Canada finance minister hopes investment drive will offer example to G7

Fri Apr 1, 2016 10:19am EDT
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By David Milliken and Ana Nicolaci da Costa

LONDON (Reuters) - Canada's decision to borrow more to fund major infrastructure investment could show other rich countries how to boost growth at a time when central banks have little room to do so, its finance minister Bill Morneau said on Friday.

In its first budget since an unexpected election victory last year, Prime Minister Justin Trudeau's Liberal government reversed the course of the previous Conservative administration, whose deficit-reduction strategy had been praised by Britain and Germany as they pursued similar goals.

Hit by a slump in oil and other commodities prices and seeing limits to the Bank of Canada's room to boost growth with interest rates near zero, Morneau set out plans to borrow three times as much as promised before the election, even as most wealthy nations strive to limit their borrowing.

He is looking to fund investment in transport and innovation, which he hopes will boost long-run growth, as well as social projects such as clean water for aboriginal reservations.

"Our Bank of Canada has done a good job over the course of the last number of years in managing monetary policy, and I'm sure they will continue to do so, but the impact of that on growth is going to be less – based on where we are in the cycle – than fiscal measures," Morneau said in an interview after speaking at a Thomson Reuters Newsmaker event in London.

The International Monetary Fund is expected to cut its global growth forecasts next week and Christine Lagarde, its managing director, has warned that growth could get derailed without joint action by major economies.

Morneau said his plans had met a positive reaction at a meeting of finance ministers in Paris on Thursday.

"The best way we can make a recommendation on something is by saying 'Here's what we're doing'," he said.   Continued...

Canada's Finance Minister Bill Morneau speaks at a Reuters Newsmaker event at Canada House in London, Britain, April 1, 2016. REUTERS/Toby Melville