Canadian Federal Debt Analysis

CanadianCanadianFederal Debt AnalysisFederal Debt Analysis

Linda ElbagouryLinda Elbagoury

Mr. RiegertMr. Riegert

December 15, 2003December 15, 2003

Pickering High School Pickering High School

MDM 4U1MDM 4U1

Federal Debt Analysis 2

ThesisThesis

Determine which variable had the Determine which variable had the greatest correlation with the federal debt greatest correlation with the federal debt to to project the state of the economy.project the state of the economy.


OverviewOverview

Investigate the variables involved in the Investigate the variables involved in the calculation of the federal debtcalculation of the federal debt

Discover which variable had the strongest Discover which variable had the strongest correlation with the federal debt to compose correlation with the federal debt to compose an index an index

Project the state of the federal debt for future yearsProject the state of the federal debt for future years


Quantitative VariablesQuantitative Variables

Federal DebtFederal Debt Gross Domestic ProductGross Domestic Product ExportsExports ImportsImports Trade BalanceTrade Balance RevenueRevenue ExpenditureExpenditure PopulationPopulation Average Exchange RateAverage Exchange Rate


Federal DebtFederal Debt

• The total amount that a government owes on The total amount that a government owes on money it has borrowed to fund deficit budgets money it has borrowed to fund deficit budgets in the pastin the past


Federal DebtFederal Debt

1980-20021980-2002

Federal Debt: Statistics Canada;

http://www.fin.gc.ca/purl/dmr-e.html

Year Dollars (in millions)

1980 92 555

1981 105 520

1982 140 270

1983 174 900

1984 204 870

1985 209 891

1986 245 151

1987 276 735

1988 305 438

1989 333 519

1990 362 920

1991 395 071

1992 428 682

1993 470 046

1994 513 219

1995 550 685

1996 578 718

1997 588 465

1998 579 369

1999 576 257

2000 563 396

2001 545 396

2002 536 489


0

50000

100000

150000

200000

250000

300000

350000

400000

450000

500000

550000

600000

650000

1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004

Year

Fe

dera

l Deb

tD

olla

rs in

mill

ionsFederal Debt


450000

460000

470000

480000

490000

500000

510000

520000

530000

540000

550000

560000

570000

580000

590000

600000

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Year

Fed

eral

Deb

tD

olla

rs in

mill

ions

A Closer View of Federal Debt1993-2002


Gross Domestic ProductGross Domestic Product

• The total value of all The total value of all final goods and final goods and services produced by services produced by an economy in a given an economy in a given yearyear

Year Dollars in Millions

1993 724 243

1994 767 234

1995 806 846

1996 838 683

1997 884 583

1998 915 638

1999 975 284

2000 1 056 571

2001 1 040 388

2002 1 074 516

GDP: Statistics Canada;

http://www.statcan.ca/english/pgdb/econ/05.htm


Gross Domestic Product

0

200000

400000

600000

800000

1000000

1200000

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Year

Gro

ss D

om

est

ic P

rod

uct

Do

llars

in m

illio

ns


A Closer View of Federal Debt & Gross Domestic Product

400000

475000

550000

625000

700000

775000

850000

925000

1000000

1075000

1150000

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Year

Fed

eral

Deb

t & G

ross

Dom

estic

Pro

duct

Dol

lars

in m

illio

ns

Federal Debt

GDP


Impact of Gross Domestic Product on Federal Debt GraphOutliers Removed

y = 1.0508x + 229254

R2 = 0.9992

600000

650000

700000

750000

800000

850000

900000

400000 420000 440000 460000 480000 500000 520000 540000 560000 580000 600000

Federal DebtDollars in millions

Gro

ss D

omes

tic P

rodu

ctD

olla

rs in

mill

ions

Impact of GDP on Debt Graph

Linear (Impact of GDP on Debt Graph)


ExportsExports

• Export – An international Export – An international transaction in which a transaction in which a foreign currency is foreign currency is converted into a domestic converted into a domestic one in order to purchase a one in order to purchase a domestic gooddomestic good

Exports: Statistics Canada;

http://strategis.icgc.ca/sc_mrkti/tdst/tdo/tdo.php#tag


1993 187 515

1994 225 679

1995 262 267

1996 275 819

1997 298 072

1998 318 444

1999 355 420

2000 413 195

2001 403 972

2002 396 318


Impact of Exports on Federal Debt GraphOutliers Removed

y = 0.8862x - 228869

R2 = 0.9861

0

50000

100000

150000

200000

250000

300000

350000

300000 350000 400000 450000 500000 550000 600000 650000


Exp

orts

Dol

lars

in m

illio

ns

Impact of Exports on Debt Graph

Linear (Impact of Exports on Debt Graph)


