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Look at Canada's federal debt relative to the size of the economy and the country is a model of fiscal righteousness.

What happens when you throw in all the borrowing by households, companies and the provinces and plot it on a chart? The results look pretty "awful," according to Scotia Capital economist Derek Holt.

"Canada is pushing toward the outer limit, along with countries like the U.S., U.K. and Spain," Mr. Holt said in a research note Thursday. And France, Italy and Japan are also in the same ballpark.

What happened is that the federal government vacated the debt markets as it wrestled down the deficit in the 1990s. But consumers, businesses and several of the provinces eagerly filled the void, Mr. Holt explained.

"What looks good on the federal balance sheet looks awful for everyone else's balance sheet," he said in an interview.

The bottom line is that Canada has one of the most indebted private sectors in the world, measured by gross debt and including both corporate and household borrowing. And that "isn't terribly appealing," Mr. Holt said.

Canada has a lot of company as a debtor nation. But it may be time for Canadians to stop being so smug and look at the bigger debt picture.

"The view that the country is vastly superior on debt exposures … is incorrect," Mr. Holt said.

Barrie McKenna

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