OTTAWA (Reuters) - The Canadian government set a new two-month deadline on Wednesday for the country's provinces to line up projects to be funded by stimulus cash, and committed to a firm schedule for winding up the emergency spending it pledged after the economy dropped into recession.
In its fourth quarterly update on its two-year C$47 billion ($45 billion) stimulus package, Ottawa reiterated its forecast of a record high 2009-10 budget deficit of C$55.9 billion. But it vowed to cut the deficit in half in two years just by winding down its economic stimulus plan.
The minority Conservative government headed by Prime Minister Stephen Harper intends to end stimulus spending at the end of March 2011.
For infrastructure projects -- which account for C$16 billion of the total -- to completed by that deadline, spending commitments by the federal and provincial governments must be in place by the end of January, it said.
Facing political backlash for allegedly dragging its feet on construction projects, Ottawa warned the provinces to "use it or lose it."
"If money is not used, then we can use it in other parts where we might need it," Finance Minister Jim Flaherty told reporters following a speech in Winnipeg. "There may have to be some shifting around of funds, if money isn't spent by March 2011."
Flaherty said the unused funds could be used where most needed -- such as to expand benefits for the unemployment -- or in programs that have already absorbed 100 percent of their allocated money, such as university infrastructure projects.
Under the stimulus program, the federal government must negotiate funding with provincial and municipal governments. It estimates that when all levels of government spending are included, the funding committed for stimulus measures will total C$62 billion.
Official data shows the bulk of the stimulus money will be spent in the 2009-10 fiscal year, analysts said.
"The overall stimulus effect peaks this year and begins to wane next year," said Scotia Capital economists Derek Holt and Karen Cordes.
"The implications for GDP growth are significant, in that the total stimulus lift to GDP growth peaks this year and turns to either flatness or a drag effect on overall annual GDP growth next year," they wrote in a note to clients.
The economy crawled out of recession in the third quarter but remains weaker than most had expected and the jobless rate is expected to continue rising for months to come.
Harper, on his first trip to China, warned that it is too early for the government to let down its guard. The aftershocks of the global financial crisis are still being felt, he said. "Our recovery could be derailed by events beyond our borders," he added.
The report, unveiled by Harper en route to Beijing, attempts to deflect criticism from opposition parties that say the Conservatives have been to slow to get the money flowing.
The biggest opposition party, the Liberals, cited what they said was official government data that shows that only 7 percent of infrastructure projects earmarked under the plan are actually under way.
"It's a report full of weasel words that tries to hide the truth from Canadians," Liberal finance critic John McCallum said in an interview with CBC television.
"The government won't tell us how many jobs have been created ... presumably because with only 7 pct of the projects under way, very few jobs have been created," he said.
The federal stimulus program is comprised of some permanent measures such as tax cuts, along with temporary ones such as infrastructure spending and providing liquidity to financial institutions.
The government said 97 percent of the funds allocated for the first year has been committed and that 70 percent is actually flowing into the economy.
Funds have been committed on more than 12,000 projects, and of those, 8,000 have begun, it said.
Reporting by Louise Egan and Rod Nickel; editing by Peter Galloway