I 1

Draft Budget

Bill 2019

September, 24th 2018

Michel HoudebineChief Economist

DG Trésor

Renaud DuplayAssistant Director

Budget Directorate

Anthony RequinChief Executive

Agence France Trésor

• Economic outlook

• Public finances

• Main features of the 2019 Budget

• Funding Program

I 2

Growth should remain robust in 2018 and 2019

I 3

Economic forecast - France(wda figures, unless otherwise specified)

2017 2018 2019

Real GDP * 2.2 1.7 1.7

Total CPI 1.0 1.8 1.4

Core CPI 0.4 0.9 1.1

Private wages and salaries ** 3.5 3.5 3.5

* Non wda

** Non-farm market sector

%, annual mean

I 4

Output decelerated in the first quarters of 2018

-1,0%

-0,5%

0,0%

0,5%

1,0%

1,5%

2,0%

2,5%

3,0%

-0,4%

-0,2%

0,0%

0,2%

0,4%

0,6%

0,8%

1,0%

16Q1 16Q2 16Q3 16Q4 17Q1 17Q2 17Q3 17Q4 18Q1 18Q2

Variation trimestrielle Glissement annuel

var. trim.données CVS-CJO

g.a.

Source : Insee, DG Tresor

Quarterly change

SA-WDA data

YoY change

Quarterly change Year-on-Year change

Business confidence has stabilized at high levels after a setback during the

first semester and personal production expectations are well-oriented

I 5

30

35

40

45

50

55

60

65

70

60

70

80

90

100

110

120

130

140

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

Business Climates in France

Banque de France INSEE PMI

INSEE - Banque de France Markit PMI

Last update: August 2018

-4

-3

-2

-1

0

1

2

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

Past activity and personal production expectations in manufacturing industry

Source: Insee, calculations DG Trésor Last update: August 2018

Past activity

Personal production expectations (2 months ahead)

Long term average (1976-2016) (standard deviation)

I 6

Oil prices surged in mid-2017 as supply tightened and geopolitical conflicts

increased

20

30

40

50

60

70

80

90

janv.-16 juil.-16 janv.-17 juil.-17 janv.-18 juil.-18

Oil prices

Brent in $ Brent in €

$ and €

Last observations: 18th septembre 2018

Draft Budgetary

Project 201852 $/ 44 €

Stability Program 2018

65 $ / 53 €

Draft Budgetary

Project 201973 $ / 63 €

The slowdown in consumption results from temporary factors, especially

transport strikes in Q2

I 7

-0,8%

-0,6%

-0,4%

-0,2%

0,0%

0,2%

0,4%

0,6%

-0,2%

-0,1%

0,0%

0,1%

0,2%

0,3%

0,4%

0,5%

2017 T3 2017 T4 2018 T1 2018 T2

Households consumption and purchasing power

Households consumption

purchasing power - right

Households consumption excluding energy and transport services

Last point: 2018 T2

Source: InseeCalculations: DG Trésor

% QoQ, seasonnally and working-day adjusted

The push from Government measures to purchasing power would support

household consumption in the second half of the year

I 8

Household purchasing power would be very dynamic by the end of the

year, supported by the enforcement of several large tax measures:

- First step of suppression of the « taxe d’habitation » (for 3Bn€)

- Second step of reduction of employee social contributions

I 9

Trade has slown down at the beginning of the year, especially in the euro zone,

but would remain dynamic in 2018/2019

30

35

40

45

50

55

60

65

70

-20

-16

-12

-8

-4

0

4

8

12

16

20

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

World trade and PMI

CPB PMI new export order : world (rhs) PMI new export order : euro area (rhs)

y-o-y, in % 3-month moving average

Latest data points: June (trade), August (PMI) Sources : CPB World Trade Monitor, Markit

