Public Debt Management

Report
Brazilian Federal Public Debt
Brazil – Russia Dialogue: Economic Policy Challenges
International Policy Workshop
Moscow
June 2012
Federal Public Debt
Macroeconomic Overview
Economic Policy
Economic Activity and Recent Events
Public Debt Management
2
Economic Policy
Fiscal Responsibility
Primary
3.2 3.4 3.2 3.3
2.9
3.7 3.8
» The Public Sector Primary Surplus in
Nominal
3.2 3.3 3.4
2.7
3.1 3.1 3.1 3.1 3.1 3.1
2.0
2011 was R$ 128.7 bn, representing more
than the initial target defined for the year
plus the R$ 10 bn increase announced in
-0.5 -0.3
0.1
August1.
-1.2 -1.1
-2.0
-2.8
-2.9
-3.4 -3.1
-2.5 -2.6
» The Draft Budgetary Guidelines Law for
-3.3
-3.6 -3.6
-4.5
Dec/16
Dec/15
Dec/14
Dec/13
Dec/12
Dec/11
Dec/10
Dec/09
Dec/08
Dec/07
Dec/06
Dec/05
Dec/04
Dec/03
Dec/02
Dec/01
Dec/00
Dec/99
2013 maintains the target of 3.1% of GDP
-5.2
-5.3
until 20152.
Source: Brazilian Central Bank time series and Inflation Report of Dec/11 (forecasts)
1 For
2011, the Budget Law set a nominal target of R$ 117.89 billion, equivalent to 3,1% of GDP, according to Government estimates for GDP at the time the Law was discussed.
In August, the target was increased in R$ 10.00 billion, amounting 127.89 billion.
2 For
2012, the Budgetary Guidelines Law set a nominal target of R$ 139.8 billion, equivalent to 3,1% of GDP, according to Government estimates for GDP at the time the Law
was discussed. For 2013, this target will be R$ 155.9 billion, according to the Draft BGL sent to Congress.
3
Economic Policy
Fiscal Responsibility
65%
62.7%
60.9%
60%
54.3%
60.4%
55%
51.9%
53.4%
50%
48.8%
45.7%
45.5%
45%
42.1%
39.2%
40%
36.5%
38.5%
35%
GGGD
30%
35.7%
33.8%
31.3%
NPSD
Public Sector Main Credits
(Dec-11 / % of GDP)
2014*
2013*
2012*
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
25%
Source: Brazilian Central Bank time series and Inflation Report of Dec/11 (forecasts*)
15.8%
7.3%
» The commitment with strong primary fiscal targets coupled with
Credits to BNDES
International Reserves
consistent GDP growth will allow an improvement in overall fiscal balance
and promote a consistent downward trend in public debt measures.
4
Economic Policy
Cross-Country Comparison
123.3
102.9
54.3
40.4
37.8
31.2
2011
Brazil*
89.8
2016
Emerging Countries
Advanced Countries
70.9
Source: Brazilian Central Bank and IMF (Fiscal Monitor, set/11)
36.5
28.5
26.1
2011
Brazil*
25.4
2016
Emerging Countries
Advanced Countries
Source: Brazilian Central Bank and IMF (Fiscal Monitor, set/11)
5
Economic Policy
Fiscal Responsibility
» Over the recent years, payroll
6%
Social Security Deficit (% of GDP)
Payroll Expenditures (% of GDP)
expenditure has been kept stable
5%
4.7%
4.8%
4.3%
4.3%
4.2%
below 5% of GDP. As a result of
4%
formalization
in labor
market,
3%
Social Security Deficit has declined
2%
from 1.78% of GDP in 2006 to
1.78%
0.86% in 2011.
1%
0.30%
0.86%
0.94%
» For 2012, both indicators are
0%
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
expected to keep their levels
Source : Brazilian National Treasury.
2012 forecast based on the Annual Budget Law for this year.
stable.
