Quebec 18-K/A Annual report (foreign governments) (amended)

Exhibit (99.15)

Section D

Debt, Financing and Debt Management

1. Debt	D.3
1.1 Gross debt	D.4
1.1.1 Change in gross debt in 2008-2009	D.5
1.2 Total debt under the Act to reduce the debt and establish the Generations Fund	D.7
1.3 Debt representing accumulated deficits	D.9
1.4 Public sector debt	D.11
1.5 Comparison of the debt of Canadian provinces	D.13
1.6 Retirement plans	D.15
1.7 Retirement Plans Sinking Fund	D.18
1.8 Employee future benefits	D.23
1.9 Generations Fund	D.24
1.10 Returns of the Caisse de dépôt et placement du Québec on funds deposited by the ministère des Finances	D.25
1.10.1 Retirement Plans Sinking Fund	D.25
1.10.2 Generations Fund	D.27
1.10.3 Accumulated Sick Leave Fund	D.28
1.10.4 Budgetary Reserve Fund	D.28
1.11 Impact of the return of the Retirement Plans Sinking Fund in 2008 on debt service	D.29

2. Financing	D.31
2.1 Financing strategy	D.31
2.1.1 Diversification by market	D.31
2.1.2 Diversification by instrument	D.32
2.1.3 Diversification by maturity	D.33
2.2 Financing program	D.34
2.2.1 Yield	D.36
3. Debt management	D.39
3.1 Structure of the debt by currency	D.39
3.2 Structure of the debt by interest rate	D.41
4. Credit Ratings	D.43
4.1 The Québec government’s credit rating	D.43
4.2 Comparison of the credit ratings of Canadian provinces	D.48
5. Additional information	D.51

D.2

1.	Debt
	Several concepts of debt can be used to measure a government’s indebtedness.
	This section details the components of the debt concepts used by the Québec government and compares the indebtedness of the Canadian provinces.
	The following table shows the Québec government’s debt according to the main debt concepts used.

TABLE D.1

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

	2008		2009P		2010P		2011P
GROSS DEBT		148 015		151 447		160 273		170 180
As a % of GDP		49.9		49.9		52.8		54.0
Less: Financial assets, net of other liabilities		- 23 697		- 22 415		- 23 287		- 24 610
Less: Non-financial assets		- 30 147		- 33 556		- 37 984		- 43 688
DEBT REPRESENTING ACCUMULATED DEFICITS IN ACCORDANCE WITH THE PUBLIC ACCOUNTS1, 2		94 171		95 476		99 002		101 882
As a % of GDP		31.7		31.4		32.6		32.3
Plus: Balance of the budgetary reserve		2 301		295		—		—
DEBT REPRESENTING ACCUMULATED DEFICITS AFTER TAKING INTO ACCOUNT THE BUDGETARY RESERVE2		96 472		95 771		99 002		101 882
As a % of GDP		32.5		31.5		32.6		32.3

P:	Preliminary results for 2009 and forecasts for subsequent years.
1	Before taking into account the budgetary reserve.
2	Including the impact of the plan to restore fiscal balance.

D.3

1.1 Gross debt

The government’s gross debt is the sum of the consolidated direct debt, the net retirement plans liability and the net employee future benefits liability, minus the balance of the Generations Fund.

Preliminary results show that, as at March 31, 2009, the gross debt should amount to $151 447 million, or 49.9% of GDP. As at March 31, 2011, the gross debt is expected to be $170 180 million, or 54% of GDP.

TABLE D.2

Gross debt as at March 31
(millions of dollars)

	2008		2009P		2010P		2011P
Direct debt of the Consolidated Revenue Fund1		82 315		86 941		92 020		97 172
Debt of consolidated entities		35 774		37 924		42 113		47 583
Consolidated direct debt2		118 089		124 865		134 133		144 755
Plus: Net retirement plans liability		30 426		28 391		28 720		28 941
Plus: Net employee future benefits liability		733		125		69		13
Less: Generations Fund		- 1 233		- 1 934		- 2 649		- 3 529
GROSS DEBT		148 015		151 447		160 273		170 180
As a % of GDP		49.9		49.9		52.8		54.0

P:	Preliminary results for 2009 and forecasts for subsequent years.
1	Excluding pre-financing.
2	The consolidated direct debt reflects all of the government’s financial requirements that give rise to borrowings on financial markets.

The consolidated direct debt consists of the direct debt of the Consolidated Revenue Fund and the direct debt of entities whose results are consolidated line by line with those of the government. The main consolidated entities are Financement-Québec, the Fonds de conservation et d’amélioration du réseau routier, the Corporation d’hébergement du Québec, the Société québécoise d’assainissement des eaux, the Société immobilière du Québec, Investissement Québec, Immobilière SHQ, the Agence métropolitaine de transport and the Société du Palais des congrès de Montréal. As at March 31, 2009, the consolidated direct debt is expected to total $124 865 million.

The net retirement plans liability represents the gross retirement plans liability minus the balance of the Retirement Plans Sinking Fund (RPSF), an asset established to pay the retirement benefits of public and parapublic sector employees. As at March 31, 2009, the net retirement plans liability should amount to $28 391 million.

D.4

The net liability for employee future benefits consists of the government’s commitments for accumulated sick leave and the survivor’s pension plan, minus assets constituted in regard to these commitments. As at March 31, 2009, the net employee future benefits liability should stand at $125 million.

As at March 31, 2009, the sums accumulated in the Generations Fund are expected to amount to $1 934 million.

1.1.1 Change in gross debt in 2008-2009

In 2008-2009, the government’s gross debt should increase by $3 432 million. Even though the budget will be balanced this year, the gross debt continues to rise for the following reasons:

•	First of all, the government invests in its corporations. It makes such investments through advances and direct capital outlays or by allowing these corporations to keep part of their profits to finance their own investments.
	For example, Hydro-Québec pays 75% of its net profits as dividends to the government and keeps 25% to fund its investments, particularly hydroelectric dams. The portion of profits that the government is leaving Hydro-Québec in 2008-2009 ($611 million) constitutes an investment by the government in Hydro-Québec, which creates a financial requirement for the government and thus leads to an increase in the gross debt.
	In addition, the government invested $250 million in the Société générale de financement. This investment is part of the $1 000-million contribution announced in the January 2009 Economic Statement in order to stimulate investment in Québec businesses.
	Overall, the government’s investments, loans and advances should lead to a $17-million increase in the gross debt in 2008-2009. This amount includes the withdrawal of $805 million from the $1 100 million deposited with the Caisse de dépôt et placement du Québec in 2007-2008 under the Act to establish a budgetary surplus reserve fund.
•	In addition, net investments in the health and social services and education networks, which include loans made by Financement-Québec and the Corporation d’hébergement du Québec to network institutions to fund their capital expenditures, should raise the gross debt by $815 million in 2008-2009.

D.5

• Secondly, the government makes investments in fixed assets (e.g. roads) that require borrowings. When these capital expenditures are made, they are posted to the government’s balance sheet. Subsequently, they are gradually recorded as expenditures based on the useful life of the assets concerned. In 2008-2009, net capital expenditures should cause the gross debt to increase by $2 405 million.

• Lastly, changes in some of the government’s other asset and liability items, such as accounts payable and accounts receivable, should raise the gross debt by $896 million in 2008-2009.

