Ontario successfully completed its annual borrowing program in 2013–14, despite the ongoing challenges that linger in the global financial markets. The Province borrowed $36.0 billion in 2013–14, capitalizing on the continuing low interest rate environment and strong demand for Ontario bonds.
The Province’s total funding requirement in 2014–15 has been increased by $1.6 billion compared to the 2013 Budget forecast primarily because of a higher projected deficit and borrowing on behalf of Infrastructure Ontario (IO). This higher projected deficit is largely due to lower federal transfers resulting, in part, from the federal government’s decision to allow Ontario’s major transfers to decline in 2014 and slower-than-forecast economic growth in 2013 and 2014, as well as strategic investments made as part of the 10-year plan for the economy to put the Province and its people in a position to succeed. However, long-term public borrowing in 2014–15 will be $2.6 billion lower than the 2013 Budget forecast, primarily as a result of preborrowing in 2013–14 and an increase in short-term borrowing to fund IO’s short-term funding requirements.
Cumulatively, since the 2012 Budget, long-term public borrowing is forecast to be lower by $4.5 billion for the three-year period from 2012–13 to 2014–15. This lower forecast is reflected in a $6.2 billion reduction in projected net debt over the same three-year period.
Strong global investor demand for Canadian-dollar assets, the liquidity of Ontario benchmark bonds and continuing confidence in the Province allowed Ontario to borrow 82 per cent in the Canadian-dollar market in 2013–14, which was well above the target of at least 70 per cent set out in the 2013 Budget. The Province completed 72 per cent of its borrowing in the Canadian-dollar market in 2012–13 and 81 per cent in 2011–12.
The Province’s domestic and international borrowing targets will remain the same in 2014–15 as Ontario once again plans to borrow at least 70 per cent in the Canadian-dollar market. This is in line with the historical average, and continues to represent a decline in the reliance on foreign markets seen during the financial crisis. In 2009–10, at the peak of the crisis, only 49 per cent of the Province’s issuance was in the Canadian-dollar market.
Given the low interest rates experienced in recent years, Ontario has been proactive in extending the term of its borrowing program. The weighted-average term to maturity of long-term Provincial debt issued has been extended significantly over the past four years.
Ontario was one of the first Canadian governments to issue ultra-long debt (bond issues with maturities greater than 30 years) to take advantage of these low rates, and has been very supportive of the development of this market. Since 1998, Ontario has issued over $3.8 billion of ultra-long debt, including $475 million of 50-year debt over the past two years.
Extending the term to maturity, in part through the use of ultra-long bonds, allows the Province to lock in low interest rates for a longer period, which reduces refinancing risks and helps offset the impact of expected higher interest rates on the Province’s interest on debt (IOD) costs.
While Ontario will continue to use ultra-long bonds and access this market when cost-effective opportunities become available, it will be used judiciously as a complement to Ontario’s 30-year borrowing program. Issuing ultra-long bonds can impact 30-year borrowing by potentially reducing further issuance opportunities and decreasing overall demand for Ontario’s 30-year debt.
Canadian-dollar borrowing was completed primarily through 32 syndicated issues, but also included floating rate notes, a bond auction, Ontario Savings Bonds and a medium-term note.
The U.S. dollar market remained an important source of funding for Ontario. About $6.6 billion, or 18 per cent, of borrowing was completed through global bonds in U.S. dollars.
For the second consecutive year, Ontario did not borrow in currencies other than Canadian or U.S. dollars. As part of its 30 per cent international issuance target for 2014–15, the Province will look to borrow in other currencies including euros, Japanese yen, Swiss francs, Australian dollars and U.K. pounds sterling if cost-effective opportunities become available. The purpose of borrowing in currencies other than Canadian dollars is to continue to diversify the Province’s investor base. This helps reduce Ontario’s overall borrowing costs and ensures that the Province will continue to have access to capital if market conditions become more challenging.
