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The trading account for “State Debt and Cash Management” is sub-divided into two sections.
The first section records transactions relating to management of the State’s debt and cash position, except for transactions involving financial instruments. Under revenues and expenditure, it includes income and expenses resulting from these transactions as well as spending directly linked to the issue of government debt. As such, the following are recorded in this section:
• interest paid on negotiable government debt securities (BTF, BTAN and OAT), as well as income from coupons accrued on issue;
• the cost of indexing inflation-linked securities;
• the cost of assumed debt;
• the net cost of cash management (interest on the deposits of certain correspondents minus gains on cash investments).
Three times a month, the first section of the account, which shows a structural deficit, is replenished from programme 117 (“Cost of Debt Service and the State’s Cash Position”) in the general budget, which makes it possible to track the net cost of debt (excluding the impact of swaps) in the general budget.
After a significant fall in 2009 (€6.9 billion in comparison with 2008), the cost of debt resumed its upward trend in 2010, rising by €2.9 billion. The gains arising from the further decline in short-term interest rates (0.37% on average in 2010 for 3-month BTFs compared with 0.62% in 2009) were insufficient to offset the volume effect on medium- to long-term debt (BTANs and OATs) and an indexing cost that returned to its long-term trend (€2.3 billion) following a sharp rise in 2008 (€4.6 billion) and a flattening in 2009 (€0.1 billion). The “Investissements d’avenir” programme introduced by the Supplementary Budget Act of March 9, 2010 also led to the appearance of a new cost in 2010, namely the interest expense on non-expendable endowments deposited with the Treasury. Over six months in the year in which the programme was launched, this item amounted to a little under €0.2 billion.
The second section of the trading account records the State’s debt and cash management transactions involving financial instruments. In expenses and revenues, it includes the income and expenses resulting from currency and interest-rate swaps, and the purchase or sale of options or futures contracts on government securities as authorised in the Budget Act.
In practice, the only transactions currently in use are interest-rate swaps. This section generated net income of €0.4 million in 2009 (€0.8 million in interest received minus €0.4 million in interest paid and remuneration on margin calls). This brings total gains on interestrate swaps to €2.6 billion since the launch of these transactions in 2001.
THE “ADVANCES TO VARIOUS STATE AGENCIES AND BODIES MANAGING PUBLIC SERVICES” COST-SHARING ACCOUNT
Advances to Various State Agencies and Bodies Managing Public Services” covers three programmes for advances to:
• the Services and Payment Agency (ASP) to provide preliminary financing for Common Agricultural Policy subsidies (programme 821);
• bodies that manage public services and are not part of the State (programme 823);
• State agencies (programme 824).
Paid out of cost-sharing accounts, these advances enable the State to provide funds to meet cash needs in order to ensure the continuity of the government’s action or to implement emergency measures. They are also intended to replace bank or market financing in order to reduce the fragmentation of State debt and the interest expense, since the State can reduce its interest payments by replacing bank financing with funds raised at the average rate for negotiable debt having the same maturity.
Advances are granted for a limited period 9 under the following conditions:
• there is certainty about both the amount of the funds to be used to repay the advance and the legal and technical possibility of obtaining the funds;
• they are financially neutral for the State, which is achieved by charging interest on the advance at a rate at least equal to the cost of State debt of equivalent maturity.
TRADING ACCOUNT FOR “HEDGING THE STATE’S FINANCIAL RISKS”
This trading account records transactions involving financial instruments carried out to hedge the State’s exchange-rate risk and price risks that affect the implementation of its action in specifically identified ways. This trading account does not record transactions relating to the management of the State’s negotiable and non-negotiable debt or its cash holdings.
More specifically, the transactions on this account concern hedging France’s contributions to the International Development Association (IDA), the Global Environment Facility (GEF), the Asian Development Fund (ADF), the African Development Fund (ADF), the Inter-American Development Bank Multilateral Investment Fund (MIF-2), and the UN for peacekeeping operations and mandatory contributions, as well as hedging military fuel supplies against oil price risks.
9. Article 24 of the Constitutional Bylaw on Budget Acts (LOLF).