Canadians need a clearer explanation of the federal government’s proposal to sell bonds to Ukraine.
Traditionally, bonds are used to finance infrastructure. For example, in March this year, Canada issued $5 billion in green bonds to finance investments in green infrastructure and other projects aimed at addressing climate change and protecting the environment. . The government plans to issue more. Given Canada’s investment grade (AAA) status, foreign investors have recognized this as a good investment and constitute 45% of the investor base.
So what are the workings of this bond proposal to help Ukraine? Trudeau said the bonds would be just like regular five-year bonds. This means that the Canadian government sells the bonds and collects the funds to immediately give to Ukraine. The government will pay buyers interest on the bonds each year. And when the bonds mature, in five years, the government will reimburse the buyers. Remember that bond buyers can be foreign investors looking for a risk-free return on their investment.
How will the government reimburse bond buyers? Where will the money come from? The government would have to borrow the money, which would add to the national debt. And this money, of course, it would be the taxpayers who would provide it.
At first glance, it appears to be a gift given to Ukraine now, paid for by buyers now. But in reality, it is a gift that Canadian taxpayers will pay for in five years.
Let us compare with what happened after the Second World War, when Great Britain faced serious economic and financial difficulties. This country has negotiated a large, long-term, low-interest loan with the United States and a smaller one with Canada. It was not until 2006 that Britain paid off its debt.
The federal government must explain more clearly the proposal to sell bonds in favor of Ukraine.