|Investment in Capital Assets||11.1||9.0||(2.1)|
|Loans to Infrastructure Ontario||0.6||0.6||–|
|Other Net Loans/Investments||0.9||0.6||(0.3)|
|Total Funding Requirement||44.5||41.7||(2.8)|
|Decrease/(Increase) in Short-Term Borrowing||(1.5)||(1.5)||–|
|Increase/(Decrease) in Cash, Cash Equivalents and Temporary Investments||(5.8)||(3.0)||2.8|
|Maturity of Debt Buybacks||(3.7)||(3.7)||–|
|Preborrowing for 2014–15||–||2.6||2.6|
|Total Long-Term Public Borrowing||33.4||36.0||2.6|
|Note: Numbers may not add due to rounding.|
The Province’s deficit for 2013–14 is now projected to be $11.3 billion — a $0.4 billion improvement compared with the 2013 Budget forecast. The total funding requirement for 2013–14 is now forecast to be $2.8 billion lower than the 2013 Budget forecast, primarily as a result of the lower deficit and investments in capital assets. However, given the favourable market conditions, the Province has borrowed the originally forecasted $33.4 billion long-term public borrowing requirement, as well as preborrowing an additional $2.6 billion. As noted earlier, this will reduce the amount of long-term borrowing required for fiscal 2014–15.
IOD expense is projected to be $10,556 million for 2013–14, which is $49 million lower than forecast in the 2013 Budget, primarily reflecting Ontario’s lower-than-forecast cost of borrowing relative to Canada and cost-effective debt management. For 2014–15, IOD is projected to be $11,010 million, which is $138 million lower than forecast in the 2013 Budget, primarily reflecting a lower forecast for Ontario’s interest rates.
|Investment in Capital Assets||10.2||10.3||10.2|
|Loans to Infrastructure Ontario||1.8||1.4||0.8|
|Other Net Loans/Investments||(0.5)||1.1||0.2|
|Total Funding Requirement||41.5||37.6||33|
|Canada Pension Plan Borrowing||–||–||(0.1)|
|Decrease/(Increase) in Short-Term Borrowing||(2.4)||–||–|
|Increase/(Decrease) in Cash, Cash Equivalents and Temporary Investments||(1.4)||–||–|
|Preborrowing from 2013–14||(2.6)||–||–|
|Total Long-Term Public Borrowing||35.0||37.6||32.9|
|Note: Numbers may not add due to rounding.|
The Province’s total long-term public borrowing in 2014–15 is forecast to be $35.0 billion, $1.0 billion lower than the amount borrowed in 2013–14, and $2.6 billion less than forecast for 2014–15 in the 2013 Budget. Planned long-term public borrowing in 2015–16 is projected to be $0.6 billion higher than the forecast in the 2013 Budget, primarily because of the larger deficit. Long-term public borrowing is then forecast to decline by $4.7 billion the following year to $32.9 billion in 2016–17.
Infrastructure Ontario borrows from the markets to provide loans for infrastructure development to the broader public sector, including municipalities. From 2014–15 onwards, IO’s borrowing will be undertaken directly by the Province through the Ontario Financing Authority. This centralization will allow borrowing to be conducted in a more cost-effective manner, resulting in overall interest savings. While the Province’s funding requirement will increase in order to fund IO’s loans, net debt will not be affected as IO’s borrowing in the public markets will be reduced by an identical amount.
To meet its funding requirements, Ontario will continue to be flexible, monitoring Canadian-dollar and international markets, issuing bonds in different terms and currencies, and responding to investor preferences.
The government will seek approval from the Legislature for borrowing authority to meet the Province’s requirement.
In the 2013 Ontario Economic Outlook and Fiscal Review, the Minister of Finance announced that Ontario intended to be the first province in Canada to issue green bonds. These bonds will be an important tool to help Ontario finance transit and other environmentally friendly projects across the province, and will take advantage of Ontario’s ability to raise funds at low interest rates.
Over the past six months, Ontario has held discussions with investors, underwriters, international issuers of green bonds and third-party environmental experts to ensure that Ontario’s green bonds will appeal to as many investors as possible. Working in close collaboration with various stakeholders and government agencies, Ontario is developing a robust green bond framework that will align with Ontario’s environmental policies and climate objectives.
The world market for green bonds is rapidly evolving, and Ontario sees value in adhering to recommended green bond principles that support transparency, disclosure and integrity in the development of the green bond market. Furthermore, to help foster investor confidence in this developing market, Ontario will retain third-party environmental experts to provide independent verifications of its green bond framework. This may include obtaining second opinions on the green bond framework or applying for green bond certification once recognized standards for environmental projects are put in place.
Ontario expects to be in a position to issue its first green bond in early fiscal 2014–15 and is planning to launch this issue domestically to help establish a Canadian-dollar green bond market. This issuance will solidify Ontario’s presence in the green bond market and bring visibility to the province by encouraging investments in sustainable projects.
