BILANS ET PERSPECTIVES
Budget - Finances

Summary
Foreword 7
The key figures of the regional debt 8
Part I : The institutional framework in Wallonia
1. Belgium: a Federal State
11
2. Explanation of the concepts of Community and Region11
3. Wallonia12
3.1. Competences
12
3.2. Institutions
13
3.3. Financing: the special law on financing
14
3.4. State Reform and transfer of powers
16
4. Rules governing the indebtedness of federated entities17
4.1. Legal basis
17
4.2. Types of loans
18
Part II : Regional debt and cash flow
1. Administrative framework and good governance21
1.1. Administrative framework
21
1.2. Internal and external controls
22
1.3. Consultative bodies - the Joint Treasury Council
and the Regional Treasury Council
23
2. Debt management24
2.1. Components of the regional debt
2.1.1 Long-term debt
24
26
A. Direct debt
27
B. Indirect debt
28
29
C. Breakdown of the sources of financing
2.1.2 II.1.2. Short-term debt
33
A. Overall cash balance
33
B. Description of revenues and expenditure
33
C. Financial centralisation
37
41
D. Cash flow cycle
Summary
E. Deficit and surplus management
44
2.2. Secured debt 44
2.2.1 Senior guarantees
44
2.2.2 Junior guarantees
48
2.3. Consolidated gross debt: Maastricht concept
49
2.3.1 Transition from ESA 95 to ESA 2010
49
2.3.1.1. Treaty of Maastricht 49
2.3.1.2. ESA 95
50
50
2.3.1.3. ESA 2010: progressive implementation
2.3.2 Consolidated gross debt of the Walloon Region zone: Maastricht concept
2.4. Risk Management
51
54
2.4.1 Liquidity and refinancing risk
54
2.4.2 Exchange rate risk
56
2.4.3 Credit risk
58
2.4.4 Currency exchange risk
58
2.4.5 Follow-up of the derivatives portfolio
58
2.5. Active debt management
54
2.5.1 Mission and strategy
60
2.5.2 Management principles and their application
60
1. Responsiveness, flexibility, transparency and communication 60
2. Optimal distribution between fixed rate and floating rate 61
3. Diversification of the investor base
62
4. Levelling of the debt amortisation schedule 62
5.Principles of prudence, competitive procedure and efficiency
of the decision making process
63
6. Appropriate utilisation of derivative financial instruments
63
7. Search for synergies
63
2.5.3 Performance indicators 64
A. Budgetary performance 64
B. Rating
65
C. Margin with regards to OLO
65
66
D. Historical indicators
2.6. Abbreviations
69
Foreword by Minister Christophe Lacroix

With the establishment of a new government for a period of five years
and a change of majority - currently the Socialist Party and the Humanist
Democratic Centre (CDH) - 2014 was a truly exceptional year.
For the rest, 2014 was characterised in economic and financial terms
by:
historically low interest rates, prompting a reduction in interest costs
and the weighted average rate of debt;
the transition from ESA1 95 to ESA 2010 with the substantial
enlargement of the Walloon zone, from 40 to 165 institutions, which
had a negative effect on the financing balance;
like everywhere else in Europe, unfavourable macroeconomic
parameters, even though a growth rate of 1.3% was achieved, a clear
improvement on the 0% recorded in 2013;
the comprehensive modification of the Belgian institutional framework,
with a new transfer of powers to the federated entities. (laws and
decrees of the 6th State Reform dating from 1 July 2014 but entering
into force on 1 January 2015)
In keeping with its debt management policy, Wallonia continued
its process of improvement in 2014 with the aim of optimising the
cost/risk ratio of its funding, and of moving towards an increasingly
professional structure capable of coping with the numerous, and often
sudden, changes in financial markets still affected by an unprecedented
economic and financial crisis.
In terms of transparency, whereas 2011 was the first year of publication
of this report in French and English, the website (www.wallonie.be/
financement) became operational and includes, in addition to this
report, all reference publications and documents. The translation of
the website into English attests to the importance Wallonia places in
the transparency of the policies which it implements.
This report will inform the reader about the institutional framework
in Wallonia, as well as the technical and administrative framework of
debt and cash flow management. It will also present the key regional
financial aggregates and the active management of debt, with special
focus on the management of risks linked to the regional debt.
The report will provide detailed information relating to the debt
issued and managed by the Finance Directorate of the Walloon Public
Service, and for which the interest costs are financed from the Walloon
expenditure budget. In order to provide the reader with a complete
overview, the consolidated gross debt (Maastricht concept) is also
succinctly presented. The detailed elements of the debt of the entities
included in the regional zone can be obtained from these entities.
Public debt Wallonia - Report 2014
SEC= S European System
of national and regional
Accounts. In September
2014, the new European
standard ESA 2010 entered into force for calculating national accounts. This
methodological revision is
the result of a long-term
evolution and fits into an
international framework. It
aims to better understand
the specific transformations
of modern economies.
1
Christophe
LACROIX
Minister
for the Budget,
for the Civil Service
and Administrative
Simplification
7
The key figures of the regional debt
(in million or as a % as at 31 December)
2013
2014
6.137,3
7 011,1
6.360,4
6 781,8
5.563,9
5 985,7
796,5
796,1
(223,1)
229,3
6.360,4
6 781,9
1.760,6
1 714,1
Schuldschein
1.403,5
1.596,5
Bond issues
3.196,3
3.471,3
562,0
562,0
1.163,3
1 043,3
I. Outstanding amounts of the regional debt instruments
1. (Net) regional debt
(Gross) long-term debt
Direct debt
Indirect debt
Short-term debt
2. Long-term regional debt instruments
2
Bank loans
3
- Stand alone
- Medium Term Notes
- Commercial paper
730,0
820,0
- Euro Medium Term Notes
741,0
1 046,0
3. Secured debt
7.484,0
7.720,9
Senior debt
6.668,3
6.946,9
Junior debt
815,7
774,0
Long-term
A1
A1
Short-term
P-1
P-1
Négative
Stable
II. Characteristics of the regional debt
MOODY’s rating
Outlook
Distribution according to the rates (in %)
8
Fixed rate (in %)
83,65
82,68
Variable rate (in %)
16,35
17,32
Average life span (in years)
9,2
8,5
Implicit rate (in %)
3,65
3,63
Ratio of regional debt/Revenues (in %)
80,82
90,53
Ratio of regional debt expenses/Revenues (in %)
2,684
2,80
2
Debt instruments are split between bond issues, bank loans and Schuldschein-type issues.
3
Bond issues are broken down into MTN, EMTN, BT and Standalone.
4
he calculation method for the regional debt expenses/Revenues ratio was modified, which explains the difference
T
between the value for the debt ratio in 2013 and the one indicated for this year
Part I :
The institutional
framework in
Wallonia
Part I: The institutional framework in Wallonia
1. Belgium: a Federal State
Since June 2011 and in accordance with the decisions of the Parliament
and the Government, all standard communication is conducted
with the official designation «Wallonia». Since the Constitution was
not modified, texts with legal scope5 refer to the «Walloon Region»
designation. In the present report, we will mostly use the «Wallonia»
designation. However, the designation has not been modified in the
extracts of legal articles referred to hereinafter.
1. Belgium: a Federal State
In 1993, Belgium officially became a Federal State made up of
Communities and Regions (article 1 of the Constitution6). Articles 2
and 3 of the Constitution stipulate that Belgium is comprised of three
Communities (French-speaking Community, Flemish Community and
German-speaking Community) and three Regions (Walloon Region,
Flemish Region and Brussels-Capital Region).
The organisation of the country is therefore structured around three
levels of independent authority:
•
the Federal State;
•
the three Regions;
•
the three Communities.
Each federated entity sovereignly exercises its competence through its
own parliamentary and governmental institutions. However the reader
will observe that since 1980, the Flemish Community exercises the
competences of the Flemish Region with one Government and one
Parliament. In 1993, the French-speaking Community transferred the
exercise of certain powers to the Walloon Region (cf. below).
The Belgian territory is further sub-divided in administrative terms, into
10 provinces and 589 municipalities (262 in the Walloon Region, 19 in
the Brussels-Capital Region and 308 in the Flemish Region).
2. Explanation of the concepts
of Community and Region
Article 4 of the Constitution stipulates that Belgium includes four
linguistic regions: the French-speaking region, the Dutch-speaking
region, the bilingual Brussels-Capital region and the German-speaking
region. The linguistic regions are simple territorial subdivisions which
do not have any political or administrative body and which as a result
should not be confused with the three main Walloon, Brussels and
Flemish Regions.
The Communities exercise their competences in the corresponding
linguistic region, with specific rules for the bilingual Brussels-Capital
region. These competences, based on people and culture, extend to
Public debt Wallonia - Report 2014
5
These are primarily: standard-setting
legislation
such as draft decrees and
decree proposals of the
Government of the Walloon Region; agreements,
employment
contracts,
lease
contracts,
loan
contracts
or
provision
contracts, documents pertaining to public procurement contracts, etc.
6
Constitution consolidated
on 17 February 1994
11
3. Wallonia
six areas: cultural matters, education, the use of languages, personbased matters (healthcare - except social security - and assistance to
individuals) as well as international cooperation and scientific research
in community matters7.
The Regions exercise their competences within their respective
territory. These competences are based on the management of
the territory (urban development, environment, natural resources,
agriculture, transport, housing, infrastructure, energy, etc.) and
economic development (employment policy, enterprise grants, foreign
trade, applied research, etc.)8.
This dual-level federalism stems from the historical evolution of Belgian
state reform.
3. Wallonia
3.1. Competences
The competences of Wallonia are exercised with regard to the people
based within its territory
Bayenet et Pagano, le
financement des entités
fédérées : un système en
voie de transformation,
CRiSP, 2011.
7
Bayenet et Pagano, le
financement des entités
fédérées : un système en
voie de transformation,
CRiSP, 2011.
8
12
The powers and functions of Wallonia are set out by the Belgian
Constitution as well as by the special law concerning institutional
reform (LSRI) of 8 August 1980, as modified in particular in 1988 and
1993. Matters falling within its functions are:
•
local authorities, social action and health,
•
businesses, employment and research,
•
mobility and waterways,
•
roads and buildings,
Public debt Wallonia - Report 2014
urban development, housing, patrimony and energy,
•
agriculture, natural resources and the environment,
•
and tax.
3. Wallonia
•
In 19939, the French-speaking Community, whose designation since
June 2011 has been the «Wallonia-Brussels Federation», transferred
the exercise of certain functions to Wallonia and the French-speaking
Community Commission of the Brussels-Capital Region. This transfer
specifically concerned sports infrastructure, tourism, vocational
training, social promotion, and also policies relating to healthcare and
assistance to individuals.
These competences are exercised not only by Wallonia itself, but also
through regional companies10, separate management bodies11 and
Public Interest Organisations (PIO).
3.2. Institutions
The institutional organisation of the federated entities is defined by the
Constitution and by the special law concerning institutional reforms of
8 August 1980, as modified in 1988 and 1993.
The Walloon Parliament is a single-chamber assembly made up of 75
deputies, who are elected by direct universal suffrage, according to
proportional representation, for a 5 year term. It exercises legislative
power through decrees which have force of law. The right of initiative
belongs both to the Government which introduces draft decrees,
and to deputies who introduce decree proposals. Parliament votes
on budgets and accounts, on the proposal of the Government, and
exercises a dual supervision function over the latter by designating
the members of the Government (nine at the most), and regularly
questioning them on their actions and decisions.
The Walloon Government currently includes eight members12. In charge
of the executive power, the Government promulgates the Walloon
decrees, instructs their publication in the Belgian Official Journal, and
makes the necessary orders and regulations to implement them. The
Government is accountable to the Parliament.
It should be noted that the results of federal elections do not have any
direct impact on the regional political landscape and consequently,
by extension, on parliamentary and governmental representations.
As such, the Regional Governments13 can have coalitions which are
different to those of the federal Government, and even Community
Governments.
3.3. Financing: the special law on financing
The financing of federated entities (Communities and Regions) is
governed by the special law of 16 January 1989 on the financing of
Communities and Regions (SLF), as modified in 1993, 2001 and 2014.
Public debt Wallonia - Report 2014
9
See in particular the
Decree II of 19 July 1993
transferring the exercise of
certain competences of the
French-speaking Community to the Walloon Region
and the French-speaking
Community
Commission
(which entered into force on
1 January 1994).
10
Only the Walloon Waste
Agency falls within this
category. It does not have
its own legal personality.
11
Only the Walloon Air and
Climate Agency falls within
this category.
12
Contrary to the previous
legislature, only two Walloon regional Ministers are
also Community Ministers.
In this respect, see the Walloon Government order of
22 July 2014 setting out the
distribution of competences
between the Ministers (Official Journal 20 August 2014)
and the Government of the
Wallonia-Brussels Federation order of 22 July 2014
setting out the distribution
of competences between
Ministers (Official Journal
18 August 2014).
13
Since the regional and
European elections of 25
May 2014, the Walloon
Government represents a
coalition of the Socialist
Party and the Humanist
Democratic Centre (CDH)
(this coalition is also present
in the Government of the
Wallonia-Brussels Federation).
13
3. Wallonia
This law stipulates in its article 1 § 2, that the financing of the Regions
is guaranteed by:
•
non-tax revenues;
•
tax revenues;
•
allocated parts of taxes;
•
a contribution of national solidarity;
•
and borrowings.
The Walloon non-tax revenues essentially correspond to the transfer
of credits from the Federal Public Service for Employment, Labour and
Social Dialogue on the one hand, and to the transfer from the budget
of the Wallonia-Brussels Federation on the other. In the first case, the
Regions receive the resources in the form of «drawing rights», to ensure
the financing of back-to-work programmes for the unemployed. The
amount of the drawing right is fixed annually in consultation with the
national authority and the regional authorities, without this limiting
their autonomy in terms of employment policy. In the second case, by
virtue of Decree II of the Walloon Regional Council of 22 July 1993,
it implies for Wallonia the transfer of resources from the WalloniaBrussels Federation, following the decision to transfer the exercise
of certain community powers to Wallonia in 1993. The evolution of
the contribution transferred by the Wallonia-Brussels Federation is
primarily linked to inflation, according to a mechanism established by
a decree.
