Relationships Between the Debt Ratio and While both the debt ratio and the interest cost ratio the Interest Cost Ratio are directly influenced by interest rates, the interest cost ratio is far more sensitive to them than the The debt ratio and the interest cost ratio are not debt ratio. [...] On the one hand, affect the level of the interest cost ratio whereas interest costs need to be financed by additional they have a direct impact only on the change in the debt, so a shock to the interest cost ratio debt ratio, which amounts to a fraction of the debt directly affects the debt ratio dt.
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Table of Contents
- By David Dodge and Richard Dion Senior Advisors at Bennett Jones 1
- In collaboration with Robert Asselin Senior Vice President of Policy at the Business Council of Canada 1
- Abstract 1 2
- Introduction 3 2
- The Debt Ratio and the Interest Cost Ratio 4 2
- The Base Scenario 1 8 2
- The Increased Spending Scenario 2 11 2
- The Recession Scenario 3 13 2
- The Lower Supply Scenario 4 16 2
- The Recession Increased Spending and Lower Supply Scenario 5 19 2
- Summary and Conclusion 22 2
- Implications 24 2
- ANNEXE 1 The Debt Ratio and the Interest Cost Ratio and their Drivers 1977 to 2020 25 2
- Abstract 3
- Résumé 4
- Introduction 5
- The Debt Ratio and the Interest Cost Ratio 8
- The Base Scenario 1 10
- The Increased Spending Scenario 2 13
- The Recession Scenario 3 15
- The Lower Supply Scenario 4 18
- The Recession Increased Spending and Lower Supply Scenario 5 21
- Summary and Conclusion 24
- Second 25
- Third 25
- Finally 25
- Implications 26
- ANNEXE 1 27
- Drivers of Changes in the Debt-to-GDP Ratio 27
- Drivers of the Interest Cost-to-Revenue Ratio 32
- I R 32
- Relationships Between the Debt Ratio and the Interest Cost Ratio 33
