Canada's Quebec says budget deficit to narrow in 2021-22 as economy rebounds after COVID slump

·2 min read

MONTREAL (Reuters) - The Canadian province of Quebec said on Thursday its budget deficit would narrow in fiscal 2021-22 as its economy rebounds from COVID-19, and return to balance in 2027-2028 ahead of its neighbor Ontario.

But Quebec said its C$12.3 billion ($9.8 billion) deficit in fiscal 2021-22 would be around C$4 billion higher than expected in November due to additional spending to curb the impact of COVID-19.

The Coalition Avenir Québec (CAQ) government announced a record deficit of C$15 billion during 2020-21.

Finance Minister Eric Girard said he expects Quebec will return to full employment by the end of 2022, helped by an estimated 4% rise in economic growth in calendar 2021 and 2022, after real GDP plunged 5.2% in 2020.

Economists were skeptical about Quebec's target for a balanced budget despite the expected economic rebound.

"We think it's going to be complicated," said Dominique Lapointe, senior economist at Laurentian Bank Securities, citing the province's need to make up a C$6.5 billion shortfall.

Canada's second-most populous province behind Ontario accounts for roughly a quarter of the country's population but has reported almost half of the nation's 22,780 deaths from COVID-19. That has weighed on Quebec, which had been using budget surpluses driven by a strong economy before the pandemic to pay down debt.

Quebec said its net debt-to-GDP ratio rose to 45% in fiscal 2020-21 from 39.9% in 2019-20, and is expected to peak at 45.5% in 2021-22.

Girard said Quebec's financial situation is under control.

"The message that I would give today regarding debt management is positive," he told reporters.

On Wednesday, Ontario forecast its budget deficit would return to balance in fiscal 2029-30.

Quebec says plans to return to a balanced budget are underpinned by higher economic growth, along with a possible increase in federal spending. Canada's provinces have asked Ottawa to cover additional health costs.

Quebec would receive C$902 million from Prime Minister Justin Trudeau government's legislation presented on Thursday to meet the immediate healthcare needs.

($1 = 1.2619 Canadian dollars)

(Reporting By Allison Lampert in Montreal; Editing by Chizu Nomiyama and Steve Orlofsky)