0,0

2,0

4,2

3,23,2

5,3

4,4 4,4

-2

-1

0

1

2

3

4

5

6

7

2012 2013 2014 2015 2016 2017 2018 2019

Growth in world demand for French goods, by area

Advanced economies Emerging market economies

World demand for French goods Stability Programme 2018

Forecast

Scope: goodsSource: DG Trésor

in %

Export performance would be broadly stable over the forecast horizon…

I 10

70

75

80

85

90

95

100

105

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

Export performances

Exports of goods (volume) / World demand for French goods

Forecast

2000 = 100

Source : InseeForecast : DG Trésor

110

115

120

125

130

2013 2014 2015 2016 2017 2018 2019

Nominal effective exchange rate - Eurozone

Euro NEER DBP 2018, SP 2018 and DBP 2019

1995 = 100

Last point : September 18th 2018.

euro appreciation

I 11

… and the contribution of foreign trade to growth would be positive in 2018 due to

the moderation of imports

-0.6%

-0.5%

-0.4%

-0.3%

-0.2%

-0.1%

0.0%

0.1%

0.2%

0.3%

0.4%

2013 2014 2015 2016 2017 2018 2019

Contribution of foreign trade to GDP growth

Forecast

carry-over atthe end of 2018 Q2

-4

-3

-2

-1

0

1

2

3

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Bi-monthly survey on wholesaling: other industrial equipment (G5)

ordering intentions sale volumes general outlook (m+4)

Standardized balances of opinion (1979-2017)

Source: InseeCalculations: DG TrésorLast update: july 2018

I 12

-3%

-2%

-1%

0%

1%

2%

3%

4%

T1 T2 T3 T4 T1 T2 T3 T4 T1 T2 T3 T4 T1 T2 T3 T4 T1 T2 T3 T4 T1 T2

2013 2014 2015 2016 2017 2018

Business investment (excl. construction)

services manufactured products (excl. transport equipment) transport equipment

Source: InseeCalculations: DG Trésor last update: 2018Q2

Quarterly change

Business investment has remained robust despite the economic slowdown…

… and should keep supporting growth on the back of a favorable financial

situation in the corporate sector

I 13

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

2012 2013 2014 2015 2016 2017 2018 2019

NCF's investment (excl. construction)

Forecast

Growth rate in annual mean (volume)

Working days adjusted figures

27%

28%

29%

30%

31%

32%

33%

34%

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

NFC's margin rate

Last observation : 2018 Q2. Annual means in dashed line

Forecast% of value-added

NFC

I 14

-2.1%

-0.5%

-3.0%

-1.5%

2.8%

5.6%

1.5%

0.2%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

2012 2013 2014 2015 2016 2017 2018 2019

Household investment

Construction Services

ForecastsSource: InseeCalculations: DG Trésor

Household investment slows down but would recover gradually as its

fundamentals are still well-oriented

30000

35000

40000

45000

50000

55000

60000

65000

70000

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

New residential buildings: one-family dwellings building starts

Last update: 2019 Q4 (forecasts)Source: Sit@del 2, MTES

ForecastsUnits (quaterly data)

Job creations in the market sector would be dynamic in 2018 and 2019

I 15

Market sector employment

Rising oil prices and indirect taxes (energy, tobacco) are boosting inflation but

core inflation remains subdued

I 16

1.0

1.8

1.4

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

2017 2018 2019

Contributions to headline inflation

Contribution of regulated prices Contribution of volatile components

Contribution of core inflation Headline inflation

Annual average(in pts but headline inflation in %)

Forecasts

Real wages would grow in line with labor productivity

I 17

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

2012 2013 2014 2015 2016 2017 2018 2019

Real wages and labor productivity

Real wages (deflated by CPI)

Labor productivity

Real compensation including CICE (deflated by value added price)

Annual averageNon-farm market sector

Forecasts

Sources: Insee, DG Tresor forecasts

Household purchasing power would be very dynamic in both 2018 and 2019

I 18

0,1%

-0,4%

-1,2%

1,2%0,9%

1,8%

1,3% 1,6%1,7%

-3%

-2%

-1%

0%

1%

2%

2011 2012 2013 2014 2015 2016 2017 2018 2019

Households' purchasing power

Wages and other earnings Social benefits Property income Tax Purchasing power

Forecast

Household consumption would drive growth in 2019

I 19

14,6%

14,2%

13,9%

14,3%

14,7%14,7%

13%

14%

15%

16%

17%

18%

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Forecast

Saving rate(right-hand scale, % of GDI)

