MISSISSAUGA, Ontario/OTTAWA, (Reuters) – Canada predicted yesterday it will balance its budget by the 2015-16 fiscal year after posting a record deficit for 2009-10, but warned that the shaky global recovery could spill into Canada and erode tax revenues.

Canada's federal budget deficit for the 2009-10 fiscal year totalled C$55.6 billion ($55.5 billion), or 3.6 percent of gross domestic product, exceeding expectations due to special payments to two major provinces, the finance ministry said in its annual fall update of fiscal and economic projections.

The Conservative government of Prime Minister Stephen Harper had forecast a budget shortfall of C$53.8 billion, or 3.5 percent of gross domestic product, as it poured cash into infrastructure projects and offered tax breaks in an effort to soften the impact of the global financial crisis.

Excluding federal assistance payments to Ontario and British Columbia related to their decision to blend provincial and federal sales taxes, Ottawa said it would have reported a deficit in the fiscal year ended in March that was C$3.8 billion lower than its original forecast.