6
Annex
Fiscal Responsibility
BREAKING DOWN
Discretionary
Mandatory
Extraordinary Credits
Special Credits - Judiciary Power
TOTAL
CUT
(R$ Billion)
35,010
20,512
(484)
(38)
55,000
7
Annex
Fiscal Responsibility
Item
Payroll Contributions to Social Security
New tax over gross revenues
New taxes over imports (similar goods)
Tax over home appliances (3-month extension)
Investments in Ports and Railways infrastructure
Cancer Treatment Program
Investments in BroadBand Access Network
Production of Portable Computers for Students
Total (R$ billion)
Total (%GDP)
2012
3.60
-1.15
-0.65
0.49
0.19
0.00
0.46
0.15
3.09
0.069%
2013
7.20
-2.30
-1.30
0.00
0.25
0.31
0.97
0.20
5.33
0.108%
2014
7.20
-2.30
-1.30
0.00
0.00
0.34
0.00
0.22
4.16
0.077%
» The net fiscal impact of the new measures is very low and does not threaten the achievement of the fiscal
target.
8
Annex
Fiscal Responsibility
New Pension System for Public Sector Workers (Funpresp) - Fiscal Impact (% of GDP)
» With the New Pension System, it is expected to encourage long-term private savings and thereby support the development of
financial markets. Progressiveness within RPPS system is also enhanced, as well as equity vis-à-vis private sector workers.
» The relatively small transition cost is an important consideration for sustainability of the reform, especially given that the fiscal
framework in Brazil is anchored by a primary surplus target, in light of international experience where costly pension transitions
have at times lead to some unwinding of the pension reform.
9
Economic Policy
Downward Trend of Real Interest Rate and Inflation under Control
9,0%
*
8,5%
8,23%
18
Inflation Target - CPI
Range Min/Max
Performed
16
8,0%
14
12,53
7,5%
12
7,0%
10
%
6,5%
6,0%
7,67
8
5,5%
6
5,0%
4
4,5%
9,30
7,60
6,50
5,90
5,69
5,97
5,91
5,17
4,46
5,60
4,31
3,14
2
Jan-12
Sep-11
May-11
Jan-11
Sep-10
May-10
Jan-10
Sep-09
May-09
* NTN-B: CPI linked bonds, Until Jan-10 maturing in 2024, 2035 and 2045,
after that maturing in 2030, 2040 and 2050.
* Market Expectations – Central Bank – FOCUS May 25/2012
*
2013
Source: Central Bank
2012
Source: National Treasury
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
Jan-09
0
2000
Sep-08
4,0%
May-12
4,24%
*
» Strong commitment to fiscal responsibility and inflation under control are opening space for a decrease in
real interest rate, which reinforces the current attractiveness of Brazilian bonds and signalizes more
economic growth.
10
Economic Policy
Downward Trend of Nominal Interest Rate and Breakeven Inflation
Breakeven Inflation
Term Structure of Interest Rates
12,50
6,00%
12,00
5,80%
11,50
5,60%
11,00
10,50
5,40%
10,00
5,20%
9,50
9,00
5,00%
8,50
4,80%
8,00
04/01/11
Source: National Treasury
04/01/12
8/6/2012
08/06/12
4/1/2012
15-ago-22
15-ago-20
15-ago-18
15-mai-17
15-ago-16
15-mai-15
15-ago-14
jan/21
jul/20
jan/20
jul/19
jan/19
jul/18
jan/18
jul/17
jan/17
jul/16
jan/16
jul/15
jan/15
jul/14
jan/14
jul/13
jan/13
jul/12
7,50
15-mai-13
4,60%
4/1/2011
Source: National Treasury
11
Economic Policy
Reduction in External Vulnerability
600%
557.1%
External Debt / Reserves
External Debt / Exports
» Low GDP growth
» High GDP growth
» High FX linked debt
» Low FX linked debt
» ‘02 FX-Reserves: USD 38 bn
» FX-Reserves: USD 365.2bn (Mar/12)
Current Account
400%
FDI
349%
29
33
18
22
17
200%
-25
115%
-24
-23
19
35
12
14
14
49
45
57
55
58
26
10
4
-8
15
2
-28
-24
-48
-69
-67
-72
82.0%
0%
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012*
Source: Central Bank
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012* 2013*
* Source: Central Bank - Market Expectations (FOCUS May 25/2012)
» Brazil is a Net External Creditor of U$ 84.6 bn (March- 12) and its Current Account deficit has been largely financed by FDI
since 2008.
