EX-99.21 4 exhibit99-21.htm EXHIBIT 99.21 Province of Quebec.: Exhibit 99.21 - Filed by newsfilecorp.com

Exhibit 99.21

Section E
THE QUÉBEC GOVERNMENT’S DEBT

1. Debt     E.3
  1.1 Gross debt E.4
  1.2 Net debt E.14
  1.3 Debt representing accumulated deficits E.15
  1.4 Debt reduction objectives E.16
  1.5 Comparison of the debt of governments in Canada E.18
2. Financing and debt management E.21
  2.1 Financing program E.21
  2.2 Financing strategy E.23
    2.2.1 Diversification by market E.23
    2.2.2 Diversification by instrument E.24
    2.2.3 Diversification by maturity E.26
  2.3 Pre-financing E.28
  2.4 Yield   E.29
  2.5 Debt management E.31
  2.6 Borrowings contracted E.33

3.

Information on the retirement plans and on funds deposited by the Ministère des Finances with the Caisse de dépôt et placement du Québec

E.35
  3.1 Retirement plans E.35
  3.2 Retirement Plans Sinking Fund E.40
  3.3 Generations Fund E.44
3.4 Returns on funds deposited by the Ministère des Finances with the Caisse de dépôt et placement du Québec E.45
    3.4.1 Retirement Plans Sinking Fund E.46
    3.4.2 Generations Fund E.47
    3.4.3 Accumulated Sick Leave Fund E.47

E.1


4. Credit ratings E.49
  4.1 The Québec government’s credit ratings E.49
  4.2 Comparison of the credit ratings of the Canadian provinces E.54

E.2

1.

DEBT

Several concepts of debt are used to measure a government’s indebtedness. The following table presents data on Québec’s debt according to three concepts, namely, gross debt, net debt and debt representing accumulated deficits.

TABLE E.1

Debt of the Québec government as at March 31
(millions of dollars)

    2016     2017     2018     2019     2020     2021     2022  
GROSS DEBT(1)   203 347     206 953     210 824     213 261     214 966     215 711     216 193  
     % of GDP   53.4     52.7     52.0     50.9     49.7     48.4     47.1  
Less: Financial assets, net of other liabilities   −18 322     −21 739     −24 321     −26 269     −28 031     −30 116     −32 453  
NET DEBT   185 025     185 214     186 503     186 992     186 935     185 595     183 740  
     % of GDP   48.6     47.2     46.0     44.6     43.2     41.6     40.0  
Less: Non-financial assets   −67 095     −69 576     −73 353     −76 676     −79 835     −82 122     −84 256  
Plus: Stabilization reserve   2 191     2 441     2 441     2 441     2 441     2 441     2 441  
DEBT REPRESENTING                                          
ACCUMULATED DEFICITS(2)   120 121     118 079     115 591     112 757     109 541     105 914     101 925  
     % of GDP   31.5     30.1     28.5     26.9     25.3     23.7     22.2  

(1)

The gross debt excludes pre-financing and takes into account the sums accumulated in the Generations Fund.

(2)

According to the Act to reduce the debt and establish the Generations Fund, the debt representing accumulated deficits consists of the accumulated deficits figuring in the government’s financial statements plus the balance of the stabilization reserve.


The Québec  
Government’s Debt E.3


1.1

Gross debt

The gross debt represents the amount of debt issued on financial markets and the net liability in respect of the retirement plans and future benefits of public and parapublic sector employees, minus the balance of the Generations Fund.

As at March 31, 2017, the gross debt should stand at $206 953 million. As a proportion of the economy, it will stand at 52.7% of GDP, which represents a decrease compared to the previous year.

TABLE E.2

Gross debt as at March 31
(millions of dollars)

    2016     2017     2018     2019     2020     2021     2022  
Consolidated direct debt   185 124     192 649     199 822     206 413     213 020     219 315     226 084  

Plus: Net liability in respect of the retirement plans and employee future benefits

  26 745     24 868     24 054     22 734     21 048     19 125     16 827  

Less: Generations Fund  

   −8 522     −10 564     −13 052     −15 886     −19 102     −22 729     −26 718  
GROSS DEBT   203 347     206 953     210 824     213 261     214 966     215 711     216 193  

     % of GDP

  53.4     52.7     52.0     50.9     49.7     48.4     47.1  

  Budget 2017-2018
E.4 Economic Plan

$610-million reduction in the gross debt in 2015-2016

As at March 31, 2016, the gross debt was down in absolute terms. The gross debt recorded as at March 31, 2016 was indeed $610 million lower than the level recorded as at March 31, 2015 and stood at $203.3 billion.

A similar situation had not been seen since 1959.

This outcome results from the combined impact of restored fiscal balance and the deposits made in the Generations Fund.

Annual change in Québec’s gross debt as at March 31
(millions of dollars)


The Québec  
Government’s Debt E.5


[   ] The debt burden will continue to fall

The gross debt will rise in absolute terms over the coming years, particularly because of capital investments, but its weight in the economy will continue to decline. The ratio of gross debt to GDP is expected to reach 47.1% as at March 31, 2022.

CHART E.1

Change in the gross debt as at March 31
(billions of dollars and percentage of GDP)


  Budget 2017-2018
E.6 Economic Plan

Retirement plans liability

The net retirement plans liability, which is included in the gross debt, is calculated by subtracting from the retirement plans liability the balance of the Retirement Plans Sinking Fund (RPSF), an asset established to pay the retirement benefits of public and parapublic sector employees.

The retirement plans liability represents the present value of the retirement benefits the government will pay to public and parapublic sector employees, taking into account the conditions of their plans and their years of service. This liability stood at $86 436 million as at March 31, 2016.

The government created the RPSF in 1993. As at March 31, 2016, the RPSF’s book value stood at $59 738 million.

Thus, the net retirement plans liability represented $26 698 million as at March 31, 2016.

Net retirement plans liability as at March 31, 2016
(millions of dollars)

Retirement plans liability

      

     Government and Public Employees Retirement Plan (RREGOP)

  54 903  

     Pension Plan of Management Personnel (PPMP) and Retirement Plan for Senior Officials (RPSO)

  12 962  

     Other plans(1)

   18 571  

Subtotal

   86 436  

     Less: Retirement Plans Sinking Fund (RPSF)

  −59 738  

NET RETIREMENT PLANS LIABILITY

   26 698  

(1)

The liability for the other plans takes into account the assets of the other plans, including those of the Pension Plan of the Université du Québec.



The Québec  
Government’s Debt E.7


Employee future benefits liability

The government records in the gross debt the value of its commitments regarding future benefits programs for its employees, namely, programs for accumulated sick leave and for pensions paid to the survivors of government employees. These programs give rise to long-term obligations whose costs are covered in full by the government.

As at March 31, 2016, the employee future benefits liability stood at $1 475 million.

As at March 31, 2016, the value of the sums accumulated to pay for employee future benefits programs (Accumulated Sick Leave Fund and Survivor’s Pension Plan Fund) stood at $1 428 million.

Thus, the net employee future benefits liability was $47 million as at March 31, 2016.

Net employee future benefits liability as at March 31, 2016
(millions of dollars)

Employee future benefits liability      
     Accumulated sick leave   840  
     Survivor’s pension plan   421  
     Université du Québec programs   214  
Subtotal   1 475  
Less:      
     Accumulated Sick Leave Fund   −989  
     Survivor’s Pension Plan Fund   −439  
Subtotal   −1 428  
NET EMPLOYEE FUTURE BENEFITS LIABILITY   47  


  Budget 2017-2018
E.8 Economic Plan

Generations Fund

The Generations Fund was created in June 2006, through the adoption of the Act to reduce the debt and establish the Generations Fund. The sums accumulated in the fund are dedicated solely to repaying the debt.

As March 31, 2017, the book value of the Generations Fund is expected to stand at $10.6 billion.

The sums accumulated in the Generations Fund are expected to reach $26.7 billion as at March 31, 2022.

