July 22, 2015 / 2:36 PM / 3 years ago

Watchdog sees Canada budget surplus turning into narrow deficit

OTTAWA, July 22 (Reuters) - Canada’s narrow budget surplus in the current fiscal year would turn into a small deficit if economic growth turns out to be as weak as the Bank of Canada forecast last week, the country’s parliamentary budget watchdog said on Wednesday.

The office of the Parliamentary Budget Officer (PBO), which has a mandate to provide independent analysis to lawmakers, forecast a deficit of C$1.0 billion ($770 million) in 2015-16, after using up the budget’s C$1 billion contingency reserve and factoring in other economic developments.

The federal budget in April had shown a C$1.4 billion surplus plus the reserve. The economy has struggled since then due to the weaker price for oil, a major Canadian export.

The Conservative government’s stewardship of the economy has become a central issue ahead of an Oct. 19 election. The finance minister has pledged to eke out a budget surplus this year.

The PBO report forecast that the government’s projection of a C$1.7 billion surplus for 2016-17 would be reduced to C$600 million after using up the reserve.

The PBO did the new calculations at the request of the opposition New Democratic Party after the central bank downgraded its real growth forecast for calendar 2015 to 1.1 percent from 1.9 percent because of lower oil prices. The budget had assumed 2.0 percent growth, based on private-sector forecasts.

The PBO analysis assumes government spending plans would remain as in the budget, though governments do sometimes spend less than budgeted.

$1=$1.30 Canadian Reporting by Randall Palmer; Editing by Jeffrey Hodgson; and Peter Galloway

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