Professional Documents
Culture Documents
• Fiscal
Fi l consolidation
lid ti and
d structural
t t l reform
f
• Funding
g Strategy
gy of the Kingdom
g of Spain
p
~2009~
1
Highlights
• Long growth cycle previous to the international crisis
• Important challenges ahead: Unemployment and deficit,
consequence of the crisis but also symptoms of underlying
structural shortcomings
p
• The Spanish Government is determined to act:
• Fiscal consolidation: A cut of 5.7% of GDP in structural
primary deficit in 2010-2013
• Structural
S l reforms
f to boost
b potential
i l GDP:
GDP Sustainable
S i bl
Economy, Bank Reorganisation, Pensions, Labour Market
• Strengths: Sound financial system, low Debt/GDP,
institutional ability for reform
2
• Highlights
3
1994-2008: Convergence and Debt reduction
• GDP per capita has leapt forward, exceeding the average of EU-25
• Fiscal rigour during the good times allowed debt to GDP to be more
than halved
80%
6% Euro-area
Spain
4% 70%
2% 60%
Euro-area
0%
50%
-2% Spain
40%
-4%
-6% 30%
2000
0
2001
2002
2
2003
3
2004
4
2005
5
2006
6
2007
7
2008
8
2009
9
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
25
30
20
26
15 22
10 18
99
00
01
02
03
04
05
06
07
08
09
199
200
200
200
200
200
200
200
200
200
200
Belgium Germany Spain France Italy
Investment in equipment
(average growth, 1995-2008 in percent) Public Investment
5.0 (% of GDP)
10
8 40
4.0
6 3.0
4 2.0
2 1.0
0 0.0
UK
E U -15
Italy
G erm anyy
N etherlannds
D enm arkk
S pain
A ustria
Finland
France
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
EU 27
EU-27 GERMANY FRANCE ITALY UK SPAIN
Source: Eurostat.
7
Intensive in employment
• Residential construction attracted low skilled labour, dragging
productivity lower
• Labour supply matched this demand with the help of immigration
flows
Italyy
Spain
n
France
e
Belgium
m
m
Kingdom
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
United
19
20
20
20
20
20
20
20
20
20
20
19
20
20
20
20
20
20
20
20
20
20
110
125
100
90 100
80
75
70
60 50
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2000 2001 2002 2003 2004 2005 2006 2007 2008
Spain Germany France United States Spain Germany France United States
10
2000
2007
8
0
otal
Tourrism
ment
Informattion
Entertainm ent
Insurance
Financcial
Transportation
Royalties aand
Professional
ons
services to
and engineering
Architecturaal,
servicees
n,
To
Communicatio
construction
Otherr
patentss
Governm
services
Source: OECD. 11
FDI flows have increased significantly
• Outward FDI stock per capita has grown faster in Spain than in
the Eurozone
• Remains a major destination of international investment
0.75 1000000
0.70 500000
0.65 0
Germany
UK
US
China
Canada
Belgium
Hong Kong
France
Italy
herlands
Spain
Swittzerland
0.60
2002 2003 2004 2005 2006 2007 2008
Neth
G
Source: World Investment Report 2009
Source: World Investment Report 2009
12
The crisis prompts an abrupt adjustment
• Rapid downsizing of residential sector: output, L (mainly in
temporary contracts)
• Ripple effects on employment in other sectors
Unemployment rate
20 (In percent)
Sectoral employment
16 (total number)
july 2008 sept 2009 dif %
Total 19.382.121 17.935.095 -1.447.026 (100)
12
Construction 2.361.177 1.752.157 -609.021 (42,1)
Industry 2.731.068 2.377.211 -353.857
353.857 (24,5)
8 Services 13.150.027 12.599.061 -550.966 (38,1)
15
Policy Strategy for Sustainable Growth
16
The Government’s Macroeconomic scenario
17
Fiscal consolidation strategy
18
Starting and final points of fiscal consolidation
19
Fiscal restraint measures
Measures adopted and announced (% of GDP)
Revenues Expenditures
VAT 0.7
Excise Taxes 0.3
400€ Tax Rebate Reform 0.4
2010 Budget
Savings Tax Reform 0.1
SME Corporate Tax Reform -0.1
Government Expenditure -0.8
Additional cut in 2010 Expenditure -0.5
New Measures* Central Government Austerity Plan 2011-2013 -2.6
R i
Regionall and
d local
l l governmentt Spending
S di cuts
t -0.5
05
Source: Annual update of the Stability Programme.
