The State budget

2021 French budget bill

2021

1. This morning, the Council of Ministers adopted the French Budget Bill for 2021. The total financing requirement will stand at €282.3bn, mainly consisting of €152.8bn to cover the deficit to be financed and €127.3bn to redeem medium- and long-term debt maturing in 2021. Absorbing a part of SNCF Réseau debt will also increase the government’s 2021 debt redemptions by €1.3bn.

2. The financing requirement in 2021 will be met by (i) the medium- and long-term government debt issuance programme, net of buybacks, worth €260bn (ii) an increase in outstanding short-term government securities (BTFs) for €18.8bn (iii) and other cash resources of €3.5bn, assuming issue premiums net of discounts worth €3bn.

3. State debt service is expected to stand at €37.1bn, including €0.7bn 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 €132.7bn.

5. The detailed medium- and long-term financing programme for 2021 will be released in December 2020.

2020

6. Since the beginning of 2020, France has benefitted from historically low financing terms in an unprecedented situation on the sovereign debt markets in the euro area. The weighted average yield on medium- and long-term debt securities stood at -0.11% for the first three quarters of the year, compared to 0.11% in 2019 and an average of 1.63% from 2009 to 2017.

7. The deficit to be financed in 2020 has been revised downwards to €206.0bn, compared to the amount of €225.1bn provided for in the third 2020 Supplementary Budget Act (LFR 3) which was adopted in July 2020.

8. The “other cash resources” item, including the recording of net treasury premiums, has been revised upwards to €20bn, compared to €10.5bn provided for in the third 2020 Budget Act (LFR 3 2020).

9. Outstanding short-term government securities will increase by €42.8bn, a lower amount than the €82.9bn expected in the third 2020 Supplementary Budget Act.

10. For 2020, issuance of medium- and long-term debt, net of buybacks, will remain flat at €260.0bn.

11. State debt service is expected to stand at €36.2bn, versus €38.6bn in the initial Budget Act, as a result of a drop in inflation which reduces the service related to securities indexed to inflation.

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Third revised Budget Act 2020

The third revised Budget Act for 2020 was promulgated on 30 July 2020.

The measures deployed by the Government to mitigate the economic impact of the health crisis lead to an increase in the State deficit to be financed in 2020 to €225.1bn, compared to €185.5bn projected in the second revised Budget Act for 2020 promulgated on 25 April 2020 The financing requirement for 2020 is thus revised upwards to €364.2bn, an increase of €39.6bn compared to LFR 2.

In this context, Bruno Le Maire, Minister for the Economy and Finance, adopted the revised details of the financing programme for 2020.

Medium-and long-term issuances net of buybacks will stand at 260€bn (+€15bn compared to the second revised Budget Act for 2020). The net change in the BTF outstanding will amount to €82.9bn (+€18.8bn compared to the second revised Budget Act for 2020).

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Annual Performance Plans (PAP) - Governement Debt and Treasury Management for 2020

State financing programme for 2020

On the basis of the 2020 Budget Bill, Bruno Le Maire, Minister for the Economy and Finance, has approved the indicative State financing programme for 2020.

In 2020, the State will need to finance a fiscal deficit forecast at €93.4bn and redeem €136.4bn in medium- and long-term debt maturing during the year (after buybacks in 2018 and 2019 of €41.1bn in securities maturing in 2020). Other factors to take into account include a positive €1.3bn contribution from other cash requirements and the partial absorption of SNCF Réseau's debt, which will account for €1.8bn in debt redemption.

This funding requirement will be covered by medium- and long-term borrowing (OATs) of €205.0bn, net of buybacks, and a €10.0bn 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, following the drop in interest rates. The financing programme will be supplemented by a net total of €15.8bn from other resources, such as the increase in Treasury correspondents' deposits and contributions to the Fund for Innovation for €6.4bn.

This financing programme is part of the 2020 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 €74.5bn.

As in previous years, Agence France Trésor will adjust its debt issuance programme 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 2020 (BTFs and nominal and index-linked OATs) depending on market conditions.

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1 As adopted on 19 November 2019 by the National Assembly on first reading

FURTHER DETAILS

1. Benchmark issues

Nominal bonds:
-    AFT will auction one new 2/3-year benchmark, one new 5-year benchmark and a new 10-year benchmark.
-    AFT will also examine, together with the primary dealers, the prospect of a syndicated issue of a new 30-year bond based on market demand.  

Inflation-indexed bonds: AFT will issue a new 10- to 15-year OAT indexed to the French consumer price index (OATi), and will auction a new 5-year OAT indexed to the euro-area consumer price index (OAT€i).

AFT will also continue to tap the green bond first issued in January 2017 to meet market demand, up to the limit of eligible green expenditures for 2020.

Finally, AFT will keep tapping all of the existing nominal and inflation-indexed bonds, depending on demand for them.

2. Auction rules and schedule

An auction of nominal 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 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.

Regarding the securities to be auctioned, as in previous years, AFT reserves the right to adapt its issuances by adjusting the composition of benchmark bonds and off-the-run bonds in response to demand from investors as estimated by the primary dealers. AFT may also act on primary dealers’ recommendations to tap non-benchmark BTFs.

3. Managing average debt maturity

The strategy to reduce the average maturity of negotiable government debt initiated in 2001 has been put on hold. The interest rate swap programme will resume if and when market conditions allow.

4. 2019 status report

The gross nominal value of medium- and long-term debt issuance in 2019 stood at €245.6bn, consisting of €228.3bn in fixed rate bonds and €17.3bn in inflation-linked bonds.

AFT bought back €30.5bn in debt maturing in 2020 and €15.1bn maturing in 2021.

At the end of 2019, outstanding short-term debt (BTFs) stood at €106.9bn, marking a decrease of approximately €6bn compared to the end of 2018.