Brazilian Debt Management Transparency
Luiz Fernando Alves June, 2015
NATIONAL TREASURY SECRETARIAT: INSTITUTIONAL STRUCTURE 1986
The National Treasury Secretariat is created
Strengthening of public finance and responsible management of public resources
A diretriz para a definição dos objetivos estratégicos e metas foi semelhante à 2012
Public Debt (SUDIP) Fiscal Policy
Avanços em relação a dinâmica das metas participação Subnationalsconjuntas: dos consultores para reuniões quadrimestrais
Statistics and Fiscal Planning MINISTRY OF FINANCE
NATIONAL TREASURY
Governmental Accounting Institutional Development and IT 2
FEDERAL PUBLIC DEBT MANAGEMENT: INSTITUTIONAL STRUCTURE
Public Debt Undersecretariat (DMO)
Operations Department (Front-Office)
Development of short term strategies related to securities issuances in the domestic and external markets; domestic market auctions and external issuances; structured operations.
Strategic Planning Dept (Middle-Office)
Development of medium and long term strategies, risk management, macroeconomic scenario, and investor relations
Control Department (Back-Office)
Register, control and payment of the domestic and external debts, being also responsible for the budget and debt official statistics.
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STRATEGIC PLANNING AND TRANSPARENCY IN BRAZIL
2014
Debt Committee SUDIP is created First Annual and searches for Borrowing Plan benchmarks in the international experience Treasury begins its regular bond issuances
2000
2009
First Annual Debt Report
2003
SUDIP modernization project
2005
• • •
Long Term Optimal Debt Composition Medium Term Planning External debt management
The Brazilian experience is published in a book
1999
1992
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STRATEGIC PLANNING, TRANSPARENCY AND COMMUNICATION » The National Treasury of Brazil has come a long way from transparency to build trust in agents. » Simple and robust indicators are used in the APB and for the long term optimum composition as well as setting targets for these indicators. The ABP set targets for the debt composition and for its maturity structure. » It is essential to publicize the goals and responsibilities of debt management to ensure credibility. Transparency reduced the market uncertainties related to debt management goals and made political decisions more consistent. » There are no demands on law concerning mandatory design and publication of financing strategies, ABP or MTDS. » Nevertheless, Congress has control elements with respect to the management of public debt » There are some legal limits to the public indebtedness level in Brazil, constraining the amount of new credit operations in a year, as well as the stock of debt (net and gross debt) » Besides, the Budgetary Guidelines Law (LDO) requires an assessment of fiscal risks that may arise from public debt. » A report on debt management is also part of an Annual Presidential Message to the Congress. 5
TRANSPARENCY AS GUIDELINES: INSTITUTIONAL RELATIONS UNIT Strategic Planning Dept (Middle-Office) Risk
Scenarios
Investor Relations
Special Studies
Monitor risk exposure
Accomplish economic
indicators of public debt, focus on Federal Public Debt;
and financial research;
Maintain and improve relationship with investors and opinion makers;
Develop studies on public debt management;
Identify and propose
the optimal structure of public assets and liabilities; Elaborate middle and
long term strategy.
Participate on the
middle and long term financing strategy;
Broaden the investor
Monitor, analyze and
Provide uniformity and
forecast domestic and external scenarios.
publicity on the information about debt management;
base;
Management of Tesouro
Research and
development technology to improve the Public Debt management; Give support in
technical themes related to institutional responsibility of COGEP.
Direto Program.
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TRANSPARENCY AS GUIDELINE: MAIN PUBLICATIONS » In 2001, an Institutional Relations Unit within the Middle Office was created: direct channel with the press, rating
agencies and market agents in order to provide information about the public debt »Main Publications: » The Optimal Federal Public Debt Composition, published in 2011, bringing the desired profile for the debt structure in the medium-term; » The Annual Borrowing Plan, since January 2000, which presents the National Treasury’s
objectives,
guidelines, financing needs, strategies and targets to the end of the year; » The Annual Debt Report, which offers a retrospective analysis of PDM for previous year, describing the goals and targets, and its results. » The Monthly Debt Report, which presents information and statistics on issuances, buybacks, outstanding debt and its average maturity and life, maturity profiles and average costs for the FPD, including domestic and external federal debt, for which the Treasury is responsible. » The Yearly Issuance calendar, which, at the start of each year, list the dates of auctions, as well the types of bonds to be offered in each auction. 7
OBJECTIVE AND GUIDELINES RELEASED SINCE THE FIRST ABP, IN 2001 The objective of the Federal Public Debt Management is that of efficiently meeting the National
Treasury Borrowing Requirements, at the lowest possible long-term financing costs, while ensuring the maintenance of prudent risk levels. Additionally, the aim is to contribute to the smooth operation of the Brazilian government securities market.