12
Economic Policy
Reduction in External Vulnerability
Brazilian Exports in 2011
Participation By Destination
Brazilian Imports in 2011
Participation By Origin
17.3%
15.0%
China
10.1%
USA
USA
Argentina
14.5%
Netherlands
54.7%
Japan
8.9%
China
Argentina
Germany
51.8%
South Korea
Others
7.5%
Others
5.3%
6.7%
3.7%
4.5%
Source: Ministry of Industry
» Brazil's export structure provides an additional degree of resilience to ongoing global challenges. Commodity products
represent only 35% of total exports in Brazil.
» Europe receives about 20% of Brazilian exports, an important but not determinant share.
» The share of exports in Brazilian GDP was only 11%, in 2011.
13
Economic Policy
Reduction in External Vulnerability
67.8
Fixed Income Bonds - negotiated in the
domestic market
ADR's
46.2
48.1
10.1
Equities traded in the domestic Market
20.5
9.1
5.1
0.1
-4.0
-0.2
-4.8
5.4
5.0
7.1
32.1
30.6
1.6
24.6
6.7
14.6
5.9
15.3
17.5
3.3
6.8
-10.8
-0.1
-0.8
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Source: National Treasury and *Market Forecast
» In 2011, the net inflow of portfolio investment was considerable lower than previous years. For 2012, this
declining trend is expected to continue.
14
Macroeconomic Overview
Economic Policy
Economic Activity and Recent Events
Public Debt Management
15
Economic Activity and Recent Events
Growth supported by domestic demand
7.5%
Average 2005 -2011 = 4,2%
6.1%
5.7%
Average 1999 -2004 = 2,6%
5.2%
4.3%
4.5%
4.0%
3.2%
3.0%
2.7%
1.3%
2.7%
1.2%
0.3%
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011 2012* 2013*
Source: IBGE
Market Expectation - Central Bank/FOCUS * – May 25/2012.
» Average GDP growth of 3.7% through the last 10 years;
» Consumption is boosted by the strength of job market, higher income and credit;
» Similarly, investment rate is increasing to meet this consumption and make GDP growth sustainable
16
Economic Activity and Recent Events
19.5
19.1
18.3
16.9
17.4
17.0
16.8
15.7
17.0
17.4
16.4
16.1
15.3
15.9
19.3
18.1
16.4
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Source: IBGE
17
Economic Activity and Recent Events
Sustainable Credit Growth
9,0
19.0
8,0
17.4
16.6
7,2
18.8
18.5
17.8
17.3
17.7
2007
2008
16.9
16.4
14.8
13.8
5,7
6,0
5,0
4,5
3,7
4,0
3,0
mar/12
set/11
mar/11
set/10
mar/10
set/09
mar/09
set/08
mar/08
set/07
mar/07
set/06
mar/06
set/05
mar/05
set/04
mar/04
set/03
2,0
mar/03
% of Credit Stock
7,0
2000
2001
2002
2003
2004
2005
Brazilian Banks Capital Ratio
Basel Minimum Capital Ratio (8%)
Provisions
Default Rate
Source: Central Bank / The default rate includes the total credit overdue for more
Source: Central Bank
than 90 days. Provisions for nonperforming loans must be done on a monthly basis .
* July 2011
2006
2009
2010
2011*
Regulatory Minimum Capital Ratio (11%)
» The level of provisions has remained comfortably above the default level by about 2 percentage points of the stock of credit
since 2002.
» The Central Bank requires to Brazilian Banks a more conservative stance (11%) than Basel ratios (8%), which facilitates their
adaptation for new limits on Basel III (13%).