ImportsImports

• Import – An international Import – An international transaction in which a transaction in which a domestic currency is domestic currency is converted into a foreign converted into a foreign one in order to purchase a one in order to purchase a foreign goodforeign good

Imports: Statistics Canada;



1993 169 953

1994 202 736

1995 225 553

1996 232 566

1997 272 946

1998 298 386

1999 320 409

2000 356 662

2001 343 076

2002 348 653


Impact of Imports on Federal DebtOutliers Removed

y = 0.5893x - 103550

R2 = 0.9697

0

50000

100000

150000

200000

250000

300000

300000 350000 400000 450000 500000 550000 600000 650000


Impo

rts

Dol

lars

in m

illio

ns

Impact of Imports on Debt

Linear (Impact of Imports onDebt)


Trade BalanceTrade Balance

Trade Balance: Statistics Canada;



1993 17 562

1994 22 943

1995 36 714

1996 43 253

1997 25 126

1998 20 058

1999 35 011

2000 56 533

2001 60 896

2002 47 665

Trade Balance =Trade Balance =

Exports – ImportsExports – Imports


Impact of Trade Balance on Federal DebtOutliers Removed

y = 0.2493x - 100419

R2 = 0.9632

0

10000

20000

30000

40000

50000

60000

70000

400000 420000 440000 460000 480000 500000 520000 540000 560000 580000 600000


Tra

de

Ba

lan

ce

Do

llars

in

mill

ion

s

Impact of Trade Balance on Debt Graph

Linear (Impact of Trade Balance on Debt Graph)


Federal Debt, Exports, Imports & Trade Balance at a Glance

0

100000

200000

300000

400000

500000

600000

700000

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Year

Do

llars

in M

illio

ns

Federal DebtExportsImportsTrade Balance


RevenueRevenue

Statistics Canada; Revenue, Expenditure, Deficit/Surplus

http://www.statcan.ca/english/Pgdb/govt01a.htm

Year Revenue in Millions

1998 385 460

1999 414 170

2000 445 311

2001 435 520

2002 440 746


Impact of Revenue on Federal Debt

y = 0.4643x + 173427

R2 = 0.8426380000

390000

400000

410000

420000

430000

440000

450000

400000 420000 440000 460000 480000 500000 520000 540000 560000 580000 600000


Rev

enue

Dol

lars

in m

illio

ns

Impact of Revenue on Debt Graph

Linear (Impact of Revenue on Debt Graph)


ExpenditureExpenditure

Year Expenditure in Millions

1998 387 438

1999 401 520

2000 422 656

2001 435 885

2002 440 006




Impact of Expenditure on Federal Debt

y = 0.4585x + 169833

R2 = 0.991

380000

390000

400000

410000

420000

430000

440000

450000

300000 350000 400000 450000 500000 550000 600000 650000Federal Debt

Dollars in millions

Exp

endi

ture

Dol

lars

in m

illio

ns

Impact of Expenditure on Debt Graph

Linear (Impact of Expenditure on Debt Graph)


PopulationPopulation

Statistics Canada; Estimated Population

http://www.statcan.ca/english/Pgdb/demo02.htm

Year Estimated Population

1993 28 617 658

1994 28 939 211

1995 29 261 127

1996 29 577 439

1997 29 892 954

1998 30 168 395

1999 30 403 922

2000 30 689 126

2001 31 021 646

2002 31 629 765


Population

28000000

28500000

29000000

29500000

30000000

30500000

31000000

31500000

32000000

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Year

Num

ber

of

Pe

opl

e


Revenue, Expenditure & Population Index

270000

290000

310000

330000

350000

370000

390000

410000

430000

450000

1998 1999 2000 2001 2002

Year

Do

llars

in M

illio

ns (

Re

venu

e a

nd E

xpe

nditu

re)

Po

pul

atio

n In

de

x =

Pe

op

le/1

00

Revenue

Expenditure

Population


Deficit or SurplusDeficit or Surplus1998-20021998-2002

Year Deficit/Surplus in Millions

1998 -1 978

1999 12 650

2000 22 655

2001 -365

2002 740



Deficit or Surplus = Revenue - Deficit or Surplus = Revenue - ExpenditureExpenditure


Deficit or Surplus(Revenue - Expenditure)

-4000

-2000

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

20000

22000

24000

1998 1999 2000 2001 2002

Year

Do

llars

in M

illio

ns


Average Exchange RateAverage Exchange Rate

Year Average Exchange Rate (Canadian to U.S. Dollar)