Generations Fund
(millions of dollars)

    2015-     2016-     2017-     2018-     2019-     2020-     2021-  
    2016-     2017-     2018-     2019-     2020-     2021-     2022-  
Book value, beginning of year   6 938     8 522     10 564     13 052     15 886     19 102     22 729  
Dedicated revenues                                          
Water-power royalties                                          

     Hydro-Québec

  641     671     680     687     703     724     733  
     Private producers   100     103     99     100     102     104     107  

     Subtotal

  741     774     779     787     805     828     840  
Indexation of the price of heritage electricity   98     164     215     245     325     415     500  
Additional contribution from Hydro-Québec   —     —     215     215     215     215     215  
Mining revenues   161     77     123     241     297     352     382  
Specific tax on alcoholic beverages   100     500     500     500     500     500     500  
Unclaimed property   55     55     30     30     30     30     30  
Investment income   298     472     626     816     1 044     1 287     1 522  
Total dedicated revenues   1 453     2 042     2 488     2 834     3 216     3 627     3 989  
Deposit from the accumulated surplus of the Commission des normes du travail   131     —     —     —     —     —     —  
Total deposits   1 584     2 042     2 488     2 834     3 216     3 627     3 989  
BOOK VALUE, END OF YEAR   8 522     10 564     13 052     15 886     19 102     22 729     26 718  


The Québec  
Government’s Debt E.9


[   ] Factors responsible for the growth in the gross debt

In 2017-2018, the gross debt will increase by $3.9 billion, mainly because of capital investments and investments, loans and advances.

Capital investments1 and investments, loans and advances will increase the gross debt by $5.8 billion, while deposits in the Generations Fund will lead to a $2.5 -billion reduction in the gross debt.

CHART E.2

Factors responsible for the growth in the gross debt in 2017-2018
(millions of dollars)


(1)

Other factors include, in particular, the change in other accounts, such as accounts receivable and accounts payable.

The table on the next page shows the factors responsible for the growth in the government’s gross debt since March 31, 2000.

______________

1

These are net capital investments, which consist of gross investments minus depreciation expenses. Even though gross investments have an impact on the gross debt, net capital investments are presented in the factors responsible for the growth in the gross debt due to the fact that depreciation expenses are presented in the budgetary balance. In 2017-2018, gross capital investments will amount to $7 643 million and depreciation expenses to $3 866 million, for a total of $3 777 million in net investments.


  Budget 2017-2018
E.10 Economic Plan

TABLE E.3

Factors responsible for the growth in the Québec government’s gross debt
(millions of dollars)

    Debt,     Budgetary                             Deposits in the                    
    beginning of     (surplus)     Investments, loans     Net investment in     Net capital     Other     Generations     Total     Debt, end     % of  
    year     deficit(1 )   and advances     the networks     investments(2 )    factors(3 )    Fund     change     of year     GDP  
2000-2001   116 761     −427     1 701     841     578     1 108           3 801     120 562     52.4  
2001-2002   120 562     −22     1 248     934     1 199     −9           3 350     123 912     51.9  
2002-2003   123 912     728     1 921     631     1 706     237           5 223     129 135     51.7  
2003-2004   129 135     358     1 367     560     1 186     625           4 096     133 231     51.4  
2004-2005   133 231     664     1 303     1 486     1 006     −796           3 663     136 894     50.4  
2005-2006   136 894     −37     1 488     1 013     1 179     −809           2 834     139 728     49.9  
2006-2007   139 728     −109     2 213     1 002     1 177     1 078     −584     4 777     144 505     49.7  
2007-2008   144 505     —     2 658     487     1 457     767     −649     4 720     149 225     48.8  
2008-2009   149 225     —     966     622     2 448     −28     −719     3 289     152 514     48.5  
With networks consolidated line by line(4)  
2009-2010   157 630     3 174     1 746           4 226     −2 733     −725     5 688     163 318     51.9  
2010-2011   163 318     3 150     2 507           4 923     298     −760     10 118     173 436     52.9  
2011-2012   173 436     2 628     1 861           5 071     1 228     −840     9 948     183 384     53.2  
2012-2013   183 384     3 476 (5)   659           4 863     445     −961     8 482     191 866     54.2  
2013-2014   191 866     2 824     1 349           3 977     −788     −1 421     5 941     197 807     54.3  
2014-2015   197 807     1 143 (6)   2 146           2 980     1 160     −1 279     6 150     203 957     54.9  
2015-2016   203 957     −2 191     808           2 695     −338     −1 584     −610     203 347     53.4  
2016-2017   203 347     −250     2 970           2 481     447     −2 042     3 606     206 953     52.7  
2017-2018   206 953     —     2 047           3 777     535     −2 488     3 871     210 824     52.0  
2018-2019   210 824     —     1 989           3 323     −41     −2 834     2 437     213 261     50.9  
2019-2020   213 261     —     1 811           3 159     −49     −3 216     1 705     214 966     49.7  
2020-2021   214 966     —     1 818           2 287     267     −3 627     745     215 711     48.4  
2021-2022   215 711     —     1 840           2 134     497     −3 989     482     216 193     47.1  

(1)

From 2006-2007 to 2009-2010, the budgetary balance presented is the budgetary balance after the stabilization reserve.

(2)

Investments made under private-public partnership agreements are included in net capital investments.

(3)

Other factors include, in particular, the change in other accounts, such as accounts receivable and accounts payable.

(4)

The line-by-line consolidation of the health and social services and education networks raised the gross debt by $5 116 million as at March 31, 2009. This amount represents the debt contracted by the networks in their own name, which was previously not included in the government’s debt. The data prior to 2009-2010 could not be restated and are thus not comparable.

(5)

This amount includes the loss of $1 876 million stemming from activities abandoned following the closure of Hydro-Québec’s Gentilly-2 nuclear power plant.

(6)

Budgetary balance excluding the impact of accounting adjustments. The budgetary balance including accounting adjustments of $418 million is a deficit of $725 million.


Government’s Québec The  
Debt E.11


[   ] Change in the gross debt burden and the importance of the Generations Fund

After declining from 1998 to 2009, the gross-debt-to-GDP ratio rose due to growth in capital investments and the 2008-2009 recession, which led to deficits from 2009-2010 to 2014-2015.

The following chart illustrates the importance of the Generations Fund. Without the deposits made in the Generations Fund, the ratio of gross debt to GDP would be much higher. As at March 31, 2022, the gross debt burden is expected to stand at 47.1% . Without the Generations Fund, the forecast would be 53.1%, or 6.0 percentage points of GDP higher.

This difference represents $27.7 billion. In other words, if the government had not created the Generations Fund in 2006, the gross debt forecast as at March 31, 2022 would be $27.7 billion higher,2 that is, $3 207 dollars per capita. By reducing the debt, the Generations Fund is a powerful instrument of intergenerational equity.

CHART E.3

Gross debt as at March 31
(percentage of GDP)


Note:

The line-by-line consolidation of the health and social services and education networks raised the gross-debt-to-GDP ratio from 48.5% to 50.1% as at March 31, 2009.

 

__________________

2

The difference of $27.7 billion is $1 billion higher than the balance of the Generations Fund as at March 31, 2022 ($26.7 billion) owing to the use of $1 billion from the Generations Fund in 2013-2014 to repay maturing borrowings.


  Budget 2017-2018
E.12 Economic Plan

Inclusion, in the gross debt, of debt contracted by the Financing Fund for government enterprises and entities not included in the reporting entity

The debt of government enterprises and entities not included in the reporting entity that is financed by the Financing Fund is not recorded in the gross debt.

However, debt issued by Financement-Québec to finance entities not included in the reporting entity is included in the gross debt. This leads to a difference in treatment. The Auditor General of Québec has asked the government in the past to look into this question of differing treatment.

To favourably address the request of the Auditor General of Québec, the government intends to modify the definition of gross debt in the Act to reduce the debt and establish the Generations Fund so that it will include debt contracted by the Financing Fund to finance government enterprises and entities not included in the reporting entity.

