As the fiscal debt ratio rose through the mid-1980s and early 1990s, consternation in global financial markets also grew. In 1994–95, federal debt as a share of GDP reached a peak of 67 per cent. Today, such a government debt ratio sounds high but certainly not catastrophic.
Importantly, though, real interest rates were much higher in the mid-1990s, making the relative burden of servicing debt much greater than it is at today’s rates. In any case, markets came to look negatively on Canadian sovereign debt, even describing the weakening Canadian dollar as “the northern peso” in early 1995 (Chart 6).