COMMENTARY — Foreign borrowing grows

Our nation’s financial condition — as represented by unsustainable trends of both government and foreign debt — clouds the immediate recovery prospects. And if not corrected, these debts will stunt our capacity to profit from the new opportunities on the horizon.

The combined debt of the total government sector in Canada is now about $650 billion. That works out to $100,000 for a family of four. And this debt is growing much faster than the economy, having increased by almost 150% since the end of the last recession, only a decade ago.

Despite ministerial assurances that the corner was about to be turned, government deficits continue to pile up in both good times and bad. The current year’s shortfall is likely to exceed $50 billion, federal and provincial combined. This means an addition to the public debt, in this year alone, of about $2,000 for every living Canadian. What a dismal bequest to future generations.

The truth is that continued deficits of this magnitude — incurred largely to finance our current consumption — have acquired moral overtones that should no longer be ignored.

Less well publicized, but certainly no less ominous, has been our rapid accumulation of foreign debt. The net external liabilities of Canadians — governments and the private sector combined — now total about $300 billion and are growing at 10% per year.

Relative to national income, Canada’s foreign debt is larger than the foreign debts of Mexico or Brazil, and certainly much larger than those of other industrialized countries.

We Canadians think of ourselves as successful traders, and in many respects we are. But the fact is that interest alone on Canada’s accumulated foreign debt — now amounting to about $25 billion a year — vastly overwhelms our modest merchandise trade surplus (expected to be about $10 billion this year) and drives the debt higher, year after year. In short, Canadians have become prisoners of the grinding law of compound interest.

Today, roughly one-third of all federal tax revenue goes just to pay interest. And our excessive reliance on foreign borrowing has eroded economic sovereignty as the management of our currency and the level of our interest rates are held hostage to the requirements of foreign creditors. — From an address by C.E. Ritchie, chairman of the Bank of Nova Scotia, at the bank’s recent annual meeting.