In addition, the Act to modify mainly the organization and governance of shared transportation in the Montréal metropolitan area provides for, in fiscal 2017-2018, the elimination of the Agence métropolitaine de transport (AMT) and the establishment of two municipal bodies, namely, the Autorité régionale de transport métropolitain (ARTM) and the Réseau de transport métropolitain (RTM). Accordingly, loans granted by the Financing Fund to the AMT ($1.7 billion as at March 31, 2017) will eventually be transferred to the ARTM and the RTM. The change that will be made to the definition of gross debt will allow such loans transferred to entities not included in the reporting entity to keep being recorded in the calculation of the gross debt.

The inclusion of debt contracted by the Financing Fund to finance government enterprises and entities not included in the reporting entity will increase the gross debt by $258 million as at March 31, 2017.

Impact on the gross debt as at March 31, 2017 of including debt contracted by
the Financing Fund for government enterprises and entities not included in the
reporting entity
(millions of dollars)

    Before     After     Change  

Debt before deferred foreign exchange gains (losses)

  198 082     198 082     —  

Less: Debt contracted by the Financing Fund to finance government enterprises and entities not included in the reporting entity

  −258     —     258  

Subtotal

  197 824     198 082     258  

Less: Pre-financing

  −5 433     −5 433     —  

Consolidated direct debt (A)

  192 391     192 649     258  

Net liability in respect of the retirement plans and employee future benefits (B)

  24 868     24 868     —  

Less: Generations Fund (C)

  −10 564     −10 564     —  
GROSS DEBT (A + B + C)   206 695     206 953     258  
     % of GDP   52.7     52.7     —  


The Québec  
Government’s Debt E.13


1.2

Net debt

The net debt is equal to the Québec government’s liabilities less its financial assets. It represents the debt that has funded capital investments and current expenditures. The net debt is calculated by subtracting from the gross debt the government’s financial assets, net of other liabilities.

As at March 31, 2017, the net debt is expected to stand at $185 214 million, or 47.2% of GDP. As a proportion of GDP, the net debt began to decrease in 2013-2014 and will continue to fall over the coming years, to 40.0% as at March 31, 2022.

TABLE E.4

Factors responsible for the growth in the net debt
(millions of dollars)

                            Revenues                    
    Debt,     Budgetary                 dedicated to the                    
    beginning     (surplus)     Net capital           Generations     Total     Debt, end     % of  
    of year     deficit     investments     Other     Fund     change     of year     GDP  
2012-2013   167 700     3 476 (1)   4 863     4 959     −961     12 337     180 037     50.9  
2013-2014   180 037     2 824     3 977     −2 465     −1 121     3 215     183 252     50.3  
2014-2015   183 252     1 143 (2)   2 980     −409     −1 279     2 435     185 687     50.0  
2015-2016   185 687     −2 191     2 695     287     −1 453     −662     185 025     48.6  
2016-2017   185 025     −250     2 481     —     −2 042     189     185 214     47.2  
2017-2018   185 214     —     3 777     —     −2 488     1 289     186 503     46.0  
2018-2019   186 503     —     3 323     —     −2 834     489     186 992     44.6  
2019-2020   186 992     —     3 159     —     −3 216     −57     186 935     43.2  
2020-2021   186 935     —     2 287     —     −3 627     −1 340     185 595     41.6  
2021-2022   185 595     —     2 134     —     −3 989     −1 855     183 740     40.0  

(1)

This amount includes the loss of $1 876 million stemming from activities abandoned following the closure of Hydro-Québec’s Gentilly-2 nuclear power plant.

(2)

Budgetary balance excluding the impact of accounting adjustments. The budgetary balance including accounting adjustments of $418 million is a deficit of $725 million.


  Budget 2017-2018
E.14 Economic Plan

1.3

Debt representing accumulated deficits

The debt representing accumulated deficits corresponds to the difference between the Québec government’s liabilities and its financial and non-financial assets as a whole. This debt is calculated by subtracting financial assets, net of other liabilities, as well as non-financial assets from the gross debt. In accordance with the Act to reduce the debt and establish the Generations Fund, it is also increased by the stabilization reserve.

As at March 31, 2017, the debt representing accumulated deficits is expected to stand at $118 079 million, or 30.1% of GDP. As a proportion of GDP, the debt representing accumulated deficits began to decrease in 2013-2014 and will continue to fall over the coming years, to 22.2% as at March 31, 2022.

TABLE E.5

Factors responsible for the growth in the debt representing accumulated deficits
(millions of dollars)

                            Revenues                    
                Allocation           dedicated                    
    Debt,     Budgetary     to the           to the                    
    beginning     (surplus)     stabilization     Accounting      Generations     Total      Debt, end     % of  
    of year     deficit     reserve     adjustments     Fund     change     of year     GDP  
2012-2013   115 220     3 476 (1)   —     4 880     −961     7 395     122 615     34.6  
2013-2014   122 615     2 824     —     −2 471     −1 121     −768     121 847     33.4  
2014-2015   121 847     1 143 (2)   —     −443     −1 279     −579     121 268     32.7  
2015-2016   121 268     −2 191     2 191     306     −1 453     −1 147     120 121     31.5  
2016-2017   120 121     −250     250     —     −2 042     −2 042     118 079     30.1  
2017-2018   118 079     —     —     —     −2 488     −2 488     115 591     28.5  
2018-2019   115 591     —     —     —     −2 834     −2 834     112 757     26.9  
2019-2020   112 757     —     —     —     −3 216     −3 216     109 541     25.3  
2020-2021   109 541     —     —     —     −3 627     −3 627     105 914     23.7  
2021-2022   105 914     —     —     —     −3 989     −3 989     101 925     22.2  

(1)

This amount includes the loss of $1 876 million stemming from activities abandoned following the closure of Hydro-Québec’s Gentilly-2 nuclear power plant.

(2)

Budgetary balance excluding the impact of accounting adjustments. The budgetary balance including accounting adjustments of $418 million is a deficit of $725 million.


The Québec  
Government’s Debt E.15


1.4

Debt reduction objectives

The Québec government has set debt reduction objectives that have been included in the Act to reduce the debt and establish the Generations Fund. For fiscal 2025-2026:

— the gross debt must not exceed 45% of GDP;
— the debt representing accumulated deficits must not exceed 17% of GDP.

The trajectories have been revised on the basis of the anticipated change in the debt and the economy.


To achieve these debt reduction objectives, the government established the Generations Fund in 2006. The main revenue sources dedicated to the Generations Fund are as follows:

— water-power royalties paid by Hydro-Québec and private producers of hydro-electricity;
— revenue generated by the indexation of the price of heritage electricity;
— all mining revenues;

  Budget 2017-2018
E.16 Economic Plan

  — an amount derived from the specific tax on alcoholic beverages ($500 million per year since 2016-2017);

—

In 2013, the government chose to offset the impact on the debt of the additional deficits caused by the decision to postpone for two years the return to a balanced budget, which was forecast for 2013-2014, by increasing deposits in the Generations Fund drawn from the specific tax on alcoholic beverages as of 2016-2017.


 

—

investment income that accumulates in the Generations Fund and thus accelerates debt reduction.


The Québec  
Government’s Debt E.17


1.5

Comparison of the debt of governments in Canada

On the basis of gross debt and percentage of GDP, Québec is the second most heavily indebted province after Newfoundland and Labrador.

However, Québec is the most heavily indebted province on the basis of debt representing accumulated deficits.

CHART E.6

Gross debt and debt representing accumulated deficits as at March 31, 2016
(percentage of GDP)


(1)

A negative entry means that the government has an accumulated surplus.

Sources: Public accounts of the provinces and the federal government and Statistics Canada.

The table on the following page shows the debt of the federal government and each of the provinces as at March 31, 2016. Contrary to the net debt and the debt representing accumulated deficits, the gross debt cannot be observed directly in the public accounts of the other provinces. However, the public accounts show the components of gross debt, that is, the consolidated direct debt, the net retirement plans liability and the net employee future benefits liability. Therefore, it is possible to calculate the level of the gross debt according to the same concept used by Québec.

The debt concepts used in budget documents may also differ from one government to another. For instance, the commitment to reduce the debt burden of the federal government concerns solely the debt representing accumulated deficits, whereas Québec’s debt reduction objectives concern the gross debt and the debt representing accumulated deficits.

