Canada's government may be in good financial shape compared to Greece or Portgual, or other nations that have faced tough markets for borrowing, but it's taking no chances with the possibility that one day it will need money and the markets will be closed. In Tuesday's budget, the government said it's planning to borrow an extra $35-billion to ensure it has cash on hand.
The government said in the debt management strategy that it released with the federal budget that it's taking the step to ensure that it always has enough cash to pay one month of bills, which incidentally is the same requirement that will be in place for banks under the new Basel rules. The money will be stashed in interest bearing accounts and foreign exchange reserves and shouldn't add to the deficit in a "material" way.
The government is also adding new maturity dates for bonds, spreading out the maturing of bonds over more of the year to avoid crunches on specific days when a lot of debt comes due and must be refinanced.
"The financial crisis has highlighted the importance of prudent debt management for individuals, corporations and governments," the government said. "The government is therefore updating its debt strategy by adding new bond maturity dates for smoother cash flow and increasing its cash reserves. These actions will help to insulate the government's financial position in case of future financial shocks."
The borrowing will take place over the next three years, the federal government said.
The government has always held what it calls "prudential liquidity" but is jacking up the level in light of the lessons of recent years.
"When the new liquidity plan is fully implemented, the Government's overall liquidity levels will cover at least one month of the net projected cash flows, including coupon payments and debt refinancing needs. The one-month coverage requirement is consistent with the proposed liquidity coverage rule for banks under Basel III."
About $25-billion will be stashed in government deposits at banks and the Bank of Canada. Another $10-billion will go into liquid foreign exchange reserves.
As far as maturity dates, the government plans four new ones that "are expected to greatly reduce single-day rollover of maturing debt, with noticeable improvements beginning as early as 2013-14." As it stands, the June 1 and Dec. 1 maturity dates can have very large rollovers.
The new dates are Feb. 1, May 1, Aug. 1 and Nov. 1.
Complete federal budget coverage here