Fiscal Policy and Debt Management Breakout Session 3. Coordination - PowerPoint PPT Presentation

Fiscal Policy and Debt Management Breakout Session 3. Coordination between fiscal and debt management policies – emerging issues. Sovereign Debt Management Forum December 2014

Deficit Dynamics Deficit and Debt Dynamics Main Determinants of Debt Dynamics  2014 deficit target revised down to (% of GDP) 5.5% of GDP in April  Emphasis on expenditure reduction (4pp of GDP between 2014 and 2017), mainly driven by efficiency gains in the Public Administrations Net Lending(+)/Borrowing(-) of the General Government. Excl. Financial Sector One-Offs Total Revenue as a % of GDP and Interest as a % of Total Revenue (% of GDP) Forecast 2013 2014 2015 2016 2017 Central Government -4.2 -3.5 -2.9 -2.2 -1.1 Autonomous Regions -1.5 -1.0 -0.7 -0.3 0.0 Local Governments 0.5 0.0 0.0 0.0 0.0 Social Security Administrations -1.1 -1.0 -0.6 -0.3 0.0 General Government -6.33 -5.5 -4.2 -2.8 -1.1 Primary Balance -3.1 -2.2 -0.8 0.6 2.3 Structural Primary Balance 2.2 2.7 2.9 2.8 3.0 Nominal Adjustment 0.3 0.8 1.4 1.3 1.7 Financial Sector one-offs 0.5 0.1 - - - 1 Sovereign Debt Management Forum

Recent evolution of Government Debt Deficit and Debt Dynamics Debt to GDP Ratio  Debt to GDP ratio to peak above 100% of (% of GDP) GDP in 2015. Primary surplus to be reached in 2016, reversing the Debt to GDP trajectory  Lower structural deficit in 2017, ensures the decline in the ratio and reinforces the downward trend Forecast of General Government Debt Debt to GDP Ratio. Central and Regional Administrations (% of GDP) (Year-on-year Growth Rates) 105 25% 100.3 100.2 97.6 92.1 20% Y-o-y growth rate 95 97.9 15% % of GDP 85 10% 75 5% 65 0% 55 -5% 2011 2012 2013 2014(f) 2015(f) 2016(f) 2017(f) Growth rate (RHS) Debt to GDP ratio (LHS) 2 Sovereign Debt Management Forum

Budgetary Framework Financing Framework for the Public Administrations  In 2012 a new budgetary Spain Austria Germany Italy France Italy Belgium framework was developed, 17 5 Special 15 Regions 9 16 3 Regions 2 Autonomous Statute 26 Regions Ordinary Bundesländer Bundesländer Com. Ling considering the high degree of Communities Regions Statute       Education decentralisation of its political       Health       system Transport       Economy    Justice AIMS OF THE REFORM   Universities   Police     Infrastructures  Implements Article 135 of     Environment the Spanish Constitution     Housing    Local Entities    Culture  Spain's commitment to the   Tourism EU by incorporating EU   Employment  Social Services regulation requirements and allowing these to be continuously & automatically adapted  Budgetary and financial sustainability are the guiding principles of all public administrations 3 Sovereign Debt Management Forum

Auxiliary Funding Mechanisms Financing Framework for the Public Administrations  Together with the implementation of the budgetary framework two support mechanisms were establish in order to elliminate the negative spillovers/feed-back loops emanating from loss of access to affordable funding by sub-sovereign administrations  These new support mechanisms involve a stricter conditionality for the Regions/Local governments Impact of Support Mechanisms (€ bn) “Fund to Finance Supplier Payments” aimed at paying the territorial administrations (both regions and municipalities) for outstanding invoices and regularising the arrears “Regional Liquidity Fund” created to provide to Spanish Regions the needed liquidity to cover redemptions in capital markets as well as the authorized deficit. 4 Sovereign Debt Management Forum

