07 October 2002: Government debt and treasury management program for 2003

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As it did last year, the government presented to Parliament a program for 'government debt and treasury management' within the framework of the Budget Bill for 2003.

Obviously, this program will be debated during the general parliamentary discussion on the Budget Bill.

Therefore, the elements of this program are currently only provisional; they will be more precisely determined later, at the end of the parliamentary process, when the funding program for 2003 is published, before the end of the year.

Government Debt and Treasury Management Program:
an expense described in terms of objectives, supported by estimates of expected outcomes

The minister of the economy, finance and industry has decided to further improve the quality of information presented this year in the government debt and treasury management program, with the aim of increasing the visibility of the public policy tradeoffs submitted to Parliament in this field. This program, which was presented in the 2002 Budget Bill for the purpose of illustration, was based on the model set forth in Organic Law no. 2001-692 of August 1, 2001. This year, two new features are present:
- a multi-year statement of estimated changes in government financial position for 2002 and 2003, with projections through 2006;
- a dual presentation, on a cash basis and on an accrual basis, on the fiscal impact of the debt in 2003.

As the program makes clear, the aim of government debt and treasury management is to ensure that the government is able to meet its financial liabilities under all circumstances. In other words, the Treasury's Account with Banque de France must always be positive. Moreover, this core mission must be pursued in the interest of the taxpayer, i.e. at the lowest possible cost and in compliance with the highest standards of security.

The 2003 program seeks to achieve three precisely defined objectives, as measured by three performance indicators:

Reduction of the average maturity of negotiable debt: In-depth historical surveys demonstrate that, by reducing the average maturity of debt, the debt service is also lowered over the long term. This reduction was initiated as of year-end 2001 in accordance with the strategic orientation presented in last year's program. It is based on an appropriate structure combining primary issues and interest-rate swaps, which, judging from the composition of the current portfolio, should generate fiscal gains of around €235 million in 2003. On September 3, 2002, the minister of the economy, finance and industry decided to suspend the swap program temporarily due to market volatility and interest rates observed since early summer. But reducing the average debt maturity is a long-term goal and, as such, it remains entirely valid. The aforementioned program has been put on hold only, and will be resumed when market conditions so permit. The minister of the economy, finance and industry has submitted a proposal to Parliament calling for reducing the average debt maturity by another six months between late 2002 and the end of 2003. This would bring it down from five years and 10 months to five years and four months.

Reduction of the end-of-day amount in the Treasury's Account with the Banque de France: This means implementing government treasury management that comes as close as possible to a zero-cash position, as measured by the average daily closing balance of the Treasury's Account with the Banque de France. Temporary surpluses will be invested in the money market (see below). The target for 2003 is to reduce the average daily balance to €100 million (versus €200 million in 2002), an objective that can now be met in accordance with acceptable standards of security thanks to a new government account agreement concluded with the Banque de France on April 26, 2002. This agreement provides the government with quasi real-time access to its account. Meeting this objective requires that many government offices and their affiliates improve the accuracy of their receipt and outlay forecasting, which in turn implies a strong commitment to disciplined management, especially on the part of the government finance administration.

Investing temporary cash surpluses at the best possible price: In particular, by making ongoing improvements in forecasting and market dealing, the average returns on the government's cash investments in the interbank and repo markets can be increased. This year, a quantitative performance indicator has been developed for investments in the latter, calling for returns that approach the market's short-term rate as closely as possible.

As indicated in the PLF 2003, the debt service currently totals €38.05 billion (€38.29 billion before swaps). On August 31, 2002, negotiable debt outstanding was €691 billion.