  Budget 2017-2018
E.18 Economic Plan

TABLE E.6

Debt of governments in Canada as at March 31, 2016 according to various concepts
(millions of dollars)

    N.L.     Qué.     Fed.     Ont.     Man.     N.S.     N.B.     B.C.     P.E.I.     Sask.     Alta.  

Consolidated direct debt

  9 137     185 124     693 813     341 558     24 226     13 525     12 126     64 472     1 920     6 211     22 194  

Net liability in respect of the retirement plans and employee future benefits

  7 429     26 745     236 269     12 107     2 865     2 739     1 071     2 315     −281     7 922     10 566  

Generations Fund

  —     −8 522     —     —     —     —     —     —     —     —     —  

Gross debt

  16 566     203 347     930 082     353 665     27 091     16 264     13 197     66 787     1 639     14 133     32 760  

     % of GDP

  55.0     53.4     46.8     46.3     41.1     40.4     39.9     26.7     26.5     17.8     10.0  

Less: Financial assets, net of other liabilities

  −3 912     −18 322     −236 331     −48 432     −5 658     −1 167     463     −27 152     531     −6 234     −33 991  

Net debt(1)

  12 654     185 025     693 751     305 233     21 433     15 097     13 660     39 635     2 170     7 899     −1 231  

     % of GDP

  42.0     48.6     34.9     40.0     32.5     37.5     41.3     15.9     35.1     9.9     −0.4  

Less: Non-financial assets

  −4 484     −67 095     −77 765     −102 536     −12 621     −5 813     −8 958     −43 014     −1 026     −9 394     −47 311  

Plus: Stabilization reserve

  —     2 191     —     —     —     —     —     —     —     —     —  

Debt representing accumulated deficits(1)

  8 170     120 121     615 986     202 697     8 812     9 284     4 702     −3 379     1 144     −1 495     −48 542  

     % of GDP

  27.1     31.5     31.0     26.6     13.4     23.1     14.2     −1.4     18.5     −1.9     −14.9  

(1) A negative entry indicates that the government has net assets or an accumulated surplus. Sources: Public accounts of the provinces and the federal government and Statistics Canada.

The Québec  
Government’s Debt  E.19


Public sector debt

Public sector debt includes the government’s gross debt as well as the debt of Hydro-Québec, municipalities, universities other than the Université du Québec and its constituents, and other government enterprises. This debt has served, in particular, to fund public infrastructure, such as roads, schools, hospitals, hydroelectric dams and water treatment plants.

As at March 31, 2017, Québec’s public sector debt is expected to stand at $276 201 million, or 70.4% of GDP. These figures must be put into perspective for they do not take into account the economic value of certain assets held by the government, such as Hydro-Québec, the Société des alcools du Québec and Loto-Québec.

Public sector debt as at March 31
(millions of dollars)

    2013     2014     2015     2016     2017  
Government’s gross debt   191 866     197 807     203 957     203 347     206 953  
Hydro-Québec   39 631     40 361     41 662     43 843     43 585  
Municipalities(1)   21 820     22 622     23 305     23 846     24 055  
Universities other than the Université du Québec and its constituents(2)   1 739     1 610     1 624     1 608     1 608  
Other government enterprises(3)   1 479     433     383     308     —  
PUBLIC SECTOR DEBT   256 535     262 833     270 931     272 952     276 201  

     % of GDP

  72.5     72.1     73.0     71.7     70.4  

(1)

These amounts correspond to the long-term debt contracted by municipalities in their own name. Part of this debt is subsidized by the government ($3 409 million as at March 31, 2017).

(2)

These amounts correspond to the debt contracted by universities other than the Université du Québec and its constituents in their own name. Part of this debt is subsidized by the government ($692 million as at March 31, 2017).

(3)

These amounts correspond to the debt of the Financing Fund to finance government enterprises and entities not included in the reporting entity. As of 2017, this debt is included in the gross debt ($258 million as at March 31, 2017).



  Budget 2017-2018
E.20 Economic Plan

2.

FINANCING AND DEBT MANAGEMENT

   
2.1

Financing program

The government’s financing program for 2016-2017 amounted to $22 675 million, which is $8 697 million more than forecast in the March 2016 Québec Economic Plan. This upward revision is primarily attributable to pre-financing.

TABLE E.7

The government’s financing program in 2016-2017
(millions of dollars)

    March 2016     Revisions     March 2017  
GENERAL FUND                  
     Net financial requirements(1)   2 740     −1 959     781  
     Repayments of borrowings   9 322     592     9 914  
     Change in cash position(2)   −7 584     −929     −8 513  
     Deposits in the Retirement Plans Sinking Fund (RPSF)(3)   —     1 500     1 500  
     Transactions under the credit policy(4)   —     2 238     2 238  
     Contributions to the Sinking Fund for borrowings   —     2 308     2 308  
     Pre-financing   —     5 433     5 433  
GENERAL FUND   4 478     9 183     13 661  
FINANCING FUND   9 000     −1 242     7 758  
FINANCEMENT-QUÉBEC   500     756     1 256  
TOTAL   13 978     8 697     22 675  
     Including: repayments of borrowings   13 835     780     14 615  

Note: A negative entry indicates a source of financing and a positive entry, a financial requirement.

(1)

These amounts exclude the net financial requirements of consolidated entities funded through the Financing Fund. They are adjusted to take into account, in particular, the non-receipt of revenues of the RPSF and of funds dedicated to employee future benefits.

(2)

The change in cash position corresponds to pre-financing carried out the previous year.

(3)

Deposits in the RPSF are optional. They are recorded in the financing program only once they are made.

(4)

Under the credit policy, which is designed to limit financial risk with respect to counterparties, the government disburses or receives amounts because of movements in exchange rates. These amounts have no effect on the debt.


The Québec  
Government’s Debt E.21

The financing program will amount to $11 264 million in 2017-2018 and $20 559 million in 2018-2019. In 2019-2020, 2020-2021 and 2021-2022, it is expected to amount to $17 881 million, $16 803 million and $19 056 million, respectively.

TABLE E.8

The government’s financing program, 2017-2018 to 2021-2022
(millions of dollars)

    2017-2018     2018-2019     2019-2020     2020-2021     2021-2022  
GENERAL FUND                              
     Net financial requirements(1)   3 013     1 911     1 069     2 138     2 328  
     Repayments of borrowings   5 484     7 748     7 712     6 565     11 628  
     Change in cash position(2)   −5 433     —     —     —     —  
GENERAL FUND   3 064     9 659     8 781     8 703     13 956  
FINANCING FUND   7 000     9 500     7 500     7 000     4 500  
FINANCEMENT-QUÉBEC   1 200     1 400     1 600     1 100     600  
TOTAL   11 264     20 559     17 881     16 803     19 056  
     Including: repayments of borrowings   10 992     16 042     13 566     10 468     15 000  

Note: A negative entry indicates a source of financing and a positive entry, a financial requirement.

(1)

These amounts exclude the net financial requirements of consolidated entities funded through the Financing Fund. They are adjusted to take into account, in particular, the non-receipt of revenues of the RPSF and of funds dedicated to employee future benefits.

(2)

The change in cash position corresponds to pre-financing carried out the previous year.


  Budget 2017-2018
E.22 Economic Plan

2.2

Financing strategy

The government aims to borrow at the lowest possible cost. To that end, it applies a strategy for diversifying sources of funding by market, financial instrument and maturity.

2.2.1

Diversification by market

Financing transactions are carried out regularly on most markets, namely, in Canada, the United States, Europe, Australia and Asia.

Over the past ten years, 17% of borrowings have been contracted on average in foreign currencies. Nonetheless, the government keeps no exposure of its debt to those currencies (see section 2.5) .

More precisely, in 2016-2017, the government carried out 31.1% of its borrowings on foreign markets:

— US$5 billion (CAN$6.4 billion);
   
— AU$510 million (CAN$526 million);
   
— HK$540 million (CAN$89 million).

