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International Development Minister Harjit Sajjan says his government might boost foreign aid spending if the Canadian economy rebounds after criticism over a drop in development funding that has the sector preparing to cut programs.
“The stronger our economy, the more we can do around the world,” Sajjan said in an interview Thursday in his first public comments since last month’s budget called for a 15 per cent drop in aid funding.
The Liberals are planning to scale back their official development assistance by $1.3 billion, but he echoed Finance Minister Chrystia Freeland in saying that this doesn’t amount to a cut.
Sajjan said the $6.9 billion pledged for this year is more than the $6.6 billion allocated in the last pre-pandemic budget in 2019.
The aid sector has pushed the government to instead build on the more than $8 billion they allocated for aid spending last year, as a result of two years of extra funding to respond to COVID-19 and Russia’s invasion of Ukraine.
The budget announced $8.3 billion in new programs overall, with a focus on the green economy.
“Rightfully so, we needed to focus on our economy. We wanted to send a very strong message on the importance of the investment that we’re making for our economy,” Sajjan said.
“What we’re doing now is realigning where the (development) budget has been.”
Prime Minister Justin Trudeau’s government was elected on a 2015 promise to increase Canada’s international development assistance each year, a commitment he reiterated in his late 2021 mandate letter for Sajjan.
The minister said the developing world is in critical need as it tries to recover from COVID-19 and inflation.
“Because of COVID, we need to reinforce health systems. We need the same thing when it comes to food security (to) build greater capacity, rather than just strictly trying to send food through a supply chain that has been significantly disrupted,” he said.
“Even when times might be tough at home, it’s still our responsibility to support the vulnerable around the world.”
He noted that the amount set out in budgets is often topped up as the government pledges funding through the year to respond to humanitarian disasters.
“We will still look at those challenges and be there for the developing world where it’s needed,” he said.
“We look at which programs are expiring, where the pressures are, where the disasters are taking place, and make further investments.”
But the aid sector says it will need to end some Canadian projects abroad, and that holding out for more cash means a backsliding in programs that need years of support to make a sustainable impact on disease, hunger and women’s rights.
“It goes against the very ambitious and bold leadership rhetoric that we’ve heard from the government,” said Martin Fischer, World Vision Canada’s policy director.
“It’s a cut based on if we take last year’s commitments as the baseline.”
His charity is particularly concerned about the Charlevoix education initiative that Canada pioneered in 2018, which allocated funding from Canada and its allies to ensure the most vulnerable girls in conflict settings can still go to school.
“There are the most vulnerable girls arguably in the world, impacted by conflicts, that have because of those projects been able to go to school, become leaders in their communities and break gender norms where they’re being held back.”
For example, the charity has partnered with the group Make Music Matter in the Democratic Republic of Congo to shore up the mental health of youth in remote locations who have survived conflict and sexual violence, and help them attend school.
“You can’t just be bold in your rhetoric when you fly around the world and then not provide clarity of how you’re going to step up in implementing those political commitments,” Fischer said.
“We all collectively have a hard time understanding how a sector that is providing the government with opportunities to show up internationally, to employ a whole bunch of Canadians and be part of its global role is given no certainty through the regular budget cycle.”
Fischer questioned why the budget didn’t at least commit to upholding Charlevoix programs that are about to sunset. Sajjan responded by noting renewed Canadian funding in February for girls at the Education Cannot Wait summit.
The minister insisted that the government will fulfill its commitments, even if that only means for a few months for projects awaiting renewal.
“All the programs that we have are going to be continuing,” he stressed, adding that Ottawa is improving reporting on the actual outcomes of foreign aid, after federal auditors found the department does a poor job tracking anything beyond how much money gets spent and how many people are reached.
Sajjan did not say whether he’s heard of any development organization in Canada that is happy with this year’s budget.
“I don’t really get into that, in terms of looking at ‘this group is saying we’re doing great work.’ What I want to do is just to focus on the work that we’re doing.”
The aid sector has been left grappling with how to respond. At a workshop this week held by Cooperation Canada, aid groups pondered the balance between letting the public know about programs that are being cut back, and holding back in the hopes of more funding.
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Two weeks of negotiations between the federal and provincial governments and Stellantis have failed to produce a new deal for the NextStar EV battery plant in Windsor, Ont. Ian Lee, an associate professor at Carleton University’s Sprott School of Business, says the economic might of the U.S., coupled with the incentives offered in recent legislation, make it extremely challenging for Canada to compete.
