On 21 January 2026 the IMF issued a report following consultations with Canada under Article IV of the IMF’s articles of agreement. The report notes that Canada is adjusting the significant trade shock caused by US tariff increases and the limited retaliatory measures by Canada. North American supply chains have been disrupted, but the impact has been less severe than might have been expected, as a result of factors such as the USMCA exemptions, monetary easing and targeted domestic support. Canada needs to advance reforms that increase productivity, competitiveness, and economic resilience
Productivity and higher economic capacity can be supported through scaled-up and well-targeted public investment. Stronger spending and revenue efficiency, including rigorous expenditure reviews and rationalization of large income tax expenditures, will be required. Gradual broadening of the tax base for the GST/HST would improve efficiency, creating fiscal space. The emphasis should be on quality public investment, stronger innovation and skills, and a tax system that supports private investment and firm growth.
Support is required for innovation, research, and skills. The research infrastructure should be strengthened and targeted funding directed to AI and clean-technology platforms. The Venture and Growth Capital Catalyst Initiative can help to “crowd in” private investment. Part of the research and development (R&D) support should be targeted to advance education and research infrastructure, to yield larger productivity gains.
The report notes that the federal corporate tax rate is internationally competitive and the Productivity Super-Deduction and Accelerated Investment Incentive reduce the marginal effective tax rate on new capital by over two percentage points. This makes Canada tax-competitive among G7 jurisdictions for new business investment. The tax system should remain simple and broad-based, and its effectiveness sustained by transparent evaluation of large tax expenditures.
The report notes that Canada’s internal market is fragmented by regulatory barriers arising from differences in standards, licensing, procurement rules and marketing regulations. These restrict the movement of goods and services across provinces. The barriers are particularly high in the service sectors such as health, education, and retail, and they disproportionately affect smaller provinces by restricting market size and labour mobility.
Structural reforms to deepen internal market integration would offer high returns. Elimination of non-geographic internal trade barriers could increase real GDP by up to 7% over time. Efficiency gains would emerge as resources are reallocated to more productive firms and regions.
The trade strategy should be based on openness and predictability, aiming for diversification with deeper North American integration. The global environment is fragmented but Canada should work constructively with trading partners to resolve trade tensions. When trade or investment measures are introduced for national or economic security reasons, they should be targeted and limited in time, restricting spillovers.