20
Can we implement this?
• We have done it in the past,
past which proves our compromise,
compromise the
quality of our public finances, and the success of our fiscal
discipline.
• Shared commitment to fiscal discipline and margin to secure
further reductions in the deficit
Net Lending (+)/Borrowing (-) of General Government
4.0 (% nominal GDP
GDP, EDP)
2.0
0.0
-2.0
40
-4.0
-6.0
-8.0
-10.0
-12.0
-14.0
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010*
2011*
2012*
2013*
* Annual update of the Stability Programme. 21
Debt dynamics
Sources: European Commission, Annual update of the Stability Programme and International Monetary Fund.
22
Lowest interest burden within affordable limits
Ratio of interests to GDP of General Government
(% nominal GDP, EDP)
13
11
*
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
19
19
19
19
19
20
20
20
20
20
20
20
20
20
20
20
Spain Germany France Belgium Italy UK
24
Residential Real Estate Sector
25
26
Preventive financial support measures
reorganisation
enhancement
Capital
and
stimulus
Credit
Liquidity enhancement
9
b
n
€
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eg 2
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iu a
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R b
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fu in
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ye r
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a
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ao ie 1
B
n lu
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s
u ln
d e
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ta d
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p ti0
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ae 7
o
ratrg u
n n
r.n
v
aa d
ikld
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rsg
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oa
t
pu
et
nh
o
r
i
z
e
The financial system remains resilient
27
FROB: a tool for restructuring the banking sector
Rationale for the initiative Governance
28
Pension System Reform
Proposed Measures:
• A progressive increase in the retirement age (to 67
years)
• Strengthening relationship between contributions and benefits
p between complementary
• A more flexible relationship p y social
security and the public system
• Possible adjustment of other parameters of the current system
29
Labour Market Reform
• Stability
St bilit in
i employment,
l t by
b reducing
d i market
k t segmentation
t ti
• Reform of Collective Bargaining system
• Incentives for young workers’
workers employment and education
• Promotion of the integration of women in the labour market
• Worker intermediation and greater control of temporary
occupational disability claims
30
• Highlights
31
Highlights of Funding Strategy
• Significant reduction in net funding requirements and
persistence of sound risk metrics
• Liquidity,
Liquidity transparency and predictability will continue
as guiding principles for the execution of our auction program
• As for syndications, timing is dictated by the limit size of the
line to be replaced (16.5 bn for longer tenors) and market
conditions.
• Innovations for 2010: 18-month
18 month T-bills
T bills reappear
reappear, Euro
inflation linker still a project
• Maintain our stable and diversified investor base
32
The funding strategy
33
Funding programme in perspective
100
82.3
76.8
80
61.6
60
40 34 4
34.4
20 15.2
0
T t l Net
Total N t Issuance
I L t
Letras del
d l Tesoro
T nett M
Medium
di & long
l term
t
issues net issues*
(*) Includes foreign currency issues.
