Republic of Austria. Annual Review Austrian Federal Financing Agency April 2011

Transcription

1 Republic of Austria Debt Management Annual Review 2010 Austrian Federal Financing Agency April 2011

2 BMI BMF / HBF Austria came through the crisis in better shape than most other countries in Europe. Concerted efforts ranging from economic stimulus measures to labour market packages proved to be effective. Now, Austria has the lowest jobless rate in the EU, and has laid an optimal foundation for above-average growth and a high level of social stability going forward. Another focus is strict budget consolidation. Our broadly diversified and competitive economy and solid finances provide a good basis for this. At the same time, the current conditions have made it clear how important transparency is in ensuring trust in a country s budget and economic policy and in the quality of the statistics it publishes. The latest Eurostat decision about new Maastricht calculation methods is leading to the revision of the debt and deficit ratios for many countries in Europe, but also gives investors a more readily comparable and more comprehensive picture. With a public debt ratio of 72.3% and a budget deficit of 4.6% of GDP in 2010 according to the revised methods, Austria is one of the most stable countries in the EU. Thanks to its high innovative strength and the relatively low level of debt being carried by its businesses and households in international comparison, Austria is in an optimal position to continue its success story into the future. Plus, Austria has established itself as a net lender on the international capital markets thanks to its many years of current account surpluses, further bolstering the high level of confidence the market has in the economic and financial strength of our country. This is also confirmed by AAA ratings for the Republic of Austria as well as outstanding sustainability rankings. Sincerely, Maria Fekter Federal Minister of Finance Vienna, April 2011 Austrian government bonds again proved to be a safe haven for investors during stormy times. Over the course of 2010, the global debt crisis caused higher volatility, and some countries saw their access to the capital market become restricted. The most secure forms of investment, among them Austrian government bonds, enjoyed brisk demand, and investors around the world once more began differentiating between individual countries to a greater degree, to the benefit of Austria. The Republic of Austria s funding strategy is based on the requirements set forth by the Federal Minister of Finance. It takes into account international best practice standards as well as governance aspects, and has a conservative orientation. We strive to secure optimal terms while avoiding excessive risk in order to protect the interests of the Austrian taxpayers. In this, our debt management activities support the stability of the financial market and Austria s high debt affordability. The Republic of Austria uses a wide range of financing sources and a group of primary dealers with an excellent placement record, enabling it to react flexibly and effectively in virtually any market situation. In this respect, the recently relaunched web site plays a key role in ensuring swift and efficient communication with the market, and underlines Austria s standing as a transparent issuer. The Republic of Austria s overall issue volume in 2011 will be roughly 15% lower than in 2010 and 35% lower than in the peak year of This makes Austria one of the very few countries in the world that will issue less new debt this year than it did in 2006, further enhancing the attractiveness of Austrian government bonds. This combined with Austria s competitive and diversified economy means that these instruments are ideally positioned in the current market environment. Sincerely, Martha Oberndorfer, CFA Managing Director of the Austrian Federal Financing Agency, Treasury of the Republic of Austria Vienna, April 2011 Vienna giant ferris wheel / spring Austrian Tourist Board / Diejun 2 Annual Review 2010

