SECTION 1 — Funding strategy
Annual borrowing, debt and liquidity management decision
1. The Commission shall adopt a borrowing, debt and liquidity management decision which sets the framework comprising certain maximum limits for the borrowing and debt management operations and grants the authorisation for liquidity management operations, that can be entered into over the course of the calendar year (‘annual borrowing decision’).
2. The annual borrowing decision shall set out the following parameters:
(a)
the maximum annual amount of long-term funding based on multiannual schedule of expected disbursements under the programmes and of refinancing needs;
(b)
the maximum outstanding amount of short-term funding, including through the issuance of EU-Bills;
(c)
the maximum final outstanding amount per issuance reflecting the concentration risk at maturity;
(d)
the maximum average maturity of long-term funding;
(e)
if appropriate, the maximum outstanding amount of own issuances which can be held on the Commission’s own account and made available to counterparties through repurchase transactions, to support the secondary market in Union securities or to mobilise short-term funding;
(f)
authorisation of liquidity management operations through the use of money market instruments as referred to in Article 8.
3. The following factors shall be taken into consideration for the preparation of the annual borrowing decision:
(a)
the requirements stemming from the underlying basic acts, in particular basic acts referred to in Article 220(1) of the Financial Regulation;
(b)
the payment obligations to service outstanding debt and repayment of the principal, in accordance with the annual work programme and taking into account the financial programming;
(c)
the compatibility with the limits set out in Council Decision (EU, Euratom) 2020/2053 ( 13 ) and, as appropriate, Council Regulation (EU, Euratom) 2020/2093 ( 14 ) , and with the limits of maximum duration or maximum average maturity set out in the underlying basic act. In respect of NGEU, those limits shall be those set out in Article 6 of Decision (EU, Euratom) 2020/2053 for the additional own resources ceiling of 0,6 percentage points of the Member States’ GNIs, and, for the case of planned repayment of borrowing from the Union’s budget, with the limit set out in Article 5(2), third subparagraph, of that Decision;
(d)
the loan maturities set out in the loan agreements concluded between the Commission and the beneficiary country;
(e)
multiannual schedule of disbursements under the relevant policy programmes and of refinancing needs taking into account broader supply and demand considerations;
(f)
other factors relevant for the determination of the borrowing and debt management operations.
4. The annual borrowing decision shall be adopted before the commencement of the period covered by it.
5. The annual borrowing decision may be amended in particular in case of serious risk that the maximum average maturity could not be respected for reason of under-execution of issuances of the amounts of long-term funding or in case of the change to one or more factors referred to in paragraph 3.
6. The Commission shall communicate the annual borrowing decision to the European Parliament and the Council.
Funding plan
1. The funding plan shall fix an indicative target for the funds to be raised through borrowing operations and managed through debt management operations, which shall cover as a rule a period of six months.
2. The funding plan shall indicate the planned borrowing operations and, as the case may be, debt management operations and liquidity management operations, to be carried out under the diversified funding strategy. Within the framework set out in the annual borrowing decision and taking into account the factors referred to in Article 3(3) and financial conditions in the primary and secondary market, the funding plan shall include, inter alia, the following parameters:
(a)
the maximum expected amount of short-term and long-term funding for the period;
(b)
the weighted maximum average maturity of long-term funding to be undertaken;
(c)
if appropriate, the maximum outstanding amount of own issuances which can be held on the Commission’s own account and made available to counterparties through repurchase transaction to support the secondary market in Union securities or to mobilise short-term funding;
(d)
if appropriate, an indicative amount or range, reflecting funding and disbursement planning at the time of adoption of the funding plan, to be invested through money market instruments throughout the funding semester in accordance with Article 8.
When establishing the funding plan, the opinion of the Chief Risk Officer referred to in Article 20(2)(a) shall be duly taken into account.