The tax revenues mainly concern the 12 regional taxes included in
the SLF:
14
•
the tax on gambling and betting,
•
the tax on amusement machines,
•
the tax on the sale of fermented drinks,
•
t he succession duties of inhabitants of the Kingdom and transfer
duties upon death of non-inhabitants of the Kingdom,
•
the withholding tax on income from real estate,
•
r egistration duties on transfers for consideration of immoveable
property situated in Belgium,
•
registration duties on:
•
t he constitution of a mortgage on an immoveable property
situated in Belgium,
•
t he partial or total division of immoveable property situated
in Belgium,
Public debt Wallonia - Report 2014
•
t he transfers for consideration, between co-owners, of the
undivided parts of such assets,
•
t he conversions anticipated in articles 745 c and 745 d of
the Civil Code,
•
registration duties on donations inter vivos of moveable or
immoveable goods,
•
radio and television fees,
•
the circulation tax on vehicles,
•
the road fund tax,
•
the eurovignette.
3. Wallonia
Besides these 12 regional taxes, there are also individual taxes or fees
in each Region.
The Regions are competent to modify the tax rate, the tax base and
exemptions of these taxes (without however being able to modify the
federal cadastral income in the case of the withholding tax on income
from real estate). The Regions also have the possibility to collect
additional (or subtractional) percentages, or to grant rebates on joint
taxes (personal taxes) within the limits set out by the special law of 13
July 2001, namely a maximum of 6.75%.
The allocated parts of taxes make up the allocations which are
historically referred to as «PIT» (Personal Income Tax). These are
amounts allocated by the federal state, calculated on the basis of the
mechanisms of the SLF, regardless of the actual collection of the tax.
The PIT allocation transferred to the three Regions evolves annually
according to the average consumer price index, and the real growth
of gross domestic product. This amount is distributed between the
Regions according to their respective share in the revenues of the PIT
(the ‘fair return’ principle).
The Regions for which the return from the PIT per inhabitant is less
than the average for the Kingdom receive a national solidarity
contribution from the Federal State. The amount of this contribution
depends on the mean deviation, the number of inhabitants, and
inflation.
3.4 6th State Reform and transfer of powers
The 6th State Reform, which falls within the objective of restructuring
the Belgian institutional framework, anticipates a new transfer of
powers to the federated entities. It is stipulated that, even though
the laws and decrees governing this 6th State Reform date from 1 July
2014, the elements pertaining to the financing of this reform take
effect from 1 January 2015.
Public debt Wallonia - Report 2014
15
4.Rulesgoverningtheindebtednessoffederatedentities
In summary, the powers which have now been transferred to the
regions (both from the federal government and social security, and
the Wallonia-Brussels Federation), are the following:
•
E
mployment policy14: checks on job seekers (sanctions and
training);
•
M
obility, energy, agriculture and local authority policies;
•
T
ax expenditure: housing bonus, service vouchers and Local
Employment Agency cheques;
•
H
ealthcare and assistance to individuals15: assistance for
disabled people, home assistance for elderly people, extended
care;
•
T
he transfer of family allowance began its transition on 1 July
2014.
•
F
inancing of hospital infrastructure and medical-technical
services (from 2016 onwards).
To finance these new powers, new revenue sources are granted to the
regions, together with the other pre-existing sources of finance.
These new resources are:
•
A
dditional percentages on personal income tax (PIT);
•
T
ransfer of PIT revenues from the federal government;
•
L evy of a «national solidarity contribution» on the PIT revenues
of the federal government.
hanks to these new sources of finance, the fiscal autonomy of Wallonia
T
has been strengthened.
4. Rules governing the indebtedness
of federated entities
4.1. Legal basis
Pursuant to article 49, § 1 of the SLF of 16 January 1989, the
Communities and Regions are allowed to contract loans. They do not
benefit directly from the guarantee of the Federal State pursuant to
article 15 of the special law regarding institutional reforms of 8 August
1980.
Competences transferred
from the federal government and social security
14
Transfer of powers from
the Wallonia-Brussels Federation to Wallonia
15
16
It should be noted however that article 54 of the SLF stipulates in § 2
that Wallonia has the right - if the Federal State is late in transferring
the funds which it is obliged to transfer to the federated entities under
the SLF, or only transfers part of the funds - to borrow funds whilst
Public debt Wallonia - Report 2014
4.Rulesgoverningtheindebtednessoffederatedentities
benefiting from a legal guarantee from the Federal State, and for
which the financial service is fully and directly at the expense of the
latter.
Through certain provisions of the SLF, the federal authorities have
ensured that there is a framework for the borrowing capacity of
federated entities. There are two objectives in this respect: firstly,
the safeguarding of the economic and monetary union (both at
the European and national level) and secondly, the prevention of
a structural deterioration of financing needs (article 49 § 6). This is
also why Cooperation Agreements have been signed between the
federated entities and the Federal State, which establish an annual
budgetary objective for each entity. To this end, a «Public Authorities
Financing Needs» division has been set up within the High Council
of Finance (HCF). This body, which is made up of representatives
from the federal and federated entities, is tasked with advising on
their financing needs, and on the way in which they have met the
objective established in the Cooperation Agreements. This division
can also give its opinion to the (federal) Minister of Finances with the
aim of limiting the borrowing capacity of a federated entity. Using
such a provision means however that strict consultation rules must be
respected between the parties concerned. It should be noted that the
opinions and recommendations provided annually by the HCF have
acquired considerable influence over the debt policy of the federated
entities.
In 2003, following an agreement reached at the Inter-ministerial Budget
and Finance Conference (21 March 2002), the European System
of Accounts (ESA 95) entered into force. This system is a reference
framework which enables the budgetary results of federated entities
to be evaluated. These budgetary objectives, expressed in ESA terms,
no longer correspond to a maximum authorisation of borrowing. It is
an accounting result into which elements are integrated which have no
influence on the treasury and debts.
Following the new objectives established by the Treaty on the
Functioning of the European Union, it became necessary to review
the standards which defined the statistical tools. It was with this in
mind that the European System of national and regional Accounts was
revised, and the ESA 95 was reworked and supplemented to become
a more complete version: ESA 2010.
«To ensure that the concepts, methodologies and accounting rules set
out in this volume are strictly applied, it has been decided, following
a proposal from the Commission, to give it a solid legal basis. ESA
2010 was thus adopted in the form of a regulation of the European
Parliament and of the Council dated 21 May 2013.»16
16
Document: European System of Accounts ESA 2010,
EUROSTAT, European Commission
Public debt Wallonia - Report 2014
17
4.Rulesgoverningtheindebtednessoffederatedentities
4.2. Type of loans
The special law of 13 July 2001 on the refinancing of Communities
and Regions also substantially modified these entities’ terms for
contracting loans. Article 49 of the SLF stipulates the following:
•«§ 1 The Communities and Regions can contract loans in euros
or other currencies.»
•«§ 2 The planning of public borrowing (in the strict sense of the
term)17 is established by the (federal) Council of Ministers, after
consultation with the (community and regional) governments.
The conditions, as well as the timetable, for issuing any public
loans are submitted to the (federal) Minister of Finances for
approval. In the event that the (federal) Minister of Finances
does not give approval, the (community or regional) government
concerned can request that the matter is brought before the
(federal) Council of Ministers for a decision.»
•«§ 3 The Communities and Regions can issue private loans as
well as short-term securities, after having informed the (federal)
Minister of Finances. […].».
The entry into force of these arrangements was set for 1 January 2002.
This means that since this date, one single procedure to inform the
federal Minister of Finance must be observed prior to contracting
a loan. The terms of the communication and the content of this
information (in particular, the amount and duration of the loan, the
financial conditions, the co-contracting party) were the subject of
an agreement18 between the (federal) Minister of Finances and the
Community and Regional Governments.
Therefore, only loans which are arranged with individuals are the
subject of the approval of the Federal Minister of Finances; all other
borrowing is the subject of simple notification.
17
In other words loans
intended for individuals.
18
Agreement of 20 April
1991 pertaining to article
49 of the SLF.
18
Public debt Wallonia - Report 2014
Part II :
Regional debt
and cash flow
1. Administrative framework and good governance
Part II : Regional debt and cash flow
1. Administrative framework
and good governance
1.1. Administrative framework
Wallonia’s finances are managed by the Minister who is assigned
responsibility for the Budget. Pursuant to the provisions contained
within the mechanism governing the regional budget revenue, the
Budget Minister is authorised to subscribe loans and conclude any
financial management transaction dictated by the general interest
of the Treasury. This authorisation is renewed each year during the
vote by the Walloon Parliament on the decree containing the general
budget of revenues.
Chart 1: Diagram of the administrative framework
The strategic approaches to debt management are debated within
the Regional Treasury Council (CORET) and the Joint Treasury Council
(COCOT) which provide19 advice to the Budget Minister.
Public debt Wallonia - Report 2014
19
For more details concerning these two committees, refer to section 1.3
«Consultation bodies - the
Joint
Treasury
Council
and the Regional Treasury
Council»..
21
1. Administrative framework and good governance
Ministerial decisions relating to the management of the regional debt
and cash flow are made within the Walloon Public Service (WPS) by the
Finance Directorate based within the Treasury Department, the Crossfunctional Directorate General for the Budget, Logistics, Information
Technologies and Communication (DGT). The Finance Directorate is
tasked, by delegation20 of the Minister, with the day-to-day aspects of
this management.
In concrete terms, the Finance Directorate ensures the management
of the cash flow cycle, the management and financial service of the
direct and indirect debt, and the monitoring of the debt guaranteed
in accordance with the advice given by the Regional Treasury Council,
the Joint Treasury Council, as well as decisions taken by the Minister.
Since the implementation of the treasury centralisation of the
Walloon Public Interest Organisations, the Finance Directorate is also
responsible for handling the treasury forecasts submitted by these
organisations in order to optimise the management of the net cash
position resulting from the overall position of the Region and the
overall position of these organisations. It should also be noted that
the Finance Directorate keeps the accounting record of bridge loans
(GESFIN account21 managed by the centralising treasurer)22.
Applying the principle of separation of its functions, the Finance
Directorate is organised into two separate units: front and back office.
In terms of substance, the Front Office (FO) is competent for the
dynamic management of the cash flow cycle, as well as borrowing
on money and capital markets. It is also responsible for the dynamic
management of debt via the use of derivative financial products for
hedging purposes. It is assisted in its task by a financial consultant
who provides an opinion, on request, pertaining to the transactions
undertaken and the correct financial strategy to follow.
Order of the Walloon
Government of 8 October
2009 on the delegation of
powers to statutory agents
of the Walloon Public Service, modified on 15 July
2010, 23 June 2011 and 31
May 2012.
20
Open account for every
public administrative company for school buildings.
21
Loans concluded in the
context of the guarantee
granted by Wallonia for the
loans contracted by the five
Walloon public administrative companies in charge
of school and buildings and
education organised by the
public authorities (SPABS).
22
Designation used until 1
April 2011.
23
22
The Back Office (BO) is responsible for supervising the realised
transactions, processing the associated bank confirmations, and
also the budgetary and accounting follow-up of these transactions
(commitment and authorisation of expenditure, the allocation of
revenues, management of the treasury accounts relating to the debt,
etc.) It is also competent for payment schedules and drawing up
budget estimates for the department.
1.2. Internal and external controls
The management activities of the Directorate of Finance are subject
to various controls, both internal and external to the Administration.
Essentially, there are three checking bodies: the Finance Inspectorate,
the Court of Auditors, and the prudential supervision exercised by an
external Auditor approved by the FSMA (Financial Services and Markets
Authority, former Banking, Finance and Insurance Commission23).
Public debt Wallonia - Report 2014
1. Administrative framework and good governance
As an illustration, and in line with market best practice, the
management of short-term liquidities is based on the centralisation
of the cash balances of the associated entities for the calculation of
interest charges; this makes it possible to have an overall view on the
cash position and to achieve considerable savings with regards to the
cost of financing and transaction fees. The competitive procedure is
in line with market best practice; the financing products and hedging
instruments used are a mix of diversified products adapted to the
benchmark; the procedures for processing confirmations and marking
transactions constitute sound management and cash flow practice;
the procedures in place respect the principle of the separation of
functions, ...
1.3. C
onsultative bodies - the Joint Treasury
Council and the Regional Treasury Council
In order to optimise the management of regional and community
finances, organisational synergies between Wallonia and the WalloniaBrussels Federation have been established, in particular by the creation
of a Joint Treasury Council24 where the strategic approaches to debt
and cash flow management are debated, as well as the coordination
of community and regional financial policy, the working out of joint
management principles and the intensifying of synergies in light of
the institutional frameworks. This consultative body is chaired by a
representative chosen in common agreement by the Community
and Regional Ministers responsible for the Budget and Finances,
and is made up of representatives from the Minister Presidents,
Vice Presidents and (regional and community) Administrations; the
Finance Inspectorate, the Court of Auditors, the external Auditors,
and external experts all participate in the meetings of the Council.
The Joint Council is composed of a Community Treasury Council25
and a Regional Treasury Council26 which are tasked with assisting their
respective government in matters of day-to-day debt management
and cash flow management, and with ensuring the implementation of
the strategic decisions proposed by the Joint Council, and decided on
by the Minister concerned.
Cooperation agreement
of 19 May 2010 modifying
the cooperation agreement
of 10 December 2004 establishing a Joint Treasury
Council for Wallonia and
the Wallonia-Brussels Federation.