Household consumption

Annual average

Purchasing power of gross disposable income

GDP would return to its potential in 2019

I 20

-4

-3

-2

-1

0

1

2

3

4

5

-4

-3

-2

-1

0

1

2

3

4

5

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

Output gap (right) Potential growth Actual growth

Annual average (%) Potential GDP percentage points Forecast

A forecast in line with other organizations

I 21

GDP Outlook for France

annual % change2018 2019

Government sept 2018 1,7 1,7

OECD sept 2018 1,6 1,8

Consensus Forecasts sept 2018 1,7 1,7

Banque de France sept 2018 1,6 1,6

IMF july 2018 1,8 1,7

European Commission july 2018 1,7 1,7

INSEE june 2018 1,7 /

PStab / DOFP 2018 april/june 2018 2,0 1,9

International uncertainties: • Effects of US protectionist measures and measures taken in response: the measures taken have had a

limited impact on activity so far, especially in France, but risks of escalation exist. Conversely, trade would benefit

from easing tensions.

• Magnitude of the effects of Brexit: increasing risk of exit without agreement due to the persistence of blocking

points in the negotiations between the EU and the UK; uncertainty about market reactions and the policy mix.

• Financial risks: the high level of financial and fiscal imbalances in China could contribute to a more abrupt

slowdown; some emerging countries are vulnerable to a rise in Fed rates and risk aversion. The risk of

overvaluation of equities remains pronounced in the United States. Conversely, long-term rates could rise more

slowly than expected.

• Economic policy decisions in Italy

Domestic uncertainties: • Companies ability to invest:

o upside risk if measures supporting investment (flat tax, revenue tax cutback, etc.) were to bear fruit more

quickly than expected;

o downside risk if companies decided to use the improvement in their margins to reduce their debt.

• Household consumption:

o the distribution of dividends to households could support consumption more than expected;

o the sluggishness of consumption could continue.

I 22

Uncertainties surrounding the forecast

• Economic outlook

• Public finances

• Main features of the 2019 Budget

• Funding Program

I 23

A sustainable return below 3%

I 24

• For the first time since 2000:

• The public deficit should remain below 3% for three consecutive years

• The public spending real growth rate should be well below 1% both in 2018

and 2019, for two consecutive years

2017 2018 2019

General Government

balance(% GDP) -2,7 -2,6 -2,8

Tax and social contributions

rate(% GDP) 45,3 45,0 44,2

Public expenditure ratio,

excl. tax credits(% GDP) 55,1 54,6 54,0

(nominal growth) 2,4 1,6 1,9

(real growth) 1,4 0,0 0,6

Debt (% GDP) 98,5 98,7 98,6

Public expenditure, excl. tax

credits

The Draft Budget Bill 2019 confirms the 2018-2022 public finance programming

bill strategy, with a faster reduction of the structural deficit

I 25

(% GDP - (*) % potential GDP) 2017 2018 2019

Headline balance -2,7 -2,6 -2,8

Cyclical component -0,3 -0,1 0,1

One-offs (*) -0,1 -0,2 -0,9

Structural balance (*) -2,3 -2,2 -2,0

Structural adjustment (*) 0,3 0,1 0,3

Output gap (*) -0,6 -0,2 0,2

• The 2018 public deficit would be -2.4% excluding the removal of the 3%

dividend tax.

• The 2019 public deficit would be below 2%, reaching -1.9% of GDP,

excluding the double impact of the Competitiveness Tax Credit (CICE) / Social

Security Contributions (SSCs) switch on the nominal deficit.