18
Economic Activity and Recent Events
Market Expectations for 2012-2015
Sample Date
2012
2013
2014
2015
Primary Balance (% GDP)
05/25/12
3.10
3.00
2.80
2.80
Current Account Balance (US$ billion)
05/25/12
-66.95
-71.50
-70.00
-67.00
Exchange Rate Year End (R$/US$)
05/25/12
1.90
1.85
1.85
1.90
Inflation (IPCA in %)
05/25/12
5.17
5.60
5.11
5.00
CB Year End Interest Rate - %
05/25/12
8.00
9.50
9.50
9.00
GDP Growth (%)
05/25/12
2.99
4.50
4.20
4.10
Foreign Direct Investment (US$ billion)
05/25/12
55.00
58.35
55.80
55.20
Net Public Sector Debt (% GDP)
05/25/12
35.83
34.50
33.70
33.00
Source: Central Bank - Market Expectations
19
Economic Activity and Recent Events
Improvement of Rating Evaluation
Investment Grade
Speculative Grade
Outlook
S&P
D
...
2004
BB-
2006
BB
2007
BB+
2008
BBB-
2011
BBB
BBB+
...
AAA
(stable)
Fitch
D
...
2004
BB-
2006
BB
2007
BB+
2008
BBB-
2011
BBB
BBB+
...
AAA
(stable)
Moody's
C
...
2005
Ba3
2006
Ba2
2007
Ba1
2009
Baa3
2011
Baa2
Baa1
...
Aaa
(positive)
DBRS
D
...
BBL
BB
2007
BBH
2008
BBBL
2011
BBB
BBBH
...
AAA
(stable)
JCR
D
...
BB-
BB
BB+
2008
BBB-
2011
BBB
BBB+
...
AAA
(stable)
R&I
D
...
BB+
2007
BBB-
2011
BBB
BBB+
...
AAA
(stable)
2004
BB-
2006
BB
2006
Source: Rating Agencies
» In contrast with the crisis that split up in the global financial markets in 2011, Brazil’s credit rate was raised by the main
international Credit Rating agencies.
» The long-term debt in local currency, that represents more than 95% of the DPF, was qualified as A- by S&P.
20
Macroeconomic Overview
Economic Policy
Economic Activity and Recent Events
Public Debt Management
21
Public Debt Management
Objective and Guidelines of Federal Public Debt Management
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
22
Annual Borrowing Plan 2012
Assumptions and Guidelines
National Treasury Borrowing Requirements
Gross Borrowing
Requirements
R$ 464.21 billion
External Debt
R$ 12.40 billion
+
Domestic Debt
Held by the Public
R$ 413.27 billion
-
+
Budget
Resources
R$ 101.87 billion
=
Net Borrowing
Requirements
R$ 362.34 billion
Interest due to Central
Bank
R$ 38.54 billion
The National Treasury has two “liquidity cushions” to manage the Federal Public Debt efficiently:
» In foreign currency: US$ 7.4 billion already purchased, enough to cover 49% of the external debt maturing until 2015.
» In domestic currency: a liquidity-cushion equivalent to approximately six-months of the Federal Public Debt – FPD service
(principal and interest).
23
Public Debt Management
Objective and Guidelines of Federal Public Debt Management
Composition
Fixed Rate
Inflation Linked
Floating Rate
Exchange Rate
Maturity Profile
Average Maturity
Lower Limit
40%
30%
10%
5%
Lower Limit
5 Years
Upper Limit
50%
35%
20%
10%
Upper Limit
6 Years
» This composition is being pursued gradually, without generating pressures that could result in excessive transition
costs and taking in account the guideline of lengthening the average FPD maturity.
24
Public Debt Management
Results and Projections
Indicators
2002
2010
2011
1.694,0
1.866,4
Limits for 2012
2012**
Minimum
Maximum
Stock of FPD* held by the public (R$ Billion)
893,3
1.880,4
1.950,0
2.050,0
FPD Profile (%)
Fixed Rate
1,5%
36,6%
37,2%
37,6%
37,0%
41,0%
Inflation Linked
8,8%
26,6%
28,3%
32,0%
30,0%
34,0%
Floating Rate
42,4%
31,6%
30,1%
26,1%
22,0%
26,0%
Exchange Rate
45,8%
5,1%
4,4%
4,3%
3,0%
5,0%
3,6
3,5
3,6
3,9
3,6
3,8
34,6%
23,9%
21,9%
25,0%
22,0%
26,0%
FPD Maturity Structure
Average Maturity (years)
Percentage Maturing in 12 Months
*It includes domestic debt (R$ 1,794.71 billion - Apr/12) and external debt (R$ 85.73 billion - Apr/12) managed by National Treasury.