3 Key Economic and Budgetary Data Austria has a broadly diversified and internationally competitive economic structure. A higher average growth rate and higher level of prosperity than in the Eurozone as a whole underscore the strength and robustness of the Republic of Austria, even in times of crisis. Austria s real GDP growth 1 reached 2.0% in 2010, exceeding the Eurozone average of 1.7%. According to current forecasts, economic growth in the country will total 2.5% in 2011, a full percentage point better than the average for all euro countries of 1.5%. 4% 3% 2% Real gdp growth As a core Eurozone member, unit labour costs have grown rather moderately in Austria over the past years. This was both due to low wage increases in the collective bargaining agreements as well as productivity increases. In real terms, unit labour costs increased by an average of 1.1% per year from 1999 to 2009, the second lowest rate of growth in the Eurozone (average 2.7%). A number of ambitious economic and tax reforms were also implemented during this time, significantly improving the country s competitiveness in foreign trade. Inflation rose over the course of the year, and came in at 1.9% for 2010 as a whole (Eurozone average: 1.5%). Especially significant increases were seen in the prices for fuel, housing and food. Innovation-Performance 1% 0% -1% -2% -3% -4% Austria Germany Eurozone average United States OECD average Youth education attainment level Community Designs per million inhabitants Business R&D expenditure (% of GDP) IT 1 expenditure (% of GDP) AT vs. EU EU average SMEs innovating in-house (% of SMEs) -5% -6% e Source: Austrian Institute of Economic Research (WIFO), Eurostat, OECD Community Trade Marks per million inhabitants EPO 2 patents per million inhabitants Public-private co-publications per million inhabitants Innovative SMEs cooperating with others (% of SMEs) Austria is the third wealthiest country in the EU and the eleventh wealthiest of the 181 countries included in the IMF s World Economic Outlook 2. Per capita GDP amounted to EUR 33,850 in 2010, 23% higher than the average for the Eurozone 3. At 14.1% Austria also has an above average savings rate (EU-27 average: 12.2%) 4. Austria is one of the few countries in the EU with a sustainable current account surplus. The current account balance has been positive since 2002, and came to 3.2% of GDP in 2010 compared to 2.9% of GDP in Thanks to its sustained current account surplus, Austria has become a net lender on the international capital markets. Source: Eurostat, Austrian National Bank 1: Information and communication technology 2: European Patent Office 1 Source: OECD, Eurostat, Austrian Institute of Economic Research (WIFO) 2 Source: IMF World Economic Outlook October 2010 (per capita GDP to purchasing power standards, forecast for 2011) 3 Source: Eurostat (per capita GDP to purchasing power standards, forecast for 2010) 4 Source: Eurostat, data as of Q Source: Austrian Institute of Economic Research (WIFO), March 2011 Hallstatt / Salzkammergut / Upper Austria Austrian Tourist Board / Pigneter Annual Review

4 Austria s innovation performance is clearly exceeding that of the EU as a whole, as shown by a series of indicators from the European Innovation Scoreboard The Republic of Austria is second of 27 EU countries in the implementation of the Lisbon Strategy 7. Under the Europe 2020 strategy, successor of the Lisbon Strategy, the Republic of Austria is obliged to secure the progress that it has made and to reach further targets. Key Economic Figures Real GDP Growth e Austria 2.2% -3.9% 2.0% 2.5% Germany 1.0% -4.7% 3.6% 2.2% Eurozone average 0.4% -4.1% 1.7% 1.5% United States 0.0% -2.6% 2.7% 2.2% OECD average 0.3% -3.4% 2.8% 2.3% Unemployment Rate e Austria 3.8% 4.8% 4.4% 4.1% Eurozone average 7.5% 9.5% 10.1% 10.0% Inflation Rate e Austria 3.2% 0.5% 1.9% 2.8% Eurozone average 3.3% 0.3% 1.5% 1.8% Current Account Balance e Austria 4.9% 2.9% 3.2% 3.7% Eurozone average -0.8% -0.7% -0.5% -0.0% Budget Balance e Austria -0.9% -4.1% -4.6% -3.9% Eurozone average -2.0% -6.3% -6.0% -4.2%* Debt/GDP e Austria 63.8% 69.6% 72.3% 73.6% Eurozone average 69.9% 79.3% 85.1% 87.0%* Debt Portfolio e Austria (bn EUR) GDP Austria (bn EUR) Source: WIFO, Ministry of Finance, Eurostat and OECD, April 2011 *EA17 excluding Portugal, Source: Eurostat The unemployment rate in Austria is very low compared with other EU countries. After rising to 4.8% in 2009, this rate was initially projected to have increased further in 2010 due to the slow economic growth during the year. In fact, the unemployment rate for the year came in at 4.4%, less than half of the projected Eurozone average of 10.1% 8. This means that Austria has the lowest unemployment rate in the EU. Austria also has one of the highest levels of social stability (as measured by the infrequency of strikes, for example). The budget balance for 2010 came in at minus 4.6% 9, significantly better than the Eurozone average of minus 6.0%. The overall public debt ratio rose to 72.3% in 2010 (from 69.6% in 2009) 9, also well below the 85.1% average for all Eurozone countries. The long-term development of Austria s debt service shows how effective a prudent budget policy and conservative debt portfolio management are. Absolute interest payments remained relatively stable between EUR 6 and 7 billion in the period from 1995 to Interest expense fell from 3.5% of GDP in the middle of the 1990s to 2.5% at the end of Source: Eurostat: Innovation Union Scoreboard The Lisbon Scorecard X (The Road to 2020, March 2010) 8 Source: European Commission, Austrian Institute of Economic Research (WIFO) 9 Maastricht definition Debt in % of GDP 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 Debt and Budget Balance in % of GDP, 2011 * EA17 excluding Portugal Source: Eurostat in mn EUR in % of GDP Ireland Central Government Interest Payments 3.5% in % of GDP 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0 0.0% 1996 UK Greece Source: Austrian Federal Financing Agency Eurozone average* France Spain Italy Belgium Germany Austria Netherlands Finland Sweden Budget balance in % of GDP 2.5% e Winter landscape Austrian Tourist Board / Fankhauser 4 Annual Review 2010