24
See also the decree of the
Government of the Frenchspeaking Community of 21
January 2005 repealing the
decree of the Government
of the French-speaking
Community of 7 December
1998 establishing the Community Treasury Council.
25
See also the decree of the
Walloon Government of 23
December 2004 repealing
the decree of the Walloon
Government of 10 July
1997 establishing a Regional Treasury Committee
(CORET).
26
Public debt Wallonia - Report 2014
23
2. Debt management
2. Debt management
2.1. Components of the regional debt
The regional debt held by the private sector is made up of long-term
debt and short-term debt. The various components of the regional
debt have evolved as follows (in € million) :
2010
2011
2012
4 555.1
4 984.4
5 459.9
5 563.9
5 985.7
808.0
807.1
797.0
796.5
796.1
5 363.1
5 791.5
6 256.9
6 360.4
6 781.8
Emission de papier commercial en cours (4)
0.0
79.9
0.0
0.0
687.6
Placement de papier commercial en cours (5)
0.0
0.0
0.0
0.0
0.0
273.5
228.5
210.7
223.1
458.3
-273.5
-148.6
-210.7
-223.1
229.3
5 089.6
5 642.9
6 046.2
6 137.3
7 011.1
Montant en EUR millions
Dette Directe (1)
Dette Indirecte (2)
Dette à long terme (brute) (3) = (1) + (2)
Solde global du compte courant (6)
Dette à court terme (7) = (4) - (5) - (6)
Dette régionale nette (8) = (3) + (7)
2013
2014
As a reminder, 2013 saw the net regional debt grow by an additional
€91.1 million to reach €6,137.3 million as at 31 December 2013, which
is an annual increase of 1.51%. Part of this increase is due to a prefinancing in 2013 of the Walloon financing needs for 2014, amounting
to ± €211.5 million.
2014 saw an increase in net regional debt of €873.8 million, due to
a faster rise in expenditure compared to revenues27. The ESA deficit
amounted to €708 million28. This deficit is primarily explained by the
balance of the economic regrouping, with the integration of 165
structures within the Walloon zone. This redrawing of the zone follows
two rounds of successive reclassifications carried out by the Institute
of National Accounts (INA). Full measure should also be taken of the
entry into force of ESA 2010 on 1 September 2014 and of the change
of rules compared to ESA 95.
The implementation rate
for expenditure is 98% compared to a typical average
of 92.5%. The collection of
revenues was smaller, with a
rate of 96.7%.
27
The
latest
balance
published by the Institute
of National Accounts on 20
April 2016
28
24
In anticipation of the debt report 2015, it can already be confirmed
that various mechanisms have been put in place in 2015 to avoid this
situation happening again. Permanent monitoring has been carried out
to verify whether the objective assigned by the Walloon Government to
the entities within the zone has been met. This task has been assigned
to a Monitoring Committee which was set up in 2015, and is made up
of representatives from the competent administrations, the Finance
Public debt Wallonia - Report 2014
2. Debt management
Inspectorate, the Financial Information Unit (CIF) including the Single
Point of Contact (SPOC), and the Fiscal Unit. Chaired by the DGT,
it regularly submits a report to the Government on the budgetary
situation, and in particular ensures:
-
the monitoring of revenues (including institutional or related
contributions, and tax- and non-tax revenues), the monitoring of
their collection and the updating of projections according to the
latest available variables;
- the monitoring of budget appropriation;
- the monitoring of the impact of the ESA on all the organisations
included in the zone of budgetary consolidation, as well as the
impact of the ESA on all the delegated missions and mechanisms
of alternative financing with regards to what the Government has
planned within the scope of its budget;
- the monitoring of budgetary funds in order to guarantee the impact
of the ESA anticipated by the Government within the scope of the
drawing up of the budgets;
- the monitoring and regular objectivation of outstanding debts;
- the monitoring of the salaries of the Civil Service.
In terms of controls, it is important to bear in mind that the Walloon
Government has a budgetary and financial advisor: the Finance
Inspectorate This body works in close collaboration with the Walloon
government to draw up and complete the annual budget. On a daily
basis, the Inspectorate of Finances advises on all questions referred to
it by the Walloon Government, or one of its members, and scrutinises
the expenditure made by the Walloon administrative departments.
The Walloon Government also has the support of the Financial
Information Unit (CIF). The tasks of this unit are the recurrent and
occasional conducting of budgetary, accounting and financial analysis.
It draws on expertise in matters of public-private partnerships. It
advises, provides guidance, draws up and implements monitoring
procedures and tools.
Since 2014, the CIF is Wallonia’s Single Point of Contact (SPOC) with
regards to the Institute of National Accounts. In this context, it is the
preferred contact of the institutional units included in the sector of the
Walloon public administrations, within the meaning of ESA 2010.
Within certain organisations included in the sector S13.12129, the
Government has appointed two auditors, who have two primary tasks:
a control mission and an information mission.
They are tasked with verifying the legality, in other words the
conformity of the decisions taken by the management bodies with
Public debt Wallonia - Report 2014
Public sector units are
broken down into different
categories. Central administration (S1311), Administration of the federated states
(S1312), Local administrations (S1313), Social security
administrations (S1314). The
Walloon Region is included
in category S1312.
29
25
2. Debt management
the laws, decrees and orders of the Government, and management
contracts, as well as the advisability of the decision, which must be in
accordance with the general interest.
They are also tasked with keeping the Minister President, the Minister
in charge and the Budget Minister informed, via reports.
When necessary, the Auditor has the possibility to appeal against any
disputed decision.
2.1.1 Long-term debt
Long-term debt, whose evolution is shown in the chart below, is made
up of direct and indirect debt.
Chart 2: Evolution of the long-term debt (in € million)
8000
7000
6000
5000
Indirect Debt
4000
Direct debt
3000
2000
1000
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
This chart illustrates the stability, in nominal terms, of long-term
debt over the period 2002-2009, followed by a period of expansion
in regional long-term debt, observed with a lag effect due to the
consequences of the economic and financial crisis.
26
Public debt Wallonia - Report 2014
2. Debt management
The breakdown and evolution of long-term debt is shown in the table
below:
Evolution of long-term regional debt
Year (31/12)
Amount
in € million
Change in the
direct debt
Change in the
indirect debt
Total change
in € million
Total change
in %
2001
4.058,20
250.5
-97.3
153.20
3.9 %
2002
4.257,00
299.3
-100.5
198.80
4.9 %
2003
4.295,50
784.1
-745.6
38.50
0.9 %
2004
4.284,00
3.3
-14.8
-11.50
-0.3 %
2005
4.291,00
4.5
2.5
7.00
0.2 %
2006
4.293,60
17.2
-14.6
2.60
0.1 %
2007
4.294,60
6.3
-5.3
1.00
0.0 %
2008
4.219,20
-73.5
-1.9
-75.40
-1.8 %
2009
4.225,60
8.2
-1.8
6.40
0.2 %
2010
5.363,10
1.138.6
-1.1
1.137.50
26.9 %
2011
5.791,50
429.3
-0.9
428.40
8.0 %
2012
6.256,90
485.5
-10.1
465.40
8.0 %
2013
6.360,40
104.0
-0.5
103.50
1.7 %
2014
6 781,80
421,80
-0,40
421,40
6,6 %
A. Direct debt
Initially, the direct debt represented the total of the historical budget
deficits in Wallonia. The re-borrowing of direct debt amortisations
does not constitute an increase of the outstanding amounts since this
refinancing serves to pay off loans which are falling due. However, two
other outstanding amounts have been integrated into the direct debt.
Firstly, since the mid-1990s, the refinancing of indirect debt
amortisations has been integrated into the indirect debt. Consequently,
besides the total of the budget deficits, the current evolution of the
outstanding direct debt comprises the re-borrowing of the indirect
debt amortisations.
Subsequently, on 31 December 2003, Wallonia took over €684.0
million on its own behalf of the outstanding amount which was part of
its indirect debt. This «debt assumption» is now part of the direct debt,
but did not impact overall debts. It is made up of inherited outstanding
debt (97.7% of the steel loan), Local Authority debt (subsidised works,
investments in water, abattoirs, industrial zones, sports infrastructure),
debt taken on by the Wallonia-Brussels Federation for social action
and health (outstanding debts for «health», outstanding debts for
«social action», and training for self-employed people), and other
Public debt Wallonia - Report 2014
27
2. Debt management
outstanding debts (a loan from 1986 for the Management Association
of the Lacs de l’Eau d’Heure and loans taken out for the protection
of waters - production, distribution and purification - over the period
1992 to 1994).
B. Indirect debt
The indirect debt is the debt which has been contracted by public
sector companies and for which Wallonia ensures all or part of the
costs. It also includes the transfer of part of the community powers to
Wallonia since 1 January 1994.
On 31 December 2014, the outstanding amounts of the indirect
regional debt amounted to €796.1 million and were essentially made
up of the debt of the Public Administration Companies for School
Buildings (SPABS), which since 1994 has managed the property assets
used for education by the Wallonia-Brussels Federation.
2011
2012
2013
2014
795,35
795,35
795,35
795,35
-- SWCS (loans 1987-1988)
9,29
0
0
0
Corresponding assets as regards Wallonia -- SWDE
2,50
1,69
1,14
0,77
807,14
797,04
796,49
796,12
Amount in € million
1. Loans of which Wallonia pays 100% of the debt service
Immovable assets as regards Wallonia -- SPABS
2. Loans of which Wallonia pays a part of the debt service
No corresponding assets as regards Wallonia
Total indirect debt
The scale of this indirect debt should be kept in perspective since the
outstanding amount is almost exclusively compensated by financial or
property assets which generate revenues. In fact, Wallonia does not
pay all of the interest costs but an amount deducted from the return
made on these assets.
In 2014, no loan re-financing transaction for SPABS was carried out.
28
Public debt Wallonia - Report 2014
2. Debt management
C. Breakdown of the sources of financing
The debt management policy carried out by Wallonia aims to minimise
its cost of borrowing, and to manage this debt securely. To this end,
Wallonia pursues the objective of diversifying its investor base by
essentially utilising four different types of financing instruments.
Bank loans
Bank loans are the first type of financing which Wallonia has utilised
since 1992. Wallonia still has a considerable volume of bank loans in
its portfolio.
In 2014, Wallonia did not conclude any bank loans in the context of
direct debt management.
Domestic commercial paper programmes30 (short-term, medium-term
and long-term)
Wallonia has two MTN (Medium Term Notes) programmes which are
financing instruments characterised by the existence of a prospectus,
in other words a pre-defined legal document which governs the
issuance conditions for debt securities issued within the context of
these programmes. There are firstly a series of documents which are
permanent and can therefore serve as a support for multiple issues
and secondly, documents which are specific to each issue and which
can be prepared very rapidly. Besides rapid access to capital markets
on a continual basis and in line with Wallonia’s cash flow and financing
needs, as well as significant flexibility in terms of the characteristics of
the securities issued (amount, rate, maturity, etc.), it is also a means of
finance which is less expensive than a conventional bond issue, which
generally concerns one large amount loaned at one time.
The first commercial paper programme was concluded in November
1994 with CGER Banque SA, which became BNP Paribas Fortis in
2009. This programme, which was updated on 2 May 2012, targets
maturities from 7 days to 50 years for a total amount of €1,250 million.
A second commercial paper programme was launched in November
1996 with Crédit Communal de Belgique SA, which became Belfius
Bank SA in June 2012. It enables the issuance of commercial paper for
all maturities from one day, for a total amount of €2,500 million.
Wallonia has historically had two domestic financing programmes
instead of just one, due essentially to the underwriting agreements
associated with these programmes. However these programmes have
not been renewed since 1 January 2013.
Through its two domestic financing programmes, Wallonia utilises
fixed-rate, variable-rate and structured rate loans, with or without an
underlying hedging structure.
Public debt Wallonia - Report 2014
Commercial paper within
the meaning of the Royal
Decree of 23 January 1991.
30
29
2. Debt management
«Schuldschein» credits
In the context of the diversification of its sources of financing, Wallonia
utilises issues in book entry form akin to the German «Schuldschein».
In doing so, it can benefit from an interesting cost of financing.
The «Schuldschein» (or certificate of indebtedness) is a financial
instrument under German law which shares certain characteristics
with a bond. Although it differs from the latter in that it is not a
transferable security, but rather a bilateral credit contract between
the issuer and one or more investors. Compared with a conventional
loan, a «Schuldschein» ensures a certain liquidity of debts, which like
financial securities, circulate between different investors. Compared
with a bond issue, it is a transaction which is not the subject of any
press release in the market and for which the legal documentation is
significantly simplified.
The advantage for investors, particularly in the context of historically
low rates, is that they can record their debts in the balance sheet
according to IFRS standards31 at their nominal value, and can therefore
avoid having to adapt them to the market value. Value adjustments as
a consequence of the crisis have therefore not impacted their results.
Wallonia has developed standardised «Schuldschein» format legal
documentation so as to be more responsive and guarantee rapid
access to the market.
As shown in the table below, Wallonia borrowed €193 million in 2014
in the form of «Schuldschein» with an average weighted duration of
22.49 years:
Nominal
amount
Duration
(years)
Rate after possible
swap
Final maturity after
possible swap
€12,000,000.00
20
Fixed-rate at 3.340%
20/02/2034
€30,000,000.00
50
Fixed-rate at 3.650%
13/03/2064
€50,000,000.00
25
Fixed-rate at 2.775%
29/09/2039
€50,000,000.00
10
Fixed-rate at 1.619%
8/10/2024
€35,000,000.00
12
Fixed-rate at 1.810%
8/10/2026
€16,000,000.00
27
Fixed-rate at 2.631%
22/03/2041
IFRS: International Financial Reporting Standards
31
30
Public debt Wallonia - Report 2014
2. Debt management
EMTN financing programme (Euro Medium Term Note)
In accordance with its desire to diversify its investor base, Wallonia
implemented an EMTN (Euro Medium Term Note) programme worth
€2.0 billion with BNP Paribas Fortis and ING Bank on 2 May 2012.