** April
» Percentage of fixed rate securities + inflation linked securities above 65% of the outstanding.
» Percentage maturing in 12 months below 26% and stable average maturity.
Note: FPD statistics and its components DFPD and EFPD
http://www.tesouro.fazenda.gov.br/english/hp/public_debt_report.asp.
are
monitored
in
the
Federal
Public
Debt
Monthly
Report,
which
can
be
accessed
at
25
Public Debt Management
Guideline: Improving Public Debt Composition
100%
Exchange Rate
90%
30.4%
80%
6,91%
70%
87.2%
Floating rate
60%
34,34%
50%
Inflation Linked
40%
1,14 %
69.6%
30%
26,50%
20%
Fixed Rate
Inflation Linked
Floating Rate
Source: Brazilian National Treasury. Note: Federal Public Debt, which includes both domestic and external liabilities.
abr/12
out/11
abr/11
out/10
out/09
abr/09
out/08
abr/08
out/07
abr/07
out/06
abr/06
out/05
abr/05
out/04
abr/04
out/03
0%
abr/03
12.8%
abr/10
Fixed Rate
10%
Exchange Rate
26
Public Debt Management
Guideline: Improving Public Debt Composition and Reducing Risks
» The impact of a stress scenario of exchange and
Type of
Index
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Interest
Rate
1.81%
2.11%
1.86%
1.84%
1.52%
1.61%
1.73%
2.09%
1.90%
1.92%
Exchange
14.99% 11.39%
Rate
Total
16.80% 13.51%
interest rates over the Net Public Sector Debt (NPSD)
outstanding was reduced in 22 pp of GDP between 2002
and 2011, due to changes at the Public Debt
1.86%
2.08%
-0.93% -4.57% -5.29% -5.02% -5.15% -7.15%
3.73%
3.92%
0.59%
composition.
-2.96% -3.56% -2.92% -3.26% -5.22%
Source: National Treasury
Note: Stress scenario considered of 3 standard deviations over the medium interest and
exchange rate observed at 2002, equivalent of an overshooting of 56.6% on exchange rate
0,40%
and an increase of 7.8 on the Selic rate.
0,30%
*Net Public Sector Debt
0,20%
» In particular, the protection created by the fact that the
0,10%
Government has more FX assets than liabilities compensates
0,00%
-0,13%
-0,10%
Mar-12
Sep-11
Mar-11
Sep-10
Mar-10
Sep-09
Mar-09
Sep-08
Mar-08
Sep-07
Mar-07
Sep-06
Mar-06
Sep-05
Mar-05
Sep-04
-0,20%
Mar-04
the interest rate risk, shielding the NPSD.
27
Source: Central Bank
Public Debt Management
Guideline: Reducing Borrowing Requirements
450
18%
R$ Billion
400
% GDP
14%
300
12%
250
% GDP
R$ Billion
350
16%
10%
200
8%
150
100
6%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
The National Treasury has two “liquidity cushions” to manage the Federal Public Debt efficiently:
» In foreign currency: US$ 7.4 billion already purchased, enough to cover 49% of the external debt maturing until 2015.
» In domestic currency: a liquidity-cushion equivalent to approximately five-months of the Federal Public Debt – FPD service
(principal and interest). Given the current structure of the FPD, the Treasury considers comfortable to maintain a liquidity-cushion
equivalent to, at least, 3 months of payments.
