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Primer on Gross Debt/GDP Risk in the Shadow of COVID-19: Canada Joins Top Debtor Nations

March 26, 2021 11:27 am Published by

As the gross debt/GDP ratio grows, Canada faces the risk of increased interest coverage payments leading to reduced future fiscal flexibility. An acknowledgement of this increased risk must be met with an understanding of a plan to build the economy and to pay down the deficit. This raises a number of issues that need to be debated to address the risks coming in the future.

Adapting to COVID-19: A Behavioural Lens on Financial Institution Resilience

March 19, 2021 11:53 am Published by

With Canada now in its second year of living with COVID-19, the pandemic continues to pose ongoing and new challenges for financial institutions (FIs) in building resilience. Beyond unprecedented health, financial and economic risks, FIs face future challenges managing staff, operations and client relationships during the broader vaccine rollout.

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In Sickness and in Debt: The COVID-19 Impact on Sovereign Credit Risk

January 14, 2021 12:56 pm Published by

The COVID-19 pandemic provides a unique setting in which to evaluate the importance of a country’s fiscal capacity in explaining the relation between economic growth shocks and sovereign default risk. For a sample of 30 developed countries, we find a positive and significant sensitivity of sovereign default risk to the intensity of the virus’ spread for fiscally constrained governments. Supporting the fiscal channel, we confirm the results for Eurozone countries and U.S. states, for which monetary policy can be held constant. Our analysis suggests that financial markets penalize sovereigns with low fiscal space, thereby impairing their resilience to external shocks.