By Paul Vieira

OTTAWA -- Canada Finance Minister Bill Morneau pledged Tuesday to spend additional billions of dollars in infrastructure for the remainder of this decade and beyond as the Liberal government presses ahead with fiscal policy to lift moribund growth.

The finance minister issued the details in the government's fall economic update. The expenditures are necessary to mitigate the fallout from a slow-growth global environment and the hit to Canadian incomes from the commodity-price swoon, he said.

The country's balance sheet -- with a relatively low ratio of debt to gross domestic product -- gives it the flexibility to be aggressive, according to the finance minister.

"The economic situation that we are in is challenging," Mr. Morneau told reporters in Ottawa. With the plan outlined in the update, "we are talking about big, bold historic investments in infrastructure, and how we can really create growth."

Canada is arguably at the forefront among rich-world economies in turning to expansionary fiscal policy to stoke growth, earning plaudits from the likes of International Monetary Fund Director Christine Lagarde. Bank of Canada Gov. Stephen Poloz said in October the government has ample fiscal room to pursue infrastructure spending, and shouldn't be too preoccupied at this time with the size of budget deficits.

In the update, Canada said it intends to spend an extra 8.9 billion Canadian dollars ($6.64 billion) over the course of the decade, until the end of the 2019-20 fiscal year, on projects focused on public transit, sewage treatment and housing. This will bring total infrastructure spending for the four-year period ending March 31, 2020, to over C$24 billion, from a previous forecast of C$13.5 billion.

Further, Mr. Morneau said Ottawa will commit C$15 billion in capital to set up a new government-owned infrastructure bank aimed at partnering with pension funds to finance new projects, such as toll highways.

The update said deficits would be slightly smaller than originally projected in the 2016 budget plan, as the Finance Department removed for accounting purposes contingency set aside for risks. Ottawa now forecasts a deficit in fiscal year 2016-17 of C$25.1 billion, or 1.2% of gross domestic product, and a C$27.8 billion shortfall next year. The debt-to-GDP ratio will remain in the 31% range through the forecast period, ending 2022.

Mr. Morneau said the government would continue to be "fiscally prudent," although his update now envisages deficits up until 2022.

"We have the best balancesheet among the G-7 countries," the finance minister told reporters. "We can make investments in infrastructure at a time of low interest rates that are going to make a real and immeasurable impact on families."

Economic growth in Canada has disappointed on a less-than-stellar performance in nonenergy exports -- a segment that was supposed to drive expansion -- and wildfires in resource-rich Alberta that curtailed or shut down energy production in the second quarter. Employment growth remains meager, business investment is in a downturn, and the housing market is expected to pose a headwind to growth amid the government's decision to clamp down on mortgage-financing rules.

In October, the Bank of Canada cut its outlook for growth, to 1.1% this year and 2% next year, and is heavily relying on expansionary fiscal policy to drive growth.

Write to Paul Vieira at paul.vieira@wsj.com

(END) Dow Jones Newswires

November 01, 201616:15 ET (20:15 GMT)

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