28
Public Debt Management
Guideline: Improving Public Debt Maturity Profile
39.3%
5.7
5.6
5.5
5.5
3.5
3.5
3.5
23.6%
23.9%
5.3
36.3%
5.0
4.6
32.4%
3.6
28.2%
3.0
2.9
2.8
3.3
25.4%
21.9%
2005
2004
2006
2007
Percentage Maturing in 12 Months
2008
2009
Average Maturity (years)
2010
2011
Average Life (Years)*
Source: Brazilian National Treasury
*Average Life is different from the Average Maturity indicator because it does not consider intermediate coupon payments.
29
Public Debt Management
Guideline: Developing the Domestic Yield Curve
14
68.9
13
12
50.9
11
10.5
38.0
9.8
10
10.0
30.2
8.6
% p. y.
10.3
9
9.1
8.1
8
7.9
7.4
4.7
4.7
3.5 6.5
7.4
3.2
3.1
7.8
5.1
7
6
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Outstanding (R$ bn)
Jan-18
Jan-21
Jan-22
NTN-F's Yield
Jan-23
Jan-24
Jan-28
BRL's Yield
Source: Bloomberg, Andima (Yields) and National Treasury (Outstanding)
Note 1: Currently, only the NTN-F Jan/18 and Jan/23 are issued.
Note 2.: The yield of the NTN-F is based on the 252-d standard while the yield of the BRL is based on the 360-d standard.
30
Public Debt Management
Guideline: Developing the Domestic Yield Curve
1044,1
140
120
677,7
100
676,4
564,5
80
60
55.9
59.2
65.2
68.2
391,2
292,7
40
29.9
22.2
20
103,5
48,0
3.0
4.1
0
LTN Jan13 LTN Jan14 LTN Jan15 LTN Jan16
Outs 2011
Source: Brazilian National Treasury
Additional Outs Mar/12
NTN-F
Jan17
NTN-F
Jan18
NTN-F
Jan21
NTN-F
Jan23
Turnover - Daily Averages (R$ mm)
31
Public Debt Management
Guideline: Developing the Domestic Yield Curve
5.0
4.4
4.4
4.1
4.5
4.5
4.1
4.5
4.5
4.5
58.8
4.0
54.1
49.3
3.8
3.6
37.4
4.5
3.5
45.1
38.4
38.0
2.8
39.7
3.0
35.5
2.5
31.6
% p. y.
52.0
4.4
2.0
1.5
15.7
1.0
9.2
0.5
0.0
Aug
2012
May
2013
Aug
2014
May
2015
Source: ANDIMA (Yields) and National Treasury (Outstanding)
Aug
2016
May
2017
Aug
2020
Aug
2024
Outstanding R$ bn
Note 1: Currently, only the NTN-B Aug/16, Ago/18, Aug/22, Aug/30, Aug/40 and Aug/50 are issued.
Note 2: There are NTN-Bs with other maturities.
Aug
2030
May
2035
Aug
2040
May
2045
Aug
2050
Yield
32
Public Debt Management
Guideline: Developing the Domestic Yield Curve
1583,3
100
90
1255,3
80
70
60
50
49.5
44.2
37.7
40
34,3
431,9
30
331,2
241,5
20
15.6
11.5
10
7.1
9.1
67,8
85,9
NTN-B
Ago30
NTN-B
Ago40
168,0
0
NTN-B
Ago14
NTN-B
Ago16
Outs 2011
NTN-B
Ago18
NTN-B
Ago20
Additional Outs Mar/12
NTN-B
Ago22
NTN-B
Ago50
Turnover - Daily Averages (R$ mm)
33
Source: Brazilian National Treasury
Public Debt Management
Impact of IOF on the yield of fixed rate securities
10%
8.5%
8.2%
8.6%
9.8%
9.1%
10.3%
9.2%
7%
8.1%
6.3%
(%) p. y.
4%
4.4%
1%
-2%
-2.2%
-5%
-8%
- 13,6%
-11%
Jul-12
Jan-13
Jan-14
Nominal Yield
Jan-15
Jan-17
Jan-21
Net Yield
Source: Brazilian National Treasury
» The IOF tax itself is an important step in generating long-term growth and stability in the market, which is a
fundamental factor behind the interest rate in the Brazilian markets. The longer the maturity of a bond the lower the
impact of IOF in the final net return.