Besides these two arrangers, other dealers in this programme are
Barclays, Belfius Bank, CBC Bank, Deutsche Bank, HSBC France and
KBC Bank.
When this programme was updated on 25 June 2013, the ceiling was
increased to €2.5 billion.
This programme enables Wallonia to increase its visibility on financial
markets and extend its investor base thanks to documentation drawn
up according to standards which are recognised by investors at the
international level. It has obtained a «Senior Unsecured (P) A1» rating
from Moody’s.
On the basis of this programme, Wallonia can also diversify its
financing instruments by having the possibility to launch a public issue
(a benchmark), which is among the financing options earmarked for
the coming years.
2014 was characterised by the following transactions for a total amount
of €305 million and an average weighted duration of 23.59 years.
Nominal
amount
Duration
(years)
Rate after possible
swap
Final maturity after
possible swap
€25,000,000.00
30
Fixed-rate at 3.450%
7/04/2044
€35,000,000.00
40
Fixed-rate at 3.400%
12/05/2054
€30,000,000.00
15.5
Fixed-rate at 2.210%
8/04/2030
€10,000,000.00
30
Fixed-rate at 2.650%
7/11/2044
€100,000,000.00
19
Fixed-rate at 2.000%
12/12/2033
€10,000,000.00
8
Euribor 03 M + 30 BP
12/12/2022
€70,000,000.00
30
Fixed-rate at 2.412%
12/12/2044
€25,000,000.00
8
Fixed-rate at 0.977%
9/12/2022
€305,000,000.00
Public debt Wallonia - Report 2014
31
2. Debt management
The chart below shows in detail the breakdown of the different types
of loans of long-term debt.
Chart 3: Breakdown of the sources of financing of the long-term
regional debt (€ million) – Evolution from 31 December 2013 to 31
December 2014.
Long-term regional debt as at 31/12/2013 (€ 6,360.4 millions)
Medium Term Notes
18 %
12 %
28 %
Bank loans
Standalone
Commercial paper
associated with a derivative
Schuldschein
22 %
9%
Euro Medium Term Notes
11 %
Long-term regional debt as at 31/12/2014 (€ 6,781.9 millions)
Medium Term Notes
15 %
16 %
25 %
Bank loans
Standalone
Commercial paper
associated with a derivative
24 %
8%
12 %
Schuldschein
Euro Medium Term Notes
Wallonia utilises various financing instruments which allow it to diversify
its investor base and gradually reduce its dependence on bank loans,
in favour of bond issues.
In 2014, bank loans only represented one quarter of the long-term
regional debt compared to more than half for bond issues (51%).
Issues under the EMTN programme, which as a reminder were created
in May 2012, already represent 16%.
32
Public debt Wallonia - Report 2014
2.1.2 Short-term debt
2. Debt management
From the moment it acquired financial autonomy (1 January 1991 pursuant to article 52 of the SLF of 16 January 1989 on the financing of
the Communities and Regions), Wallonia has been able to implement
the automated management of its revenues and expenditure. This
prelude significantly facilitated the effective management of the
regional financial flows.
Other essential aspects also form the framework within which Wallonia
carries out its management policy concerning liquidities:
•
perfect visibility with regard to revenue flows;
•
an ever more precise configuration of the expenditure flows;
•
the centralisation of all financial flows within one cashier;
•
t he implementation of domestic commercial paper programmes
and cash credit facilities.
hese fundamental characteristics have allowed new financial flows to
T
be integrated without major difficulty, as a result of the Saint-Quentin
and Saint Polycarpe agreements.
A. Overall cash balance
The regional cash flow regroups all of the financial accounts, in which
the revenues and expenditure of the entity are recorded. In this
respect, the cash flows reflect the carrying out of budgetary and nonbudgetary movements, such as transactions on behalf of third parties
and especially capital transactions of the regional debt (loans and
amortisations).
From 1 January 1991 onwards, given the new powers transferred from
the Federal Government to the federated entities, Wallonia chose a
cashier with whom cash management is centralised, and who ensures
among other things, the carrying out of its transactions. All accounts
opened by Wallonia with its cashier (Belfius Bank SA) have their
balances consolidated on a daily basis in order to determine an overall
cash balance, which constitutes a Walloon current account or «overall
regional position».
B. Description of revenues and expenditure
Revenues
In 2014, €7,744,126,000 (including the specific section) was booked in
the Revenue budget.
Since 1 January 2013 and pursuant to the decree of 15 December 2011
pertaining to the organisation of the budget and accounting of the
Public debt Wallonia - Report 2014
33
2. Debt management
Departments of the Walloon Government, the revenues of the Walloon
Public Service are booked on the basis of established entitlements in
the financial year.
From these revenues, €2,557,541,000 was assigned to tax revenues and
represent 33% of these.
The general non-tax revenues amounted to €4,640,721,000 and
represent 60% of the total revenues.
An amount of €342,720,000 was assigned to the category of specific
policy revenue (funds relating to the environment, energy, roads and
motorways, etc.), in other words 4% of the total revenues.
Finally, €203,144,000 was assigned to the revenues of the specific
sections which represents 3% of the total revenues.
The revenues collected in 2014 are broken down as follows:
Nature of the revenues
Total amount of revenues (established entitlements)
(in €)
Current
revenues
Capital
revenues
Tax revenues
1,756,916,000
General non-tax
revenues
4,137,023,000
800,625,000
292,852,000
49,868,000
Specific section
revenues
203,144,000
0
6,389,935,000
Total
revenues
0 2,557,541,000
3,698,000 500,000,000 4,640,721,000
Specific revenues
TOTAL
Loan
342,720,000
0
203,144,000
854,191,000 500,000,000 7,744,126,000
The chart below shows the breakdown of Walloon revenues in 2014
from the perspective of established entitlements.
Chart 4: Walloon revenues in 2014 (€ 7,744.1 million)
3%
4%
33 %
Taxes revenues
General non-tax revenues
Specific revenues
60 %
34
Specific section revenues
Public debt Wallonia - Report 2014
2. Debt management
This chart illustrates in particular Wallonia’s high degree of fiscal
autonomy, for which 33% of revenues stemmed from regional taxes
in 2014.
Expenditure
The breakdown per large masses of expenditure into means of action
in Wallonia in 2014 appears as follows:
•
l
ocal authorities (Municipal Fund, Provincial Fund, etc.),
social action and health represent 32% of the total amount of
expenditure;
•
e
xpenditure pertaining to businesses, employment, training and
research makes up the second largest sector (26% of the total
amount of expenditure);
•
t he mass of expenditure allocated to mobility and waterways
(10%), as well as to roads and buildings (7%) represents 17% of
the total amount of expenditure;
•
u
rban development, housing and patrimony management
and energy management represent 8% of the total amount of
expenditure;
•
e
xpenditure relating to agriculture, the management of natural
resources and the environment represent 6% of the total amount
of expenditure;
•
e
xpenditure related to the Parliament, Government departments
and the administration represent 5% of the total amount of
expenditure;
•
e
xpenditure related to the budget, logistics and information and
communication technologies represent 5% of the total amount
of expenditure;
•
T
he categories for tax, European co-financing, inter-departmental
provision for the Marshall Plan and the specific sections represent
1% of the total amount of expenditure.
Public debt Wallonia - Report 2014
35
2. Debt management
Chart 5 : Walloon expenditure in 2014
Expenditure recorded as at 31/12/2014 (€ 7,956.6 millons)
5%
5%
1%
Parliament, government departments,
administration, etc.
7%
10 %
6%
26 %
Budget, logistics and information and
communication technologies
Roads and buildings
Mobility and waterways
8%
Agriculture, natural resources and
the environment
32 %
Urban development, housing, patrimony
and energy
Local powers, social action and health
Businesses, employment and research
Special sections
Concerning the expenditure related to the Marshall Plan, this is
integrated within the expenditure of the Operational Directorates
General. For information, the amount assigned to the Marshall Plan
amounted to €439,082,000 in 2014.
%
Parliament, government departments, administration, etc.
5%
397,855,354.7
Budget, logistics and information and communication technologies
5%
399,557,525.99
Roads and buildings
7%
536,316,949.02
10 %
763,327,300.72
Agriculture, natural resources and the environment
6%
462,028,662.61
Urban development, housing, patrimony and energy
8%
612,399,095.52
Mobility and waterways
Local authorities, social action and health
32 % 2,559,953,248.07
Businesses, employment and research
26% 2,097,636,330.85
Tax
0.0 %
22,033,881.16
European co-financing
0.0 %
1,621,808.48
Specific sections
1.0%
103,872,061.01
Total
36
Amont
(in EUR)
100.0% 7,956,602,218.13
Public debt Wallonia - Report 2014
2. Debt management
C. Financial centralisation
On 19 October 2002, during the budgetary conclave, the Walloon
Government adopted the principle of the financial centralisation of
the treasuries of Walloon PIOs, without the creation of a new legal
structure. This decision was transcribed in the form of a decree on 19
December 200232.
In accordance with the provisions of the decrees of 19 December
2002, the Walloon Government drafts an annual report for the
Walloon Parliament on the policy carried out in matters of cash
flow management and debt management in the Walloon Region.
This report is submitted to the Walloon Parliament, at the latest
on 30 June of the year following the financial year in question. The
decrees implementing these decrees were adopted by the Walloon
Government on 16 January 200333
A ministerial circular letter of 26 March 2003, modified on 2 May
2012, specifies the terms of implementation of the centralisation:
management of accounts, cash flow forecasts, reporting, etc.
However, the budgetary decree containing the general expenditure
budget for the budget year 2014 (article 40) extended the scope
of the decrees of 19 December 2002 to the following PIOs: the
General Tourism Commission, the Spa Francorchamps Circuit SA,
SOWAFINAL, SOWALFIN for the resources granted within the scope
of the Marshall Plan 2.Vert, IWEPS, the School for Public Administration
jointly controlled by the Wallonia-Brussels Federation and the Walloon
Region, and the non-profit organisation Les Lacs de l’Eau d’Heure. In
the extension of these provisions, the psychiatric hospital ‘le Chêne
aux Haies’ was removed from the centralisation.
The centralisation anticipated that the para-regional organisations
included in the decrees of 19 December 2002 and the changes made
by the budgetary decrees, would open their financial accounts with the
designated centralising cashier, and deposit all of their assets there.
The transfer of the assets of these organisations became effective on
31 March 2003.
The principle of this centralisation is to merge, in terms of amounts
and value date, all the balances of all the accounts of the Walloon
Region and the designated organisations. This pooling determines a
net cash position and is realised by the centralising cashier, in other
words the banking institution appointed by the Government.
In order to maximise the efficiency of this centralised management,
all the forecasts for short-term, medium-term and long-term cash flow
are produced by the departments of the Region and the designated
organisations. These cash flow forecasts are merged in terms of the
value date and enable dynamic cash flow management by the Region.
Public debt Wallonia - Report 2014
Decree of 19 December
2002 establishing the financial centralisation of Walloon PIOs whose missions
relate to the matters referred to in articles 127 and
128 of the Constitution
32
Walloon
Government
decree of 16 January 2003
pertaining to the management terms of the financial
centralisation of the treasuries of Walloon Public Interest Organisations whose
missions relate to the matters referred to in articles
127 and 128 of the Constitution.
33
37
2. Debt management
The alphabetic list of the Walloon PIOs participating in this centralisation
in 2014 is the following:
APAQ-W, ASE34, AST35, AWAC, AWEX, AWIPH, AWT36, CGT, CRAC,
CRA-W, FOREM, IFAPME, IPW, ISF, ISSeP, IWEPS, les Marronniers,
OWD, RWAEI, RWEAP, SOFICO37, SOGEPA, SOWAER, SOWAFINAL,
SOWALFIN, SPAQUE, SRWT, SWCS, SWL and WBT.
On 31 December 2014, the centralisation regrouped 276 accounts
spread across the 29 organisations indicated above.
The contribution of the Public Interest Organisations regularly
increased from the implementation of the cash flow centralisation up
until 2013. In 2014, it fell slightly to €1.248 billion at the end of 2014.
In fact, in 2014, the contribution of the Public Interest Organisations
was – €163.7 million compared to 2013. This reduction is explained
by the fact that the CRAC and SOWAFINAL contributed less in 2014
following various decisions of the Government.
Chart 6: Contribution of the Public Interest Organisations after the
treasury centralisation (in €)
1 600 000
1 400 000
1 200 000
1 000 000
800 000
600 000
The ASE and AST merged
to become the AEI, created
by decree on 28 November
2013 and incorporated on
21 November 2014.
34
The ASE and AST merged
to become the AEI, created
by decree on 28 November
2013 and incorporated on
21 November 2014.
35
AWT became the ‘Agence
du Numérique (subsidiary
of the AEI), incorporated on
8 January 2015.
36
400 000
200 000
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
contributions of the PIOs (in €)
These contributions, ranked in descending order of size, are shown in
the following table:
The transit account of the
SOFICO was included in
the ‘merger’ of the regional accounts, even before
the enactment of the cash
flow centralisation, and is
therefore not included in
the «centralisation» tables.
dans les tableaux «centralisation».