• Innovations in 2010:
• Calendar change: 3- and 6-month Letras auction 4th Tuesday
• 18-month T-bills relaunched: auction 3rd Tuesday
35
Medium- and long-term funding
• Gross issuance: 2009 overshooting (ca. 25 bn €) due to higher than
expected impact of the crisis
• Auction procedures unchanged: Quarterly calendar + potential off-
the-run lines announced Friday prior to the auction
• Limit size per line: increased to 16.5 bn € for longer lines
• Bonos del Estado:
• New 5-year benchmark in March
• Current 3-year benchmark B 2.30% 04/2013 issued until 15 bn €
• Obligaciones
Obli i d l Estado:
del E t d
• New 10 year O 4.00% 04/2020 (5 bn €) successfully syndicated in
January
• Next syndication a 15 year line, to replace the matured O 4.80% Jan-
2024), expected for February depending on market conditions
36
Diversification of funding sources
• Recent foreign currency issuance:
• Eurobond 2.75% March 2012 ($ 1.0 billion)
• Eurobond 2.00%
2 00% October 2012 ($ 2.5
2 5 billion)
• Tesoro Público is open to additional foreign currency issuance
• Projects:
• European inflation-linked issues (HICP-ex tobacco)
• Schuldschein loans
37
Main features of Treasury funding strategy
600 Spanish debt portfolio 554
(€ billion)
500 475
400 358
319 312 307
300
229
200
100
0
995
996
997
998
999
000
001
002
003
004
005
006
007
008
009
0 (f)
19
19
19
19
19
20
20
20
20
20
20
20
20
20
20
2010
Foreign Currency Other Letras Bonos y Obligaciones
Source: Dirección General del Tesoro y Política Financiera. 38
-75
-50
-25
25
0
25
50
75
100
125
150
Sep-0
07
Oct-0
07
Nov-0
07
Dec-0
07
Jan-0
08
Source: Bloomberg.
Feb-0
08
Mar-0
08
Apr-08
Germany
08
May-0
Jun-008
Jul-0
08
Italy
Aug-08
Sep-008
Oct-008
Nov-0
08
France
Dec-0
08
(in bps)
Jan-0
09
Feb-0
09
Mar-0
09
Apr-09
Belgium
May-009
Jun-009
Jul-0
09
Aug-09
09
Sep-0
Netherlands
Oct-0
09
Nov-0
09
Dec-0
09
Jan-10
Spread of the Spanish 10-year bond vs. main European peers
Recent widening might be an opportunity
Feb-10
39
-75
-50
-25
25
0
25
50
75
100
125
150
S
Sep-0
07
Oct-0
07
Nov-0
07
Dec-0
07 Spread
Jan-008
Source: Bloomberg.
d off th
Feb-008
Mar-008
the S
Apr-008
Germany
May-008
Jun-008
Spanish
Jul-0
08
i h5
Italy
Aug-0
08
Sep-0
08
Oct-0
08
Nov-0
08
Dec-0
08
France
(in bps)
5-year bond
Jan-0
09
Feb-0
09
Mar-0
09
Apr-0
09
Belgium
May-0
09
b d vs. main
Jun-009
E
Jul-0
09
Aug-0
09
Sep-0
09
Netherlands
Oct-0
09
i European
Nov-0
09
Dec-0
09
Jan-1
10
peers
Cheapening concentrated in the front end
Feb-1
10
40
An atractive market to invest in
41
Increase in market liquidity
Average outstanding
A t t di size:
i 13 5 b
13.5 bn €
Target for average outstanding <10 years: 15 bn €
20
Target for average outstanding >10 years: 15 bn €
18 On-the-run bonds 4.10%
6.00%
3.25% 5.40% 4.40%
16 4 10%
4.10% 3 90%
3.90% 4 20%
4.20% 3.30% 3 15%
3.15% 5 50%
5.50% 4 30%
4.30% 4.20%
5.35% 6.15% 4.75% 4.60% 4.80%
14 5.00% 3.80% 5.75%
4.25% 4.90%
2.75%
12 2.30%
10
8
6 4.00% 4.70%
4
2
0
Jul-10
Jul-11
Jul-12
Jul-13
Jul-14
Jul-17
Jul-18
Jul-19
Jul-32
Jul-40
Jul-41
Jan--13
Jan--14
Jan--15
Jan--16
Jan--17
Jan--24
Jan--29
Jan--37
Apr--11
Oct--11
Apr--12
Oct--12
Apr--13
Oct--14
Oct--19
Apr--20
Source: Dirección General del Tesoro y Política Financiera.