TABLE D.3

Main factors responsible for growth in the Québec government’s debt

(millions of dollars)

	Debt,		Budgetary		Investments,		Net
	beginning of		deficit		loans and		investment in		Net capital		Other		Generations		Debt, end of
	year		(surplus)		advances		the networks		expenditures1		factors2		Fund		year3
Before accounting reform
Total debt
1998-1999		98 385		- 126		1 402				217		1 235				101 113
1999-2000		101 113		- 7		2 006				359		- 1 351				102 120
2000-2001		102 120		- 427		1 632				473		1 050				104 848
2001-2002		104 848		- 22		1 142				995		212				107 175
2002-2003		107 175		728		1 651				1 482		306				111 342
2003-2004		111 342		358		1 125				1 019		881				114 725
2004-2005		114 725		664		979				1 083		- 855				116 596
2005-2006		116 596		- 37		1 182				1 166		- 605				118 302
2006-2007		118 302		- 20		1 977				1 117		1 641		- 576		122 441
After accounting reform
Gross debt
2007-2008		143 449		—		2 410		487		1 457		861		- 649		148 015
2008-2009P		148 015		—		17		815		2 405		896		- 701		151 447
2009-2010P		151 447		3 946		1 345		1 004		3 304		- 58		- 715		160 273
2010-2011P		160 273		3 760		1 570		2 291		3 357		- 191		- 880		170 180

Note:	A positive entry indicates a financial requirement and a negative entry, a source of financing.
P:	Preliminary results for 2008-2009 and forecasts for subsequent years.
1	Capital expenditures made during the year minus the yearly depreciation expenditure.
2	Includes notably the change in “Other accounts,” such as accounts receivable and accounts payable, as well as the change in the value of the debt in foreign currency.
3	Excluding pre-financing.

D.6

1.2 Total debt under the Act to reduce the debt and establish the Generations Fund

When the government created the Generations Fund in June 2006, the concept of total debt was used to set the debt/GDP ratio targets in the Act to reduce the debt and establish the Generations Fund.

Total debt corresponds to the sum of the following elements:

• debt issued on financial markets by the government and entities consolidated line by line;

• the net retirement plans liability of public and parapublic sector employees;

minus the balance of the Generations Fund.

When the Generations Fund was created, line-by-line consolidated entities corresponded to those entities that were included in the government’s reporting entity at the time. However, the reporting entity has been broadened since the fund’s creation. With the reform of government accounting in December 2007, entities in the health and social services and education networks were consolidated. The concept of debt was broadened to include the debt of entities that make loans to the networks, namely, Financement-Québec and the Corporation d’hébergement du Québec (CHQ), and to reclassify the debt of the Société québécoise d’assainissement des eaux (SQAE) and the net employee future benefits liability. In addition, since the 2007-2008 fiscal year, the results of Immobilière SHQ have also been consolidated line by line with those of the government. This broader concept of direct debt corresponds to gross debt as described above.

For the purpose of monitoring the targets incorporated in the Act to reduce the debt and establish the Generations Fund, the concept of total debt corresponds to the reporting entity that was in effect when the Generations Fund was created.

Preliminary results show that the total debt should amount to $129 916 million as at March 31, 2009, or 42.8% of GDP. Under the Act to reduce the debt and establish the Generations Fund, the total debt will have to represent 38% of GDP as at March 31, 2013, 32% of GDP as at March 31, 2020 and 25% of GDP as at March 31, 2026.

D.7

On account of the deficits anticipated for the coming fiscal years, the weight of the total debt as a percentage of GDP is expected to rise temporarily even though deposits continue to be made in the Generations Fund.

Therefore, until the tabling of the 2011-2012 Budget, that is, when the economic recovery will be well under way, the government will review the targets provided for in the Act to reduce the debt and establish the Generations Fund.

TABLE D.4

Total debt and gross debt of the Québec government
(millions of dollars)

	2008		2009P		2010P		2011P
TOTAL DEBT UNDER THE ACT TO REDUCE THE DEBT AND ESTABLISH THE GENERATIONS FUND		125 915		129 916		138 015		145 913
As a % of GDP		42.4		42.8		45.5		46.3
Plus: Debt of Financement-Québec		14 274		14 361		15 223		17 573
Debt of the CHQ and other entities		2 806		2 809		2 701		2 660
Debt of the SQAE		2 416		2 359		2 231		1 889
Debt of Immobilière SHQ		1 871		1 877		2 034		2 132
Net employee future benefits liability		733		125		69		13
GROSS DEBT		148 015		151 447		160 273		170 180
As a % of GDP		49.9		49.9		52.8		54.0

P: Preliminary results for 2009 and forecasts for subsequent years.

D.8

1.3 Debt representing accumulated deficits

Debt representing accumulated deficits is a simple concept that reflects the financial position of a government well, since it takes all of its liabilities and assets into account. The federal government, Ontario and Alberta use debt representing accumulated deficits as a measure of indebtedness in their budget documents.

The debt representing accumulated deficits corresponds to the difference between the government’s liabilities and its financial and non-financial assets as a whole. The debt representing accumulated deficits is calculated by subtracting financial assets net of other liabilities as well as non-financial assets from the gross debt.

Preliminary results show that the debt representing accumulated deficits should amount to $95 771 million as at March 31, 2009, or 31.5% of GDP.

TABLE D.5

Debt representing accumulated deficits as at March 31
(millions of dollars)

	2008		2009P		2010P		2011P
Gross debt		148 015		151 447		160 273		170 180
Less: Financial assets, net of other liabilities		- 23 697		- 22 415		- 23 287		- 24 610
Less: Non-financial assets		- 30 147		- 33 556		- 37 984		- 43 688
DEBT REPRESENTING ACCUMULATED DEFICITS IN ACCORDANCE WITH THE PUBLIC ACCOUNTS 1, 2		94 171		95 476		99 002		101 882
As a % of GDP		31.7		31.4		32.6		32.3
Plus: Balance of the budgetary reserve		2 301		295		—		—
DEBT REPRESENTING ACCUMULATED DEFICITS AFTER TAKING INTO ACCOUNT THE BUDGETARY RESERVE2		96 472		95 771		99 002		101 882
As a % of GDP		32.5		31.5		32.6		32.3

P:	Preliminary results for 2009 and forecasts for subsequent years.
1	Before taking into account the budgetary reserve.
2	Including the impact of the plan to restore fiscal balance.

D.9

Net financial assets and non-financial assets
of the Québec government

Net financial assets correspond to the difference between financial assets and financial liabilities. Financial assets consist primarily of the value of the government’s investments in its corporations, accounts receivable and long-term investments.

Financial liabilities include mainly accounts payable.

Net financial assets as at March 31, 2008
(millions of dollars)

FINANCIAL ASSETS
Investments in government enterprises1	24 608
Accounts receivable	14 389
Long-term investments	5 384
Other	989
Subtotal		45 370
FINANCIAL LIABILITIES
Accounts payable	14 254
Deferred revenue	2 821
Federal transfers to be repaid	1 903
Deferred foreign exchange gains	1 146
Other	1 549
Subtotal		21 673
Total financial assets, net of liabilities		23 697

1 Corresponds for the most part to net profits of Hydro-Québec not paid to the government as dividends and investments in the Société générale de financement du Québec.

Non-financial assets consist of government capital assets, loans made to the health and social services and education networks to fund their capital expenditures, as well as inventories and prepaid expenses.

Non-financial assets as at March 31, 2008
(millions of dollars)

Capital assets		19 483
Net investment in the health and social services and education networks
Health and social services network	4 596
Education network	5 876	10 472
Inventories and prepaid expenses		192
Total non-financial assets		30 147

D.10

1.4 Public sector debt

Public sector debt includes the government’s gross debt as well as the debt of the health and social services and education networks, Hydro-Québec, municipalities and other government enterprises. This debt has served notably to finance public infrastructures, such as roads, schools, hospitals, hydroelectric dams and water treatment plants.

Preliminary results show that, as at March 31, 2009, the public sector debt should be $208 362 million, or 68.6% of GDP.

TABLE D.6

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

	Before accounting reform				After accounting reform
	2005		2006		2007		2008		2009P
Government debt1, 2		116 596		118 302		143 449		148 015		151 447
Health and social services and education networks3		12 301		13 078		2 023		1 552		911
Hydro-Québec		33 032		32 367		32 674		32 399		36 572
Other government enterprises4		3 726		3 540		31		25		171
Municipalities5		17 053		18 347		16 409		17 321		19 261
TOTAL		182 708		185 634		194 586		199 312		208 362
As a % of GDP		69.5		68.5		69.1		67.2		68.6

P:	Preliminary results.
1	Excluding pre-financing.
2	Before the accounting reform the data correspond to the concept of total debt under the Act to reduce the debt and establish the Generations Fund, while after the accounting reform they correspond to the concept of gross debt.
3	Corresponds to the long-term debt for which the government subsidizes debt service through transfers for repaying the principal and paying the interest on borrowings.
4	Excluding debt guaranteed by a third party or secured by assets such as inventories and accounts receivable.
5	Includes the long-term debt for which the government subsidizes debt service through transfers for repaying the principal and paying the interest on borrowings. The government-subsidized long-term debt should amount to $2 700 million as at March 31, 2009.

