IMF urges Canada to set up rainy-day resource fund – by Barrie McKenna (Globe and Mail – February 15, 2013)

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The International Monetary Fund says Canada could better manage boom-and-bust commodities cycles by stashing away more tax revenue in good times.

Both Ottawa and the resource-rich provinces should make better use of so-called “stabilization funds” to manage the inevitable volatility in the price of oil, natural gas, coal and other commodities, the Washington-based lender said in its annual report on the Canadian economy.

“There is room to do more to insulate [Canada’s] fiscal position from commodity price volatility and to mitigate its impact on the economy,” Roberto Cardarelli, the IMF’s mission chief for Canada, told reporters in Ottawa after releasing the report Thursday.

Several provinces, including Alberta and Quebec, have special “rainy-day” funds to save resource royalties for future years. But Ottawa does not collect resource royalties and has never specifically set aside tax revenue during resource booms.

With oil and gas production expected to double in Canada over the next decades, now is the time to start putting in place a “fiscal framework” that would offset the inevitable rise and fall of tax revenue, the IMF said. Mr. Cardarelli said Canada could “benefit” by looking at what other resource-rich countries have done, including Norway, which has amassed the the largest sovereign wealth fund in the world.

During their consultations, Canadian officials rejected the idea of doing anything at the federal level because it doesn’t collect resource royalties, according to the IMF report said.

The IMF said it expects the Canadian economy to bounce back in the second half of 2013 as companies unlock frozen capital expenditure budgets and exports rise due to an improving U.S. economy.

The IMF is forecasting “lower average growth” of 1.8 per cent this year in Canada as the economy lurches through a current weak patch, before accelerating to roughly 2.5 per cent a year in 2014-15.

For the rest of this article, please go the Globe and Mail website: http://www.theglobeandmail.com/report-on-business/economy/imf-urges-canada-to-set-up-rainy-day-resource-fund/article8682627/