3. The funding plan shall be adopted before the commencement of the period covered by it.
4. The funding plan may be amended in case of substantial change to one or more factors referred to in Article 3(3).
5. On the basis of the adopted funding plan, the Commission shall inform the European Parliament and the Council.
Communication of projected disbursement needs for the purposes of preparing and implementing the funding plan
1. The funding plan shall be established on the basis of up-to-date information, to be provided to the Directorate-General for the Budget by programme authorising officers, regarding the schedule of expected payments, which may include multiannual disbursement needs. The information provided shall be to the extent possible accurate and reliable.
2. One month before the adoption of the funding plan, programme authorising officers shall provide a detailed projection of disbursement needs for the respective programmes.
3. Programme authorising officers shall provide to the extent possible regular, accurate and reliable updates of the information provided in respect of projected disbursements, including changes in timelines for completion of procedures for payment approvals.
4. Programme authorising officers shall use the electronic system for the communication and updating of information on projected disbursement needs for the transmission of the information on payment forecasts provided for in Article 12(2)(i) for the purposes of communicating information required under paragraphs 1 to 3 of this Article.
Implementation of the borrowing operations, debt and liquidity management operations
1. The individual borrowing, debt management and liquidity management operations shall be undertaken in line with the latest applicable update of the funding plan for the period in question.
Based on the updates provided under Article 5(3), the Director-General of the Directorate-General for the Budget shall issue regular instructions regarding the amounts to be raised through debt issuance and managed through debt management and liquidity management operations.
2. The instructed amounts shall be raised by applying the diversified funding strategy defined in Article 7 while respecting the parameters of the funding plan set out in Article 4(2).
The borrowing operations, debt management and liquidity management operations shall respect the principle of sound financial management, which comprises the appropriate segregation of roles and responsibilities, information and reporting flows aimed at guaranteeing the independent oversight and accountability, and the legality and regularity of all transactions. Those operations shall be carried out in accordance with best practice in the market and respecting market conventions.
Diversified funding strategy
1. In implementing the diversified funding strategy, the Commission shall apply the following principles, as appropriate, in full respect of the principle of sound financial management, in order to to borrow the required funding to meet in due time the needs of the relevant programmes for repayable and non-repayable support, and to manage the resulting debt as efficiently and expeditiously as possible, while seeking to obtain the most advantageous financial conditions under the prevailing market conditions for the Union budget and beneficiary countries, and aiming at regular capital market presence:
(a)
borrowing operations and debt management operations may be conducted on the primary market, on the secondary market and on money markets;
(b)
borrowing operations shall be organised through a set of individual borrowings of different maturities, ranging from short-term to long-term funding;
(c)
borrowing operations may be organised through a mix of syndicated transactions and auctions, and private placements, in both cases relying on the services of credit institutions and investment firms who are members of the primary dealer network established under Commission Decision (EU, Euratom) 2021/625 ( 15 ) ;
(d)
the resulting debt may be rolled-over for the sake of maturity management;
(e)
cash flow mismatches and liquidity risk shall be managed through measures of debt management operations and liquidity management;
(f)
interest rate risk and other financial risks may be managed through debt management operations as described in paragraph 2.
2. Where required to ensure a better management of interest rate and other financial risks arising in the execution of the diversified funding strategy, the Commission may use debt management operations that may consist of using derivatives such as swaps to manage interest rate or other financial risks. For this purpose, the Commission may buy back and hold its own bonds. In particular, swaps may only be used for the hedging of interest rate risks borne by countries benefitting from loans. The costs for managing risks with derivatives shall be borne by the beneficiary of the risk management operation.
Liquidity management strategy
1. Liquidity balances exceeding the prudential cash holdings referred to in Article 14(2) may be managed through the use of money market instruments.
2. Money market instruments may be carried out with debt management offices of Member States, supranational institutions, national public sector agencies, central banks, credit institutions and investment firms with an appropriate credit standing, and central counterparties.
3. The Director-General of the Directorate-General for the Budget shall define liquidity management strategy determining the essential parameters of such excess liquidity balance management. The strategy shall include the following:
(a)
the investment objectives;
(b)
the applicable benchmarks, where relevant;
(c)
the maximum duration of cash holdings and investments;
(d)
the eligibility criteria for the selection of counterparties to transact with;
(e)
the eligible money-market instruments;
(f)
the requirements for the eligibility of assets that may be purchased and/or accepted as collateral.