D.11

Information provided to regulatory authorities
and data on Québec’s debt

To borrow on foreign financial markets, the Québec government must satisfy the requirements of the regulatory authorities of those markets. Accordingly, Québec must file a variety of information with the Securities and Exchange Commission (SEC) in the United States, the Financial Services Authority (FSA) in the United Kingdom, the Australian Stock Exchange and the regulatory authority in Japan.

Each year, Québec files an information document (Form 18-K) with the SEC that contains all the information required under the Securities Act of 1933. The annual filing of Form 18-K avoids having to file a prospectus for each borrowing, which would entail additional time and costs. The information in Form 18-K must reflect the borrower’s financial position as faithfully as possible. This requirement provides investors with the relevant information to make informed investment decisions.

Concerning the debt, the SEC legislation requires the inclusion of “funded debt”, i.e. the debt with a term exceeding one year that was contracted on financial markets, and the “floating debt”, i.e. the short-term debt that is continually rolled over to fund operations. Québec also provides information concerning the liability for the retirement plans of the public and parapublic sectors.

The information on the public sector debt in Form 18-K is divided into four categories:

• the debt contracted by the government to meet its financial requirements and fund government enterprises;

• the debt of public sector entities (mainly Hydro-Québec) for which the government guarantees the payment of the interest and the repayment of the principal in the event of the entity’s default of payment;

• the debt of the municipalities;

• the debt of other institutions of the public sector issued in their own name (educational institutions, health and social services institutions and other government enterprises).

Moreover, Québec provides other regulatory authorities around the world with the same information supplied to the SEC.

As regards the public sector debt shown on the preceding page, the data on the debt of the health and social services and education networks, Hydro-Québec, government enterprises and municipalities reflect the requirements of the SEC for the purposes of the presentation of information in the annual Form 18-K and those of the other regulatory authorities with which the government must file information.

D.12

1.5 Comparison of the debt of Canadian provinces

It is worthwhile to compare the concepts of debt used by the Québec government with those used by other governments in Canada.

An analysis of the budget documents of the federal and provincial governments shows that the concepts of debt used to assess financial position vary widely from province to province.

The preferred concept of debt in British Columbia and Saskatchewan is direct debt. Alberta, New Brunswick, Newfoundland and Labrador, Manitoba and Nova Scotia use the concept of net debt. As for Prince Edward Island, its recent budget documents make no reference to its debt.

Four governments use the concept of debt representing accumulated deficits as a measure of indebtedness in their budget documents. They are the government of Québec, the federal government and the governments of Ontario and Alberta.

On the basis of the concept of debt representing accumulated deficits, Québec is the most indebted province. Indeed, as at March 31, 2008, its debt/GDP ratio was 32.5%.

CHART D.1

Debt representing accumulated deficits¹ as at March 31, 2008

(as a percentage of GDP)

1	A negative entry means that the government has an accumulated surplus.
2	After taking the budgetary reserve into account.
Sources:	Ministère des Finances du Québec, the governments’ public accounts and Statistics Canada.

D.13

The following table shows the debt of the federal government and each of the provinces as at March 31, 2008. Figures surrounded by boxes indicate the concept of debt used by each government in its budget documents to measure its level of debt.

TABLE D.7

Debt as at March 31, 2008 according to the various concepts
(millions of dollars)

	QC			Fed.		ON		BC		AB		NB		NL		MB		SK		NS		PEI
Consolidated
direct debt		118 089			390 697		162 056		34 185		2 522		5 300		6 825		11 786		7 156		9 292		1 044
Net retirement plans liability		30 426			137 371		- 3 714		2		7 883		- 245		1 459		2 300		5 088		328		- 43
Net employee future benefits liability		733			47 901		4 738		1 648		219		641		1 513		—		387		1 293		82
Generations Fund		- 1 233			—		—		—		—		—		—		—		—		—		—
Gross debt1		148 015			575 969		163 080		35 835		10 624		5 696		9 797		14 086		12 631		10 913		1 083
As a % of GDP		49.9			37.5		27.9		18.6		4.1		21.1		33.2		29.0		24.5		33.1		23.8
Less:
Net financial assets2		- 21 396			- 59 688		- 20 662		- 13 552		- 45 670		1 247		391		- 3 898		- 6 866		1 202		264
Net debt3		126 619	4		516 281		142 418		22 283		- 35 046		6 943		10 188		10 188		5 765		12 115		1 347
As a % of GDP		42.7			33.6		24.3		11.6		- 13.5		25.8		34.5		21.0		11.2		36.7		29.6
Less:
Non-financial assets		- 30 147			- 58 644		- 36 801		- 29 734		- 14 140		- 5 538		- 2 436		- 5 995		- 4 547		- 3 928		- 587
Debt representing accumulated
deficits3		96 472	4		457 637		105 617		- 7 451		- 49 186		1 405		7 752		4 193		1 218		8 187		760
As a % of GDP		32.5			29.8		18.1		- 3.9		- 19.0		5.2		26.3		8.6		2.4		24.8		16.7

Note:	The boxes indicate the debt concept used in the government’s budget documents.
1	Gross debt is not disclosed in most of the governments’ public accounts. However, the components of gross debt, i.e. consolidated direct debt, the net retirement plans liability and the net employee future benefits liability, are disclosed.
2	Financial assets, net of other liabilities.
3	A negative entry indicates that the government has net assets or an accumulated surplus.
4	After taking the budgetary reserve into account.
Sources:	Ministère des Finances du Québec, the governments’ public accounts and Statistics Canada.

D.14

1.6 Retirement plans

The Québec government participates financially in the retirement plans of its employees. As at December 31, 2007, these plans had 531 451 participants and 257 426 beneficiaries.

TABLE D.8

Retirement plans of public and parapublic sector employees as at December 31, 2007

	Active participants		Beneficiaries
Government and Public Employees Retirement Plan (RREGOP)		495 000		159 509
Pension Plan of Management Personnel (PPMP)		26 550		18 965
Other plans:
- Teachers Pension Plan (TPP) and Pension Plan of Certain Teachers (PPCT)1		510		48 694
- Civil Service Superannuation Plan (CSSP)1		460		23 744
- Superannuation Plan for the Members of the Sûreté du Québec (SPMSQ)		5 200		4 393
- Pension Plan of Peace Officers in Correctional Services (PPPOCS)		3 100		1 377
- Pension Plan of the Judges of the Court of Québec (PPJCQ)		270		312
- Pension Plan for Federal Employees Transferred to Employment with the Gouvernement du Québec (PPFEQ)		240		108
- Pension Plan of the Members of the National Assembly (PPMNA)		121		324
Total for other plans		9 901		78 952
TOTAL		531 451		257 426

1	These plans have not accepted any new participants since July 1, 1973.
Sources:	Commission administrative des régimes de retraite et d’assurances.

These plans are defined benefit retirement plans, which means that they guarantee participants a certain level of income upon retirement. 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, for a maximum of 70%. Benefits are partially indexed to inflation.

D.15

The Commission administrative des régimes de retraite et d’assurances (CARRA) is responsible for administering the retirement plans. In 2008-2009, the government should pay $4 132 million to cover its share of the benefits paid to its retired employees.

• 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.

CARRA performs actuarial valuations of the liability for each retirement plan in conformity with the rules set for the public sector by the Canadian Institute of Actuaries (CIA) and the Canadian Institute of Chartered Accountants (CICA).

As at March 31, 2009, the government’s retirement plans liability should be $64 471 million, an amount that is recognized in the government’s gross debt.

