Canada's budgetary watchdog sees record deficit on COVID-19 spending

OTTAWA (Reuters) - Canada's budget deficit is on track to hit C$328.5 billion ($245.7 billion) in the 2020/21 fiscal year, including C$226 billion in pandemic relief spending, the country's independent parliamentary budget officer (PBO) said on Tuesday.

While that would be largest budgetary deficit since the series began in 1966/67, it is lower than the C$343.2 billion projected by the federal government in its last fiscal update in July. The next fiscal update is expected this fall.

PBO Yves Giroux's latest non-partisan report only includes measures announced up to Sept 1, and therefore does not tally new promises made by the ruling Liberals in the so-called Speech from the Throne earlier this month.

Giroux noted that without considering new commitments, he expects the record increase in spending in 2020/21 to be temporary. He projected the deficit to decrease to C$73.8 billion in 2021/22 and to continue to decline thereafter.

"As the labor market recovers and household and business confidence improve, the economy will slowly recuperate, with real GDP projected to reach its pre-crisis level by early-2022," Giroux said.

Still, the twin shocks of COVID-19 pandemic and sinking oil prices will have a "permanent impact on the Canadian economy," Giroux said.

Without new spending, Canada's debt-to-GDP ratio will peak at 48.3% in 2022/23, gradually declining over the medium term.

"Based on a return to pre-crisis policy settings and our economic outlook, federal fiscal policy over the medium term would be sustainable," Giroux said.

($1 = 1.3368 Canadian dollars)

(Reporting by Julie Gordon in Ottawa; Editing by Steve Orlofsky)