34
Public Debt Management
National Treasury Performance - opportunities merge in the domestic market
IMA-Geral
(IRF-M)
IMA-B
23.9%
22.0%
14.3%
14.4%
In R$
22.0%
15.8%
In US$
Source: ANBIMA
Obs.: IRF-M considers all fixed rate bonds outstanding (LTN and NTN-F). IMA-B considers all inflation linked bonds
outstanding (NTN-B). IMA-Geral is the most comprehensive index and is the sum of IRF-M, IMA-S (floating rate
index), IMA-C (NTN-C) and IMA-B.
» The Brazilian Local Government Bond market presents opportunities in both fixed rate and inflation-linked securities
35
Public Debt Management
Domestic Federal Public Debt (DFPD) - Holders
» This is the result of a strategy adopted by the
Insurance Others
3,9%
4,3%
Government
8,5%
Non-residents
12,3%
Pension Funds
14,0%
Financial
Institutions
29,5%
National Treasury aimed at diversifying the investor
base.
Mutual Funds
27,6%
13%
12,28%
11%
IOF: 0% tax on
incoming foreign
investment (Out/08)
IOF: 6.0% tax on
incoming foreign
investment
(Oct/10)
7%
Apr-12
Jan-12
Oct-11
Jul-11
Apr-11
Oct-10
Oct-09
Jul-09
Apr-09
Jan-09
1%
Oct-08
Public Debt has been kept stable.
Jul-08
3%
IOF: 1.5% tax on
incoming foreign
investment (Mar/08)
Apr-08
» The share of Non Residents in Domestic Federal
Jul-10
IOF : 2.0% tax on
incoming foreign
investment (Oct/09)
5%
Apr-10
“Government” comprises funds that are managed by the public sector, including
those whose assets are not public.
9%
Jan-10
“Pension Funds” includes both open and closed pension funds.
Jan-11
Source: National Treasury
Source: National Treasury
36
Public Debt Management
Holders’ Domestic Public Debt Portfolio
» As regards the debt by type, 50% of bank holdings are fixed
100%
2%
90%
21%
rate bonds, while 49% of Mutual Fund’s portfolio is in floating
15%
26%
34%
80%
55%
70%
60%
27%
50%
holdings.
78%
25%
49%
81%
40%
24%
30%
20%
rate bonds. Inflation-linked bonds are 78% of Pension Fund
3%
50%
9%
41%
25%
10%
21%
14%
0%
Financial
Institutions
Mutual Funds
Fixed Rate
Pension
Floating Rate
Government
Non-residents
Inflation Linked
Insurance
Others
Source: National Treasury
100%
90%
80%
13%
51%
11%
43%
22%
60%
44%
13%
35%
36%
30%
26%
20%
10%
7%
49%
47%
40%
duration.
11%
15%
15%
70%
50%
» Regarding maturities, Pension Fund portfolio’s have longest
16%
20%
27%
27%
22%
26%
14%
10%
0%
Financial
Institutions
Mutual Funds
Up to 1 Year
Pension
From 1 to 3 Years
Non-residents Government
From 3 to 5 Years
Insurance
After 5 Years
37
Source: National Treasury
Public Debt Management
Non-Resident Share in Overall Public Debt
Dec/03
23.61%
11,72%
Apr/12
4,56%
0.50%
75.89%
83,72%
» The external debt as a share of FPD has reduced from 23.6% (US$ 78.0 billion) in Dec/03 to 4.3% (US$ 43.9 billion) in
Mar/12. During this period the share of non residents in the domestic debt has increased considerably from 0.5% to
11.6%.
» In 2005, Brazilian National Treasury initiated the issuance of external debt denominated in reais, which amounts US$
6.4 billion in Mar/12.