With regard to financing on foreign markets, it has been an exceptional year with excellent opportunities presenting themselves for Québec, particularly in the United States where three benchmarks were issued for a total of US$5 billion. This is the largest amount ever raised in a single fiscal year on the U.S. market.

CHART E.7

Long-term borrowings by currency
(per cent)


The Québec  
Government’s Debt E.23


2.2.2

Diversification by instrument

To satisfy investors’ needs, an extensive array of financial products is used in the course of financing transactions.

Long-term instruments consist primarily of bonds (conventional and green) and variable interest rate notes.

CHART E.8

Long-term borrowings contracted in 2016-2017 by instrument
(per cent)


(1)

These borrowings are from immigrant investors. The sums advanced by immigrant investors are lent to the government through Investissement Québec. With the income generated by the investments, Investissement Québec funds two assistance programs for Québec businesses: the Business Assistance – Immigrant Investor Program and the Employment Integration Program for Immigrants and Visible Minorities.

(2)

Savings products issued by Épargne Placements Québec.


  Budget 2017-2018
E.24 Economic Plan

Launching of the Green Bond program

The government is engaging in green finance with the launching of a Green Bond program that will fund projects generating tangible benefits with regard to protecting the environment, reducing greenhouse gas (GHG) emissions or adapting to climate change.

In this way, the government is contributing to the development of a socially responsible investment market and facilitating the shift to a low-carbon intensity economy.

The inaugural issue of green bonds, totalling CAN$500 million, took place on February 24, 2017. Through this inaugural issue, the government plans, in particular, to fund public transit projects such as the replacement of Société de transport de Montréal métro cars (with AZUR trains) and the purchase of hybrid buses.

Besides seeking to diversify its sources of funding, the Ministère des Finances du Québec wishes to be at the forefront of infrastructure financing trends. By putting this program in place, Québec is demonstrating not only its commitment to developing the green bond market, but also its commitment to the environment.

Highlights

–

Québec’s green bonds, which are part of the government’s annual borrowing program, have the same characteristics as conventional bonds as far as price, yield, maturity and credit ratings are concerned.

 

–

The Green Bond program draws on the Green Bond Principles, a set of core guidelines introduced in 2014 by a group of financial institutions seeking to improve transparency in this growing market.

 

–

The framework of Québec’s Green Bond program has received the highest rating possible from CICERO (Center for International Climate and Environmental Research – Oslo).

 

–

Québec is the second province, after Ontario, to issue green bonds on the Canadian market.

For further details, please visit:
www.finances.gouv.qc.ca/en/RI_GB_Green_Bonds.asp


The Québec  
Government’s Debt E.25


2.2.3

Diversification by maturity

Maturities of new borrowings are distributed over time to obtain a stable refinancing profile and ensure the government’s regular presence on capital markets.

In 2016-2017, 38.4% of contracted borrowings had a maturity of less than 10 years, 42.3% a maturity of 10 years and 19.3% a maturity of 30 years or more.

CHART E.9

Long-term borrowings(1)contracted in 2016-2017 by maturity
(per cent)


(1)

Long-term borrowings correspond to borrowings with a maturity of more than one year.

This diversification by maturity is reflected on the maturity of the debt. As at March 31, 2017, the average maturity of the debt, that is, of all borrowings contracted, is expected to be 11 years.

  Budget 2017-2018
E.26 Economic Plan

The following chart shows, for each year, the maturity of the long-term debt as at March 31, 2017. For example, repayments of borrowings will amount to $10 992 million in 2017-2018 and $16 042 million in 2018-2019. The maturity of the debt extends to 2076-2077, with one borrowing maturing on December 1, 2076.

CHART E.10

Maturity of the long-term debt as at March 31, 2017
(millions of dollars)


Note: Long-term debt of the general fund, the Financing Fund and Financement-Québec.

The Québec  
Government’s Debt E.27


2.3

Pre-financing

The government carries out pre-financing to take advantage of favourable market conditions. These are borrowings that would normally be contracted during the subsequent fiscal year.

In 2016-2017, the government carried out pre-financing totalling $5.4 billion. The average for the past 10 years is $5.7 billion per year.

CHART E.11

Pre-financing
(millions of dollars)

  Budget 2017-2018
E.28 Economic Plan

2.4

Yield

The yield on the Québec government’s 10-year securities is currently about 2.6%, while that on short-term securities is roughly 0.6% . Since the beginning of year 2010, the yield has averaged 3.1% for long-term securities and 0.8% for short-term securities.

CHART E.12

Yield on the Québec government’s securities
(per cent)


Sources: PC-Bond and Ministère des Finances du Québec.

The Québec  
Government’s Debt E.29

Since January 1, 2010, the spread between the yield on 10-year securities of the Québec government and those of the federal government has varied between 0.7 and 1.2 percentage points. The spread is currently about 0.8 percentage point.

The same trend has been observed with regard to the spread between the yield on the long-term securities of Ontario and the federal government. Since January 1, 2010, the spread has varied between 0.7 and 1.2 percentage points and it is currently about 0.8 percentage point.

No spread is observed at the moment between the yield on long-term securities of Québec and Ontario.

CHART E.13

Yield spread on long-term (10-year) securities
(percentage points)

Source: PC-Bond.

  Budget 2017-2018
E.30 Economic Plan

2.5

Debt management

The government’s debt management strategy aims to minimize the cost of debt while limiting the risks related to fluctuations in foreign exchange and interest rates. The government uses a range of financial instruments, particularly interest rate and currency swap agreements, to achieve desired debt proportions by currency and interest rate.

[   ] Proportion of the gross debt in foreign currency

As at March 31, 2017, the proportion of the government’s gross debt in foreign currency, after taking into account interest rate and currency swap agreements, will be nil.3 This proportion has been nil since 2013.

CHART E.14

Proportion of the gross debt in foreign currency as at March 31
(per cent)

Note: Gross debt including pre-financing.

__________________

3

As at March 31, 2017, before taking into account interest rate and currency swap agreements, the proportion of the gross debt will be 83.7% in Canadian dollars, 9.5% in U.S. dollars, 4.5% in euros, 1.2% in Swiss francs and 1.1% in other foreign currencies (yen, Australian dollars, Hong Kong dollars and pounds sterling).


The Québec  
Government’s Debt E.31


[   ] Proportion of the gross debt at variable interest rates

The government keeps part of its debt at variable interest rates and part at fixed interest rates.

After taking into account interest rate and currency swap agreements, the proportion of the gross debt at variable interest rates is expected to be 11.8% as at March 31, 2017. Since 2012, this proportion has been approximately 12% on average.

CHART E.15

Proportion of the gross debt at variable rates as at March 31(1)
(per cent)


Note: Gross debt including pre-financing.

(1)

The debt at variable interest rates includes variable interest rate financial instruments as well as fixed interest rate financial instruments that mature in one year or less.


  Budget 2017-2018
E.32 Economic Plan

2.6

Borrowings contracted

TABLE E.9

Summary of long-term borrowings in 2016-2017

Currency $ million     %  
CANADIAN DOLLAR            
     Conventional bonds   11 375     50.2  
     Variable interest rate notes   2 021     8.9  
     Immigrant investors   1 321     5.8  
     Green bonds   499     2.2  
     Savings products issued by Épargne Placements Québec   414     1.8  
Subtotal   15 630     68.9  
OTHER CURRENCIES            
     U.S. dollar   6 430     28.4  
     Australian dollar   526     2.3  
     Hong Kong dollar   89     0.4  
Subtotal   7 045     31.1  
TOTAL   22 675     100.0  

Note: Borrowings contracted or negotiated as at March 13, 2017.

The Québec  
Government’s Debt E.33

3.

INFORMATION ON THE RETIREMENT PLANS AND ON FUNDS DEPOSITED BY THE MINISTÈRE DES FINANCES WITH THE CAISSE DE DÉPÔT ET PLACEMENT DU QUÉBEC


3.1

Retirement plans

The Québec government participates financially in the retirement plans of its employees. These plans had 592 797 active participants and 366 719 beneficiaries as at December 31, 2015.

