(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 report also says Canada should consider a standardized incentive regime to promote fairness and transparency, rather than negotiating company-specific deals.
The preliminary IMF 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.
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 agency 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 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 accelerate permitting. and promote intensification,” the report states.
In a statement, Finance Minister Chrystia Freeland “welcomes the findings 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”.
