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KPMG was engaged in the fall of 2004 through the Department of Finance's Treasury Evaluation Program to conduct a review of the borrowing framework governing major federal government-backed entities, including Business Development Bank of Canada, Canada Mortgage and Housing Corporation, Export Development Canada, Farm Credit Canada, the Canadian Wheat Board and the CMHC- guaranteed borrowings by Canada Housing Trust.
These entities all borrow significant amounts in global money and capital markets on an ongoing basis, backed by the credit of the Government of Canada. Under the Financial Administration Act (FAA), the Minister of Finance is responsible for the supervision, control and direction of matters relating to the financial affairs of Canada. This responsibility entails approving the borrowing plans of Crown corporations, which is a prerequisite in the Treasury Board process for approving their corporate plans, as well as borrowing by other organizations who have guarantees from the government. In this regard, the Minister must ensure that borrowing costs are kept low, financial risks are controlled and the use of Canada's credit is prudently managed.
The KPMG review was undertaken to determine whether the current regime governing capital market borrowings by major federal government-backed entities is functioning effectively. KPMG was also asked to review alternative borrowing frameworks to assess if they could reduce cost and risk and enhance the liquidity of Canadian capital markets, taking into account the varying needs of the borrowers.
Under the Treasury Evaluation Program, the Department commissions evaluations by independent third parties to ensure that policies and practices in the domain of federal government treasury operations are appropriate and achieving their objectives. The program reflects the Department's commitment to transparency and accountability in carrying out the Minister's responsibilities.
Observations of KPMG Report
KPMG has observed that the current governance system is functioning well between the Government of Canada and all of the organizations. KPMG did, however, identify some improvements that can be made to the terms of borrowing authorities provided by the Minister, the reporting of performance, as well as the sharing of information on activity.
With respect to alternative borrowing frameworks, KPMG observed that an approach worth considering is the consolidation of Crown borrowing activity with the government's own borrowing program. This consolidation could result in a reduction in aggregated borrowing costs. They also noted that a change of this magnitude and complexity would require additional assessments in a number of areas.
The Department, in consultation with the government-backed entities, will be making enhancements to the current regime and conducting follow-up analysis of an alternative framework taking into account the interest of the entities and their stakeholders, market participants and the Government as shareholder.