The 2021 Budget Act was voted by Parliament on the 17 December 2020. As indicated in the previous press release about the Indicative State financing programme for 2021, the State financing programme has been adjusted following the debates and amendments during the discussion about the French Budget Bill 2021 (PLF2021) in Parliament.
The total financing requirement reaches €293bn (+€7.7bn compared with PLF2021) following the final vote of the fiscal deficit for 2021 which stands now at €173.3 bn (+€20.8bn compared with PLF2021). The amount of medium-and-long-term debt redemption has been revised downward to €118.3bn (-€9.8bn compared with PLF2021) due to buybacks executed by AFT between October and December.
This requirement will be covered by medium- and long-term debt auctions (OATs) for €260.0bn, net of buybacks (same amount as indicated in the PLF2021) and a €19.5bn increase in short-term borrowing (+€0.7bn compared with PLF2021). The financing programme will be supplemented by a net total of €13.5bn from additional resources (change in correspondents’ deposits, other cash ressources) compared with PLF2021.
A new Revised Budget Act was voted on the 19 July 2021 (see data in the table below).
1. On 28 September of 2020, 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.
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.
On the basis of the 2021 Budget Bill, which provides for medium- and long-term borrowing (OATs) of €260bn, net of buybacks, which is an identical amount to 2020, Bruno Le Maire, Minister for the Economy, Finance and the Recovery, has approved the indicative State financing programme for 2021.
A potential upward adjustment of the fiscal deficit between now and the adoption of the 2021 Budget Act, which is currently being discussed in Parliament, will not affect medium-and long-term debt issuance, net of buybacks, and will be covered by an increase in the outstanding amount of short-term securities and the use of other cash sources. The corresponding adjustment of the State financing programme for 2021 will be published soon after the adoption of the 2021 French budget Act.
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 2021 (BTFs and nominal and index-linked OATs) depending on market conditions.
Besides, it has been decided that a new repo facility could be created, to be managed by the Caisse de la dette publique (CDP). This tool would allow, if needed, to mobilise cash up to €20bn through short term repurchase agreements. Be it created, this facility would be announced through a dedicated communiqué.
1. New bonds
- AFT will auction one new 3-year benchmark, one new 5-year benchmark and one new 10-year benchmark.
- AFT will also examine, together with the primary dealers, the prospect of a syndicated issue of a new 50-year bond depending on market conditions.
- AFT will carry out the syndicated launch of a second green bond with a maturity of around 20 years, depending on market conditions. AFT will also continue to tap the first green bond issued in January 2017 to meet market demand. These operations will take place up to the limit of eligible green expenditure for 2021 whose amount will be communicated in January.
- In the second half of the year, AFT will examine, together with the primary dealers, the prospect of a syndicated issue of a new 30-year bond depending on market conditions.
Regarding inflation-indexed bonds, AFT will issue by auction a new 10-year OAT indexed to the euro-area consumer price index (OAT€i). In addition, depending on to the evolution of market conditions throughout the year, AFT will also examine the opportunity of issuing by auction a new 10-year OAT indexed to the French consumer price index (OATi).
Finally, AFT will keep tapping all of the existing nominal and European and French inflation-indexed bonds, depending on demand for them.
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 December, depending on market conditions and after consultation with primary dealers. During the other months of the year, OATs with maturities of more than 8.5 years will be auctioned on the first Thursday of each month and OATs maturing in 2 to 8.5 years and inflation-linked OATs 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. 2020 financing programme status report
The gross nominal value of medium- and long-term debt issuance in 2020 stood at €289.5bn, consisting of €269.4bn in fixed rate bonds and €20.1bn in inflation-linked bonds.
In 2020, AFT bought back €22.8bn in debt maturing in 2021 and €6.7bn maturing in 2022.
- Only in French - Extrait relatif au programme 117 "Charge de la dette et trésorerie de l'État" (PLF 2020)
- Only in French - Extrait relatif au compte de commerce "Gestion de la dette et de la trésorerie de l'État" (PLF 2020)