37
38
Public debt Wallonia - Report 2014
Organisation
Average
contribution
Share of the
total average
contribution
Cumulative
contribution
22.974%
322.97%
352,360,354.78
Contribution as at
31.12.2014 (in €)
CRAC
(in €)
356,567,441.95
SWL
262.639.748,42
16.922%
39.90%
327,488,986.46
AWIPH
206,629,399.79
13.314%
53.21%
19,981,252.55
FOREM
166,419,437.41
10.723%
63.93%
87,052,270.10
SPAQUE
116,826,236.07
7.527%
71.46%
99,232,122.75
SWCS
98.574.960,86
6.351%
77.81%
89,284,791.28
SOGEPA
62.882.791,12
4.052%
81.86%
42,396,479.30
SOWAFINAL
56.157.404,28
3.618%
85.48%
39,770,347.37
IFAPME
40,857,675.42
2.633%
88.11%
33,470,335.29
SRWT
38.769.816,88
2.498%
90.61%
8,285,493.15
CGT
31.011.053,37
1.998%
92.61%
23,388,302.54
CRA-W
18.631.158,85
1.200%
93.81%
21,596,829.96
AWAC
17.765.279,16
1.145%
94.96%
16,538,864.34
AWEX
14,673,137.41
0.945%
95.90%
15,276,025.67
MARRONNIERS
12.771.983,90
0.823%
96.72%
14,825,163.74
IWEPS
11,245,293.18
0.725%
97.45%
9,650,534.36
SOWAER
10,690,668.48
0.689%
98.14%
19,078,849.22
ASE
9.693.633,79
0.625%
98.76%
8,818,798.70
APAQ-W
5.563.338,47
0.358%
99.12%
4,370,174.68
AST
3,146,838.92
0.203%
99.32%
4,077,011.57
OWD
2,651,323.38
0.171%
99.49%
1,593,823.88
SOWALFIN
2.437.604,60
0.157%
99.65%
2,078,501.00
ISSEP
2,154,703.99
0.139%
99.79%
4,837,332.16
RWEAP
1,544,702.91
0.100%
99.89%
2,190,971.36
WBT
973,906.78
0.063%
99.95%
848,078.12
ISF/CIRCSA
965,344.66
0.062%
100.01%
949,252.36
AWT
175,520.93
0.011%
100.03%
249,283.09
16,657.53
0.001%
100.03%
160,000.00
-411,371.39
-0.027%
100.00%
-1,878,196.72
1,552,025,691.15
100.00%
RWAEI
IPW
TOTAL
2. Debt management
Table 1. Average contribution of the PIOs following the treasury centralisation
in 2014 (in %)
1,247,872,033.06
The average contribution of the CRAC represents slightly less than
23% of the total, equating to an average contribution of €356 million.
The other main contributors are the SWL, AWIPH, FOREM, SPAQUE,
SWCS, SOGEPA and SOWAFINAL with average contributions higher
than €50 million.
Public debt Wallonia - Report 2014
39
2. Debt management
Chart 7 Average contribution of the PIOs to the centralisation
The following chart illustrates the breakdown between the different
contributors to the centralisation:
Average contribution of the PIOs to the treasury centralisation in 2014
CRAC
23 %
OTHERS
18 %
SWL
17 %
SOGEPA
4%
SWCS
6%
SPAQUE
8%
FOREM
11 %
AWIPH
13 %
From this chart, it can be observed that seven PIOs (out of twenty nine)
contribute around 82% to the financial centralisation.
Since 1 January 2013, the interest rate conditions applied to Wallonia’s
current account by its cashier refer to the monthly arithmetic mean of
the EURIBOR 1 week rate (base 360), increased by a margin for credit
interest and reduced by a margin for debit interest.
40
Abréviation
Dénomination complète
APAQ-W
Agence wallonne pour la Promotion d’une Agriculture de Qualité
ASE
Agence de Stimulation Economique
AST
Agence de Stimulation Technologique
AWAC
Agence Wallonne Air Climat
AWEX
Agence Wallonne à l’Exportation
AWIPH
Agence Wallonne pour l’Intégration des Personnes Handicapées
AWT
Agence Wallonne des Télécommunications
CGT
Commissariat Général au Tourisme
CRAC
Centre Régional d’Aide aux Communes
CRA-W
Centre wallon de Recherches Agronomiques
FOREm
Office Wallon de la Formation professionnelle et de l’Emploi
IFAPME
Institut wallon de Formation en Alternance et des Indépendants
et Petites et Moyennes Entreprises
IPW
Institut du Patrimoine Wallon
Public debt Wallonia - Report 2014
Institut du Patrimoine Wallon
ISF
Association intercommunale pour l’exploitation du Circuit de Spa
Francorchamps
ISSeP
Institut Scientifique de Service Public
IWEPS
Institut Wallon de l’Evaluation, de la Prospective et de la
Statistique
Les Marronniers
Centre Hospitalier psychiatrique
OWD - DSD
Office régional Wallon des Déchets
RWEAP
Ecole d’Administration Publique commune à la Communauté et
à la Région wallonne
SOFICO
Société wallonne de Financement Complémentaire des Infrastructures
SOGEPA
Société wallonne de Gestion et de Participation
SOWAER
Société Wallonne des Aéroports
SOWAFINAL
Rénovation et revitalisation urbaine et SAED
SOWALFIN
Société wallonne de Financement et de Garantie des PME
SPAQUE
Société Publique d’Aide à la Qualité de l’Environnement
SRWT
Société Régionale Wallonne du Transport
SWCS
Société Wallonne du Crédit Social
SWL
Société Wallonne du Logement
WBT
Wallonie Bruxelles Tourisme
2. Debt management
IPW
D. Cash flow cycle
In the context of active cash flow management, it is interesting to
isolate the annual cycle in order to analyse the evolution of the daily
overall position of all the accounts integrated into the centralisation,
and to determine the differences between the rhythms of revenue
collection and expenditure.
It is important to reiterate here that the SLF stipulates the payment
terms of the financial resources transferred to Wallonia by the Treasury
of the FPS Finances. Besides the terms which govern the frequency of
the resources transferred, the amount of these resources is also predetermined by the mechanisms of the SLF and the decree assigning
certain powers from the Wallonia-Brussels Federation to Wallonia.
Wallonia’s cash flows are therefore characterised by a high degree
of revenue predictability thanks to prior knowledge of the terms of
settlement, both regarding the amounts and the collection rhythms
of most of the resources. For example, the share assigned from the
Personal Income Tax transferred by the Federal State is paid monthly
at the rate of one-twelfth of the budgeted amount, in accordance with
the SLF. This method of payment is also applied for the payment of
resources made by the Wallonia-Brussels Federation. Concerning the
Public debt Wallonia - Report 2014
41
2. Debt management
drawing rights paid by FPS Employment, Labour and Social Dialogue,
these are paid every quarter at a rate of one quarter of the budgeted
amount. As for the collection of regional taxes, they are also expressed
in monthly terms, but there may be fluctuations with regard to the
budgeted amounts.
As for cash outs, these can be split into two categories:
•
programmed expenditure for which the amounts and dates
of disbursement are pre-determined. The programming is
calculated on the basis of budgetary data (amounts) and legal,
decretal, regulatory or conventional norms (payment dates) This
programming is the subject of periodic adjustments with regard
to the budgetary amendments which take place during the
course of the financial year, and the actual expenditure made;
•
miscellaneous expenditure represents a little more than one
third of all expenditure. These have a significantly more random
disbursement rhythm and are monitored by the Finance
Directorate. The statistics obtained enable the effects of volatility
to be limited in terms of cash flow management.
The flows of revenues and expenditure are illustrated in the chart
below:
Chart 8: Evolution of Wallonia’s monthly revenues and expenditure in
2014 (in €).
1 200 000 000.00
1 000 000 000.00
800 000 000.00
600 000 000.00
400 000 000.00
REVENUES
EXPENDITURE
200 000 000.00
0.00
MANAGEMENT
TRANSACTIONS (Δ)
-200 000 000.00
-400 000 000.00
-600 000 000.00
The following chart shows the actual regional cash flow cycle for
2014, which includes the revenues, expenditure and the management
transactions (financial flows related to the loans and investments
concluded by the Walloon Region).
The expenditure peaks are mainly due to the settlement of the annual
contribution to the AWIPH at the start of the year, and to the payment
42
Public debt Wallonia - Report 2014
2. Debt management
made at the end of year to the Municipal Fund and the Provincial
Fund. In December, during the annual closing of accounts, the
treasurers make the final payments on the basis of the invoices sent by
the service providers working with the Walloon Region.
Concerning the revenues, recorded in December, the peak is explained
by the collections made in November and December (additional
percentages to the PIT and the contributions transferred from the FPS
Finance). In fact, the collections of the month N are always booked in
the following month, except for December.
Chart 9 - Daily evolution of the regional cash flow in 2014 (in €)
1 500 000.00
1 000 000.00
500 000.00
Walloon Region
-500 000.00
Walloon Region+OIP
-1 000 000.00
-1 500 000.00
-2 000 000.00
-2 500 000.00
The general form of the cash flow curve is explained by the fact that
Wallonia’s biggest expenses generally occur at the end of the month,
whereas the majority of its revenues are collected at the start of the
month. It can also be observed that Wallonia’s cash flow balances show
negative values all throughout the year. The contribution of the Public
Interest Organisations enables the situation to be redressed and limits
the need to make cash borrowings.
On 31 December 2014, the impact of the cash contributions of the
Public Interest Organisations amounted to €1.248 billion, establishing
the balance of the overall consolidated position at €458.3 million (see
table on page 39).
E. Deficit and surplus management
The net cash balance creates a credit or debit situation for the regional
cash flow on a daily basis, and as such generates credit interest or
debit interest calculated on a monthly basis by the cashier.
Public debt Wallonia - Report 2014
43
2. Debt management
Surpluses
Until 23 December 1995, Wallonia was subject to ordinary tax law in
matters of investment; it was therefore liable for withholding tax on
every kind of investment. It was therefore a matter of searching for
investments which offered the highest gross rate of return, for the level
of risk accepted, in such a way to maximise the net return, compared
with the gross monthly rate offered for assets in the current account.
Since this date, Wallonia is exempted from the withholding tax if it
invests its surplus cash in book-entry securities of the Public Authorities.
Wallonia’s other investments remain subjected to the rules of ordinary
tax law.
In 2014, no less than 182 investment transactions were carried out
in commercial paper essentially from public administrations (BrusselsCapital Region, Provinces, Towns, Public Centres for Social Welfare,
etc.) but also from the academy of the UCL. Their nominal amount
was €1,152.02 million for an average duration of 30 days (with a total
return of €319,830).
Deficits
In the event of a debit balance, arbitrage is carried out between the
conditions of Wallonia’s current account and those pertaining to the
issuance of short-term commercial paper or fixed-rate advances.
As such, Wallonia has two commercial paper programmes38 which
allow it to cover its cash requirements.
2.2. Secured debt
2.2.1 Senior guarantees
On the basis of a series of powers given by the Parliament, the
Government can grant a regional guarantee on financial assets and
liabilities. In these circumstances, the Government issues the regional
guarantee to financing (conventional credit, credit lines, etc.), on the
basis of the authorisations provided by the decree.
The decretal authorisation most commonly used is the decree
containing the general expenditure budget which includes all the
authorisations which can be issued by the Government for the year
in question. These authorisations anticipate a maximum amount of
regional guarantee for each organisation, valid for one year due to the
annual character of the general expenditure budget.
For more details on these
programmes, refer to section 2.1.1 «Long-term debt»
in point C «Breakdown of
the sources of financing».
38
44
When the guarantee is issued, it represents a commitment whereby
the Government grants security to an organisation whose activities it
wants to facilitate, by unconditionally and irrevocably guaranteeing
the lender(s) that it will reimburse the capital and/or the interest in the
event that the organisation is in default. In these circumstances, as we
Public debt Wallonia - Report 2014
2. Debt management
will see below, the main beneficiaries are the housing companies. In
fact, the policy carried out by the Government in this area is to limit
as much as possible the rates of social mortgage loans, in order to
facilitate access to them as much as possible and guarantee housing
for all.
The issuance of the guarantee is subject to a procedure in which
the Finance Directorate is involved, at every stage of the decision
(examination of the special specifications, launch of the invitation to
tender, technical report to the Budget Minister and awarding of the
contract). Furthermore, a report is made to the Finance Inspectorate
at the end of the procedure. To date, the guarantee has not been
called upon.
If an entity is in difficulty and sees no way of paying back the interest
and/or capital of the relevant loans, a mechanism is activated. At the
end of this mechanism, which is only activated in extreme cases, and
when all other alternatives have been exhausted and no other solution
can be found, the guarantee will be called upon. In this scenario, the
Walloon Region is urged to take on the debt on the decision of the
Walloon Government.
At this point, the debt, referred to as ‘secured’, is activated for an
amount to be determined depending on the entity, its financial situation
(assets/liabilities), the existing Government Orders, and any other
variable to take into account. The secured debt does not therefore
commit all the entities concerned since the call for guarantee will only
concern one specific entity and will not affect any of the other entities.
The call for guarantee is a concept which implies that each dossier is
handled on a case by case basis.
It should be specified that the granting of regional guarantees has
virtually no impact on the budget. In terms of expenditure, the granting
of the guarantee does not entail any additional expenditure. In terms
of revenues, the Region does not currently apply any remuneration
mechanism to organisations contributing to the public interest. Only
guarantees granted to private organisations are accompanied with
remuneration, as well as the specific case of hospital centres39.
On 31 December 2014, the overall outstanding amount of senior
guarantees granted by Wallonia amounted to €6,946.9 million and
was broken down in the following manner:
Public debt Wallonia - Report 2014
Cf : Order of the Walloon
Government
modifying
the decree of the Walloon
Government of 30 April
2009 stipulating the conditions and terms according
to which the guarantee of
the Walloon Government
can be granted to loans for
the financing of transactions
http://www.ejustice.just.
fgov.be/cgi/article_body.
pl?language=fr&caller=su
mmary&pub_date=14-0512&numac=2014202975
39
45
2. Debt management
Chart 10: Breakdown per guaranteed entity of the outstanding amount
of the secured debt as at 31 December 2014.