5 Ratings (AAA/Aaa/AAA) The Republic of Austria has had the best possible ratings (with a stable outlook) for its short-term and long-term liabilities from all three leading rating agencies for many years. Only twelve other countries in the world have such a favourable credit rating 10. Austria also has good sustainability ratings. «Moody s rating on the debt issued by the Austrian government is Aaa, which is underpinned by very high economic strength, thanks to a skilled labour force and a competitive export sector that have helped Austria to grow faster than the European average in recent years. In so doing, Austria has achieved high average incomes, a well-diversified economy and structurally low unemployment. Austria s institutions (governance, rule of law) are also very robust.» (Moody s, January 19, 2011) Credit Ratings for Austria Long term Short term Outlook Standard & Poor s AAA (since 1975) A-1+ (since 1986) Stable Moody s Aaa (since 1977) P-1 (since 1999) Stable Fitch AAA (since 1994) F1+ (since 1995) Stable oekom research Sustainalytics Sustainable country rating Fifth best of 50 countries in the world Eight best of 136 countries in the world All rating agencies consider Austria to be one of the most stable countries. The ratings were most recently confirmed in March 2011 (Sustainalytics), January 2011 (Moody s), December 2010 (S&P), February 2010 (oekom) and April 2010 (Fitch). Debt Management and Markets The Austrian Federal Financing Agency (AFFA) is the treasury of the Republic of Austria and acts in the name of and for the account of the sovereign. Its primary objective is to secure the government s funding at all times and at the lowest possible cost over the medium to long term while avoiding excessive risk. In this context, the Austrian Federal Financing Agency issues debt and manages the debt portfolio and liquidity of the federal government. Its responsibilities are listed exhaustively in the Austrian Federal Financing Act 11. Primary and Secondary Market The majority of the funds needed are raised through government bond auctions that are held at regular intervals 12. The auction process is run on the ADAS platform 13. In addition to the auctions, the Republic of Austria also launches one or two syndicated issues per year. Other financing instruments include a Medium Term Note Programme (EMTN), Austrian Treasury Bills (ATB), an Australian Dollar MTN Programme and transactions in loan- and Schuldschein-format. The bundesschatz.at online savings product has been introduced by the Republic in 2002 as part of its e-government initiative. It offers tenors ranging from one month to ten years. Details can be found at Nineteen tap auctions for Austrian government bonds were held on ten auction days in A new syndicated government bond (3.2% RAGB /1/144A) with a size of EUR 4 billion was issued in January The total volume of the 6.25% RAGB /6 was increased by a private placement in March The planned auction date in December 2010 was cancelled due to the development of the budget, which was better than expected. 10 AAA rating (foreign currency, long term) and stable outlook from S&P, Moody s and Fitch 11 BfinG 2 (1) Federal law from 4 December 1992, Federal Law Gazette no. 763/1992 as amended 12 The auction calendar can be found at (under Investor Relations). 13 More details at (under Investor Relations Auction Calendar) Vienna Opera Ball / Vienna State Opera Austrian Tourist Board / Lammerhuber Annual Review

