OTTAWA - The federal government ran a deficit of nearly $24 billion over the first two months of its fiscal year, a sharp drop from the unprecedented spending one year earlier at the start of the COVID-19 pandemic.

The Finance Department's regular fiscal monitor says the budgetary deficit over April and May was $23.8 billion, down from the $86.8 billion recorded over the same months in 2020.

The department's report says the drop in spending was expected given the improved conditions from last spring when the economy had a historic slide, prompting the federal treasury to pump out an unprecedented amount of emergency aid.

The fiscal monitor says the deficit now reflects ongoing economic challenges, including the effect of third-wave lockdowns and continuing spending on emergency aid that is scheduled to wrap up this fall.

The Liberals announced an extension of the wage and rent subsidies, as well as the three “recovery” benefits on Friday shortly after the report's release, which come with an overall price tag of about $3.3 billion.

Program spending, excluding net actuarial losses, was almost $76.9 billion over April and May, a decline of about $37 billion, or a 32.5 per cent drop, from the $113.8 billion in the same period one year earlier.

Revenues reached over $59.5 billion over April and May, which was a $27.1-billion, or 83.6 per cent, year-over-year increase from the $32.4 billion in the previous fiscal year.

The fiscal monitor says the result is largely due to the steep drop in tax revenues at the onset of the pandemic as large parts of the economy were shuttered.

Public debt charges increased by $300 million, or 9.1 per cent, to $3.9 billion from the almost $3.6 billion in the previous fiscal year.

The Finance Department says the change is due to higher inflation adjustments on real return bonds, offset partially by lower interest on treasury bills and the government's pension and benefit obligations.