Finance Minister Bill Morneau will table Budget 2018 on February 27. Our expectations at the Canadian International Development Platformwhere we conduct research and data analytics on Canada’s international engagement, are very low.
Timing makes this a “nothing” budget — it is too far away from the next election (October 2019) to announce major new spending or directions. We expect it will be a combination of touting success and cautious optimism. It will no doubt contain the usual messaging on strengthening the middle class, progressive, equal opportunity, reconciliatory, gender-equal, feminist agenda, with a healthy dose of innovation and technology, but little by way of new money to make any of this more real. In preparation for our assessment of the figures that are released, here are five areas relating to Canada on the global stage we will watch for.
1. A possible G7 initiative on leveraging private finance.
On Canada’s global role (which is usually expressed in the “Canada in the World” budget chapter), it is impossible to delink the budget from the far larger and more global photo-op that is the Charlevoix G7 summit in June. There has been much pontificating about the Canadian G7 presidency and the themes are set.
Of note, the G7 ministerial meeting to be held in Whistler at the end of May will mark the first time development and finance ministerials are combined. This, along with the fact that Canada has been playing a keen role in the “friends of Sustainable Development Goals (SDG) financing” initiative, as we have discussed, among other indications, leads us to expect that Canada is working to corral the others around a G7 initiative to leverage private capital into development — so-called ‘blended finance’ at scale.
The idea is deceptively attractive — for example, using aid to incentivize pension funds to invest in lower-income countries and “base of the pyramid” opportunities. Whether it works is a different story. (Spoiler: we think it will not in the way it is being conceived.) We will watch for any indication of this in the budget, and at the G7.
Also worth watching is whether the budget touts the success of FinDev Canada, the new development finance institution based in Montreal that was finally launched this month, three years after it was first announced, and which received mention in both Budget 2015 and 2017.
The key point is that on development, we expect the budget to punt any real announcements to the G7. And we don’t expect the G7 in Charlevoix to announce a signature priority with new money, as was the case with the Muskoka Initiative on maternal newborn child health in 2010, which came with $1.1 billion in new money. This year’s outcome may be more like that of the G7 summit Canada hosted in 2002 in Kananaskis, where Canada announced an investment fund for Africa to ‘pioneer’ private sector approaches to development (an approach that may have been novel at the time, but certainly not so any more.)
2. Costed framework for the Feminist International Assistance Policy.
Global Affairs Canada launched its Feminist International Assistance Policy (FIAP) in June of last year. (We studied the implications of the targets embedded in the new policy, the findings of which can be found here). The policy came out at the same time as the new defence strategy — but while the defence strategy came with a fully costed framework (and a 70 percent increase in spending), there was no such framework when it came to the FIAP.
This is emblematic of how seriously, or rather not, development is taken as a pillar of Canadian foreign policy at the moment. When pushed, the department’s response was that a funding framework for achieving the lofty ideals of the FIAP was in the works and forthcoming. It has not been released to date.
Two things have happened since the policy’s release last year. First, the contrast between the development minister’s position (that Canada needs a more “ambitious” plan to really champion women’s rights) and that of the finance minister (that development groups need to do more with less foreign aid) has grown extremely stark. Second, going into the G7, on the official development assistance-to-national income (or ODA/GNI) generosity index, Canada’s already poor performance has gotten even worse, and is now at one of its lowest levels in history.
No one serious about development believes the ODA/GNI ratio is the definitive measure of commitment to development. But, as anyone who has experienced the reaction of our partners in international fora on development issues can attest, the reaction abroad has been one of bemused confusion. To paraphrase a question I was recently asked by a foreign senior official, “Why does your prime minister feel the need to constantly talk about feminist development if he has no intention of paying for it?”
3. A modest increase to international assistance and improved transparency.
We expect Budget 2018 to announce a modest increase to the international assistance envelope (IAE), the main fiscal source that funds Canadian aid. But this may only serve to draw attention to the historically low level of commitment and heighten disappointment from the Canadian development sector and our multilateral partners.
The FIAP promised greater transparency when it comes to the level and future path of the IAE. This again remains unfulfilled. It is important to remember this was not always the case. Between 2002 and 2010, under both Liberal and Conservative governments, Canada had a predictable (eight percent growth per year) fiscal anchor that guided development spending levels. That framework has essentially been abandoned since 2010.
We will watch for both the level of ‘modest increase’ and progress, if any, on IAE transparency. As we noted two years ago in this publication, Budget 2016 attempted to address these issues but caused even more confusion. We certainly hope Budget 2018 does better.
4. Touting success on trade and investment.
On the Canada-EU Comprehensive Economic and Trade Agreement (CETA) and the recently concluded Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the budget could tout success in terms of concluding the agreements. It is certainly a coup to get the “comprehensive and progressive” branding on the TPP. But what either mean in the context of the deal remains a mystery.
These trade deals are billed as part of Canada’s diversification strategy. But consider the following: the EU, with which Canada has concluded CETA, is our second largest export market and about twice the size of China. But that still makes it only one tenth the size of the US. So, it should come as little surprise that the predicted gain for Canada from CETA in terms of increased economic output over the long-term is only $8 billion, or 0.4 percent of GDP. Similarly, CPTPP, which is even further off given it is yet to be ratified, is expected to yield $4.2 billion in long-term economic gain or less than one-fifth of a percent of current GDP.
The prime minister has also made high-profile trips to China and, most recently, India. The latter apparently yielded $1 billion in two-way investment (details are still light as the trip concludes this week). In the context of a mere $8 billion in total annual bilateral trade this may seem big, but Canada is not even among the top 25 exporters to India. And the $250 million Indian companies are set to invest in Canada following Trudeau’s visit is a fraction even compared to the approximately $3 billion stock of Indian foreign direct investment already in Canada (which incidentally exceeds the level of Canadian direct investment in India).
The fact that Canada has been negotiating an investment agreement with India for nearly 13 years and a trade agreement for nearly eight is just not good enough. During this time fortunes have changed, and Canada has gone from sought after to desperate seeker. This speaks to the complacency that pervades both Canadian business and economic diplomacy.
The point is that moving the needle on trade and investment is just too hard for Canada given the preponderance of the US, which implies much more focused and aggressive efforts are needed given the global competition for trade and investment.
We will look to the budget to see whether recent deals are merely touted or whether there is a plan to push for a more concerted and aggressive diversification of Canada’s trade and investment footprint.
5. Preparing for a post-NAFTA Canada.
Finally, the 600-pound gorilla. By now it should be clear that NAFTA as we know it is a slow-moving train wreck. The next election will be won or lost on dealing with the fallout. We will watch for whether the budget shows any indication of Canada’s Plan B.
Whatever the outcome on NAFTA, it is going to be less optimal than the status quo for Canada. The move to repeal NAFTA coming as a surprise to Canadian policymakers is (a) symptomatic of pervasive complacency and (b) inexcusable. After all, in the 2008 US election campaign, two democratic hopefuls in the primaries named Barack Obama and Hillary Clinton both campaigned on repealing NAFTA.
For all the talk by Canadian Foreign Minister Chrystia Freeland viewing trade as more than a zero-sum game — and then proceeding to contradict herself by reaching for an obscure spin on US trade stats to demonstrate that Canada has a deficit with the US, laughable given our calculations show that over the long term Canada has enjoyed a cumulative surplus with the US worth over $1 trillion since the launch of NAFTA — Canadian policymakers under the Liberal government have yet to show what, if anything, they have by way of an actual global trade strategy. Budget 2018 should start in that direction, because 2019 will prove more than a day late and a dollar short.