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Canada's Finance Minister Bill Morneau speaks during a news conference in Ottawa on Oct. 20, 2016.CHRIS WATTIE/Reuters

A new forecast from the Parliamentary Budget Officer says the federal deficit is on track to be smaller than Finance Minister Bill Morneau has projected.

The PBO's latest estimate is that the deficit for the current fiscal year will come in at $20.5-billion, which would represent an improvement over the $25.1-billion deficit Mr. Morneau estimated in his November fiscal update.

The government's 2016 budget had projected a deficit of $29.4-billion this year, but that included a $6-billion cushion for unforeseen events that the government removed in the November update.

While the fiscal landscape has improved in recent months, the government's projected deficits are still much larger than what the Liberal Party promised during the 2015 election campaign.

At that time, the Liberals said they would run two years of deficits that would be no larger than $10-billion a year before returning to balance in time for the 2019 election.

With two months left in the 2016-17 fiscal year, there is still plenty of opportunity for changes to Ottawa's bottom line. A date has not yet been announced for the 2017 budget, but that document could potentially book new spending in the current fiscal year, which would throw off the PBO's projections.

Mr. Morneau has hinted that he would take a prudent approach to the 2017 budget, suggesting the federal government will take a wait-and-see approach when it comes to the potential of major policy changes in the United States.

President Donald Trump's administration has mused about significant changes to trade and tax laws, but no consensus has yet emerged regarding a clear set of policies.

Friday's report from the PBO did not include fiscal projections for future years.

Mr. Morneau's Nov. 1 fiscal update estimated that the size of the deficit would increase next year to $27.8-billion, followed by a $25.9-billion deficit in 2018-19 and a $19.3-billion deficit in 2019-20.