TABLE D.9

Retirement plans liability
(millions of dollars)

	March 31, 2009P
Government and Public Employees Retirement Plan (RREGOP)		32 946
Pension Plan of Management Personnel (PPMP)		6 380
Other plans:
- Teachers Pension Plan (TPP) and Pension Plan of Certain Teachers (PPCT)		15 438
- Civil Service Superannuation Plan (CSSP)		5 025
- Superannuation Plan for the Members of the Sûreté du Québec (SPMSQ)		3 217
- Pension Plan of Peace Officers in Correctional Services (PPPOCS)		830
- Pension Plan of the Judges of the Court of Québec (PPJCQ)		467
- Pension Plan of the Members of the National Assembly (PPMNA)		168
Total for other plans		25 145
RETIREMENT PLANS LIABILITY		64 471

P: Preliminary results.

D.16

• Annual retirement plans expenditure

Every year, the government records its expenditure as an employer with regard to the retirement plans.

In 2008-2009, this expenditure should total $1 979 million. It comprises two components:

• the net cost of vested benefits, that is, the present value of retirement benefits that employees have accumulated for work performed during the year, i.e. $1 503 million;

• the amortization of revisions to the government’s actuarial obligations that arise from the updating of actuarial valuations, for a cost of $476 million.

TABLE D.10

Retirement plans expenditure
(millions of dollars)

	2008-2009P
Net cost of vested benefits		1 503
Amortization of revisions arising from actuarial valuations		476
RETIREMENT PLANS EXPENDITURE		1 979

P: Preliminary results.

D.17

1.7 Retirement Plans Sinking Fund

The Retirement Plans Sinking Fund (RPSF) was created in 1993. The RPSF is an asset that can be used to pay the retirement benefits of public and parapublic sector employees.

As at March 31, 2009, the book value of the RPSF should amount to $36 080 million.

TABLE D.11

Change in the Retirement Plans Sinking Fund (RPSF)
(millions of dollars)

	Book value,					Investment		Book value,
	beginning of					income		end of
	year			Deposits		imputed		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
2008–2009P		31 764			2 100		2 216		36 080

P:	Preliminary results.
1	Taking into account restatements arising from the government accounting reforms of 1997-1998 and 2006-2007.

D.18

The information on the RPSF shown in the preceding table was established on the basis of the government’s accounting policies, which are in full compliance with generally accepted accounting principles (GAAP) for Canada’s public sector following the reform of government accounting in 2007. The government is obliged to apply its accounting policies in the same way, year after year, in presenting its financial statements.

On the basis of the strict and consistent application of the government’s accounting policies, the book value of the RPSF as at March 31, 2009 is higher than its market value. As a result of the accounting policies, the difference between these two items will be fully amortized in the coming years. In addition, the financial impact of gradually amortizing the difference is fully incorporated in the government’s financial framework over the entire planning horizon. Section 1.11 describes these items in greater detail.

The government’s accounting policies apply when the RPSF’s book value is higher than its market value as well as when it is lower. As shown by the following table, the book value of the RPSF has been lower than its market value 8 times in the past 15 years.

TABLE D.12

Book value and market value of the Retirement Plans Sinking Fund 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		36 080		26 101	1		9 979

1 Market value as at December 31, 2008.

D.19

• Amounts deposited in the RPSF have no impact on gross debt

The government issues bonds on financial markets in order to make deposits in the RPSF. However, the amounts deposited in the RPSF do not affect the government’s gross debt.

Indeed, the amount of borrowings contracted to make deposits in the RPSF increases the direct debt. At the same time, however, these deposits reduce the net retirement plans liability by the same amount. Therefore, the net impact on the gross debt is nil.

TABLE D.13

Illustration of the impact on the government’s gross debt of borrowing $1 billion on financial markets and depositing it in the RPSF¹
(millions of dollars)

			Before		After
			deposit		deposit		Change
(A	)	Consolidated direct debt		123 865		124 865		1 000
		Retirement plans liability		64 471		64 471		—
		Less: Book value of the RPSF		- 35 080		- 36 080		- 1 000
(B	)	Net retirement plans liability		29 391		28 391		- 1 000
(C	)	Net employee future benefits liability		125		125		—
(D	)	Less: Generations Fund		- 1 934		- 1 934		—
(E	)	GROSS DEBT (E=A+B+C+D)		151 447		151 447		—

1 Illustration based on preliminary results as at March 31, 2009.

D.20

• A decline in debt service

Deposits in the RPSF entail a reduction in the government’s debt service. 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 charges that arise from new borrowings. This leads to a net decrease in the government’s debt service.

Since the RPSF was created, its return has been higher than the cost of new long-term borrowings by the government 11 years out of 15.

TABLE D.14

Comparison of the RPSF’s annual return and the Québec government’s borrowing costs
(percent)

	Return of the		Cost of new
	RPSF1		borrowings2		Difference
1994–1995		- 6.0		5.9		- 11.9
1995–1996		17.0		5.3		11.7
1996–1997		16.1		6.3		9.8
1997–1998		13.4		5.7		7.7
1998–1999		10.4		5.8		4.6
1999–2000		15.3		7.2		8.1
2000–2001		7.2		6.2		1.0
2001–2002		- 4.7		5.5		- 10.2
2002–2003		- 8.5		4.7		- 13.2
2003–2004		14.9		4.6		10.3
2004–2005		11.4		4.4		7.0
2005–2006		13.5		4.4		9.1
2006–2007		13.5		4.4		9.1
2007–2008		5.2		4.8		0.4
2008–2009		- 25.6		4.2		- 29.8

1	On a calendar year basis.
2	On a fiscal year basis.

D.21

• A flexible deposit policy

In December 1999, as part of an agreement concluded for the renewal of its employees’ collective agreements, the government set the objective that the funds 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 flexibility needed to apply 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.

The RPSF’s assets represent roughly 50% of the government’s actuarial obligations in regard to the retirement plans of public and parapublic sector employees. The target of 70% should be attained three years earlier than anticipated, i.e. in 2016-2017.

CHART D.2

The RPSF in proportion to the government’s actuarial obligations regarding the retirement plans of public and parapublic sector employees
(percent)

D.22

1.8 Employee future benefits

In addition to the retirement plans, the government records under its debt the value of its commitments regarding two future benefits programs for its employees, namely, accumulated sick leave, which is payable notably when an employee retires, and pensions paid to the survivors of a government employee. These programs give rise to long-term obligations whose costs are covered in full by the government.

As planned, the government created the Accumulated Sick Leave Fund in 2008-2009, in which were deposited sums that will be used to make the necessary payments. Therefore, the balance of the net employee future benefits liability should be $125 million as at March 31, 2009.

TABLE D.15

Net employee future benefits liability
(millions of dollars)

	March 31, 2009P
Accumulated sick leave		781
Survivor’s pension plan		404
Accumulated Sick Leave Fund		- 616
Survivor’s Pension Plan Fund		- 444
NET EMPLOYEE FUTURE BENEFITS LIABILITY		125

P: Preliminary results.

D.23

1.9 Generations Fund

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

Section I presents the results of the Generations Fund in accordance with the requirements of the Act.

As at March 31, 2009, the book value of the Generations Fund should amount to $1 934 million. The following table shows the book and market values of the Generations Fund for the past three years.

TABLE D.16

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

	Book value		Market value			Difference
2006–2007		584		586			- 2
2007–2008		1 233		1 199			34
2008–2009		1 934		1 660	1		274

1 Market value of $1 297 million as at December 31, 2008 plus the amounts that will be allocated to the Generations Fund from January 1 to March 31, 2009.

D.24

1.10 Returns of the Caisse de dépôt et placement du Québec on funds deposited by the ministère des Finances

In 2008, the return on the net assets of all depositors with the Caisse de dépôt et placement du Québec was - 25.0%. This section describes in greater detail the returns on four funds deposited with the Caisse by the ministère des Finances.

