Stephen Harper is urging leaders of the Group of 20 not to lose sight of the importance of reining in debt after several years of deficit-fuelled stimulus spending, sticking to a common refrain in the face of weak recoveries among member countries including Canada.
While warning other G20 members in closed-door meetings Thursday about the risks of accumulating public debt, Mr. Harper also acknowledged that recoveries from the financial crisis that started five years ago have been disappointing because many countries continue to grapple with high unemployment, weak growth and rising income inequality, according to a Canadian government source.
Mr. Harper delivered his message during the two-day G20 summit in St. Petersburg amid discussions dominated by concerns about how to stabilize emerging markets roiled by the threat of shifting monetary policy in Washington, D.C., where the U.S. Federal Reserve has signalled its intention to "taper" the stimulus program it put in place to pull that country out of recession.
Speculation about the Fed's moves has pushed interest rates higher in the United States, sparking a reversal of capital that went to emerging markets during the days of easy credit.
To that end, the BRIC group of emerging economies – Brazil, Russia, India and China – announced they will contribute $100-billion (U.S.) to a fund meant to steady currency markets destabilized by an expected pullback of U.S. monetary stimulus.
"The eventual normalization of monetary policies needs to be effectively and carefully calibrated and clearly communicated," the BRIC group said in a joint statement.
China, holder of the world's largest foreign exchange reserves, will contribute the bulk of the currency pool. But it will be much smaller than the $240-billion originally envisaged and officials said it would not be functional for some time yet. China committed $41-billion; Brazil, India and Russia $18-billion each; and South Africa $5-billion.
Staying with the debt theme, Mr. Harper also announced a new – slightly softer – timeline for reducing the national debt, even as it presses other G20 members to follow Canada's lead in curbing debts and deficits.
Mr. Harper and Finance Minister Jim Flaherty promised to bring Canada's debt-to-GDP ratio down to 25 per cent by 2021. The government said this would be in addition to erasing annual deficits by 2015.
The new 25-per-cent target represents a softening of a timeline Mr. Flaherty's department released in 2012. Last fall, Finance Canada announced long-term debt projections that assumed a federal debt-to-GDP ratio of 23.8 per cent in 2020-2021.
A Finance Ministry official explained that last year's figure was a projection, rather than a target, and that Thursday's target reflects more current economic data.
Mr. Flaherty said it is possible that Canada will beat the 25-per-cent target, but that it is important to have targets that can be achieved.
"We're going to aim at 25. If we do a bit better, that's great," Mr. Flaherty told reporters at the G20 meeting. "We have seen some movement in the economy upward and downward over the past year or two. Right now things look relatively good in the Canadian economy."
Mr. Flaherty's 2007 budget promised to erase Canada's net public debt by 2021 at the latest. Net public debt is a broader measurement that includes provincial debt and pension assets such as the Canada Pension Plan.
Canada's federal debt to GDP grew from 29.9 per cent in 2007-2008 to 33.8 per cent in 2011-2012. Even after several years of deficit spending to stimulate the economy, federal debt levels remain far from the highs seen nearly two decades ago.
In 1995-1996, federal debt-to-GDP reached a high of 68.4 per cent, a level that sparked strong concern among internal investors and led to deep spending cuts.
The G20's Russian hosts have worked to keep the official agenda focused on economic issues such as banking reform and tax evasion. Foreign affairs ministers from some of the G20 countries will meet today for a meeting specifically devoted to the Syrian crisis.