6 RAGB issues in 2010 totaled EUR 21.1 billion. The total volume of all financing in 2010 came to EUR 25.3 billion, 18% less than in 2009 (EUR 32.3 billion). 25 in bn EUR Redemption profile of the Republic of Austria Twenty-three financial institutions were selected as primary dealers for Austrian government bonds and together form a group with a strong placement track record. Among other things, the primary dealers are responsible for active and dedicated participation in the primary and secondary market for Austrian debt. Issuance of Austrian Government Bonds (RAGB) in 2010 Accepted Issue Average Form of Bond Issue Volume EUR Yield Issue 3.50% RAGB /2/144A ,000, % p.a. Auction 3.90% RAGB /1/144A ,000, % p.a. Auction 3.50% RAGB /1/144A ,000, % p.a. Auction 4.15% RAGB /1/144A ,000, % p.a. Auction 4.35% RAGB /1/144A ,335,473, % p.a. Auction 4.85% RAGB /2/144A ,142, % p.a. Auction 4.15% RAGB /1/144A ,198, % p.a. Auction 3.50% RAGB /2/144A ,000, % p.a. Auction 3.90% RAGB /1/144A ,610, % p.a. Auction 4.65% RAGB /1/144A ,227, % p.a. Auction 3.50% RAGB /1/144A ,179, % p.a. Auction 3.20% RAGB /1/144A ,366,665, % p.a. Auction 4.85% RAGB /2/144A ,118,672, % p.a. Auction 3.40% RAGB /1/144A ,320,000, % p.a. Auction 3.50% RAGB /1/144A ,000, % p.a. Auction 6.25% RAGB / ,000, % p.a. PPL* 3.50% RAGB /2/144A ,600, % p.a. Auction 3.90% RAGB /1/144A ,725, % p.a. Auction 3.90% RAGB /1/144A ,325, % p.a. Auction 4.85% RAGB /2/144A ,000, % p.a. Auction 3.20% RAGB /1/144A ,000,000, % p.a. Synd. * private placement Source: Austrian Federal Financing Agency 10Y Austrian BenchmarK Yield and Spreads versus Germany Yield in % 10y government-spreads versus Germany: BE FR IT AT Austrian benchmark-yield (left-hand scale) annual average spread in bp Funding Strategy of the Republic of Austria in 2011 The projected total issuance volume for 2011 amounts to EUR billion and is based on the budget and redemption structure. This is a decline of 15% compared with 2010 and 35% lower compared to This figure includes all financing instruments. Between EUR 16 and 19 billion will be financed through RAGB in This makes the Republic of Austria one of the few countries in the world that will need less gross funding in 2011 than before the crisis in A large share of this financing will be raised through monthly auctions. The auction calendar for was announced in December 2010: 15 The auction calendar can be found at (under Investor Relations). Auction Value Date Volume 12 January 17 January EUR 4.00 bn bond syndication Apr February 4 February EUR 0.74 bn bond increase Mar 2037 EUR 0.94 bn bond increase Feb March 4 March EUR 0.69 bn bond increase Apr 2022 EUR 0.66 bn bond increase Jul April 8 April EUR 0.77 bn bond increase Apr 2022 EUR 0.88 bn bond increase Feb May 6 May 7 June 10 June 5 July 8 July (2 August) (5 August)* Volume and tenors are announced one 6 September 9 September 4 October 7 October week prior to the auction date. 8 November 11 November 6 December 9 December *) Reserve auction date Vorarlberg Steinernes Meer Austrian Tourist Board / Peter Burgstaller 6 Annual Review 2010