To achieve this objective, the guidelines underlying FPD management are as follows: Increase the average maturity of the outstanding debt Smooth the maturity profile, with special attention given to short-term maturities Gradual replacement of floating-rate securities by fixed-rate and inflation-linked instruments Improvement of the External Federal Public Debt (EFPD) profile through issuance of benchmark securities, buyback program and structured operations Development of the yield curve on both domestic and external markets and growth in the liquidity of federal government securities on the secondary market Broadening of the investor base
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DECISION MAKING PROCESS – DEBT MANAGEMENT COMMITTEE Cash Management Domestic Market
Short term Strategy Debt Committee Public Debt UnderSecretary
External Market Head of FrontOffice
MTDS
Head of MiddleOffice
Auction
Treasury Secretary
Head of BackOffice
Technical Staff
Risk Management
Benchmark Medium Term Strategy
Benchmark
Targets Monitoring
Annual Borrowing Plan
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ANNUAL BORROWING PLAN: MAIN INFORMATION DISCLOSED Indicators
2014
Limits for 2015
Long Term Limits Reference
Minimum
Maximum
2,295.9
2,450.0
2,600.0
Fixed Rate
41.6
40.0
44.0
45.0
+/- 2.0
Inflation Linked
34.9
33.0
37.0
35.0
+/- 2.0
Floating Rate
18.7
17.0
22.0
15.0
+/- 2.0
Exchange Rate
4.9
4.0
6.0
5.0
+/- 2.0
% Maturing in 12 months
24.0
21.0
25.0
20.0
+/- 2.0
Av. Maturity (years)
4.4
4.4
4.6
5.5
+/- 0.5
Av. Life (years)
6.6
_
_
_
_
Stock of FPD (R$ bn) FPD Profile (%)
Maturity Structure
» The mid-range indicators for 2015’s indicators show stability for the FPD profile towards the end of the year »Another important guideline relies on lengthening the average maturity, which is expected to reach a new record in 2015. 10
THE DISCLOSURE OF THE ANNUAL TARGETS MAKE THEM BINDING FOR THE DEBT MANAGER: DEBT COMPOSITION Fixed Rate
50
50 40
% of FPD
% of FPD
40
30 20
30 20
10
10
0
0
50
50
Floating Rate
20
% of FPD
30
Exchange Rate
40
40
% of FPD
Inflation Linked
30 20
10
10
0
0
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50 45 40 35 30 25 20 15 10
% in 12 Months
5
Average Maturity
4
Years
% of FPD
THE DISCLOSURE OF THE ANNUAL TARGETS MAKE THEM BINDING FOR THE DEBT MANAGER: MATURITY STRUCTURE
3
2
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RETAIL DEBT PROGRAM (TESOURO DIRETO) »
To offer to Brazilian citizens a safe and profitable savings alternative, paring up with the what is available to institutional investors »
Uses roughly the same on-the-run instruments for debt roll-over with the same yields;
» Attractive for low-scale investors: » Low Minimum Ticket (around USD 10); » Competitive Fees;
» Financial Education Purpose: » Provide transparency over the yields paid by the govern to finance itself; » Increase the interest about public debt management and fiscal policy.
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IMPORTANCE OF TRANSPARENCY » Rating Agencies highlight the importance of transparency: » Moodys
» Analysis based on four macro indicators: Economic, Institutional, Fiscal and Risk Exposure. Transparency is key in the institutional factor: “Transparency and accountability of the public sector is a key focus of this indicator.” » S&P » Analysis based on five factors: Political, Economic, Fiscal, External Sector and Monetary Policy. Transparency is key in the Political Factor:
“The transparency and accountability of institutions, data, processes, as well as the coverage and reliability of statistical information” 14
IMPORTANCE OF TRANSPARENCY IN BRAZIL » The S&P, in its 2008 report when Brazil was rated as investment grade, wrote: “Generally pragmatic and predictable policy and fairly transparent institutions have underpinned macroeconomic stability in Brazil. This has facilitated a
sounder foundation for economic growth and fiscal improvement over the past five years.”
» Brazilian Debt Management has been recognized as adopting good practices in transparency: the IIF Report has classified Brazil among the top emerging countries in investor relations 15
LESSONS LEARNED ON GOVERNANCE DIMENSIONS OF DEBT MANAGEMENT STRATEGY
» Debt management requires a well defined (long term) objective and clear guidelines » Transparency itself is a powerful enforcement mechanism to allow the DMO to implement debt strategies according to its preferences and analytical work » The definition of targets involves balancing transparency and flexibility to react to shifting in market conditions, without shifting the long term goal » Institutional aspects are important to support strategy design and dissemination
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For additional information access the National Treasury website: www.tesouro.fazenda.gov.br/en
Or contact Institutional Relations area:
[email protected]
The information on this presentation is issued by the Brazilian Debt Management Office (DMO) for informational purposes. It does not contain and is not an invitation or offer to buy or sell securities. Translation of the original text of this document is provided only for the convenience of the reader. While reasonable care has been taken to ensure the authenticity of the translation, its accuracy cannot be guaranteed. Reliance upon this translation shall be at the reader's own risk. Under no circumstances, shall the Brazilian National Treasury, its officers, employees or agents be liable to the reader or anyone else for any inaccuracy, error, inconsistency, omission, deletion, defect or alteration of the content of the translation from the original Portuguese text, regardless of cause, or for any damages resulting therefore. The original Portuguese text of this document is the only official version, which can be found in http://www.stn.fazenda.gov.br/index.asp. In the event of any discrepancy or contradiction between the Portuguese and translated version, the Portuguese version shall prevail.
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