The Province intends to issue these bonds with the same yield as Ontario bonds of comparable term and size. When the market for green bonds in Canada has had time to develop sufficiently, Ontario will examine opportunities to sell green bonds directly to retail investors if they can be undertaken in a cost-effective manner.
Ontario continues to have preferred access to the bond and money markets, both domestically and internationally. The Province uses a variety of tools to ensure that it will continue to have unhindered access to capital as needed, whether this is in stable markets like in 2013–14, or in difficult conditions, such as in 2009–10.
In 2013–14, the Province was able to take advantage of a robust domestic market to complete 82 per cent of its long-term borrowing requirement through syndicated bonds, floating rate notes, a bond auction, Ontario Savings Bonds and a medium-term note. The Province also plans to issue green bonds in the Canadian market in 2014–15. This ability to issue debt targeted at a variety of buyers allows the Province to borrow cost-effectively and have access to markets even during difficult conditions.
The Province has also been very successful in reopening existing syndicated bond issues and is able to accommodate investors demanding significant amounts of Ontario debt through its large order procedure. This allows the Province to raise cash cost-effectively over a short period of time.
While access remained particularly strong during 2013–14 in the domestic market, where the Province has traditionally done most of its borrowing, the U.S. dollar market continued to provide an excellent platform to complete the remaining 18 per cent of the 2013–14 borrowing requirement. The Province regularly accesses the U.S. dollar market, having borrowed $23.0 billion in U.S. dollars over the past three years. Ontario’s most recent U.S. dollar issuance was a highly successful, five-year benchmark bond for $2.0 billion in January 2014, which attracted over 90 investors and had strong interest from official institutions in the Americas and Europe. Ontario’s U.S. dollar bonds tend to be large benchmark issues that are actively traded and highly liquid.
While Ontario has not borrowed in currencies other than Canadian and U.S. dollars for the past two years, the Province continues to remain vigilant for cost-effective borrowing opportunities in other currencies. Ontario also works to strengthen its diverse investor base through its investor relations initiatives. It maintains strong working relationships with global investment dealers, issuers and other industry experts. In addition, the Province provides up-to-date investor information products and regular updates on the status of Ontario’s borrowing program through the Ontario Financing Authority’s website.
This vigilance, combined with attention to international markets and investors, has been rewarded during times of challenging market conditions, such as in 2009–10 at the peak of the financial crisis, when borrowing in the domestic market was difficult. Ontario completed 51 per cent of its $43.8 billion, 2009–10 borrowing requirement in international markets through global issues in U.S. dollars, euros, Swiss francs and Hong Kong dollars. Overall, the Province maintains a diverse international investor base, having issued bonds in more than 10 different currencies over the past decade and attracting investors from all over the globe.
The Province will remain flexible in its borrowing approach by monitoring all major markets, and seeking the most cost-effective means, over the long term, to finance Ontario’s borrowing program. This will include continuing to reach out to investors and investment banks, domestically and globally, to ensure that Ontario bond issues will remain highly attractive, liquid and sought after, as they have been since Ontario first began accessing public markets almost 25 years ago.
Ontario actively manages its ability to meet its financial obligations through the maintenance of a liquid reserve portfolio and the use of short-term borrowing. The Province has consistently maintained high levels of unrestricted liquid reserves since the financial crisis, averaging $24.9 billion for 2013–14, $23.3 billion for 2012–13 and $20.2 billion for 2011–12.
The Province’s short-term borrowing program in the Canadian and U.S. dollar money markets is relatively small, accounting for only 8.4 per cent of Ontario’s debt. The unused short-term borrowing capacity that this leaves, combined with the high levels of unrestricted liquid reserves, ensures that the Province will always have adequate liquidity to meet its financial obligations.
The Ontario Electricity Financial Corporation (OEFC) inherited $38.1 billion in total debt and other liabilities from the former Ontario Hydro when the Ontario electricity sector was restructured on April 1, 1999. A portion of the $38.1 billion was supported by the value of the assets of Ontario Hydro successor companies, leaving $20.9 billion of stranded debt not supported by those assets.
Interim 2013–14 results for the OEFC show an estimated excess of revenue over expense of $1.2 billion, reducing the Corporation’s unfunded liability (or “stranded debt of the electricity sector”) from $11.3 billion as of March 31, 2013, to $10.1 billion as of March 31, 2014.