TABLE D.17

Market value and return in 2008 of funds deposited with the Caisse de dépôt et placement by the ministère des Finances
(millions of dollars and percent)

				Market value
				as at December 31,
Name	Acronym	Return		2008
		%		$M
Retirement Plans Sinking Fund	RPSF		- 25.58		26 101
Generations Fund	GF		- 22.35		1 297
Accumulated Sick Leave Fund	ASLF		0.57		602
Budgetary Reserve Fund	BRF		2.46		337

1.10.1 Retirement Plans Sinking Fund

The Retirement Plans Sinking Fund (RPSF) showed a return of - 25.58% in 2008. Its market value was $26 101 million as at December 31, 2008.

The assets of the RPSF are managed by the Caisse de dépôt et placement du Québec in accordance with an investment policy established by the ministère des Finances. This investment policy was established taking several factors into account, including the return, standard deviation and correlation forecasts for various categories of assets prepared by the Caisse de dépôt et placement du Québec, as well as opportunities for investing in these assets.

D.25

The investment policy of the RPSF consists of 30% fixed-income securities (bonds, etc.), 35.5% stock markets and 34.5% other investments (real estate, private equity, etc.). These weightings are similar to those used on average by all depositors with the Caisse.

TABLE D.18

Investment policy of the RPSF as at January 1, 2009¹
(percent)

	Reference		Average reference portfolio of
	portfolio of the RPSF		depositors as a whole2
Fixed-income securities		30.0		32.0
Stock markets		35.5		34.3
Other investments		34.5		33.7
TOTAL		100.0		100.0

1	The detailed investment policy, which shows the percentages invested in each of the various asset categories offered by the Caisse, is presented in the additional information section.
2	Data for 2007. Source: Caisse de dépôt et placement du Québec, Annual Report 2007. The annual report for 2008 has not been published yet.

With its investment policy, the RPSF should generate a long-term annual return of 7.0%. This return is comparable to that forecast by most retirement plans in Canada. According to a recent survey by Morneau Sobeco,¹ the anticipated long-term return on assets of two retirement plans out of three in Canada is equal to or above 7%.

It is important to note that the RPSF’s investment policy is based on a long-term horizon and constitutes the reference portfolio for the Caisse. However, through active management, the Caisse adjusts the allocation of RPSF’s assets, particularly to take fluctuations in the economic and financial situation into account. The RPSF’s reference portfolio would have generated a return of-19.15% in 2008. The spread between this return and that realized, i.e.-25.58%, reflects the Caisse’s active management.

¹ Morneau Sobeco (2008), 2008 Survey of Economic Assumptions in Accounting for Pensions and Other Post-Retirement Benefits.

D.26

1.10.2 Generations Fund

The Generations Fund posted a return of - 22.35% in 2008. As at December 31, 2008, its market value was $1 297 million.

The assets of the Generations Fund are managed by the Caisse de dépôt et placement du Québec in keeping with an investment policy established by the ministère des Finances. This investment policy was established taking several factors into account, including the return, standard deviation and correlation forecasts for various categories of assets prepared by the Caisse de dépôt et placement du Québec, as well as opportunities for investing in these assets.

The investment policy of the Generations Fund consists of 37% fixed-income securities (bonds, etc.), 35% stock markets and 28% other investments (real estate, private equity, etc.).

TABLE D.19

Investment policy of the Generations Fund as at January 1, 2009¹
(percent)

	Reference		Average reference
	portfolio of the		portfolio of depositors as a
	Generations Fund		whole2
Fixed-income securities		37.0		32.0
Stock markets		35.0		34.3
Other investments		28.0		33.7
TOTAL		100.0		100.0

1	The detailed investment policy, which shows the percentages invested in each of the various asset categories offered by the Caisse, is presented in the additional information section.
2	Data for 2007. Source: Caisse de dépôt et placement du Québec, Annual Report 2007. The annual report for 2008 has not been published yet.

The investment policy of the Generations Fund aims to achieve an annual long-term return of 6.8%. It is important to note that the investment policy of the Generations Fund is based on a long-term horizon and constitutes the reference portfolio for the Caisse. However, through active management, the Caisse adjusts the allocation of the Generations Fund’s assets, particularly to take fluctuations in the economic and financial situation into account. The reference portfolio of the Generations Fund would have generated a return of - 17.64% in 2008. The spread between this return and that realized, i.e. - 22.35%, reflects the Caisse’s active management.

D.27

1.10.3 Accumulated Sick Leave Fund

The Accumulated Sick Leave Fund (ASLF) was created in the fall of 2008 following the adoption of Bill 80 by the National Assembly last June. Deposits totalling $600 million were subsequently made and initially placed in short-term investments, which explains the return of 0.57% posted by the ASLF in 2008. Its market value was $602 million as at December 31, 2008.

The assets of the ASLF are managed by the Caisse de dépôt et placement du Québec in keeping with an investment policy established by the ministère des Finances. As of January 1, 2009, the ASLF’s investment policy has been identical to that of the RPSF, since the creation of the ASLF stems from a long-term commitment made by the government in regard to employee future benefits, which is similar to the commitment regarding the retirement plans.

It is important to note that the ASLF’s investment policy constitutes the reference portfolio for the Caisse. However, through active management, the Caisse adjusts the allocation of the ASLF’s assets, particularly to take fluctuations in the economic and financial situation into account.

1.10.4 Budgetary Reserve Fund

The Budgetary Reserve Fund (BRF) consists of budgetary surpluses realized by the government.

The BRF posted a return of 2.46% in 2008. Its market value was $337 million as at December 31, 2008.

Contrary to the three other funds which fall under the responsibility of the ministère des Finances, the BRF by definition has a short-term investment horizon. Consequently, its investment policy consists of 100% short-term investments, whose principal is guaranteed and whose liquidity is high.

D.28

1.11 Impact of the return of the Retirement Plans Sinking Fund in 2008 on debt service

As indicated in section 1.7, the income of the RPSF is applied against the government’s debt service. The losses of the Caisse in 2008 will affect the RPSF’s income and therefore debt service as of 2009-2010.

The impact of the losses of 2008 on the RPSF’s income will be taken into account in the government’s balance sheet and results by applying the accounting policy adopted in the wake of the December 2007 reform of government accounting in accordance with generally accepted accounting principles (GAAP).

“When determining a government’s retirement benefit liability and expense, plan assets would be valued at market-related values. Under this method, plan assets are recorded at market value or they are adjusted to market value over a period not to exceed five years. Values adjusted to market closely approximate current economic value in a manner that can minimize short-term fluctuations. Market-related values would be used because they are objective and verifiable. Once a basis of valuation is chosen it would be applied consistently.” Canadian Institute of Chartered Accountants (CICA), Public Sector Accounting Handbook, section 3250, paragraph .035.

Under the accounting policy, the “adjusted market value” of the RPSF is adjusted every year based on the returns realized by the fund. If, for a given year, the realized return differs from the long-term return, the difference between the two is spread over five years. All other things being equal, this means that the adjusted market value and the market value will converge over a five-year period. It is important to note that this method is applied when returns are higher than expected as well as when they are lower.²

² Before the accounting reform of 2007, the value of the RPSF was adjusted only once every three years, that is, when actuarial valuations were carried out. Since the reform, it has been adjusted every year.

D.29

In addition, the differences between actual and expected return, which are spread over five years, are taken into account in RPSF income by amortizing them over a period of about 14 years, that is, the expected average remaining service life (EARSL) of retirement plan participants. This amortization mechanism and the period used are prescribed by GAAP.³

Income imputed to the RPSF is calculated based on the adjusted market value. Therefore, it will begin to reflect, as of 2009-2010, the losses incurred by the Caisse in 2008. This will reduce the income credited to the RPSF because the adjusted market value on which this income is calculated will be lower than if there had not been any losses at the Caisse in 2008.

Overall, the losses of the Caisse in 2008 will cause debt service to rise by $285 million in 2009-2010 and $595 million in 2010-2011.

TABLE D.20

Impact of the return of the RPSF in 2008 on debt service
(millions of dollars)

	2009-2010F		2010-2011F
Increase in debt service		285		595

F: Forecasts.