38
Public Debt Management
Achieved Results
6.0
6.0%
5.0
5.0%
4.0%
4.0
3.0%
3.0
0.8
2.0%
0.5
2.6
0.0
0.3
2.0
0.1
0.4
2.9
0.0%
2.2
1.6
-1.0%
0.6
Issuances - Benchmarks
5.625% 41
11.00% 40 C15**
7.125% 37
8.25% 34
12.25% 30
-2.0%
4.875% 21
12.75% 20
5.875% 19 N
8.875% 19
Buyback
1.6
0.7
0.4
Outstanding - Apr/2012
1.7
8.75% 25
0.4
0.0
0.4
3.0
2.5
8.875% 24
1.1
1.1
3.0
0.3
8.875% 24 B
2.3
A-Bond 8.00%*
10.25% 13
1.2
6.00% 17
0.7
0.0
0.7
7.875% 15
0.5
10.50% 14
1.0
2.5
10.125% 27
0.8
1.0%
0.5
Yield % p.y.
3.4
Yield % p.y. (Apr/12)
Source: National Treasury
Note: This amount includes the exchange of approximately US$ 676 million of external debt securities for domestic debt bonds in the Central Bank’s portfolio. As for the ABond (BR 8,00 15/01/2018), the reduction in the outstanding value includes not only the amount repurchased trough the Buyback Program but also US$ 184.5 million of
amortization.
39
Public Debt Management
External Public Debt
8,000
90,0
80,0
70,0
Interest
Principal
75.4
7,000
14.5
6,000
7.2
50,0
45.3
1.5
7.1
40,0
30,0
7.9
43.3
20,0
US$ Millions
US$ Billions
60,0
5,000
4,000
3,000
29.1
2,000
2.3
1,000
US$
Restructured Debt (Bradies)
Contractual Debt
set/11
fev/11
jul/10
dez/09
mai/09
out/08
mar/08
ago/07
BRL
-
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
Euro
jan/07
jun/06
7.6
nov/05
0,0
abr/12
10,0
Source: National Treasury
Source: National Treasury
» As a result of a successful strategy adopted by the National Treasury throughout the last years, the
outstanding EFPD has been systematically shrinking in the past years, reaching US$ 44.4 bn in 2011 (in
contrast with US$ 55.0 bn, in 2010) and representing only 4.4% of total FPD.
40
Investor Relations Leadership
Brazil stands out in Investor Relations Best Practices
IIF Report - Investor Relations: An Approach to Effective Communication and Enhanced Transparency
» Brazil was the first country to satisfy all the investor relations best practice criteria of the Institute of
International Finance (IIF).
» Assessment of 38 key borrowing countries in Investor Relations and Data Transparency Practices in 2011.
 Brazil, a top-ranked IR leader since the first IIF report in 2005
 In 2008, Brazil became the first country to score 38 out of 38 in the IIF’s prioritized criteria for IR
practices, based on the combined scores of both its IROs (Gerin, operated by the Central Bank of Brazil,
and Investor Relations Office of the National Treasury)
 In 2011, both Brazilian IROs scored 38 points on the IIF prioritized criteria, continuing Brazil’s leadership
in this area
The quality of Brazil’s practices is well-regarded by investors. Regarding these practices, it can be
highlighted: Staff reachable through website, reciprocal links between government agencies and investors
able to register for website subscription
41
For additional information access the National Treasury website:
www.tesouro.fazenda.gov.br
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.
42
ANNEX
43
Annex
A steady level of public external debt with improved profile
(US$ bn)
Operations
Face Value
1
28.1
External Public Debt in Bonds
C-Bond call (Oct-05)
1.1
Brady Bonds call (Apr-06)
6.5
Tender Offer (Jun-06)
1.3
2
Buyback Program
19.2
2006
6.0
2007
5.4
2008
1.2
2009
1.1
2010
2011
3.2
2.3
28.8
Contractual Debt
IMF early payment I (Jul-05)
4.9
IMF early payment II (Dec-05)
15.5
3
Paris Club early payment (Jan-06 )
IDB early payment (Dec-09)
World Bank early payment (Jun/Oct - 11)
Total
1
Captures the impact of the operations on the outstanding public debt.
2
The Program started in 2006. Between 2006 and 2011, R$ 19.2 billion in securities were repurchased, at face value.
3
Announcement
1.7
0.87
5.9
56.9
44

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