42
Low Debt Refinancing Risk…
Redemption profile of Bonos & Obligaciones
(Million Euros)
50.000
45.000
40.000
35.000
30 000
30.000
25.000
20.000
15.000
10.000
5.000
0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020- 2024 2029 2032 2037 2040 2041
2023
Source: Dirección General del Tesoro y Política Financiera. 43
Low Debt Refinancing Risk…
30
(%)
24
20 21 22 21
20 18 18
10 7
0
1 year or less 1 to 3 years 3 to 5 years
31.12.1995 31.12.1999 31.01.2010
44
…Thanks to relatively high duration and average life
to maturity…
Duration & Average Life to Maturity of the Portfolio
(Letras, Bonos and Obligaciones)
8.0
(in years)
6 69
6.69 6 78
6.78
5.52
6.0
4.79
4.77
4.0
4.16
Average life
France 6,24
2.0 Netherlands 6,88
Belgium 5,94
Italy 7,07
0.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Duration Average life
Source: Dirección General del Tesoro y Política Financiera. 45
…while achieving lower Funding Costs
Average Funding Costs
(in percent)
6.0
5.5
5.0
4.5 4.32
4.0
3.5 3.81 3.49
3.0
2.5
2.27
2.0
1.5
1.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Average cost of Debt outstanding Average cost at issuance
Argentina
Germany
Greece
Austria
France
Ireland
Finland
Spain
United
Belgium
Kingdom
States
herlands
United
G
K
Neth
A
Source: OECD.
47
Banks financing of government debt in line with
Eurozone average
20
15
10
ermany
ortugal
Belgium
Sllovakia
Greece
France
Eurro area
Ireland
Finland
Italy
erlands
Spain
Austria
Po
F
F
G
A
Nethe
Ge
B
Source: Citi.
48
Spanish Banks’ funding from ECB around
Eurozone average
IT
FI
NL
GR
AU
FR
PO
GE
ESP
BE
jul 08
jul-08 oct 09
oct-09
0%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
0%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
25%
20%
15%
10%
5%
0%
France Japan Germany Italy BENELUX Rest of EU Asia, Afica America Rest of
and others Europe
2006 2007 2008 2009
Source: Dirección General del Tesoro y Política Financiera.
52
Top Primary Dealers in 2009
Bonos y Obligaciones
Barclays
BBVA
Calyon
Santander
S iété Générale
Société Gé é l
Letras
BBVA
Santander
Société Générale
53
Thank you for your attention
José Manuel Campa Fernández–
Fernández Secretary of State for the Economy
Gonzalo
G l G
García
í AAndrés
d é – Subdirector
S bdi t G Generall d
de Gestión
G tió y Financiación
Fi i ió ded la
l Deuda
D d Pública
Públi
ggarcía@tesoro.meh.es
Rosa Moral
rmmoral@tesoro.meh.es
Leandro Navarro
lnavarro@tesoro.meh.es
Pablo de Ramón-Laca
pramonlaca@tesoro.meh.es
For more information please contact:
Ignacio Vicente Phone: 34 91 209 95 29/30/31/32 - Fax:34 91 209 97 10
ivicente@tesoro meh es
ivicente@tesoro.meh.es Reuters: TESORO
Bloomberg: TESO
Rocío Chico Internet: www.tesoro.es
mrchico@tesoro.meh.es
54
Annex: the Social Security Reserve Fund
2001
2002
2003
2004
2005
2006
2007
2008
2009
The Social Security Reserve Fund amounted in December 2009 to approximately 5.7%
(€ 60bn) of GDP. 55
Annex: Ley de Economía Sostenible & General
Agreement on Fiscal Sustainability
56