³ “...actuarial gains and losses should be amortized to the liability or asset and the related expense in a systematic and rational manner over the expected average remaining service life of the related employee group.” Canadian Institute of Chartered Accountants (CICA), Public Sector Accounting Handbook, section 3250, paragraph .062. For the purposes of retirement assets, the CICA defines actuarial gains (losses) as changes in the value of plan assets that are caused notably by variances between actual results and expected results.

D.30

2. Financing

Borrowings in fiscal 2008-2009 should total $12 941 million, i.e. $9 227 million for the Consolidated Revenue Fund, $1 039 million for the Financing Fund and $2 675 million for Financement-Québec.

It should be noted that pre-financing of $5 984 million was carried out in the last few months of the fiscal year. It will be used to cover part of the borrowing program in 2009-2010.

2.1 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.

2.1.1 Diversification by market

Financing transactions are conducted regularly on most markets, i.e. in Canada, the United States, Europe and Asia.

Over the past 10 years, one quarter of borrowings, on average, has been contracted in foreign currency.

In 2008-2009, the government contracted 32.6% of its borrowings on foreign markets in five different currencies:

• one borrowing for 1 250 million euros (CAN$1 975 million) in April 2008;

• one borrowing for 1 000 million US dollars (CAN$996 million) in May 2008;

• five borrowings in Swiss francs totalling 1 050 million Swiss francs (CAN$1 091 million), one of which was contracted in May 2008, another in November 2008 and three in February 2009;

• one borrowing for 5 000 million yen (CAN$48 million) in August 2008;

• two borrowings totalling 712 million Hong-Kong dollars, one of which was contracted in January 2009 (CAN$38 million) and the other in February 2009 (CAN$76 million).

D.31

CHART D.3

History of borrowings by currency¹
(billions)

P:	Preliminary results.
1	Borrowings of the Consolidated Revenue Fund, borrowings for the Financing Fund and borrowings of Financement-Québec.

2.1.2 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 public bond issues, private borrowings and savings products.

The long-term instruments used in 2008-2009 consisted mainly of public issues (62.2%) and private issues (29.4%).

D.32

CHART D.4

Borrowings in 2008-2009^P by instrument

P:	Preliminary results.
1	Includes the Immigrant Investor Program and borrowings from the Canada Pension Plan Investment Fund.

2.1.3 Diversification by maturity

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

In 2008-2009, 65.3% of borrowings contracted had a maturity of 6 to 10 years; 22.5%, 11 to 39 years; and 2.5%, over 40 years.

CHART D.5

Borrowings in 2008-2009^P by maturity

P: Preliminary results.

D.33

This diversification by maturity has an impact on the maturity of the debt shown in the following chart. As at March 31, 2009, the average maturity of the debt should be 10.9 years.

CHART D.6

Maturity of the debt as at March 31, 2009^P
(millions of dollars)

P:	Preliminary results.
Note:	Direct debt of the Consolidated Revenue Fund, debt incurred to make advances to the Financing Fund and debt of Financement-Québec.

2.2 Financing program

The financing program of the Consolidated Revenue Fund makes it possible to refinance maturing borrowings, contribute to the Retirement Plans Sinking Fund and meet new financial requirements, particularly for capital investments and investments in government corporations.

The Financing Fund makes loans to consolidated organizations (e.g. Fonds de conservation et d’amélioration du réseau routier, Investissement Québec, Société immobilière du Québec, Corporation d’hébergement du Québec) and to certain government enterprises.

Financement-Québec makes borrowings on financial markets to meet the needs of institutions in the health and social services and education networks.

D.34

In 2008-2009, the government contracted borrowings totalling $12 941 million, including $5 984 million in pre-financing conducted over the last few months of the year.

In 2009-2010, the financing program is expected to amount to $9 778 million. It would have amounted to $15 762 million had there not been any pre-financing in 2008-2009. In 2010-2011, the financing program will total $15 353 million.

TABLE D.21

The government’s financing program
(millions of dollars)

	2008-2009P		2009-2010P		2010-2011P
CONSOLIDATED REVENUE FUND
Net financial requirements (surplus)1, 2		- 57		5 017		5 040
Repayment of borrowings		4 571		5 245		3 813
Change in cash position		- 2 413		- 5 984		—
Retirement Plans Sinking Fund and funds dedicated to employee future benefits — Deposits		2 700		—		—
Transactions under the credit policy3		- 1 558		—		—
Pre-financing		5 984		—		—
TOTAL — Consolidated Revenue Fund		9 227		4 278		8 853
FINANCING FUND		1 039		2 750		3 750
FINANCEMENT-QUÉBEC		2 675		2 750		2 750
TOTAL		12 941		9 778		15 353

P:	Preliminary results for 2008-2009 and forecasts for subsequent years.
Note:	A negative entry indicates a source of financing and a positive entry, a financial requirement.
1	Excluding consolidated entities.
2	Net financial requirements are adjusted to take into account the non-receipt of RPSF income and of funds dedicated to employee future benefits.
3	Under its credit policy, which is designed to limit financial risk with respect to counterparties, the government received $1 558 million in 2008-2009 following exchange rate movements. These receipts reduce financial requirements that have to be met through new borrowings.

D.35

Pre-financing

The government makes advance borrowings, or borrowings that would normally be made in the following fiscal year.

Over the past 10 years, the government has obtained an average of nearly $2.9 billion in pre-financing per year.

Pre-financing
(millions of dollars)

P: Preliminary results.

2.2.1 Yield

The following charts show the change in yield on 10-year bonds and 3-month Treasury bills, as well as the yield spread on long-term securities.

Over the past year, the spread between Québec long-term and short-term yields has increased substantially, reflecting the change in market conditions observed on financial markets. In addition, since the early 2000s, the yield on long-term Québec securities has dropped from 6.9% to 4.5%, making it possible to refinance borrowings at better interest rates.

D.36

CHART D.7

Yield on Québec securities
(percent)

Sources: PC-Bond, a business unit of TSX Inc., and ministère des Finances du Québec.

CHART D.8

Yield spread on long-term (10-year) securities
(percent)

Source: PC-Bond, a business unit of TSX Inc.

D.37

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D.38

3.	Debt management
	The government’s debt management strategy aims to minimize the cost of the debt and limit the risk 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.
	Debt management enables the government to save money on debt service.

3.1 Structure of the debt by currency

As at March 31, 2009, the proportion of the government’s gross debt in Canadian dollars should amount to 93.1% and the proportion in foreign currency, 6.9%.

TABLE D.22

Structure of the gross debt as at March 31, 2009^P
(millions of dollars)

													Net
	Consolidated direct debt										Net		employee
	Consolidated										retirement		future		Less:
	Revenue				Consolidated						plans		benefits		Generations		Gross
Currency	Fund		%		entities		Total		%		liability		liability		Fund		debt		%
Canadian dollar		82 083		88.3		37 924		120 007		91.7		28 391		125		- 1 934		146 589		93.1
US dollar		2 315		2.5		—		2 315		1.7		—		—		—		2 315		1.4
Euro		3 226		3.5		—		3 226		2.5		—		—		—		3 226		2.1
Swiss franc		3 226		3.5		—		3 226		2.5		—		—		—		3 226		2.1
Yen		2 075		2.2		—		2 075		1.6		—		—		—		2 075		1.3
Subtotal		92 925		100.0		37 924		130 849		100.0		28 391		125		- 1 934		157 431		100.0
Pre-financing		- 5 984				—		- 5 984				—		—		—		- 5 984
TOTAL		86 941				37 924		124 865				28 391		125		- 1 934		151 447

P:	Preliminary results.
Note:	The debt in foreign currency is expressed in the Canadian equivalent based on the exchange rates in effect on March 12, 2009.

D.39

Before interest rate and currency swap agreements are taken into account, the proportion of the debt in foreign currency as at March 31, 2009 should be 24.1%. After interest rate and currency swap agreements are taken into account, the proportion should be 6.9%.

CHART D.9

Structure of the gross debt by currency as at March 31, 2009^P

P: Preliminary results.

D.40

3.2 Structure of the debt by interest rate

The government keeps part of its debt at variable rates and part at fixed rates. Since short-term interest rates are generally lower than long-term rates, keeping part of the debt at variable rates makes it possible to achieve substantial savings on debt service.