TABLE E.10

Retirement plans of public and parapublic sector employees as at
December 31, 2015

    Active participants Beneficiaries
Government and Public Employees Retirement Plan (RREGOP) 545 932 262 897
Pension Plan of Management Personnel (PPMP) and Retirement Plan for Senior Officials (RPSO) 27 747 30 152
Other plans:    
– Teachers Pension Plan (TPP)(1) and Pension Plan of Certain Teachers (PPCT)(1) 38 42 685
– Civil Service Superannuation Plan (CSSP)(1) 8 18 473
– Superannuation Plan for the Members of the Sûreté du Québec (SPMSQ) 5 625 5 274
– Pension Plan of Peace Officers in Correctional Services (PPPOCS) 4 048 1 910
– Pension Plan of the Judges of the Court of Québec and of Certain Municipal Courts (PPJCQM) 294 368
– Pension Plan for Federal Employees Transferred to Employment with the Gouvernement du Québec (PPFEQ)(2) 142 195
– Pension Plan of the Members of the National Assembly (PPMNA) 122 427
– Pension Plan of the Université du Québec (PPUQ) 8 841 4 338
Total for other plans 19 118 73 670
TOTAL 592 797 366 719

(1) These plans have not accepted any new participants since July 1, 1973.
(2) This plan has not accepted any new participants since it came into effect on January 1, 1992.
Source: Public Accounts 2015-2016.

The Québec  
Government’s Debt E.35


[   ] Retirement plans liability

In its financial statements, the government discloses the present value of the retirement benefits it will pay to its employees, taking into account the conditions governing their plans as well as their years of service. This value is called the retirement plans liability. It does not take into account the sums accumulated to pay retirement benefits, particularly the Retirement Plans Sinking Fund (RPSF).

The actuarial valuations of the liability of the various retirement plans are carried out by Retraite Québec, following the rules of the Canadian Institute of Actuaries (CIA) and the Chartered Professional Accountants of Canada (CPA Canada) for the public sector. The liability valuation for the Pension Plan of the Université du Québec (PPUQ) is performed by a private-sector actuarial firm.

As at March 31, 2016, the liability for the retirement plans of public and parapublic sector employees stood at $86 436 million (net of the plans’ assets). This amount is recognized in the government’s gross debt.

TABLE E.11

Retirement plans liability as at March 31, 2016
(millions of dollars)

Government and Public Employees Retirement Plan (RREGOP) 54 903
Pension Plan of Management Personnel (PPMP) and Retirement Plan for Senior Officials (RPSO) 12 962
Other plans:  
– Teachers Pension Plan (TPP) and Pension Plan of Certain Teachers (PPCT) 10 762
– Civil Service Superannuation Plan (CSSP) 3 412
– Superannuation Plan for the Members of the Sûreté du Québec (SPMSQ) 4 016
– Pension Plan of the Université du Québec (PPUQ) 3 657
– Pension Plan of Peace Officers in Correctional Services (PPPOCS) 555
– Pension Plan of the Judges of the Court of Québec and of Certain Municipal Courts (PPJCQM) 620
– Pension Plan of the Members of the National Assembly (PPMNA) 205
– Pension Plan for Federal Employees Transferred to Employment with the Gouvernement du Québec (PPFEQ) 156
– Plans’ assets(1) −4 812
Total for other plans 18 571
RETIREMENT PLANS LIABILITY 86 436

(1) Plans’ assets, particularly those of the PPFEQ, SPMSQ and PPUQ.

  Budget 2017-2018
E.36 Economic Plan

Summary description of the retirement plans

The retirement plans of public and parapublic sector employees are defined benefit retirement plans. Benefits are calculated on the basis of participants’ average income for the best paid years (generally five) and their number of years of service. The pension usually represents 2% of an employee’s average income per year of service. Benefits are partially indexed to inflation.

RREGOP and PPMP, which account for nearly 97% of active participants, are cost-sharing plans: the government is responsible for paying 50% of the benefits, and the participants are responsible for paying the other portion, that is, 50%.1

Most of the other retirement plans are cost-balance plans. The government covers the cost of these plans, net of contributions paid by participants.

Retraite Québec is responsible for administering the plans.2

The actuarial obligation in regard to certain retirees under the PPMP will be assumed by the government

In December 2016, the government reached an agreement with its management personnel on the renewal of their working conditions. With a view to long-term global remuneration, the government agreed to pay the pensions of retirees under the Pension Plan for Management Personnel (PPMP) as at December 31, 2014 and of their surviving spouses. This obligation, as well as the assets that these retirees had built up in the participants’ fund, both of which amount to roughly $5 billion,3 will be transferred to the government.

The assets of these retirees will be deposited in the Retirement Plans Sinking Fund (RPSF). This transfer of funds, together with the transfer of the obligation, will thus not affect the achievement of the government’s objective, namely, that the book value of the sums accumulated in the RPSF be equal, in 2020, to 70% of the actuarial obligations in regard to the retirement plans of public and parapublic sector employees.

In addition, as a result of the agreement, certain changes will be made to restructure the PPMP: pension eligibility criteria will be changed, the reduction applicable in the case of early retirement will be increased, the average salary used to calculate the pension will now be that of the five best paid years and not the three best paid ones; and partial indexation of pensions will be suspended for a period of five years and will be changed thereafter.

1

This cost-sharing formula has been in effect since July 1, 1982. Previously, the government was responsible for payment of 7/12 of the benefits (58.3%). The agreement entered into in December 2016 for the PPMP stipulates that the government will cover payments for retirees under this plan as at December 31, 2014. Participants’ assets will also be transferred.

2

Except for the PPUQ.

3

The amounts of the actuarial obligation and transferred assets will be slightly different, but the agreement ensures that the cost to the government will not exceed $150 million.



The Québec  
Government’s Debt E.37


[   ] Annual retirement plans expenditure

Every year, the government records its expenditure as an employer with regard to the retirement plans. This expenditure comprises two components:

—

the net cost of vested benefits, namely, the present value of retirement benefits that employees have accumulated for work performed during the year, net of contributions paid, that is, $2 268 million in 2015-2016;

—

the amortization of revisions to the government’s actuarial obligations arising from previous updates of actuarial valuations, for a cost of $869 million in 2015-2016.

In 2015-2016, government spending in respect of the retirement plans thus stood at $3 137 million.

TABLE E.12

Spending in respect of the retirement plans
(millions of dollars)

  2015-2016
Net cost of vested benefits 2 268
Amortization of revisions stemming from actuarial valuations 869
SPENDING IN RESPECT OF THE RETIREMENT PLANS 3 137

  Budget 2017-2018
E.38 Economic Plan

[   ] Interest on the retirement plans liability

The government records an interest charge on the retirement plans liability. This stems from the fact that, historically, it decided to manage its contributions to the retirement plans of its employees internally rather than have an external fund manage them.

This reduced borrowings on financial markets and growth in the direct debt. On the other hand, the commitments in respect of the retirement plans of government employees are shown as a liability and the government must record an interest charge calculated on the value of the actuarial obligations in respect of these plans.

However, the investment income of the RPSF must be subtracted from this amount. The interest charge on the retirement plans liability is included in the government’s debt service.

TABLE E.13

Interest on the retirement plans liability
(millions of dollars)

    2015-2016  
Interest on the actuarial obligations relating to the retirement plans(1)   5 709  
Less: Investment income of the RPSF   −2 975  
INTEREST ON THE RETIREMENT PLANS LIABILITY   2 734  

(1) Net of the income of specific funds of the plans.

The Québec  
Government’s Debt E.39


3.2

Retirement Plans Sinking Fund

The Retirement Plans Sinking Fund (RPSF) is an asset that was created in 1993 for the purpose of paying the retirement benefits of public and parapublic sector employees.

As at March 31, 2017, the RPSF’s book value is expected to be $64 599 million.