Our strategy remains unchanged: reducing public expenditure and taxation at the

same time

I 26

• This expenditure reduction effort makes it possible to jointly reduce the public deficit and the

tax-to-GDP ratio

• The fact that France Compétences (FC) will be part of public administration from 2019

artificially dilutes the expenditure reduction effort and the impact of discretionary tax

measures:

The expenditure reduction effort in 2019 would be 0.4 pp of GDP without FC

The effect of discretionnary measures would be -0.2 pp of GDP without FC

(pp potential GDP) 2017 2018 2019

Structural adjustment 0,3 0,1 0,3

Structural effort -0,1 0,0 0,3

Expenditure savings – exc. tax

credits-0,1 0,2 0,2

excl. France Compétences 0,4

Discretionary tax measures -0,1 -0,2 0,0

excl. France Compétences -0,2

Tax credits difference between

cash and accrual-based

measures

0,1 0,0 0,1

Non discretionary component 0,4 0,0 0,0

2018: a sustainable return below 3% based on public spending cuts

• With a public deficit below 3% in 2017, France exited the excessive deficit procedure in

June 2018. In 2018, the public deficit has been contained below 3%, forecasted at around

-2.6%; without the negative impact of the removal of the 3% dividend tax, this deficit

would even reach -2.4%.

An unprecedented control of public spending:

- The Government has taken ambitious measures to reduce the growth of the public

wage bill in 2018 (wage freezes, reduction in the number of subsidized contracts)

and social expenditure (cuts in housing allowances);

- A contractualization mechanism between central government and local authorities

has been implemented: the majority of the main local authorities are now involved,

which should result in a slowdown in their current expenditure, starting this year.

A reduction in labor and capital taxation which aims at supporting household

purchasing power and productive investment:

- The first tax reforms have come into force (first stage of the ‘residence tax’ reform,

cuts in the corporate income tax, capital taxation reform).

I 27

2019: implementation of the outlines of the economic strategy and consolidation

of public finances

• Ambitious expenditure savings measures will be taken in 2019, in particular:

- Reductions in the State administration workforce (4200)

- Reductions in housing benefits and subsidised contracts

- Slowdown in local authorities’ operating expense

- Controlled increase of social benefits (+0.3%)

Public spending would increase by 1.9% (nominal growth) and by 0.6% (real

growth), well below its long term trend; the public spending ratio would

decrease by 0.6 pp.

Excluding France Compétences, public spending would increase by 0.3%

(real growth) and the public expenditure ratio would decrease by 0.8 pp.

• A decrease in tax and social contributions of EUR 24bn (excl. France Compétences) in

order to support economic growth and household income (2nd stage of the residence

tax rebate, new reductions in the corporate income tax rate, simplification of labour taxation

through the Competitiveness Tax Credit/Social Security Contributions switch)

• Public deficit would amount to -2.8%, with a structural adjustment of 0.3 pp, identical

to what was announced in the 2018-2022 public finance programming bill.

I 28

• Expenditure-to-GDP ratio (excluding tax credits) will decrease by more

than 3 percentage points: 51.8% in 2022 vs. 55.1% in 2017

• Tax-to-GDP ratio will decrease by about one percentage point (excluding

France Compétences): 44.3% in 2022 vs. 45.3% in 2017 in order to

stimulate purchasing power and to free private initiative

• Deficit-to-GDP ratio will decrease by more than 2 percentage points:

− 0.3% in 2022 vs. −2.7% in 2017

• Debt-to-GDP ratio will decrease by about 5 percentage points: 92.7% in

2022 vs. 98.5% in 2017

Up to 2022, the trajectory confirms the strategy outlined in the 2018-2022 public

finance programming bill

I 29

A change in the public spending trend

Public spending growthexcl. tax credits, real growth, constant scope (in %)

I 30

2,0%

2,2%2,1%

1,9%

2,6%

0,8%

4,0%

1,0%

0,1%

1,1%

0,9%

0,3%

1,0%0,9%

1,4%

0,0%

0,2%0,1% 0,1%

0,4%

2,1%

1,4%

0,9%

0,2%

0,0%

0,5%

1,0%

1,5%

2,0%

2,5%

3,0%

3,5%

4,0%

4,5%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 (p)2019 (p)2020 (p)2021 (p)2022 (p)