Secured debt - outstanding amount as at 31/12/14
1%
1%
CIW
3%
11 %
CRAC
5%
3%
70 %
Ecetia
FIWAPAC S.A.
4%
The Walloon Company for the Supplementary Financing of Infrastructure
(SOFICO)
2%
Walloon Airports Company (SOWAER)
Walloon Regional Transport Company (SRWT)
Agriculture Sector (FIA, AIDA, ISA)
Social housing (FLFNW, SWCS, SWL)
Chart 11: Breakdown per sector of the outstanding amount of the
senior secured debt as at 31 December 2014 (€6,946.9 million)
Senior secured debt - breakdown of the outstanding amount per sector
41 %
Public sector
Social housing
Underlying assets
Other
Economic
Agricultural sector
3%
4%
1%
48 %
2%
5%
The three main organisations which benefit from the regional
guarantee are the Walloon Company for Social Credit (€2,608.1
million), the Walloon Housing Company (€1,444.9 million) and the
Walloon Housing Fund for Large Families (€802.4 million). Together,
these three companies make up almost 70% of the total regional
secured debt, or €4,855.4 million.
With the implementation
of ESA 2010 which began in
September 2014, methodological changes came into
play for which the effects
will be felt in 2015 (see
annex)
40
46
Following the regionalisation of housing competence and the
dissolution of the national housing bodies in 2003, the mission and the
role of the regional housing companies have expanded considerably.
Following this dissolution, the Walloon social housing landscape was
significantly changed with the appearance of regional actors tasked
with the implementation of the housing policy within the Walloon
territory40. As a result the main actors in the sector are:
Public debt Wallonia - Report 2014
2. Debt management
1.
The Walloon Company for Social Credit, and its social credit
counters, which plays the role of a mortgage issuing company
by facilitating access to mortgage loans at a floor rate for people
in difficulty;
2.
The Walloon Housing Company, which manages housing stock
made up of numerous property assets, together with the Public
Service Housing Companies. This management includes the
acquisition of new properties as well as the renting out of social
housing, social-assimilated housing, transit housing and infill
housing;
3.
The Walloon Housing Fund for Large Families which has a similar
mission and function to the Walloon Housing Company but has
a more specific target group, namely large families;
4.
The Fund for the amortisation of loans for social housing, which
was created with the transfer of powers from the Federal State
to the Regions. This historical fund has a debt obligation which
was transferred from the Federal State to Wallonia, amounting
to €790 million, an amount which was not paid back at the time
of the transfer by the regional housing companies;
5.
the pool of all the centralised current accounts of the regional
housing companies which includes all of the historical subsidy
surpluses as well as the historical balances of all the non-utilised
loans, which amounted to €416.8 million as at 31 December
2014. The table below illustrates the positive evolution of the
balance of all the centralised current accounts of the regional
housing companies.
Amount in € million
Balance of the centralised accounts
of the regional housing companies
200920102011201220132014
222,0170,8212,9326,7384,8416,8
Following the example of other centralised organisations, the
Government controls the implementation of the budget of these
organisations and therefore the utilisation of these centralised surplus
funds. In fact, the Government is free to choose how to reallocate
these funds, making it a veritable liquidity reserve.
The checks carried out by the Government on these companies (in
particular via its Auditors), the obligation for the three companies to
achieve a balanced account, the low default rate, all of the security
mechanisms put in place, the portfolio of mortgages and real
guarantees as well as the value of the property assets all mean that the
housing sector is deemed to be low-risk. To date, the senior regional
guarantees have not been exercised.
Public debt Wallonia - Report 2014
47
2. Debt management
Agricultural guarantees
The regional guarantee can be granted by the Walloon Government for
loans taken out by farmers and agricultural companies for investments
or working capital in agriculture and horticulture, in the context of the
Agricultural Investment Fund (FIA), Investment Aid for Agricultural
Development (AIDA) and Investment Aid for the Agricultural Sector
(ISA).
The management of these guarantees falls under the Operational
Directorate General for agriculture, natural resources and the
environment (DGO3).
On 31 December 2014, the outstanding amounts of guarantees in the
agricultural sector was €148.2 million.
2.2.2 Junior guarantees
The economic expansion laws and performance guarantees are
included in the junior guarantees.
Performance guarantees
The performance guarantee allows borrowers who do not have
sufficient personal funds to benefit from a loan. In the context of
social mortgages or similar products (youth loans/springboard loans),
the Walloon Region undertakes to intervene in the loss incurred by
the lending organisation for the part of the loan exceeding 70% of the
current value of the house.
The intervention of the guarantee only takes place after the «sale of
the mortgaged property». Borrowers pay into the solidarity fund by
making a one-off contribution of 0.2% on the loaned amount, from 1
January 2005 onwards.
Only certain organisations are authorised to make the request: The
Walloon Company for Social Credit (SWCS), the Counters of Social
Credit, the Walloon Housing Fund for Large Families (FLFNW), and
the entities of the Fund for the Reduction of the Overall Cost of
Energy (FRCE).
The balance of the guaranteed amounts has been in continual decline
since 2010, amounting to €760.14 million as at 31 December 2014
(compared to €801.57 million in 2013). Private banks can no longer
call on the advantages of the performance guarantee; this is one of
the explanations for the decline.
48
Public debt Wallonia - Report 2014
2. Debt management
Economic expansion laws
The economic expansion law is governed by the order of the Walloon
Government of 30 December 1970. This decree was modified by the
decree of 22 January 1998.
Pursuant to the decree of the Walloon Government of 18 December
2003, the Walloon Region agreed to a loan of €5.3 million by DEXIA
BANK SA to the S.C.R.L.F.S Parc d’Aventures Scientifiques (Scientific
Adventure Park) at Frameries, for which the outstanding balance due
on 31 December 2014 is €2.31 million.
On 28 May 2001, the Walloon Government agreed to uphold the
regional guarantee on the loan approved for SONACA SA at Gosselies
by FORTIS for the financing of NRC EMBRAER SOCAMAERO
amounting to one billion Belgian francs. The outstanding balance due
on 31 December 2014 is €11.61 million.
The outstanding amount of the guarantee granted by the Walloon
Region for the economic expansion laws amounted to €13.92 million
on 31 December 2014.
2.3. Consolidated gross debt Maastricht concept
2.3.1 Transition from ESA 95 to ESA 2010
2.3.1.1. Treaty of Maastricht
The Treaty on the European Union, signed at Maastricht on 7 February
1992, entered into force on 1 November 1993. The historical context
at the time led to a desire to strengthen the international position of
the Community. The Member States expressed their wish to extend the
progress achieved by the Single European Act through other reforms..
The Treaty of Maastricht had the objective of:
• Strengthening the democratic legitimacy of the institutions;
• Improving the efficiency of the institutions;
• Establishing economic and monetary union;
• Developing the social dimension of the Community;
• Establishing a common foreign and security policy.
Convergence criteria of the Treaty of Maastricht41:
During the second phase of economic and monetary union (1
January 1994 - 31 December 1998), significant efforts were made
to achieve convergence of the economies of Member States. Four
measurement criteria were laid down in the Treaty of Maastricht, in
December 1991:
Public debt Wallonia - Report 2014
https://www.nbb.be/fr/
la-banque-nationale/missions-et-activites/politiquemonetaire-europeenne/
cadre-institutionnel-de-l-0
41
49
2. Debt management
• Low inflation. The average inflation rate observed during the
course of one year before the examination of the entry of a
country may not exceed by more than 1.5% the average of
the rates of the three Member States demonstrating the best
results in terms of price stability.
• Sound public finances. The public deficit may not be higher
than 3% of the gross domestic product (GDP) and public debt
may not exceed 60% of GDP, unless if it reduces sufficiently
and approaches the reference value at a satisfactory pace. This
last criteria is therefore more flexible and is subject to broader
discretion. • Stable exchange rates. Candidate countries must have
respected the normal fluctuation margins anticipated by the
Exchange Rate Mechanism of the European Monetary System
for at least two years and must not have devalued their currency
in relation to that of another Member State. • Low interest rates. During the year preceding the evaluation,
the average long-term interest rate may not exceed by more
than 2% that of the three Member States demonstrating the
best results in terms of price stability.
2.3.1.2. ESA 95
ESA 95 (European System of Accounts) was the common accounting
standard used following the Treaty of Maastricht to ensure Member
States’ compliance with the European convergence criteria, particularly
in terms of public debt. It was an accounting framework adapted to
the federal, regional and community finances42.
ESA 95 (and SCN 93) was an integral system of accounts reflecting the
patrimony of the resident institutional units by transactions in goods
and services, distribution transactions, financial transactions and
other changes in assets. The basic principles were used to achieve
an integrated system with regard to categorisations, identities,
conventions and various regulations43.
http://www.iev.be/
getattachment/0aacdbc56bed-474d-898f2 1 e 5 8 b 6 b d f 5 2 /
L%E2%80%99applicationdes-normes-sec-95-auxpouvoirs-locau.aspx
42
https://www.nbb.be/doc/
dq/f_method/m_nfdc98.pdf
43
50
Before reviewing the changes implicated by ESA 2010, it should
be remembered that in April 2014, within the scope of ESA 95, a
tightening of the criteria entailed an enlargement of the perimeter
of public administrations. For the Walloon region, the result of this
change was reflected in the integration of the debts of the SWL,
SOWAER, SOWALFINAL and CRAC within the public debt.
2.3.1.3. ESA 2010: progressive implementation
In June 2012, the Commission (Eurostat) set up a task force to study
the implications of Directive 2011/85/EU on the collection and
dissemination of fiscal data, which focused on the implementation
Public debt Wallonia - Report 2014
2. Debt management
of requirements in terms of contingent liabilities and other relevant
information likely to have a potentially high impact on public budgets,
including public guarantees, the liabilities of public companies, publicprivate partnerships (PPP), non-performing loans and the shareholding
of public authorities in the capital of companies.
The complete implementation of the result of the work of this task
force would make a contribution to the proper analysis of the economic
relations which lie behind PPP contracts, in particular and if applicable,
the risks associated with construction, availability and demand, and the
inclusion of off-balance sheet implicit debts of PPPs, strengthening in
this way the transparency and reliability of debt statistics.
On 1 September 2014, the national accounts of the Member States of
the European Union (EU) had to adapt to the new European accounting
system: ESA 2010. This is the updated version of ESA 95. From an overall
perspective, the general structure of accounts remains unchanged.
However, improvements were made in particular in the clarification and
thoroughness of concepts, definitions and classifications, as well as in
accounting standards. These changes were essential in order to enable
the coherence, reliability and comparability of the statistical descriptions
of the different economies of all Member States of the European Union.
ESA 2010 provides for:
a) a methodology pertaining to the common standards, definitions,
nomenclature and accounting rules, intended to facilitate the drawing
up of accounts and tables on a comparative basis for the needs of the
Union, as well as results according to the anticipated terms;
b) a programme defining the time scales within which Member States
must transmit the accounts and tables to the Commission (Eurostat)
to be drawn up in compliance with the methodology specified in
point a) above.
It is expected that ESA 2010 will gradually replace all other systems as the
reference framework for common standards, definitions, nomenclatures
and accounting rules, intended for the drawing up of Member States’
accounts for the needs of the Union, thus enabling comparable results
between Member States to be obtained.44
2.3.2. Consolidated gross debt of the Walloon Region
zone: Maastricht concept
The consolidated gross debt comprises:
• Short-term direct debt (<1 year) and long-term direct debt (>1 year);
• Indirect debt comprising in particular: financial leasings, delegated
missions, alternative financing, investments, housing companies,
etc.;
Public debt Wallonia - Report 2014
(14) : http://eur-lex.europa.
eu/legal-content/FR/TX
44
T/?uri=CELEX:32013R0549
51
2. Debt management
It is calculated on the basis of the following data1:45 :
Dette brute
dont :
instruments
financiers non
repris dans la
dette brute
consolidée
(1)
(2)
Actifs
financiers
(3)
dont : placés
auprès des
administrations
publiques
(4)
Actifs
financiers
Dette brute
consolidée
(Définition
Maastricht)
(5)=(1)-(3)
(6)=(1)-(2)-(4)
These are the figures published by the INA for the notice of September
2015 pertaining to the debt of the Walloon Region as at 31 December
2014:
• Direct debt:
•Long-term=
€5,961,851,000
•Shortterm=
€1,507,730,000
• Indirect debt:
•ConsolidatedcompaniesS13.12=
•Financialleasingtransactions=
•Delegatedmissionsandalternativefinancing= €3,496,573,000
•FADELS=
€790,210,000
•AWEX=
€12,890,000
Total consolidated gross debt =
€7,837,729,000
€108,600,000
€19,715,583,000
Debt within the meaning of Maastricht is consolidated gross debt in
the sense that the financial assets of public administrations are not
deducted from liability components.
The methodology used by the INA to present the Walloon public debt
is based on the application of ESA 201046 as opposed to the historical
viewpoint of debt accounting applied by the regional treasury
administration.
Source ICN : SEC
1995/2010 et comptabilités publiques, Dette des
administrations publiques,
Namur, 13 septembre 2013,
page 49.
45
ESA 2010 : https://www.
nbb.be/doc/dq/f_pdf_dq/
ks_02_13_269_fr.pdf
46
52
The concept established by Eurostat and applied by the INA in Belgium
is defined by a broad range of parameters, which allows a number of
public sector entities to be integrated within the perimeter of regional
consolidation. This list of entities has evolved considerably since
2014: entities have joined or left the originally established perimeter,
following reclassifications carried out by the INA. It can be observed
that the amounts published in the successive notices of the INA have
been changed.
Public debt Wallonia - Report 2014
2. Debt management
It is important to understand that the perimeter of consolidation clearly
changes depending on the entities chosen to be listed and the debt
which they carry, but that the regional debt does not increase in the
literal sense.
