(OTTAWA) The International Monetary Fund warns that “green grants” offered by Ottawa could fuel an international downward spiral, but welcomes Canada’s “multi-pronged” approach to tackling climate change.
The international agency published on Tuesday the preliminary conclusions of its services at the end of their most recent mission to Canada.
The report commends the measures taken by Canada to meet its climate commitments and to encourage investment in green sectors. But the IMF says the design of some incentive measures presents “risks”.
The IMF also commends Canada’s climate action, including its carbon pricing regime and Federal Budget 2023 investments in the “green economy”.
But he recommends better international coordination to avoid a “race to the bottom”, where countries compete to offer even bigger subsidies.
The IMF also argues that the current focus on electric vehicles — and their batteries in particular — as Canada’s “key to green industrial development” will require a “cautious approach,” given rapid technological change.
The IMF report also says Canada should consider a standardized incentive regime to promote fairness and transparency, rather than negotiating company-specific agreements.
The IMF’s preliminary report comes as the federal Liberal government announces historic investments in the “green economy” and entices automakers like Stellantis and Volkswagen with billions of dollars in subsidies.
Deficits and Debt
In its preliminary report, the staff of the IMF also offers an analysis of the current economic situation in Canada. It is therefore believed that the recent rate hike by the Bank of Canada was justified, given that the Canadian economy is more dynamic than expected.
On the fiscal policy front, the IMF says government spending should remain tight to help reduce inflation in the country. The organization also recommends better fiscal anchors, or targets, to balance spending with revenue.
“Although Canada’s public debt is relatively low compared to other countries around the world, it remains significantly above pre-pandemic levels,” the report said.
The international agency says Canada should strive to rebuild its fiscal reserve, which would allow the government to deal with any future crises requiring higher spending.
The IMF has also called for more action to improve housing affordability and stimulate supply, including increased coordination of housing policy between levels of government and various stakeholders.
“While the Fund to Accelerate Housing Construction, announced in Budget 2022 to incentivize municipalities to expand housing supply, is a step in the right direction, much more needs to be done to speed up permitting. and promote intensification,” the report states.
In a press release, the Minister of Finance, Chrystia Freeland, “welcomes the conclusions of the IMF”. According to her, this report “highlights Canada’s resilient economy, its stable fiscal outlook, its plan for a clean economy, as well as measures to tackle the problem of affordable housing”.