The debt-to-GDP ratio would decrease from 2019 onwards

I 31

9,2

4,4

2,5

3,7

2,92,5

1,5

2,3

0,0

0,1

-0,1

-1,7

-2,6-2,9

5,1

-2,2

0,0

-0,9

-0,1

-1,0 -0,8

0,4 0,40,0 0,1

0,5 0,40,2

83,0

85,3

87,8

90,6

93,4

94,9 95,6

98,2 98,5 98,7 98,6

97,595,3

92,7

60

65

70

75

80

85

90

95

100

-4

-2

0

2

4

6

8

10

12

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Contribution of the debt-stabilizing budget balance differential Contribution of the stock-flow adjustment to debt

GDP-points % of GDPDebt ratio (rhs) Forecast

Taxes and social security contributions will be reduced by 1 pp of GDP by 2022

By 2019, the aggregate tax and social security contribution rate will decrease to 44.0%, with

more than € 20bn in tax cuts. It will then stabilize at 44.2%.

I 32

39

40

41

42

43

44

45

46

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Aggregate tax and social security contribution rate (% of GDP)

Temporary impact of

the CICE – SSCs switch

Forecasts

A 1-pp of GDP drop

over the Presidential

five-year term

* Aggregate tax and social security contribution rate does not take into account the reclassification of the funding of France Compétences

Main discretionary tax measures in 2018 and 2019

I 33

Main discretionary tax measures (1)

In billion euros 2018 2019

Resident tax rebate for 80% of households -3,2 -3,8

Exemption contribution on overtime work -0,6

Instauration of a single fixed levy (PFU) -1,6 -0,3

Decrease of the CSG for low pensions -0,3

Switch SSC / CSG (2) 4,4 -4,1

Extension of the energy transition tax credit (CITE) 0,8

Creation of a property wealth tax (IFI) -3,2

Broadening of the home workers employement tax credit -1,0

Suppression of student contributions -0,2

Tobacco taxes (net from behavioural effects) 0,6 0,4

Increase of the energy taxes (impact on households) 2,4 1,9

Total households -1,8 -6,0

Switch CICE / SSC (incl. impact of the 2018 budget law measures) -20,4

CICE - impact of measures prior to the 2018 budget law -3,7 -0,5

Cutting the corporate taxe rate from 33% to 25% -1,2 -2,4

Temporary strenghtening of the 5th corporate income tax instalment 1,5

0% forfait social rate for firms under 50 employees -0,5

Exceptional contribution on corporate tax -5,1 0,2

Increase of the energy taxes (impact on firms) 1,3 1,0

Deletion of TICPE reduced rate for some gasoline users 1,0

Resources allocated to France Compétences for the financing of Plan

d'investissement sur les compétences0,3 1,3

Total firms -8,4 -18,8

Total households + firms -10,2 -24,8

(1) Excluding measures of perimeter (France Compétences)

(2) Excluding compensatory premiums for State civil servants

• Economic outlook

• Public finances

• Main features of the 2019 Budget

• Funding Program

I 34

A sharp decrease in central government expenditures, thanks to a greater effort

(compared to total public spending)

I 35

• Controllable expenditures are managed (real growth : –0.5%, consistent with the Multiyear Public

Finance Planning (MPFP) law 2018-2022 ; nominal growth : +0.8%) ;

• A greater effort on Central State’s controllable expenditures than on other components of public

expenditure (local governments’ operating costs: +1.2% ; National Objective of Healthcare

expenditures : +2.5%) ;

• The global State expenditure target (including debt, pensions and contribution to the European

budget) is below the MPFP trajectory.

+ 10,4compared to 2016 budget

+5,1compared to 2017 budget

+2,2compared to 2018 budget

0,0

2,0

4,0

6,0

8,0

10,0

12,0

2017 budget 2018 budget 2019 draft budget

Controllable expenditure annual growth (€bn)

2017

budget

2018

budget

2019 draft

budget

Controllable expenditure

norm

(2019 constant coverage)

252,1 €bn 257,2 €bn 259,3 €bn

Nominal growth +4,3% +2,0% +0,8%

Real growth +3,3% +0,4% -0,5%

I 36

The budget balance is improved after neutralisation of cash flow one-offs

Without cash flow one-offs (CICE switchover into reductions of social security contributions and

implementation of the withholding income tax), the 2019 budget balance would be improved compared

to 2018.