In the context of the application of ESA 2010:
• Long-term direct debt corresponds to the consolidated direct
debt (€5,985.7 million) from which the commercial paper issues
linked to a fixed-rate derivative are deducted (€820 million)
and to which the debt of the SPABS is added (€795.3 million)
and that of the SWDE (€0.7 million) resulting in a total amount
of €5,961.85 million;
• The short-term direct debt corresponds to issues of commercial
paper (€687.6 million) to which the issues of commercial paper
linked to a fixed-rate derivative are added (€820 million)
resulting in a total amount of €1,508 million;
• Part of the debt guaranteed by the Walloon Region is included
in the debt of S1312, although not all of it. The debt of the
consolidated companies categorised in S131247 amounts to
€7,837.7 million;
• The amount linked to leasing transactions (or tenancy
agreements) realised by the SRWT amounts to €108.6 million;
• The debt generated on the one hand by the missions (e.g.:
FIWAPAC) delegated by the Walloon Government which in the
context of these assignments act directly on behalf of and for
the account of the Walloon Region, and on the other hand
by the alternative financing (e.g.: CRAC, SOWAFINAL) for
public sector companies in the broad sense who rely on capital
markets in the context of their activities, amounts to €3,496.6
million;
• The historical debt of the Social Housing Loan Amortisation
Fund (FADELS) amounts to €790.2 million;
• The debt generated by AWEX which amounts to €12.89
million and is destined to be integrated into the debt of the
consolidated companies S1312.
List of public sector units
as at 30 September 2014 :
http://www.walcomfin.
be/index.php?eID=txaws
ecuredl&u=0&file=filead
min/sites/wcf/upload/wcf_
super_editor/wcf_editor/
documents/Legislation/
Referentiels/V30092014_
Unites_S13.pdf&hash=5a9
56583df8a76cd23ce1e0f85
0e5286b62e829f
47
Public debt Wallonia - Report 2014
53
2. Debt management
2.4. Risk Management
2.4.1. Liquidity and refinancing risk
Wallonia is exposed to the risk of not having enough funds available to
honour its obligations at their respective maturities. In fact, if it doesn’t
have enough available funds to pay interest and/or capital charges
due to lenders, and it cannot borrow the amounts to be repaid, it will
face a liquidity problem and be deemed to be in default of payment,
being technically insolvent. This risk increases when interest rates rise.
To manage this risk as effectively as possible, Wallonia has diversified its
sources of finance by extending its investor base. The objective is not
to be dependent on one type of financing, for example bank loans. To
achieve this, Wallonia has increased the number of its counterparties,
who are intermediaries searching for investors amenable to lending
it funds. It has also put in place tools (financing programmes and
standardised documentation for the “Schuldschein” credits) enabling
it to have rapid and constant access to the capital markets.
Wallonia also has the following elements which ensure a permanent
and sufficient level of liquidity to counter any incident likely to dry up
or weaken its sources of financing:
54
• a mechanism of treasury centralisation for Walloon Public
Interest Organisations which enables Wallonia to benefit
from the cash flow of the organisations included in the
centralisation (cf. above);
• a current account debit facility of €3.25 billion granted
by its cashier in the context of the renewal of the contract
signed on 17 July 2012, which entered into force on
1 January 2013;
• a levelling of the debt amortisation schedule in order to
avoid refinancing peaks as illustrated in the chart below:
Public debt Wallonia - Report 2014
2. Debt management
Chart 12: Amortisation schedule of the long-term debt (direct debt
and SPABS) as at 31 December 2014
Schedule of the Regional direct and SPABS debt on 31/12/2014 (in millions of
EUR)
600
500
400
300
extendible
fixed rate SPABS
Variable rate SPABS
200
variable rate loans
fixed rate or assimilated loans
100
0
According to the schedule as at 31 December 2014, the peak of
refinancing for Wallonia will take place in 2023 and represents 7.60%
of long-term debt.
A new ratio was established in 2010 in order to formalise this objective
of levelling the amortisation schedule. It concerns cumulated
amortisations48 in relation to the debt stock. The Joint Treasury Council
issued two constraints: the amount of amortisations, from one year to
the next, may not exceed 15% of the debt stock, and the cumulative
amount of amortisations for the next five years may not be more than
50% of the debt stock. In other words, at least 50% of the debt must
be financed for longer than 5 years. Short-term commercial paper, an
integral part of the debt stock, is integrated into this indicator. Given
that the risk of renewal of commercial paper is perfectly hedged by the
current account debit facility, the maturity considered for commercial
papers associated with a swap is equal to the maturity of the swaps to
which they are linked. For commercial paper not associated to swaps,
their respective maturity is applied.
No assumptions are made
on the manner of refinancing the amortisation
coming to maturity.
48
Public debt Wallonia - Report 2014
55
2. Debt management
Chart 13: ratio of the cumulated amortisations of Wallonia as at 31
December 2014
100%
90%
80%
70%
60%
Max
5 years 50%
50%
Max
2017 + 15%
40%
30%
20%
10%
0%
Max
2015 + 15%
Max
2016 + 15%
Max
15%
6.70%
2015
12.06%
2016
24.87%
18.74%
2017
2018
31.79%
2019
It can be seen in the chart above that almost 70% of the regional
debt is financed at more than 5 years. It should be reiterated that
the calculation of this ratio is based on conservative assumptions. In
fact, all rights attached to the financing and derivative instruments
which contractually allow a counterparty to close its position early
(such as a «call’ option for the lender) are considered to be exercised
on the first possible call date, as such entailing an increase of the
cumulated amortisations and therefore the ratio.
Wallonia’s liquidity and refinancing risk would appear to be
minimal given the authorisation of a current account debit facility
of €3.25 billion granted by the cashier of the Region, the financial
centralisation of the treasuries of the PIOs and the levelling of the
debt amortisation schedule. The amount of the overdraft facility
represents 46.36% of the regional debt as at 31 December 2014
and ensures the hedging of Wallonia’s amortisations (rounded up
to €400 million per year) for 8.12 years.
2.4.2. Exchange rate risk
The interest rate risk is the impact of an increase of the market interest
rates on the part of the debt at a variable rate. In this case, the interest
rates will be fixed at higher levels and Wallonia’s cost of financing will
increase as a result. This «re-fixing» risk of the interest rates is all the
more important given that the share of the debt at variable rates is
high.
56
Public debt Wallonia - Report 2014
2. Debt management
The choice between a fixed-rate or floating rate loan, short-term or
long-term, for financing needs, is the result of a compromise between
the costs of financing and risk.
Given the generally positive gradient of the interest rate yield curve
(upwards inclination), a loan at a floating rate often offers a lower cost
of financing in the beginning, but does not guarantee this cost in the
future.
Conversely, a loan at a fixed rate often has a higher initial cost of
financing, but guarantees this cost for the duration of the loan. The
opportunity cost represents the costs linked to the impossibility of
re-fixing the rates in the event of an inversion of the interest rate curve.
The «re-fixing» risk of the interest rates is mainly managed using the
fixed rate/floating rate ratio over 5 years, illustrated in the chart below.
The objective proposed by the Joint Treasury Council and accepted
by the Minister for Budget and Finances is that the share of the debt
for which the coupon varies with interest rate fluctuations must aim to
be 15% of the debt stock. Given the gradient, form and level of the
interest rate curve in 2014, fixed rates have been preferred.
Chart 14: Ratio of fixed rate/floating rate debt as at 31 December 2014
100%
90%
80%
70%
60%
83.33%
82.31%
85.40%
84.40%
82.82%
16.67%
17.69%
14.60%
15.60%
17.18%
2015
2016
2017
2018
2019
50%
40%
30%
20%
10%
0%
Floating
Fixed
It should be noted that the calculation of this ratio is also based on
conservative assumptions. All rights attached to the financing and
derivative instruments which contractually allow a counterparty to
refund its position early or modify the nature of the interest rate paid
(such as, for example, an option to change from a fixed rate to a
floating rate) are considered to be exercised on the first possible call
date, as such entailing an increase in the floating part of the portfolio.
Public debt Wallonia - Report 2014
57
2. Debt management
2.4.3. Credit risk
Credit risk is the risk of economic loss resulting from the default of a
counterparty to meet its financial obligations with regard to Wallonia.
It is measured by the replacement cost of the cash flows in the event
of the other party’s default. This credit risk exists in particular when
Wallonia concludes hedging transactions with derivative products
(swaps, etc.).
Chart 15: Credit risk for derivative products as at 31 December 2014
5%
Baa1
35 %
A1
A2
21 %
A3
23 %
Ba1
16 %
The chart above illustrates the quality of the counterparties with
whom Wallonia has concluded swaps. In terms of the management
of credit risk for the derivative products held by Wallonia, most of
the counterparties are classified as «investment grade»49 which
corresponds to a low credit risk.
2.4.4. Currency exchange risk
The regional debt is not exposed to currency exchange risk, since all
of its financing is contracted in euros.
2.4.5. Follow-up of the derivatives portfolio
Having examined liquidity and refinancing risk, exchange rate risk,
credit risk and currency exchange risk, this section will analyse the risk
linked to the derivatives portfolio.
In reality, Wallonia has
contracted 5% of its total
swapped debt with just one
counterparty whose rating
is «speculative Ba1».
49
58
Public debt Wallonia - Report 2014
18 %
50 %
2. Debt management
Chart 16: Breakdown of the swap portfolio in terms of cash flows paid
as at 31 December 2014
Structured
Fixed
Variable
32 %
As shown in the chart above, the derivatives portfolio is primarily made
up of swaps for which Wallonia pays a fixed rate. These swaps are
linked to floating-rate loans for which Wallonia has decided to hedge
against all rate variations, in the context of its risk management policy.
The floating-rate paying-leg swaps, in other words for which the rate
paid is linked to Euribor rates (1, 3, 6 or 12 months), represent around
one third of the derivatives portfolio. Around 50% of these swaps are
«basis swaps».
Within the scope of its debt management, Wallonia is not exposed
to complex structures for which the rates paid may increase
disproportionately. Most of the structured swaps are structured by
their recipient leg for the Region and not by their paying leg which is
fixed or floating.
Public debt Wallonia - Report 2014
59
2. Debt management
2.5. Active debt management
2.5.1. Mission and strategy
The essential mission of regional debt and cash flow management is
to ensure that Wallonia has the necessary resources at any time and in
any circumstances to meet its financial obligations.
Given the historical amount of Wallonia’s financing needs, it has
adopted a strategy that is essentially based on private investments
and the use in particular of the «reverse inquiry50» procedure.
2.5.2. Management principles and their application
The regional debt is managed in accordance with seven permanent
principles. These principles are the following:
1. R
esponsiveness, flexibility, transparency and
communication
The implementation of the regional debt and cash flow management
strategy is based on the responsiveness to financing proposals,
flexibility in terms of management, transparency and communication.
Heightened responsiveness in particular enables a more effective
management of the interest rate risk. It also enables market
opportunities to be seized and to improve the competitiveness of
the offers received. Furthermore, Wallonia has adopted a proactive
approach in terms of communication intended to make the market
more aware of its financing needs, its decision-making process, the
maximum spreads anticipated versus OLO rates (refer to point C of
section 2.4.3 Performance indicators), as well as the Belgian federal
system, with a special attention to the SLF, which ensures a significant
part of its revenues in a predictable and guaranteed manner. This
publication of the annual debt report, including this English version, is
part of this approach.
Reverse Inquiry» refers to
when investors approach
Wallonia to offer it a securities issue, which will meet
the needs of the issuer and
allow the investors to subscribe to a dedicated issue.
50
60
Heightened responsiveness, in terms of decision-making, has been
made possible by the implementation of a management framework
established for the first time on 28 May 2010 and revised at every
session of the Joint Treasury Council. Instead of having to consult the
Joint Treasury Council or the Regional Treasury Council to analyse
every proposal for financing, the Council will automatically issue
a positive opinion for a financing transaction if a certain number of
conditions are met, such as the margin proposed by the investor
which cannot exceed a certain level OLO issued by the Federal
State, with a maturity equivalent to the financing proposed by the
investor. The other conditions relate to meeting the objective of the
fixed rate/floating rate ratio, a minimum duration of the portfolio, and
Public debt Wallonia - Report 2014
2. Debt management
the drafting of a detailed report for each transaction, which will be
presented during the next Council session. The objective of this report
is to highlight in particular the risks linked to the presence of options
in the proposed financing and to present the elements that mitigate
the identified risks.
2. O
ptimal distribution between fixed rate and
floating rate
The yield curve is one of the main indicators taken into consideration
for the management of the regional debt. In fact, this indicator helps
to determine a ratio for the distribution of the outstanding debt
between a fixed rate portion and a floating rate portion. The objective
is to achieve the optimal risk/return ratio. For this reason, a significant
evolution in the slope of the gradient of the yield curve usually leads
to a repositioning of the fixed rate/floating rate ratio regardless of
the maturity of the loan. In this way, in the event of a steeply sloped
positive curve, the positioning of the debt ratio will be oriented more
towards the floating rate. In fact, the utilisation of financial instruments
- loans or hedging derivative products - referenced as short term, is
then less expensive. Conversely, in the event of a relatively flat yield
curve, the return is relatively similar for all maturities. Confronted with
this type of curve, the search for the best «risk/return» ratio would
involve increasing the fixed-rate share of the ratio.
Before 2000, the fixed rate/floating rate distribution ratio was revised
for any significant movement in the yield curve. Subsequently, this
principle was slightly modified, as it was no longer a matter of reaching
a precisely fixed ratio by a given date, but rather of evolving within a
range for which the limits had been fixed. This capacity for adaptation
of the ratio to movements in the yield curve enabled the risk/return
ratio that was most appropriate to the debt to be achieved at any time.
The ratio is therefore a key tool for debt management intended to
establish an adequate balance between the cost of debt and the risks
linked to the volatility of interest rates.