Before interest rate and currency swap agreements are taken into account, the proportion of the gross debt at variable rates should be 13.1% as at March 31, 2009. After interest rate and currency swap agreements are taken into account, the proportion should be 35.0%.

CHART D.10

Structure of the gross debt by interest rate as at March 31, 2009^P

P: Preliminary results.

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D.42

4. Credit Ratings

4.1 The Québec government’s credit rating

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 several economic, fiscal and financial factors. Among the main factors are the size, structure and vitality of the economy, the situation on the labour market, fiscal competitiveness, public finance situation and indebtedness.

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

The following table shows the rating scales used by agencies for short-term debt. Québec’s credit rating is in the upper category of all of the agencies’ rating scales.

TABLE D.23

Rating scales for short-term debt

		Standard &	Fitch
Definition	Moody’s	Poor’s	Ratings	DBRS
Very strong capacity to pay interest and repay principal over the short term.	P-1	A-1+	F1+	R-1high
		A-1	F1	R-1middle
				R-1low
Very adequate capacity to pay interest and repay principal over the short term, despite greater sensitivity to economic conditions than the upper level.	P-2	A-2	F2	R-2high
Adequate capacity to pay interest and repay principal over the short term. Difficult economic conditions may reduce this capacity.	P-3	A-3	F3	R-2middle
				R-2low
				R-3
Uncertain capacity to pay interest and repay principal over the short-term. Securities in this category are considered speculative securities.	Not Prime1	B-1	B	R-4
		B-2	C	R-5
		B-3
		C
Incapacity to pay interest and repay principal over the short-term. Securities in this category are considered default securities.	Not Prime1	D	D	D

Note:	The credit ratings for Québec’s short-term debt are identified in bold.
1	Moody’s uses the “Not Prime” category for all securities not shown in the upper categories.

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Credit rating agencies also use standard rating scales to assess the long-term debt of borrowers. For example, an “AA” credit rating means that the borrower has a very strong capacity to pay the interest and repay the principal on its long-term debt.

TABLE D.24

Rating scales for long-term debt

									Japan Credit
			Standard &						Rating
Definition	Moody’s		Poor’s		Fitch Ratings		DBRS		Agency
Extremely strong capacity to pay interest and repay principal.	Aaa		AAA		AAA		AAA		AAA
Very strong capacity to pay interest and repay principal.	Aa1		AA+		AA+		AA (high)		AA+
	Aa2		AA		AA		AA		AA
	Aa3		AA-		AA-		AA (low)		AA-
Strong capacity to pay interest and repay principal, despite greater sensitivity to economic conditions than levels AAA and AA.		A1		A+		A+	A (high)			A+
		A2		A		A		A		A
		A3		A-		A-	A (low)			A-
Adequate capacity to pay interest and repay principal. Difficult economic conditions may reduce this capacity.	Baa1		BBB+		BBB+		BBB (high)		BBB+
	Baa2		BBB		BBB		BBB		BBB
	Baa3		BBB-		BBB-		BBB (low)		BBB-
Uncertain capacity to pay interest and repay principal, particularly under difficult economic conditions.	Ba1		BB+		BB+		BB (high)		BB+
		Ba2		BB		BB		BB		BB
		Ba3		BB-		BB-		BB (low)		BB-
Very uncertain capacity to pay interest and repay principal, particularly under difficult economic conditions.		B1		B+		B+	B (high)			B+
		B2		B		B		B		B
		B3		B-		B-	B (low)			B-

Note: The credit ratings for Québec’s long-term debt are identified in bold.

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.

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• The Québec government’s credit rating

The Québec government is rated by five credit rating agencies.

TABLE D.25

The Québec government’s current credit ratings

Agency	Rating	Outlook
Moody’s	Aa2	Stable
Standard & Poor’s (S&P)	A+	Positive
Dominion Bond Rating Service (DBRS)	A (high)	Stable
Fitch Ratings (Fitch)	AA–	Positive
Japan Credit Rating Agency (JCR)	AA+	Stable

• Change in Québec’s credit rating

The following charts show the change in the Québec government’s credit rating in the last six years.

CHART D.11

Credit rating assigned to Québec by Moody’s

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CHART D.12

Credit rating assigned to Québec by Standard & Poor’s

1 A positive outlook has been assigned since July 5, 2007.

CHART D.13

Credit rating assigned to Québec by DBRS

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CHART D.14

Credit rating assigned to Québec by Fitch

1 A positive outlook has been assigned since January 9, 2008.

CHART D.15

Credit rating assigned to Québec by JCR

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4.2 Comparison of the credit ratings of Canadian provinces

The following charts show the credit ratings of Canadian provinces in early March 2009. No chart is given for JCR since Québec is the only province that receives a credit rating from that agency.

CHART D.16

Credit ratings of Canadian provinces — Moody’s

1 Positive outlook.

CHART D.17

Credit ratings of Canadian provinces — Standard & Poor’s

1 Positive outlook.

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CHART D.18

Credit ratings of Canadian provinces — DBRS

1 Positive outlook.

CHART D.19

Credit ratings of Canadian provinces — Fitch

Note:	British Columbia, Ontario, Saskatchewan and Québec are the only provinces rated by this agency.
1	Positive outlook.

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D.50

5. Additional information

TABLE D.26

Summary of consolidated financing transactions
(millions of dollars)

	2008-2009P
	March 2008		Preliminary
	Budget		results			Change		2009-2010P		2010-2011P
CHANGE IN CASH POSITION
Consolidated Revenue Fund		1 987		- 3 571			- 5 558		5 984		—
Consolidated entities		—		977			977		—		—
TOTAL — Change in cash position		1 987		- 2 594			- 4 581		5 984		—
Net borrowings
Consolidated Revenue Fund
New borrowings		6 612		10 075	1		3 463		4 278		8 853
Repayment of borrowings		- 4 316		- 3 861	1		455		- 5 245		- 3 813
		2 296		6 214			3 918		- 967		5 040
Consolidated entities2
New borrowings		5 339		4 802	3		- 537		7 082		7 614
Repayment of borrowings		- 2 265		- 2 652			- 387		- 2 893		- 2 144
		3 074		2 150			- 924		4 189		5 470
TOTAL — Net borrowings		5 370		8 364			2 994		3 222		10 510
Retirement Plans Sinking Fund and funds dedicated to employee future benefits		- 5 883		- 4 943			940		- 2 217		- 2 040
Generations Fund		- 742		- 701			41		- 715		- 880
TOTAL CONSOLIDATED FINANCING TRANSACTIONS		732		126			- 606		6 274		7 590

P:	Preliminary results for 2008-2009 and forecasts for subsequent years.
Note:	A negative entry indicates a financial requirement and a positive entry, a source of financing. For the change in cash position, a negative entry indicates an increase and a positive entry, a decrease.
1	Receipts totalling $1 558 million related to transactions carried out under the credit policy increase new borrowings by $848 million and reduce the repayment of borrowings by $710 million.
2	The data forecast in the March 2008 Budget have been adjusted to include the forecast for the net borrowings of Immobilière SHQ which was consolidated in 2007-2008.
3	Includes a $1 088-million increase in temporary borrowings.

D.51

TABLE D.27

Gouvernement du Québec
Summary of long-term borrowings in 2008-2009^P
(millions of dollars)

	Consolidated		Consolidated
Currency	Revenue Fund		entities1		Total		%
CANADIAN DOLLAR
Public issues		1 939		2 047		3 986		45.7
Private issues		1 971		1 667		3 638		41.7
Savings products		548		—		548		6.3
Immigrant Investor Program		540		—		540		6.2
Canada Pension Plan Investment Fund		5		—		5		0.1
Subtotal		5 003		3 714		8 717		67.4
OTHER CURRENCIES
Euro		1 975		—		1 975		46.8
Swiss franc		1 091		—		1 091		25.8
US dollar		996		—		996		23.6
Hong-Kong dollar		114		—		114		2.7
Yen		48		—		48		1.1
Subtotal		4 224		—		4 224		32.6
TOTAL		9 227		3 714		12 941		100.0

P:	Preliminary results.
1	Includes borrowings for the Financing Fund and borrowings of Financement-Québec.

