Mr. Speaker, debt service cost projections rest on published assumptions.
With regard to part (i), weighted average interest rates are based on, first, the yield curve constructed from the three month treasury bill rate and 10 year government bond rate, as forecast by private sector economists and published in each budget and fall economic statement. See budget 2023’s Table A1.1, “Average Private Sector Forecasts”. Second, they are based on the weights of short- and long term debt issuances implied by the debt management strategy, typically published as an annex in each budget. See budget 2023’s Table A2.2, “Gross Bond Issuances by Maturity”.
With regard to part (ii), the amount of new debt required to be issued, or the financial requirement, is the difference between inflows and outflows to the government, informed by the latest projection of the budgetary balance, put on a cash basis. This is published in each budget. See Table A1.8, “The Budgetary Balance, Non-Budgetary Transactions and Financial Source/Requirement”. It is also included in the debt management strategy. See budget 2023’s Table A2.1, “Planned/Actual Sources and Uses of Borrowings for Fiscal Year 2023-24”.
With regard to part (iii), the yearly rollover is the maturity of debt previously issued, that is, legacy bonds and bills that need to be refinanced over the forecast horizon. This is based on actual data relating to the underlying legacy bond issuances, as publicly available on the Bank of Canada website in real time and reported annually in the public accounts, volume III, section 7. It is also included in the debt management strategy. See budget 2023’s Table A2.1, “Planned/Actual Sources and Uses of Borrowings for Fiscal Year 2023-24”.
With regard to part (iv), other financial assumptions, as forecast by private sector economists and published in each budget and fall economic statement, such as budget 2023’s Table A1.1, include adjustments to inflation protected real return bonds to reflect fluctuations in changes to the rate of consumer price index inflation, exchange rate impacts on issuances in foreign currencies and updated actuarial and interest rate assumptions related to pension and benefit obligations.
The sensitivity of debt service cost projections to changes in macroeconomic parameters, such as changes in interest rates, is published in each budget. See budget 2023’s Table A1.15, “Estimated Impact of a Sustained 100-Basis-Point Increase in All Interest Rates on Federal Revenues, Expenses and Budgetary Balance”.