TABLE E.14

Change in the RPSF
(millions of dollars)

    Book value,           Imputed     Book value,  
    beginning of year     Deposits     investment income     end of year  
1993-1994   —     850     4     854  
1994-1995   854     —     −5     849  
1995-1996   849     —     74     923  
1996-1997   923     —     91     1 014  
1997-1998   1 095 (1)   —     84     1 179  
1998-1999   1 179     944     86     2 209  
1999-2000   2 209     2 612     219     5 040  
2000-2001   5 040     1 607     412     7 059  
2001-2002   7 059     2 535     605     10 199  
2002-2003   10 199     900     741     11 840  
2003-2004   11 840     1 502     862     14 204  
2004-2005   14 204     3 202     927     18 333  
2005-2006   18 333     3 000     1 230     22 563  
2006-2007   22 437 (1)   3 000     1 440     26 877  
2007-2008   26 877     3 000     1 887     31 764  
2008-2009   31 749 (2)   2 100     2 176     36 025  
2009-2010   36 025     —     2 175     38 200  
2010-2011   38 200     2 000     2 065     42 265  
2011-2012   42 265     1 000     2 087     45 352  
2012-2013   45 352     1 000     1 992     48 344  
2013-2014   48 344     1 000     1 989     51 333  
2014-2015   51 333     1 500     2 430     55 263  
2015-2016   55 263     1 500     2 975     59 738  
2016-2017   59 738     1 500     3 361     64 599  

(1)

These amounts take into account restatements arising from the government accounting reforms of 1997-1998 and 2006-2007.

(2)

This amount takes into account an adjustment arising from consideration of the expected average remaining service life (EARSL) of participants in the PPMP.


  Budget 2017-2018
E.40 Economic Plan

As at March 31, 2016, the market value of the RPSF was higher than its book value.

TABLE E.15

Book value and market value of the RPSF as at March 31
(millions of dollars)

    Book value     Market value     Difference  
1994-1995   849     831     18  
1995-1996   923     954     −31  
1996-1997   1 014     1 095     −81  
1997-1998   1 179     1 321     −142  
1998-1999   2 209     2 356     −147  
1999-2000   5 040     5 703     −663  
2000-2001   7 059     7 052     7  
2001-2002   10 199     9 522     677  
2002-2003   11 840     9 240     2 600  
2003-2004   14 204     12 886     1 318  
2004-2005   18 333     17 362     971  
2005-2006   22 563     23 042     −479  
2006-2007   26 877     28 859     −1 982  
2007-2008   31 764     32 024     −260  
2008-2009   36 025     25 535     10 490  
2009-2010   38 200     29 559     8 641  
2010-2011   42 265     35 427     6 838  
2011-2012   45 352     38 222     7 130  
2012-2013   48 344     42 562     5 782  
2013-2014   51 333     49 034     2 299  
2014-2015   55 263     57 432     −2 169  
2015-2016   59 738     60 084     −346  

The Québec  
Government’s Debt E.41


[   ] A decline in debt service

Deposits in the RPSF entail a reduction in the government’s debt service. Indeed, the rates of return on funds managed by the Caisse de dépôt et placement du Québec are generally higher than interest rates on Québec government bonds issued to finance deposits in the RPSF. Therefore, the income of the RPSF, which is applied against the government’s debt service, is usually higher than the additional interest charge that arises from new borrowings. This leads to a net decrease in the government’s debt service.

Since the RPSF was created, the return obtained by the Caisse has been higher than the cost of new borrowings by the government 18 years out of 23.

TABLE E.16

Comparison of the RPSF’s annual return and the Québec government’s
borrowing costs
(per cent, on a calendar year basis)

                Difference  
    Return of the RPSF     Cost of new borrowings (1)   (percentage points)  
1994   −3.3 (2)   9.2     −12.5  
1995   17.0     8.9     8.1  
1996   16.1     7.7     8.4  
1997   13.4     6.5     6.9  
1998   10.4     5.8     4.6  
1999   15.3     6.0     9.3  
2000   7.2     6.5     0.7  
2001   −4.7     6.1     −10.8  
2002   −8.5     5.8     −14.3  
2003   14.9     5.2     9.7  
2004   11.4     5.0     6.4  
2005   13.5     4.5     9.0  
2006   13.5     4.6     8.9  
2007   5.2     4.7     0.5  
2008   −25.6     4.5     −30.1  
2009   10.7     4.4     6.3  
2010   13.4     4.1     9.3  
2011   3.5     3.7     −0.2  
2012   9.4     3.0     6.4  
2013   12.6     3.3     9.3  
2014   11.9     3.2     8.7  
2015   8.3     2.4     5.9  
2016   7.8     2.2     5.6  

(1)

The government’s borrowing costs correspond to the yield on 10-year maturity Québec bonds.

(2)

From February to December 1994.

Source: PC-Bond for the yield on 10-year maturity Québec bonds.

  Budget 2017-2018
E.42 Economic Plan

[   ] A flexible deposit policy

In December 1999, as part of the agreement concluded for the renewal of its employees’ collective agreements, the government set the objective that the book value of the amounts accumulated in the RPSF would be equal, in 2020, to 70% of its actuarial obligations in regard to the retirement plans of public and parapublic sector employees.

However, the government has all the necessary flexibility in applying this policy. Deposits in the RPSF are made only when market conditions are favourable, particularly with respect to interest rates and market receptiveness to bond issues.

As at March 31, 2016, the RPSF’s book value represented 65% of the government’s actuarial obligations in regard to the retirement plans of public and parapublic sector employees.

CHART E.16

Book value of the RPSF in proportion to the government’s actuarial obligations regarding the retirement plans of public and parapublic sector employees
(per cent)


The Québec  
Government’s Debt E.43


3.3

Generations Fund

The following table shows the book and market values of the Generations Fund since its creation. As at March 31, 2016, the market value of the Generations Fund was higher than its book value.

TABLE E.17

Book value and market value of the Generations Fund as at March 31
(millions of dollars)

    Book value     Market value     Difference  
2006-2007   584     576     8  
2007-2008   1 233     1 147     86  
2008-2009   1 952     1 598     354  
2009-2010   2 677     2 556     121  
2010-2011   3 437     3 524     −87  
2011-2012   4 277     4 375     −98  
2012-2013   5 238     5 550     −312  
2013-2014   5 659     6 299     −640  
2014-2015   6 938     8 182     −1 244  
2015-2016   8 522     9 562     −1 040  

Since the first deposit was made in the Generations Fund in January 2007, the return has been higher than the cost of new borrowings by the government nine years out of ten.

TABLE E.18

Comparison of the Generations Fund’s annual return and the Québec
government’s borrowing costs
(per cent, on a calendar year basis)

  Return of the Cost of Difference
  Generations Fund new borrowings(1) (percentage points)
2007 5.6 4.7 0.9
2008 −22.4 4.5 −26.9
2009 11.3 4.4 6.9
2010 12.3 4.1 8.2
2011 4.0 3.7 0.3
2012 8.4 3.0 5.4
2013 12.0 3.3 8.7
2014 11.7 3.2 8.5
2015 8.1 2.4 5.7
2016 7.3 2.2 5.1

(1) The government’s borrowing costs correspond to the yield on 10-year maturity Québec bonds. Source: PC-Bond for the yield on 10-year maturity Québec bonds.

  Budget 2017-2018
E.44 Economic Plan

3.4

Returns on funds deposited by the Ministère des Finances with the Caisse de dépôt et placement du Québec

Funds deposited by the Ministère des Finances with the Caisse de dépôt et placement du Québec (the RPSF, the Generations Fund and the Accumulated Sick Leave Fund) are managed in accordance with an investment policy established by the Ministère des Finances in cooperation with the Caisse.

This investment policy is established taking several factors into account, including 10-year return, standard deviation and correlation forecasts for various categories of assets, opportunities for investing in these assets and recommendations of the Caisse.

In 2016, the return on funds deposited by the Ministère des Finances with the Caisse de dépôt et placement du Québec was 7.83% for the RPSF, 7.33% for the Generations Fund and 7.79% for the Accumulated Sick Leave Fund. The investment policy of these funds is presented in the box on page E.48.