4. When establishing or amending the liquidity management strategy, the opinion of the Chief Risk Officer referred to in Article 20(2)(b) shall be duly taken into account. The Accounting Officer of the Commission shall also be consulted.
SECTION 2 — Lending operations
Lending operations
The implementation of lending operations shall be carried out in accordance with the specific rules laid down in the relevant basic act, as well as the conditions laid down in the loan agreements concluded between the Commission and the beneficiary country in accordance with the relevant basic act.
Disbursements and acceleration of the loan
1. The disbursement of loan instalments or tranches shall be done as efficiently and expeditiously as possible, subject to availability of funding. The loan agreements shall contain an unconditional and irrevocable commitment of the beneficiary country to bear all costs related to the borrowing, including administrative costs, and to repay the principal amount and interests and may allow the use of derivatives, in particular swaps.
2. Loan agreements under Regulation (EU) 2021/241 shall contain an acceleration clause that entitles the Commission to ask for early repayment of the loan, inter alia, in accordance with Articles 22(5) and 24(9) of Regulation (EU) 2021/241 and for recovery of pre-financing not cleared.
Costs of the loan
1. All costs, inclusive those associated with the management of interest rate and other financial risks, incurred by the Union in relation to the borrowing of funds for the loans shall be borne by the beneficiary countries, in accordance with Article 220 of the Financial Regulation and the relevant basic acts and shall be calculated according to a methodology laid down in Implementing Decision (EU, Euratom) 2022/2545, complemented by specific guidelines, in full respect of the principles of transparency and equal treatment.
2. Any costs incurred by the Union for derivatives shall be borne by the beneficiary country.
3. The costs shall be regularly invoiced to the beneficiary country.
SECTION 3 — Implementation and reporting
Establishment of operational capacities
1. The implementation of the borrowing, debt management and liquidity management operations under the diversified funding strategy and the related lending operations shall incorporate the establishment and management of the operational capacities ensuring that the systems put in place uphold sound financial management and are subject to robust risk management and documentation of processes and decisions.
2. Those operational capacities shall in particular include the following:
(a)
negotiating, reviewing and signing of agreements with public or private credit institutions and national or international central securities depositories required for the conclusion of transaction settlement;
(b)
reviewing, amending, changing, redrafting and finalising the borrowing documentation, including the documentation under the Debt Issuance Programme;
(c)
establishing arrangements and rules for the organisation of auctions, including agreements with external providers of systems and constant oversight of the performance of auctions;
(d)
implementing individual borrowing transactions through syndicated transactions, auctions and private placements;
(e)
calculating costs incurred in accordance with the methodology to be laid down by the Commission in specific guidelines to be charged to the Union’s budget and to the beneficiary countries in the context of lending operations;
(f)
establishing arrangements and negotiating, reviewing and signing of agreements, including agreements with counterparties and trading system providers, required for conducting the following transactions and instruments:
(i)
repurchase transactions or reverse-repurchase transactions, buy-sell back transactions or sell-buy back transactions and other transactions giving rise to liabilities;
(ii)
derivatives, such as swaps, for the purpose of management and hedging of risks for the sole purpose of loans.
(g)
carrying out secondary market transactions, unsecured and secured money market transactions, including those referred to in points (f)(i) and (ii) above;
(h)
setting up of any organised systems or procedures needed for liquidity management operations;
(i)
establishing and managing the electronic system for the communication and updating of information on projected disbursements needs referred to in Article 5(4).
Reporting on the implementation of borrowing, debt management, liquidity management and lending operations
The Commission shall establish a report twice per year on all aspects of its borrowing,debt management and liquidity management strategy, such as legal basis, outstanding amounts of bonds and bills, maturity profile, disbursed grants and loans, repayment schedule of the disbursed loans, cost of funding and the amount that the Commission intends to issue in the coming semester. The report shall be submitted to the European Parliament and the Council.
Source: EUR-Lex (Publications Office of the EU), © European Union, reuse permitted under Commission Decision 2011/833/EU.