1993 0.7755

1994 0.732391667

1995 0.728791667

1996 0.733433333

1997 0.7224

1998 0.674791667

1999 0.673183333

2000 0.67345

2001 0.645554545

2002 0.636916667Average Exchange Rate: Statistics Canadahttp://www.fin.gc.ca/er/dmr-e.html


Average Exchange Rate (Canadian to US Dollar)

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Year

Exc

hang

e R

ate


Impact of the Average Exchange Rate on Federal Debt

y = -0.5075x + 978891

R2 = 0.1696

0

100000

200000

300000

400000

500000

600000

700000

800000

900000

450000 470000 490000 510000 530000 550000 570000 590000 610000

Debt Dollars in millions

Ave

rage

Exc

hang

e R

ate*

1000

000

Impact of the Average Exchange Rate and Debt

Linear (Impact of the Average Exchange Rate and Debt)


Which variable had the highest Which variable had the highest residual (Rresidual (R22) value in correlation ) value in correlation

to the federal debt?to the federal debt?

A) ExportsA) Exports

B) Gross Domestic ProductB) Gross Domestic Product

C) ExpenditureC) Expenditure

D) ImportsD) Imports

E) RevenueE) Revenue


AnswerAnswer

B) Gross Domestic ProductB) Gross Domestic Product

• RR22 value of 0.9992 value of 0.9992• The closer the residual The closer the residual value isvalue is to 1, the stronger the to 1, the stronger the correlationcorrelation of the data of the data


The Impact of GDP on Federal Debt

y = 40933x - 8E+07

R2 = 0.9798

y = -4120.2x2 + 2E+07x - 2E+10

R2 = 0.9618400000

450000

500000

550000

600000

650000

700000

750000

800000

850000

900000

950000

1000000

1050000

1100000

1150000

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003Year

Gro

ss D

om

est

ic P

rod

uct &

Fe

de

ral D

eb

tD

olla

rs in

mill

ions

Federal Debt

Real GDP

Linear (Real GDP)Poly. (Federal Debt)

Notice the inverse relationship between the GDP & Debt from 1997-2002

Notice the inverse relationship between the GDP & Debt from 1997-2002


IndexIndexYear Federal Debt GDP Index = Debt/GDP

(Expressed as a percentage)

1993 470 046 724 243 65%

1994 513 219 767 234 67%

1995 550 685 806 846 68%

1996 578 718 838 683 69%

1997 588 465 884 583 67%

1998 579 369 915 638 63%

1999 576 257 975 284 59%

2000 563 396 1 056 571 53%

2001 545 396 1 040 388 52%

2002 536 489 1 074 516 50%

The lower the Index value, the better the state of the economy

The lower the Index value, the better the state of the economy


45%

50%

55%

60%

65%

70%

75%

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Year

Pe

rce

nta

ge

0

250000

500000

750000

1000000

1250000

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Year

Do

llars

in M

illio

ns

450000

475000

500000

525000

550000

575000

600000

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Year

Dol

lars

in M

illio

ns

Debt/GDP (as a percentage)

Federal Debt Gross Domestic Product


45%

50%

55%

60%

65%

70%

75%

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Year

Pe

rce

ntag

eIndex = Debt/GDP(as a percentage)

The state of the economy is improving from 1996 onward

The state of the economy is improving from 1996 onward


CIBCCIBCDebt-to-GDP RatioDebt-to-GDP Ratio

2003 Federal Budget: CIBChttp://research.cibcwm.com/economic_public/download/fbfeb03.pdf


CIBCCIBCDebt-to-GDP RatioDebt-to-GDP Ratio

• Measurement of the federal debt Measurement of the federal debt as a percentage of Canada's Gross as a percentage of Canada's Gross Domestic ProductDomestic Product

• Measure of the debt in relation to Measure of the debt in relation to thethe economy and of capacity to carry economy and of capacity to carry andand repay the debt repay the debt


ConclusionsConclusions

The Gross Domestic Product in the Index had The Gross Domestic Product in the Index had the most correlation with the Federal Debtthe most correlation with the Federal Debt

The CIBC Debt-to-GDP Ratio confirmed that theThe CIBC Debt-to-GDP Ratio confirmed that the Gross Domestic Product in the Index had the greatest Gross Domestic Product in the Index had the greatest correlation with the Federal Debt correlation with the Federal Debt

According to the Index and the CIBC Debt-to-GDPAccording to the Index and the CIBC Debt-to-GDP Ratio, the state of the economy is improving and Ratio, the state of the economy is improving and forecasting a further reduction of the Debt in forecasting a further reduction of the Debt in future yearsfuture years

Canadian Federal Debt Analysis

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