TABLE E.19

Market value and return in 2016 on funds deposited with the Caisse de dépôt et placement du Québec by the Ministère des Finances

    Market value as at
  Return December 31, 2016
  (%) ($ million)
Retirement Plans Sinking Fund (RPSF) 7.83 65 422
Generations Fund 7.33 11 211
Accumulated Sick Leave Fund (ASLF) 7.79 1 095

The Québec  
Government’s Debt E.45


3.4.1

Retirement Plans Sinking Fund

The RPSF posted a return of 7.83% in 2016. Its market value was $65 422 million as at December 31, 2016.

The investment policy of the RPSF consists of 33.5% fixed-income securities (bonds, real estate debt, etc.), 18.0% inflation-sensitive investments (real estate and infrastructure) and 48.5% equities.

TABLE E.20

Investment policy of the RPSF as at January 1, 2017
(per cent)

    Benchmark portfolio of     Average benchmark portfolio of
    the RPSF     depositors as a whole (1)
Fixed-income securities   33.5     34.2  
Inflation-sensitive investments   18.0     17.5  
Equities   48.5     48.3  
TOTAL   100.0     100.0  

(1) Data as at December 31, 2015 drawn from Annual Report 2015 of the Caisse de dépôt et placement du Québec.

With its investment policy, the RPSF should generate an annual return 6.35% . It is important to note that the RPSF’s investment policy is based on a long-term horizon and constitutes the benchmark portfolio for the Caisse. However, through active management, the Caisse adjusts the allocation of the RPSF’s assets, particularly to take fluctuations in the economic and financial situation into account.

  Budget 2017-2018
E.46 Economic Plan

3.4.2

Generations Fund

The Generations Fund posted a return of 7.33% in 2016. Its market value was $11 211 million as at December 31, 2016.

The investment policy of the Generations Fund consists of 38.5% fixed-income securities (bonds, real estate debt, etc.), 16.0% inflation-sensitive investments (real estate and infrastructure) and 45.5% equities.

TABLE E.21

Investment policy of the Generations Fund as at January 1, 2017
(per cent)

    Benchmark portfolio of the     Average benchmark portfolio
    Generations Fund     of depositors as a whole (1)
Fixed-income securities   38.5     34.2  
Inflation-sensitive investments   16.0     17.5  
Equities   45.5     48.3  
TOTAL   100.0     100.0  

(1) Data as at December 31, 2015 drawn from Annual Report 2015 of the Caisse de dépôt et placement du Québec

3.4.3

Accumulated Sick Leave Fund

The Accumulated Sick Leave Fund (ASLF) posted a return of 7.79% in 2016. Its market value was $1 095 million as at December 31, 2016.

The assets of the ASLF are managed by the Caisse in accordance with an investment policy established by the Ministère des Finances in cooperation with the Caisse. The ASLF’s investment policy is identical to that of the RPSF.4

_________________

4

The difference in relation to the return of the RPSF in 2016 (7.83% for the RPSF compared with 7.79% for the ASLF) is due to asset allocation adjustments made by the Caisse.


The Québec  
Government’s Debt E.47


Comparison of investment policies

Investment policies as at January 1, 2017
(per cent)

    RPSF and     Generations     Average benchmark portfolio  
Specialized portfolios   ASLF     Fund     of depositors as a whole (1)
     Short-Term Investments   1.0     1.0     1.1  
     Bonds and Real Estate Debt   32.5     37.5     32.1  
     Long-Term Bonds   0.0     0.0     1.0  
Total – Fixed income   33.5     38.5     34.2  
     Real Return Bonds   0.0     0.0     0.4  
     Infrastructure   6.5     6.0     5.4  
     Real Estate   11.5     10.0     11.7  
Total – Inflation-Sensitive Investments 18.0 16.0 17.5
     Public Equity   35.5     34.5     36.9  
     Private Equity   13.0     11.0     11.4  
Total – Equity   48.5     45.5     48.3  
TOTAL   100.0     100.0     100.0  

RPSF: Retirement Plans Sinking Fund.
ASLF: Accumulated Sick Leave Fund.

(1)

Data as at December 31, 2015 drawn from Annual Report 2015 of the Caisse de dépôt et placement du Québec.



  Budget 2017-2018
E.48 Economic Plan

4.

CREDIT RATINGS

   
4.1

The Québec government’s credit ratings

A borrower’s credit rating measures its capacity to pay the interest on its debt and repay the principal at maturity. To establish the credit rating of a borrower like the Québec government, credit rating agencies analyze a series of factors. Among the main factors are the size, structure and vitality of the economy, the situation on the labour market, fiscal competitiveness and the budgetary situation, as well as debt and liquidity levels.

To express the quality of a borrower’s credit, credit rating agencies use rating scales, namely, a scale for long-term debt and a scale for short-term debt.

The Québec  
Government’s Debt E.49

The following table shows the rating scales used by rating agencies for long-term debt. The higher the credit quality, the higher will be the rating on the scale. This means, for example, that a borrower rated “AA” presents a lower credit risk than a borrower rated “A”.

The Québec government’s current credit ratings are shown in the boxes. They differ from one credit rating agency to another because of the methodology used by each agency to determine credit risk.

TABLE E.22

Credit rating scales for long-term debt


  Budget 2017-2018
E.50 Economic Plan

Credit rating agencies add an "outlook" to the rating that indicates the trend the credit rating may follow in the future. The outlook may be positive, stable or negative. In the case of Québec, two changes occurred in this regard in June 2016.

First, Standard & Poor’s (S&P) improved the outlook related to Québec’s credit rating, by raising it from “stable” to “positive”. In its report, S&P explained that this improvement stemmed from the fact that Québec had returned to a balanced budget through responsible management of spending. S&P also underscored the strength of the Québec economy, which includes major sectors such as aerospace, transport, telecommunications and aluminium production.

Second, Fitch also improved the outlook related to Québec’s credit rating, by raising it from “negative” to “stable” due to the return to a balanced budget. Fitch had lowered this outlook in December 2013, following the postponement of a balanced budget to 2015-2016, announced in November 2013.

Moody’s, DBRS and Japan Credit Rating Agency (JCR) assign a stable outlook to Québec’s credit rating.

TABLE E.23

The Québec government’s credit ratings

    Outlook Outlook
Credit rating agency Credit rating in 2015    in 2016
Moody’s Aa2 Stable Stable
Standard & Poor’s (S&P) A+ Stable Positive
Fitch AA− Negative Stable
DBRS A (high) Stable Stable
Japan Credit Rating Agency (JCR) AA+ Stable Stable

The Québec  
Government’s Debt E.51

The following table shows the rating scales used by rating agencies for short-term debt. The higher the credit quality, the higher will be the rating on the scale. The Québec government’s current credit ratings are shown in the boxes.

TABLE E.24

Credit rating scales for short-term debt(1)


(1)

JCR does not assign a credit rating to Québec’s short-term debt.

(2)

Moody’s uses the "Not Prime" category for all securities not included in the upper categories.


  Budget 2017-2018
E.52 Economic Plan

[   ] Change in Québec’s credit ratings

The following chart shows the change in Québec’s credit ratings since 2002. The most recent increases in Québec’s credit rating date back to 2006 (Moody’s and DBRS raised Québec’s credit rating), while the last time Québec’s credit rating was lowered was in 1996 (DBRS lowered Québec’s credit rating).

CHART E.17

Change in Québec’s credit ratings


(1) Dotted line.

Note: The credit ratings for 2017 are those in effect as at March 13, 2017.

The Québec  
Government’s Debt E.53


4.2

Comparison of the credit ratings of the Canadian provinces

The following charts show the credit ratings of the Canadian provinces as at March 13, 2017. No chart is given for JCR since Québec is the only province that receives a credit rating from that agency.

CHART E.18

Credit rating of the Canadian provinces – Moody’s


(1) Negative outlook.

CHART E.19

Credit rating of the Canadian provinces – Standard & Poor’s


(1) Negative outlook.
(2) Positive outlook.

  Budget 2017-2018
E.54 Economic Plan

CHART E.20

Credit rating of the Canadian provinces – DBRS


CHART E.21

Credit rating of the Canadian provinces – Fitch


Note:

British Columbia, Saskatchewan, Québec and Ontario are the only provinces that receive credit ratings from this agency.


The Québec  
Government’s Debt E.55