The State budget

2020 French budget bill

2020

1. On Friday the 27th of September 2019, the Council of Ministers adopted the French Budget Bill for 2020. The total financing requirement will stand at €230.5bn, mainly consisting of €93.1bn to cover the deficit to be financed and €136.4bn to redeem medium- and long-term debt maturing in 2020. Absorbing a part of SNCF Réseau debt will also increase the government's 2020 debt redemptions by 1.8bn.

2. The financing requirement in 2020 will be met by (i) the medium- and long-term government debt issuance programme, net of buybacks, worth €205bn; (ii) resources from the active management of government shareholdings and earmarked for debt reduction for €2bn; (iii) the increase in outstanding short-term government securities for €10bn; (iv) an increase in correspondents’ deposits for €6.4bn, particularly due to contributions to the Innovation Fund; (v) a contribution from cash available in the Treasury’s account of €3.6bn; and lastly (vi) other cash sources of €3.5bn, assuming issue premiums net of discounts worth €3bn.

3.State debt service is expected to stand at €38.6bn, including €0.4bn in interest charges connected with the partial absorption of SNCF Réseau debt.

4. The net year-on-year increase in the nominal value of negotiable State debt with maturities of one year or more will be capped at €74.5bn.

5. The detailed medium- and long-term financing programme for 2020 will be released in December 2019.

2019

6. Since the beginning of 2019, France has benefited from historically low financing terms, against the backdrop of unprecedented low terms for the sovereign debts in the Euro area. The weighted average yield on medium- and long-term debt securities stood at 0.17% for the first three quarters of the year, compared to 0.53% in 2018 and an average of 2.17% from 2009 to 2014.

7. The deficit to be financed in 2019 has been revised downwards to €96.3bn, compared to the amount of €107.7bn expected in the 2019 initial Budget Act (LFI) passed in December 2018.

8. Other cash resources, including the recording of net treasury premiums, have been revised upwards to €12.5bn, compared to €3.5bn expected in the 2019 initial Budget Act. The favourable low interest rates resulted in the recording of further net treasury premiums in 2019. These premiums are at a higher level than expected in the initial Budget Act, due to the anchoring of interest rates at a very low or negative level and the gradual rolling over of benchmark securities with coupons in line with market rates.

9. Outstanding short-term government securities will increase by €4bn, compared with a rise of €15bn expected in the 2019 initial Budget Act, whilst remaining at a historical low level due to the recycling of significant net treasury premiums into a lower level of short-term securities issuance.

10. For 2019, issuance of medium- and long-term debt, net of buybacks, will remain unchanged at €200.0bn.

11. State debt service is expected to stand at €40.4bn, versus €42.1bn in the initial Budget Act, owing to the continuing extremely low level of short-term interest rates over the past year and to a downward revision in interest payments on securities indexed to inflation.

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Annual Performance Plans (PAP) - Governement Debt and Treasury Management for 2019

State financing programme for 2019

Bruno Le Maire, Minister for the Economy and Finance, has approved the indicative State financing programme for 2019.

In 2019, the State will need to finance a fiscal deficit forecast at €107.7bn and redeem €130.2bn in medium- and long-term debt maturing during the year (after buybacks in 2017 and 2018 of €29.7bn in securities maturing in 2019). Including a positive €1.3bn contribution from other cash requirements, the State borrowing requirement for 2019 therefore stands at €236.6bn.

This funding requirement will be covered by medium- and long-term borrowing (OATs) of €200.0bn, net of buybacks, and a €15.0bn increase in short-term borrowing. The increase in short-term borrowing will make securities more liquid, following a decline in issuance and the consequent decrease in outstanding BTFs in recent years resulting from large cash premiums on issues. The financing programme will be supplemented by a net total of €21.5bn from other resources, such as the allocation of proceeds from the sale of €8bn in equity stakes to the Fund for Disruptive Innovation, which deposits its funds with the Treasury, and continuing implementation of the policy to centralise public sector cash holdings, such as the €3bn cash balance of the Social Debt Redemption Funds (CADES). €5bn of the cash available in the Treasury’s account will also be used to finance the deficit.

This financing programme is part of the 2019 French Budget Act, which caps the net year-on-year increase in the nominal value of negotiable State debt with maturities of one year or more at €71.1bn.

As in previous years, Agence France Trésor will adjust its debt issuance to meet demand and guarantee a liquid market for its securities. The programme stipulates that bonds linked to French and European inflation indices will account for approximately 10% of net medium- and long-term debt issuance.    

AFT may buy back debt in 2019 (BTFs and nominal and inflation-linked OATs) depending on market conditions.

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FURTHER DETAILS

1. Benchmark issues

Nominal bonds:

-    AFT will auction one new 2/3-year benchmark, one new 5-year benchmark and two new 10-year benchmarks.

-    AFT will also continue to tap all of the existing nominal bonds depending on demand, including the OAT 2.00% 25 May 2048, which is AFT's current 30-year benchmark. However, if significant demand for long-dated bonds arises during the year, AFT reserves the right to work with primary dealers to examine the prospect of a syndicated issue of a new 30-year bond.

Inflation-linked bonds:

-    AFT will auction a new 10-year bond linked to European inflation (OAT€i).

-    AFT will continue to tap bonds linked to French inflation (OATi) to meet market demand.

AFT will also continue to tap its green bond first issued in January 2017 to meet market demand, up to the limit of the eligible green expenditures for 2019, and monitor developments in the green bond market in order to seize potential opportunities.

2. Auction rules and schedule

An auction of nominal and/or inflation-linked OATs may take place on the first Thursday of the month in August and December, depending on market conditions and after consultation with primary dealers. During the other months of the year, OATs with maturities of 8 years or more will be auctioned on the first Thursday of each month and OATs maturing in 2 to 8 years (with no possible extensions) will be auctioned on the third Thursday of each month.

Auctions of nominal bonds will be held at 10.50am (Paris time), and auctions of inflation-linked bonds at 11.50am (Paris time). BTFs will be auctioned every Monday at 2.50pm (Paris time).

AFT will inform the market of any changes to the auction schedule.

As in previous years, AFT reserves the right to adapt the selection of bonds issued to meet primary dealers’ estimates of investor demand by tapping off-the-run bonds. AFT may also act on primary dealers’ recommendations to tap non-benchmark BTFs.

3. Managing average debt maturity

The strategy to reduce average debt maturity initiated in 2001 remains on hold. The interest rate swap programme will resume if and when market conditions warrant it.

4. 2018 status report

The gross nominal value of medium- and long-term debt issuance in 2018 stood at €225.4bn, consisting of €203bn in fixed rate bonds and €22.4bn in inflation-linked bonds. AFT bought back €19.8bn in debt maturing in 2019 and €10.6bn maturing in 2020.

At the end of 2018, outstanding short-term debt (BTFs) stood at €112.9bn, marking a decrease of €13.6bn compared to the end of 2017.