CLHIA-ACCAP

The Industry's Investment in Governments Governments use funds raised through debt issuance to supplement their tax revenues for a wide range of activities, such as infrastructure investments, capital investments (hospitals, schools, etc.) as well as any other government programs. A fundamental objective of debt management for governments is to raise stable and low-cost funding to meet its needs. 2 As such, it is important for governments to attract investors with a longer-term and sustained appetite for its debt. Governments need to have a mix of debt maturities to balance cost and stability. Life insurers can be an important investor, particularly for longer-term maturities to match long-term liabilities. As well, governments are interested in supporting a well-functioning debt market in government securities. This results in benefits not only for the government as a debt issuer, but also for other market participants. For example, a government debt market provides risk-free assets for investments of a broad range of investors (e.g., from individual Canadians to sophisticated institutional investors). It also acts as a pricing benchmark for other debt issues and a tool for managing risks. 3 Governments raise funds from both domestic and foreign investors, which is important in the context of diversification. However, it is also important that Canadian governments maintain an adequate supply of domestic funding for their debt as a means of retaining domestic control over fiscal needs. In this regard, as a very significant domestic source of funds to governments, the industry plays a key role in supporting this strategic goal. The industry is a major source of financing for Canadian governments at all levels. Overall, in 2012, the industry held about $113 billion in government bonds. This included holdings of about $29 billion in federal debt, $73 billion in provincial debt and almost $10 billion in municipal debt. As a proportion of total outstanding debt, in 2012, the industry held 6 per cent of federal bonds, 13 per cent of provincial bonds and 17 per cent of municipal bonds. 2 3 Department of Finance Canada. Debt Management Report, 2011-12. Department of Finance Canada. Debt Management Report, 2011-12. 7

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