7 A re-opening of existing issues is done regularly in order to enhance liquidity. As of April 2011, nearly 40% of the total full year funding programme has been completed. The group of primary dealers for 2011 consists of the following financial institutions: Primary Dealers for Austrian Government Bonds Barclays Capital BAWAG P.S.K. BNP Paribas Citigroup Commerzbank Credit Agricole Credit Suisse Deutsche Bank Erste Group Bank Goldman Sachs HSBC France Jefferies J.P. Morgan Merrill Lynch Morgan Stanley Nomura International Oberbank AG Österreichische Volksbanken AG Royal Bank of Scotland Raiffeisen Landesbank OÖ Raiffeisen Bank International Société Générale UBS Diversity and flexibility are core elements of the Republic of Austria s financing strategy. The investor base is broadly diversified in terms of regions and sectors. Central banks, supranational organizations and other investors seeking instruments with the highest credit ratings are the most important holders of Austrian debt. Funding tools include a variety of instruments, including an electronic auction procedure for government bonds, standardized programmes such as EMTN, debt certificates and Austrian treasury bills. The documentation can be downloaded at (under Financing Instruments). Austrian Treasury Bills are available in different currencies and are issued on a daily basis. The ATB programme also includes an ad hoc dealer option. There are no auctions for Austrian treasury bills. The issues and their terms are tailored to the prevailing conditions and needs. Primary Dealers for Austrian Treasury Bills Bank of America Barclays Bank BAWAG P.S.K. Citibank Credit Suisse Deutsche Bank Goldman Sachs Raiffeisen Bank International UBS UniCredit Bank The Republic of Austria is a well established issuer on the international capital markets. The monthly auctions are supplemented by one to two syndicated issues per year. The liquidity of Austrian government bonds is enhanced through regular volume increases for outstanding issues. List of Austrian Benchmark Government Bonds 16 Term Benchmark Bond Maturity Volume (in bn EUR) 16 1 year 5.00% RAGB Jul years 3.80% RAGB Oct years 4.30% RAGB Jul years 3.50% RAGB Jul years 4.00% RAGB Sep years 3.20% RAGB Feb years 4.65% RAGB Jan years 4.35% RAGB Mar years 3.90% RAGB Jul years 3.50% RAGB Sep years 4.85% RAGB Mar years 6.25% RAGB Jul years 4.15% RAGB Mar Fixed-interest instruments make up 96% of the Republic of Austria s debt portfolio, and variable-interest instruments the remaining 4%. The average duration is over six years, and the average term to maturity is approximately nine years. The Republic of Austria has one of the lowest levels of refinancing risk of any Eurozone country. 16 As of April 2011 Risk Management As instructed by the Ministry of Finance, the Austrian Federal Financing Agency strictly adheres to a risk-averse business policy. In executing its duties, certain financial-market-specific risks cannot be avoided. Risk minimisation generally takes priority over earnings targets and cost minimisation targets. The risk policy is defined through a series of risk management guidelines that are adopted and revised by the Supervisory Committee of the Austrian Federal Financing Agency to account for prevailing market conditions. Risk controlling processes are in place to monitor and document compliance with these guidelines on an ongoing basis. In this, the Austrian Federal Financing Agency orients itself towards the international best practice standards for sovereign debt management offices and the current regulations for the financial sector. The risk management process covers the identification, assessment, management, monitoring and communication of the material risks. Relevant risk categories are market, credit, refinancing, legal, reputational, budget and operational risk. Murinsel by night, Graz Austrian Tourist Board / Viennaslide Annual Review

8 Contact Austrian Federal Financing Agency, A-1015 Vienna, Seilerstaette 24, Tel.: (+43 1) , Fax: (+43 1) Web site: Reuters: AFFA01 07, Bloomberg: RAGB, AUST Martha Oberndorfer, CFA, MBA Managing Director Treasury of the Republic of Austria (+43 1) Kurt Sumper, MBA Managing Director Back Office and Risk Management (+43 1) Money and Capital Market Contacts Pia Amann, MBA, (+43 1) Sabine Denk, CFA, (+43 1) Niklas Pax, (+43 1) Christian Schreckeis, CFA, (+43 1) Markus Stix, (+43 1) Günther Wahl, (+43 1) Links Austrian Federal Financing Agency: auction calendar, current debt, rating reports, investor relations online savings products of the Republic of Austria Ministry of Finance: detailed information about the Austrian budget and financial market stability measures Statistics Austria Austrian National Bank Government Debt Committee Eurostat OeKB Austrian Institute of Economic Research, WIFO Institute for Advanced Studies, IHS Imprint: Austrian Federal Financing Agency, Treasury of the Republic of Austria. The Austrian Federal Financing Agency acts in the name and on behalf of the Republic of Austria Concept: Menedetter PR Graphics & Layout: spreitzerdrei Werbeagentur GmbH, A-1030 Wien Print: Federal Ministry of Finance Cover Illustrations: Row 1 (left to right): Vienna giant ferris wheel / spring, Austrian Tourist Board / Diejun; Hallstatt / Salzkammergut / Upper Austria, Austrian Tourist Board / Pigneter; Winter landscape, Austrian Tourist Board / Fankhauser; Row 2: Grundlsee, Austrian Tourist Board / Wolfgang Zajc; Vienna Opera Ball / Vienna State Opera, Austrian Tourist Board / Lammerhuber; Vorarlberg Steinernes Meer, Austrian Tourist Board / Peter Burgstaller; Row 3: Murinsel by night, Graz, Austrian Tourist Board / Viennaslide; Grassland with view to Grimming mountain / Bad Mitterndorf, Austrian Tourist Board / Popp Hackner; Duernstein at the Danube in autumn / Wachau, Austrian Tourist Board / Himsl