-56,3

-138

-148,8

-90,7 -87,1

-74,9

-85,6

-70,5 -69,1 -67,7

-81,3

-72,8

-160

-140

-120

-100

-80

-60

-40

-20

0

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Budget balance (€bn)

The Government priorities are financed, as set out in the MPFP law 2018-2022

I 37

The five-year effort decided in 2017 to increase the resources of some State’s strategic missions is implemented.

• The appropriations of the Ministry of Defence are up € 1.7 billion, according to the military programming law;

• Additional resources are planned for the home office operational forces (+2,278 jobs) and for justice (+1,300 jobs).

Giving back purchasing power to the most precarious

• As part of a controlled increase of social benefits (+0.3% in 2019 and 2020), specific increases of allowance for the

disabled, for the poorer elderly, and to foster activity of part-time workers are continuing as planned ;

• Launch of a poverty plan with € 8.5 billion over 4 years.

Fighting effectively against unemployment

• New reduction of the use of state-aid contracts (-70,000 contracts in 2019) that proved to be ineffective in dealing

with the issue of long-term unemployment and the integration of young people into employment;

• In exchange, Government will strengthen active employment policies;

• The law for freedom to choose one's professional future profoundly reforms the vocational training system. At the

same time, the roll-out of the skills investment plan is continuing with an allocation of € 2.5 billion in 2019;

• Reform of unemployment insurance with social partners.

Transforming housing policy

• The structural reform of the housing allowances launched in 2017 will be deepened with the implementation of the

update of the resource base

Reform of the public audiovisual sector

• € 200 million in net savings are planned for the five-year period

2nd year of the Major Investment Plan with a deployment according to plan (around € 6bn in state spending in 2019

compared to just over € 3bn in 2018)

Accelerating the move to a green economy by supporting the most fragile and improving daily communting

• Financing 75,000 energy-efficient renovations, social energy subsidy increased to € 200 per household per month,

higher investment in low carbon transport

A reduction in the State’s headcount

I 38

After 3 years of increasing its headcount, the Government has begun to lower its workforce:

• The State and central government agencies headcount will decrease by 4,200 full time

equivalents workers next year. This is a clear acceleration of the pace of job cuts, which is set to

further increase in 2020.

• Over the next five years, the goal is to achieve an overall headcount reduction of 120,000 full

time equivalents workers (covering all three branches of the civil service). For the State and

central government agencies, the MPFP sets a target of 50,000 job cuts.

Central government headcount evolution

-6000

-4000

-2000

0

2000

4000

6000

8000

10000

12000

14000

16000

2014 2015 2016 2017 LFI 2018 PLF 2019

The local governments and the social security funds expenditure will be

contained

I 39

The concerted reduction of the local government expenditure is beginning to produce results

• 229 local governments are part of a contract (out of 322, ie 71%)

• An operating costs target set at +1.2% to non-signatory local authorities but local investment will grow

faster, in line with the electoral cycle (+4.5%)

The social security funds expenditure will continue to be contained in real terms

• The National Objective of Healthcare expenditures (ONDAM) is set at +2.5% in 2019 to contain the

growth of health-related spending. This represents 3.8 billion euros in savings:

- Improving the efficiency of hospital and medico-social expenditure (- € 0.8bn)

- Shift to ambulatory care (- € 0.4bn)

- Savings on health products and promotion of generics and biosimilars (€ -1.1bn)

- Relevance and good use of care (- € 1.3bn)

- Dynamic management of the medicare basket (- € 0.2bn)

• Controlled rise in social benefits for a total return of € 3.5 billion

Triggering public transformation

• Fund for the transformation of public action:

- 17 projects selected in the first call for projects;

- increased commitment appropriations in 2019 with a budget of € 250 million;

• Interdepartmental HR Support Fund: facilitating interdepartmental and cross-functional geographic and

functional mobility of the public service and to the private sector.