The limits fixed for the range of variation were initially set at 65%
minimum and 75% maximum of fixed rate, to respect the fixed rate
and floating rate share of the debt, in other words a margin equal to
10% of the total outstanding regional debt.
During its session of 23 November 2010, the Joint Treasury Council
revised the principle of evolving within a range and set the objective51
for the fixed rate/floating rate ratio to gradually move to a floatingrate debt share of 15%. This milestone represents an objective to be
achieved gradually.
The proportion of the variable-rate debt was 17.32% as at 31 December
2014.
Public debt Wallonia - Report 2014
These objectives will be
revised by the Council if
they deem it necessary.
51
61
2. Debt management
3. Diversification of the investor base
Having a well-diversified investor base allows Wallonia to not be
dependent on just one source of financing, and to lower its cost of
financing through increased competition.
In order to achieve this objective, Wallonia has increased the number
of bank counterparties with which it collaborates, so as to be able to
reach a larger number of investors, in various countries. It has also
implemented various types of financing instruments (domestic financing
programmes, «Schuldschein» agreements, and bank agreements).
Since 2012, Wallonia also has an EMTN financing programme, which
further increases the number of potential investors.
In the past, two strategic partners of Wallonia, Dexia Bank Belgium
(now called Belfius Bank), and BNP Paribas Fortis together held the
dominant market share, which amounted to 68% of the financing
realised as at 31 December 2009, commercial paper excluded. As
previously indicated, numerous efforts have been made in order to
diversify the investor base and introduce more competition among the
counterparties, without questioning the historical strategic status of
the historical partners. Between 31 December 2009 and 31 December
2014, the number of counterparties with whom Wallonia collaborated
increased from 12 to 22.
4. Levelling of the debt amortisation schedule
Wallonia strives to constantly maintain a minimum duration of its debt
above 4 years, in order to avoid having to tackle a significant amount
of refinancing over a short period of time. In this way, it ensures that
its debt is staggered over the long term. Nevertheless, it also aims
to diversify the maturities of its debts so as to avoid - to the extent
possible - peaks and troughs in refinancing, and thus to be in the
market for relatively similar and reasonable amounts each year.
With this in mind, the amortisation schedules of the direct and indirect
debt were merged in 2010 and a «cumulated amortisations» ratio,
including the cumulated percentage of the long-term debt stock
coming to maturity in the coming 5 years relative to the total debt
stock, has been calculated since November 2010.
For this ration, the Joint Treasury Council established an objective on
23 November 201052: not to exceed 50% of cumulated amortisations
over 5 years and 15% over 1 year (see chart 13 page 43).
These objectives may be
revised by the Joint Treasury Council if they deem it
necessary.
52
62
Public debt Wallonia - Report 2014
5. Principles of prudence, competitive procedure
and efficiency of the decision making process
2. Debt management
As a reminder, the debt and treasury management transactions
are included in the exclusions specified in appendix 2 of the Royal
Decree of 29 September 2009 modifying the law of 15 June 2006
and the Royal Decrees of 15 July 2011 and 14 January 2013 on public
procurement contracts and certain contracts for works, supplies and
services, and certain decrees. Nevertheless, prices, rates, margins,
etc. are systematically obtained after competitive procedures in a
form adapted to the type of product and after having been evaluated
internally. The competitive procedure ensures that the best price is
obtained, but it also allows a check on the sound understanding of
the product concerned. In fact, a significant price discrepancy from a
counterparty can be due to a poor understanding of the transaction in
progress, and can be corrected before its conclusion, thereby avoiding
subsequent difficulties. Additionally, an ex-post control is carried out
through the reporting of all transactions to the Treasury Councils.
6. A
ppropriate utilisation of derivative financial
instruments
Wallonia uses the financial instruments that are best suited to the
management of its debt, and only for hedging purposes. In this
respect, any speculation is systematically excluded and each concluded
derivative product is, or will be during its whole life, attached to a
component of the regional debt.
Interest rate swaps are the most common products used in managing
the yield curve, allowing with ease the transfer of a portion of the debt
from floating rate to fixed rate, and vice versa.
7. Search for synergies
The search for synergies is important, both internally and externally.
Since 2010, the calculation of the fixed rate/floating rate ratio, the
establishment of a new ratio for evaluating the refinancing risk, the
procedures for short-term investments, the model for derivative
contracts (ISDA), and the detailed reporting made for all financing
transactions are elements which have been harmonised between
Wallonia and the Wallonia-Brussels Federation. However, information
exchanges and best practice have also taken place since 2010
between the Federal State, the Brussels-Capital Region and the
Flemish Community.
Ces objectifs peuvent
être revus par le Conseil
Commun du Trésor lorsque
celui-ci le jugera nécessaire.
52
Public debt Wallonia - Report 2014
63
2. Debt management
2.5.3. Performance indicators
A. A. Budgetary performance
1.1. REVENUES
2015
2016
2017
2018
2019
Revenues 6th reform
6,241,691
6,208,549
6,437,438
6,679,198
6,920,400
Revenues ‘Sainte Emilie’
3,421,255
3,622,160
3,701,612
3,786,745
3,874,334
Miscellaneous revenues
279
279
279
279
279
TOTAL REVENUES 6th reform and Sainte Emilie
TAX EXPENDITURE DEDUCTED FROM THE
CONTRIBUTION
RESOURCES FROM THE REGIONAL LEVEL
TRANSFERS
FEDERATION
FROM
WALLONIA-BRUSSELS
TOTAL REVENUES
9,663,225
9,830,988 10,139,329
10,466,222 10,795,013
-850,319
-831,595
-881,701
-938,321
-1,000,045
3,031,814
3,407,623
3,534,304
3,683,860
3,838,989
340,859
349,100
353,156
357,547
362,008
12,185,578 12,756,117 13,145,089 13,569,308 13,995,965
1.2. EXPENDITURE
TOTAL EXPENDITURE
of which debt expenditure
1.3. GROSS BALANCE TO BE FINANCED = (1)-(2)
12,838,741 13,289,296 13,552,395 13,828,988 14,122,973
299,096
322,855
343,226
358,280
368,367
-653,163
-533,179
-407,306
-259,680
-127,009
1.4. ESA ADJUSTMENTS
-309,119
-394,442
-262,385
-406,804
-290,262
Underutilisation of credits
214,000
214,000
214,000
214,000
214,000
Granting of credit and shareholdings net amounts
249,198
247,923
247,869
247,869
227,869
50,385
50,385
50,385
50,385
50,385
204,464
117,866
249,869
105,450
201,992
-448,699
-415,313
-157,437
-154,229
74,983
Balance of economic regrouping
Other
TOTAL ESA ADJUSTMENTS
1.5.BALANCE OF FINANCING ESA 95 = (3)+(4)
64
Public debt Wallonia - Report 2014
2. Debt management
The multi-annual projections take into account the decisions made
in 2015 and the effects of these across subsequent years. From
2016 onwards, expenditure and revenues evolve according to
macroeconomic parameters, if applicable.
However, the projections do not include the decision which will be
taken by the government with a view to achieving the aim of balancing
the budget in 2018.
In the table above, in line with the budgetary works, the underutilisation
of credits amounting to €214 million is included in the ESA adjustments
whereas it should be shown at the top of the table to reduce the Gross
Balance to be Financed.
B. Rating
During the last three years, Wallonia had an A1 rating from Moody’s,
with a negative outlook. Since 25 June 201453, the outlook has
progressed from negative to stable. According to Moody’s, this last
rating is the reflection
• of the relatively high, and increasing, levels of debt;
• of the commitment of the regional administration to implement
the consolidation measures included in the agreement concluded
between the federal government and the federated entities to
achieve the objectives made pursuant to the Excessive Deficit
Procedure of the European Union;
• of the flexible cash flow management and the solid liquidity profile.
C. Margin with regards to OLO
Wallonia’s natural benchmark for its financing is the OLO, for which the
spread is much less volatile than with the IRS. Given the close financial
links between the Federal State and Wallonia, which are expressed
through the SLF, the spread with regards to OLO reflects on the one
hand, the difference in rating of the two entities, and on the other
hand, the difference in liquidity of the bonds issued by the two entities.
It can be noted that the specific risk of Belgium is already integrated in
the evolution of the OLO and that of Wallonia is mitigated by the high
probability that the Federal State would cover, in the last resort, all of
the federated entities.
In order to fall within the framework established in 2010 to increase
responsiveness in terms of decision-making, the maximum margin with
regards to OLO is fixed by the Joint Treasury Council, and depends on
the evolution of the financial and economical context.
54
In effect, it is indeed a maximum margin and not a margin applied
systematically to all of the financing raised by Wallonia. Whereas
Public debt Wallonia - Report 2014
NB: as of 5 May 2015, the
Walloon Region has been
awarded the same rating as
25 June 2014.
53
For
more
details,
refer to section 2.4.2
«Management
principles
and their application» in
point A «Responsiveness,
flexibility, transparency and
communication».
54
65
2. Debt management
a classic financing with a fixed rate and without any underlying
derivatives will have a spread with regards to OLO below or equal
to the maximum margin, a financing which is structured and/or which
presents an additional counterparty risk will attract a spread with
regard to OLO that is significantly below the maximum margin. For
every financing concluded, the difference between the spread and
the maximum margin with regards to OLO will depend on the maturity
and the risk incurred by Wallonia.
D. Historical indicators
The Finance Directorate uses several measurement instruments to
evaluate the level of risk of its debt portfolio.
Besides the fixed rate/floating rate ratio, one of the historical indicators
is the average life span of the financing portfolio. It should be noted
that before 2000, this indicator was only calculated on the direct debt.
From 2010 onwards, the indirect debt was integrated in all of the
calculations as a component of regional debt.
The average life span was 8 years and 7 months in 2012; 9 years and
2 months in 2013 and 8 years and 6 months for 2014.
Another essential indicator is the implicit rate (the amount of all interest
paid annually in relation to the corresponding direct debt stock as at
31 December of the year). Its evolution during the period 2008 to
2014 is shown in the following chart:
Chart 17: Evolution of the implicit rate
5.00%
4.50%
4.00%
3.50%
3.00%
2.50%
2.00%
1.50%
1.00%
0.50%
0.00%
Implicit rate (en%)
66
2008
2009
2010
2011
2012
2013
2014
4.19%
4.61%
3.28%
3.72%
3.44%
3.65%
3.63%
Public debt Wallonia - Report 2014
2. Debt management
The evolution of the implicit rate from one year to another is due to
the level of interest rates, movements of the yield curve, the level of
existing loans and the active management of the debt.
These results, in terms of rates, should be put in relation with the
average duration as well as with the decision to position the fixed rate/
floating rate ratio essentially at a fixed rate, such that the regional debt
is not only inexpensive, but also not too risky (both in terms of interest
rates and in terms of refinancing).
Reasons to invest in Wallonia
The regional debt can be classified as being secured and under
control, whilst benefiting from attractive characteristics for investors.
A secured regional debt, characterised as at 31 December 2014 by:
• a low level of interest rate risk since the debt is essentially fixed rate
(82.68%);
• a low level of liquidity and refinancing risk thanks to a current
account debit facility of €3.25 billion granted by Wallonia’s cashier, a
levelling of the debt amortisation schedule, and a diversification of
the investor base;
• an absence of exchange rate risk, as all financing contracted up until
now has been in euros;
• prudent and sophisticated debt management with the treasury
centralisation of numerous Public Interest Organisations;
• management guided by the Joint Treasury Council and the Regional
Treasury Council, in which members of the Finance Inspectorate, the
Court of Auditors, and external auditors are represented, among
others.
A regional debt under control, characterised as at 31 December 2014 by:
• a regional debt/revenues ratio of 90.53%;
• an average life span of 8 years and 6 months;
• an implicit rate of 3.63%;
• a cumulated amortisation over the period 2015 - 2019/long-term
debt stock ratio of 31.79%.
An investment offering the following to investors:
• a higher return in comparison with OLO, to compensate for the lower
credit rating quality («A1» vs «Aa3») and the lower liquidity than the
federal level;
Public debt Wallonia - Report 2014
67
2. Debt management
• the implicit support of the Federal State;
• a diversification in terms of investments;
• an issuer having a certain degree of fiscal autonomy since 33% of the
revenues in 2014 come from regional taxes;
• an issuer for which 48.34% of its revenues are guaranteed by the
Federal State (cf. article 54 of the SLF) and on which there is no risk
of effective tax collection as they result from a mathematical formula.
68
Public debt Wallonia - Report 2014
2.6. Abbreviations
BO
Back Office
COCOT
Joint Treasury Council
CORET
Regional Treasury Council
CPAS
Public Centre for Social Welfare
CSF/HCF
High Council of Finance
DGT
Cross-Functional Directorate General for the Budget, Logistics, Information
Technologies and Communication
EMTN
Euro Medium Term Notes
FLFNW
Walloon Housing Fund for Large Families
FO
Front Office
IFRS
International Financial Reporting Standards
ISDA
International Swaps and Derivatives Association
LSF/SLF
Special Law on Financing
LSRI
Special Law on Institutional Reforms
OIP/PIO
Public Interest Organisation
OLO
Linear Ordinary Bonds
ESA 2010
European System of National and Regional Accounts (standards 2010)
SOFICO
Walloon Company for the Supplementary Financing of Infrastructure
SOWAER
Walloon Airports Company
SPABS
Public Administration Companies for Schools Buildings and education organised
by the Public Authorities
FPS Finances
Federal Public Service Finance
SPW/WPS
Wallonia Public Service
SRWT
Walloon Regional Transport Company
SWCS
Walloon Social Credit Company
SWDE
Walloon Water Company
SWL
Walloon Housing Company
Public debt Wallonia - Report 2014
69
Service public de Wallonie
Département de la Trésorerie - Direction du Financement
Boulevard du Nord, 8 - 5000 Namur
Mél.: [email protected]
Web: www.wallonie.be