D.52

TABLE D.28

Gouvernement du Québec

Borrowings for the Consolidated Revenue Fund in 2008-2009^P

Amount in			Face value
Canadian			in foreign		Interest			Date of	Date of		Price to		Yield to
dollars1			currency		rate2			issue	maturity		investor		investor3
(millions)					%						$		%
	511			—		5.00		April 7		2038-12-01		102.117		4.866
	1 975			€1 250		4.75	4	April 29		2018-04-29		99.922		4.760
	338			—		4.50		May 1		2018-12-01		98.680		4.659
	996			US$1 000		4.625		May 14		2018-05-14		99.399		4.701
	237		250 SF			3.375	4	May 19		2018-01-19		99.351		3.457
	452			—		5.00		June 16		2038-12-01		101.301		4.917
	529	5		—		1.797	6	June 20		2028-01-01		100.000		1.797
	48	5	5 000 yen			1.80		August 20		2018-08-20		100.000		1.800
	30	5		—		6.35		October 15		2065-09-21		120.022		5.242
	118	5		—		4.50		November 4		2026-12-01		114.877		3.392
	118	5		—		4.25		November 4		2031-12-01		115.258		3.300
	160	5		—		3.25		November 4		2036-12-01		99.182		3.295
	89	5		—		4.50		November 19		2026-12-01		114.848		3.394
	84	5		—		4.25		November 19		2031-12-01		115.223		3.302
	160	5		—		3.25		November 19		2036-12-01		99.145		3.297
	263		250 SF			3.50	4	November 21		2014-11-21		99.930		3.513
	3	5		—		5.10		December 1		2049-09-21		99.025		5.157
	12	5		—		5.10		December 1		2053-09-21		99.416		5.133
	10	5		—		5.10		December 1		2057-09-21		99.831		5.109
	8	5		—		5.10		December 1		2058-09-21		99.938		5.103
	6	5		—		5.10		December 1		2059-09-21		100.047		5.097
	100	5		—		3.25		December 15		2036-12-01		96.915		3.422
	117	5		—		4.50		December 16		2021-12-01		109.037		3.620
	173	5		—		4.25		December 16		2031-12-01		111.952		3.489
	492			—		4.50		December 19		2018-12-01		98.313		4.714
	38	5	HK$240			3.35	4	January 13		2014-01-13		100.000		3.350
	146			—		4.50		February 3		2018-12-01		99.664		4.542
	76	5	HK$472			3.00	4	February 11		2014-02-11		100.000		3.000
	293		275 SF			3.125	4	February 11		2015-12-11		99.414		3.223
	215		200 SF			3.875	4	February 11		2018-12-11		100.265		3.843
	25	5		—		5.00		February 11		2061-09-21		100.609		4.967
	83		75 SF			3.125	4	February 27		2015-12-11		101.883		2.817
	229	5		—	Various			March 2		2065-06-01		97.408		4.513
	548	7		—	Various			Various		Various	Various		Various
	5	8		—	Various			Various		Various	Various		Various
	540	9		—	Various			Various		Various	Various		Various
	9 227

P:	Preliminary results.
1	Borrowings in foreign currency given in Canadian equivalent of their value on the date of borrowing.
2	Interest payable semi-annually except if another frequency is indicated in a note.
3	Yield to investor is determined on the basis of interest payable semi-annually.
4	Interest payable annually.
5	Private borrowings.
6	Interest payable quarterly.
7	Savings products issued by Épargne Placements Québec.
8	Borrowings from the Canada Pension Plan Investment Fund.
9	Immigrant investor Program.

D.53

TABLE D.29

Gouvernement du Québec
Borrowings for the Financing Fund in 2008-2009^P

Amount in		Face value
Canadian		in foreign		Interest		Date of	Date of		Price to		Yield to
dollars		currency		rate1		issue	maturity		investor		investor2
(millions)				%					$		%
BORROWINGS FOR CONSOLIDATED ENTITIES
	155		—		4.50	May 1		2018-12-01		98.680		4.659
	55		—		5.00	June 16		2038-12-01		101.301		4.917
	477		—		4.50	October 31		2018-12-01		95.379		5.091
	352		—		4.50	February 3		2018-12-01		99.664		4.542
	1 039

P:	Preliminary results.
1	Interest payable semi-annually except if another frequency is indicated in a note.
2	Yield to investor is determined on the basis of interest payable semi-annually.

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TABLE D.30

Borrowings by Financement-Québec in 2008-2009^P

Amount in			Face value
Canadian			in foreign		Interest			Date of	Date of		Price to		Yield to
dollars			currency		rate1			issue	maturity		investor		investor2
(millions)					%						$		%
	63	3		—		5.25		May 5		2034-06-01		103.706		4.994
	42	3		—		5.25		May 22		2034-06-01		105.464		4.877
	505			—		4.25		May 26		2015-12-01		100.871		4.114
	600	3		—		4.09		October 6		2013-09-23		100.001		4.090
	95	3		—		5.25		October 20		2034-06-01		95.223		5.603
	38	3		—		5.25		October 28		2034-06-01		95.526		5.580
	59	3		—	Variable		4	November 20		2014-12-01		94.227	Variable
	503			—		4.25		December 15		2015-12-01		100.670		4.138
	23	3		—	Variable		4	January 20		2014-12-01		92.052	Variable
	498	3		—		3.25		February 17		2014-06-01		99.660		3.320
	115	3		—	Variable		4	February 18		2014-12-01		92.046	Variable
	69	3		—	Variable		4	February 25		2014-12-01		92.045	Variable
	65	3		—	Variable		4	March 2		2014-12-01		92.039	Variable
	2 675

P:	Preliminary results.
1	Interest payable semi-annually except if another frequency is indicated in a note.
2	Yield to investor is determined on the basis of interest payable semi-annually.
3	Private borrowings.
4	Interest payable quarterly.

D.55

TABLE D.31

Borrowings by Hydro-Québec in 2008¹

Amount in		Face value
Canadian		in foreign		Interest		Date of	Date of		Price to		Yield to
dollars		currency		rate2		issue	maturity		investor		investor3
(millions)				%					$		%
	503		—		5.00	February 19		2045-02-15		100.691		4.959
	500		—		5.00	April 25		2045-02-15		99.926		5.004
	515		—		5.00	May 16		2045-02-15		102.903		4.830
	513		—		5.00	September 2		2045-02-15		102.586		4.848
	2 031

1	Borrowings contracted from January 1 to December 31, 2008.
2	Interest payable semi-annually except if another frequency is indicated in a note.
3	Yield to investor is determined on the basis of interest payable semi-annually.

D.56

TABLE D.32

Investment policies as at January 1, 2009

(percent)

					Average reference
					portfolio of depositors
Specialized portfolio	RPSF		Generations Fund		as a whole1
Short-term securities		1.0		1.0		1.4
Bonds		29.0		36.0		27.4
Real return bonds		0.0		0.0		0.8
Long-term bonds		0.0		0.0		2.4
Total – Fixed income		30.0		37.0		32.0
Canadian equity		13.0		10.0		12.2
US equity – hedged		0.5		0.5		3.7
US equity – unhedged		2.0		1.5
Foreign equity – hedged		2.5		2.0		5.8
Foreign equity – unhedged		4.0		2.0
Emerging market equity		4.0		4.0		3.1
Québec International		9.5		15.0		9.5
Total – Stock markets		35.5		35.0		34.3
Investments and infrastructures		6.0		5.0		5.4
Private equity		8.0		6.0		7.9
Real estate debt		7.0		7.0		6.5
Real estate		8.5		7.0		9.1
Commodities		1.5		0.0		1.9
Hedge funds		3.5		3.0		2.9
Total – Other investments		34.5		28.0		33.7
TOTAL		100.0		100.0		100.0

1 Source: Caisse de dépôt et placement du Québec, Annual Report 2007. The annual report for 2008 has not been published yet.

D.57