Implications for the Funding Programme of the Treasury (I) Funding of the Spanish Treasury Holdings of Unstripped Government Debt 50% Non-Resident (%) Aug 2014 45,6% 45% (€326,2 bn) Net Funding, Gross Funding and Medium- & Long-Term Redemptions Aug 2012 40% (€ bn) 33.5% 120 300 (€191.8 bn) +134.4 bn 35% Gross Issuance and Redemptions 100 250 30% 97 2012 2013 2014 80 200 Net Issuance 74 60 150 55 47 OCTOBER - NEW 5 YEAR BOND LINKED TO 48 40 100 EA HICP EX. TOBACCO. NOVEMBER 2019 Geographic Distribution by Type of Investor 20 50 (%) (%) 92 76 Nordics 60 Italy Other 45 46 Other 3.2% 3.3% Hedge fund 1.4% 0.1% 0 0 9.6% DE/AT/CH Spain Bank 5.8% 2011 2012 2013 2014(f) 2015(f) 25.6% 20.9% Official Institution BeNeLux 11.4% 6.3% Medium- & Long-Term Redemptions Net Issuance USA 9.6% Total Gross Funding UK/Ireland Insurance/Pension 17.6% 19.0% Asia 11.3% Fund manager France 38.9% 15.9% 5 Sovereign Debt Management Forum

Implications for the Funding Programme of the Treasury (II) Funding of the Spanish Treasury Cost of Debt Outstanding and Cost at Issuance Average Life of Debt Outstanding (*As of September 30 th 2014, in percent) (*As of September 30 th 2014, in years) 5.0 7.0 4.5 6.8 4.0 3.53 3.5 6.6 3.0 6.4 2.5 6.28 2.0 6.2 1.61 1.5 6.20 2014* 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 6.0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014* Cost of Debt Outstanding Cost at Issuance Marginal Life at Issuance of Average Life at Issuance of Bonos and Obligaciones Bonos and Obligaciones 10 (*As of September 30 th 2014, in years) (*As of September 30 th 2014, in years) 9.6 100% 9 8.6 80% 8 7.6 7.6 60% 7 40% 6 20% 5.1 5 0% 2010 2011 2012 2013 2014* 4 2010 2011 2012 2013 2014* <3 3-5 5-9 9-15 >15 Source: Secretaría General del Tesoro y Política Financiera. 6 Sovereign Debt Management Forum

Thank you for your attention Leandro Navarro – Chief Economist, Deputy Head. Funding and Debt Management Department lnavarro@tesoro.mineco.es 7

The reform of the public administrations ANNEX. REFORM OF THE PUBLIC ADMINISTRATIONS  The reform of the public sector builds on the structural reform process initiated in 2012 New Regulatory Framework Liquidity Measures for Regions & Local Governments Budgetary Reform of the Local Sustainability Law, Authorities Fiscal supervisory Embedded into FLA the Treasury’s rules FFPP Funding  Enabling the Undue expenditures Programme centralisation of Fiscal discipline at all levels of  Provision of  2012: €16.6 bn public debt issuance the Administration liquidity to suppliers  2013: €23.0 bn in Spain of Local & Regional Transfer of competences  2014: €23.0 bn Early-warning system, Governments enforcement and sanction  Providing liquidity procedures to Autonomous Mergers & integrated  2012: €27.4 bn management Transparency: monthly and Regions  2013: €6.8 bn quarterly execution  2014: €8.0 bn  Ensuring fiscal and Changes at minor local entities Assurance of compliance:  The Programme financial coercive measures and Stricter fiscal has been ended by sustainability enforced compliance conditionality & July 2014 Resizing of the local public issuance caps sector Law for Transparency in the  Strict additional Public fiscal compliance Temporary and exclusive staff of local governments Administrations: accountability & governance Commission for the reform of the public administration General measures Sub-commission for administrative simplification Sub-commission on administrative overlap Sub-commission for management of common services and resources Sub-commission for institutional administration Electronic Billing Law De-indexation Law 8 Sovereign Debt Management Forum