• Economic outlook

• Public finances

• Main features of the 2019 Budget

• Funding Program

I 40

French State funding table for 2018 and 2019

I 41Source: Draft Budget Bill 2019

In € billion2018

(Budget Bill)2018

(revised)2019

BORROWING REQUIREMENT

Redemption of medium- and long-term debt 116.6 116.6 130.2

Face value 115.9 115.9 128.9

Index-linking supplement paid at maturity (index-linked securities) 0.7 0.7 1.3

Redemption of other debts - - -

Deficit 85.7 81.3 98.7

Other cash requirements 0.3 0.6 -1.3

TOTAL 202.6 198.5 227.6

FINANCING RESOURCES

Issuance of medium- and long-term debt, net of buybacks 195.0 195.0 195.0

Funds allocated to the ‘‘Caisse de la Dette Publique’’ to reduce debt 1.0 1.0 2.0

Net change in outstanding short-term securities - -7.9 15.0

Change in correspondents’ deposits 1.0 2.6 11.0

Change in cash position in the Treasury’s account 2.1 - 1.1

Other cash requirements 3.5 7.8 3.5

TOTAL 202.6 198.5 227.6

I 42

Size of the net funding program in % of GDP

Source: AFT, Eurostat, DG Trésor

6.8%

7.2%

6.3%

5.6%

5.0%

6.4%

8.5%

9.4%

8.9%

8.5%

8.0% 8.0%

8.5% 8.4%8.1%

8.3%8.1%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

I 43

The share of short-term debt stands at a low historical level

Source: AFT

5.8%

7.0%

8.0%

12.3%

13.8%

11.7%

10.9%

7.6%

8.5%

13.6%

18.7%

15.2%

13.5%

12.0%11.9%

11.5%

9.7%

8.3%

7.5%

6.7%7.2%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

Share of short-term securities (BTF) in total

outstanding debt, in %

-27,0

-9,3 -11,2

+7,2

+1,4

-22,6-18,7

-7,5 -7,9

+15,0

-40 bn€

-20 bn€

0 bn€

20 bn€

40 bn€

60 bn€

80 bn€

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Yearly change in outstanding short-term securities (BTF)

The debt burden has been decreasing since 2011

I 44

30 bn€

35 bn€

40 bn€

45 bn€

50 bn€

2010 2011 2012 2013 2014 2015 2016 2017 2018initial

budget bill

2018revised

draftbudget bill

for 2019

2019draft

budget bill

Budgetary charge

Maastricht charge

2018

+0.5 bn€ since

initial budget

. Inflation higher

than expected

(+0.9 bn€)

. Low rates

(-0.4 bn€)

2019

Cautious

assumptions

. Rates

increase

Source: Draft Budget Bill 2019

Cautious interest rate assumptions

I 45

1.40%

2.15%

0.5%

0.8%0.9%

1.8%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

Dec 2013 Jun 2014 Dec 2014 Jun 2015 Dec 2015 Jun 2016 Dec 2016 Jun 2017 Dec 2017 Jun 2018 Dec 2018 Jun 2019 Dec 2019

3-month rate

10-year rate

Annual average

Forecast draft budget bill 2019

Assumption end 2018

Assumption end 2019

Source: Draft Budget Bill 2019

I 46

An inertial debt burden in case of an interest rate shock

4.7%

2.1%

0%

1%

2%

3%

4%

5%

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Cost of negociable debt (*)Forecasts with budget assumptions

and in case of additionnal shock of +1% over interest rates

implicit rate (*)

base scenario

with shock

(*) annual debt charge / outstanding debt end of previous year

2.7%

2.3%

1.13.4

5.87.8

9.611.3

13.014.6

16.217.5

0.9

1.3

1.3

1.3

1.3

1.3

1.3

1.3

1.31.3

2.0

4.7

7.1

9.1

10.9

12.6

14.3

15.9

17.518.8

0.0

2.5

5.0

7.5

10.0

12.5

15.0

17.5

20.0

2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

in EUR Bln Impact of a permanent rate increase of +1%on the debt service

Debt < 1 year

Debt > 1 year

Total debt