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World entering period of scarcity, meaning Canada won’t be able to spend its way to prosperity
The unexpected pick up in Canadian inflation last month — even if it turns out to be a blip — is a fresh reminder that Prime Minister Justin Trudeau’s government is facing a more perilous economic policy landscape going forward, with difficult trade-offs on the horizon.
The natural economic instinct of this government has been generous budget spending and open international migration.
Yet, Trudeau doesn’t need to look much further than Statistics Canada’s inflation numbers or last week’s call from the G7 for global “de-risking” to see how things are changing.
With the world entering a period of scarcity — from more expensive money to supply constraints — the rationale to juice the nation’s economy is weakening.
The housing crisis is a manifestation of that, as are broader price pressures and the Bank of Canada’s historically aggressive run of interest rate hikes.
Trudeau came to power in 2015 on an anti-austerity platform to reverse his Conservative predecessor’s sluggish growth record which, as the Liberals were quick to remind Canadians at the time, was the weakest since R.B. Bennet was prime minister in the 1930s.
The economics were sound at the time, even if the growth dividend didn’t pay off.
Canada’s economy was demand deficient early in Trudeau’s mandate as commodity prices slumped, while the extra spending helped ease financial stability risks by taking some pressure off the Bank of Canada to stoke growth.
Higher international migration drove gains in labour income and provided support to a housing market that was still largely within reach of affordability. Inflation wasn’t a worry. In fact, the concern for policymakers was it may not have been high enough.
New social programs, meanwhile, allowed the government to make significant strides on equality and redistribution — particularly with respect to lowering poverty.
The Trudeau administration’s weighty policy objectives were synergetic to the economic environment. Policies were rowing more or less in the same direction.
The current post-pandemic environment, though, is no longer as accommodating.
While many policymakers and economists still buy into a moderately optimistic outlook, with continued growth and inflation brought into check, less favourable outcomes are increasingly plausible.
There is a real possibility that inflation and interest rates will remain well above pre-pandemic levels, growth becomes more anemic, budget dynamics worsen and the climate transition proves costly.
Instead of working in concert, the government’s three core economic policy objectives — growth, equity and price stability — could become increasingly in conflict.
For example, increasing immigration is a long-term positive for an economy threatened by aging demographics. And more social spending is typically associated with less inequality.
But higher borrowing costs stoked by large increases in population and government spending will impact disproportionately lower income Canadians and young families, potentially creating divisions and threatening new sorts of inequality.
Add energy transition to the mix and national security issues and the landscape becomes a minefield.
The policy arena will be more ambiguous and the government pulled in multiple directions. Policy paralysis, wasted effort and poor allocation of resources are real risks.
There are certain fundamentals and policy guardrails, however, that can help the government navigate this challenge.
First, policymakers should prioritize growing GDP on a per capita basis and increasing productivity over expanding the overall aggregate economy. Both are important, but the former is where true prosperity lies and where Canada is failing. Masking underlying weakness with gains in national income is just a recipe for stagnant wages. Enhanced productivity also helps dampen inflationary pressures.
Second, toolkits and policy precision matter.
For example, supply side solutions are critical to productivity, but policymakers also need to be cognizant of short-term impacts in an inflationary world. Focusing more on economic migration and temporarily slowing the pace of new entrants to allow housing supply to catch up appears a reasonable solution to the current housing crisis.
Another example is industrial policy, which needs to become more sophisticated. Advanced economies will compete in advanced industries, where there is a concentration of R&D and skilled workers. Quick fixes through corporate subsidies, however, are not the answer. Canada needs a modern science and technology architecture that translates ideas into economic outputs, higher wages and better living standards.
The third guardrail is the most Canadian: be reasonable and pragmatic.
This seems obvious but we should not take this principle for granted, particularly as we rush (rightly) to meet ambitious climate targets. Canada remains a resource economy. The sector pays a lot of bills, keeps our currency stable and government finances flush with cash.
It’s also where any global power we may have as a nation lies. That makes an orderly climate transition paramount.
Theo Argitis is managing partner at Compass Rose Group. Robert Asselin is senior vice-president, policy at the Business Council of Canada.
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