Projected 2014–15 OEFC results are an excess of revenue over expense of $1.3 billion, which would reduce the unfunded liability to $8.8 billion as of March 31, 2015.
This is the tenth consecutive year of stranded debt reduction, following the period between 1999 and 2004, when OEFC’s unfunded liability increased by about $1 billion and while there was underinvestment in electricity supply and transmission infrastructure.
Since 2004, the government’s electricity sector reforms in the Electricity Restructuring Act, 2004, and others, have put the stranded debt recovery plan back on track, while at the same time resulting in significant investments in the electricity sector.
As published in the 2013 Ontario Economic Outlook and Fiscal Review, the Minister of Finance determined the residual stranded debt to be $3.9 billion as of March 31, 2013. Under Ontario Regulation 89/12, the determination of residual stranded debt as of March 31, 2014, will be made by the Minister of Finance after the OEFC submits to the Minister its annual report, including the audited financial statements, and by no later than March 31, 2015.
The Auditor General audits OEFC’s annual financial statements and has provided an unqualified opinion every year since the initial 1999–2000 financial statements. This includes OEFC’s interest expense, which is currently about $1.5 billion per year and has totalled about $29.2 billion between April 1, 1999, and March 31, 2014.
As confirmed in the Auditor General’s 2011 Annual Report, the DRC is used exclusively by OEFC to meet its mandate, as provided for under the Electricity Act, 1998, which includes servicing and retiring its debt and other liabilities.
The Auditor General’s 2012 and 2013 Annual Reports also noted that the Auditor was pleased to see an increased level of transparency with respect to public reporting on the residual stranded debt.
As part of Ontario’s plan to lower pressure on electricity rates for residential customers, the government is proposing to remove the DRC cost from residential electricity users’ electricity bills, after December 31, 2015, once the Ontario Clean Energy Benefit (OCEB) ends.
The charge would remain on all other electricity users’ bills until the residual stranded debt is retired — currently estimated to occur by the end of 2018, in line with the previous estimated range in the 2013 Ontario Economic Outlook and Fiscal Review.
The estimated timing for residual stranded debt retirement is subject to uncertainty in forecasting future OEFC results and dedicated revenues to OEFC, which depend on the financial performance of Ontario Power Generation, Hydro One and municipal electrical utilities, as well as other factors such as interest rates and electricity consumption.
Total debt, which represents all borrowing without offsetting financial assets, is projected to be $295.8 billion as of March 31, 2014, compared to $281.1 billion as of March 31, 2013, and a forecast of $290.9 billion in the 2013 Budget. Total debt is higher than the 2013 Budget forecast as a result of the $2.6 billion in preborrowing for 2014–15 completed during the 2013–14 fiscal year, as well as debt issued at a discount and foreign exchange debt revaluations.
Ontario’s net debt is the difference between total liabilities and total financial assets. Ontario’s net debt is projected to be $269.2 billion as of March 31, 2014 (March 31, 2013, $252.1 billion). This projection for March 31, 2014, is $3.6 billion below the forecast of $272.8 billion in the 2013 Budget, and lower than the forecast of $279.8 billion in the 2012 Budget. This includes the broader public sector’s net debt of $14.2 billion (March 31, 2013, $13.9 billion).
The Province’s net debt-to-GDP ratio is projected to be 38.9 per cent at the end of fiscal 2013–14, compared to the 39.3 per cent forecast in the 2013 Budget, and the 40.8 per cent forecast in the 2012 Budget. This ratio is expected to peak at 40.8 per cent in 2015–16, slightly higher than the 40.4 per cent forecast in the 2013 Budget, but lower than the 41.3 per cent forecast in the 2012 Budget.
The government continues to maintain a target of reducing Ontario’s net debt-to-GDP ratio to its pre-recession level of 27 per cent.
The effective interest rate (on a weighted-average basis) on total debt is estimated to be 3.9 per cent as of March 31, 2014 (March 31, 2013, 4.1 per cent, and March 31, 2012, 4.4 per cent). This rate has continued to drop in spite of the Province extending the term of its debt issued to reduce refinancing risks. For comparison, on March 31, 1991, the effective interest rate on total debt was 10.9 per cent.
For 2014–15, the impact of a one percentage point change in interest rates on IOD is approximately $400 million for the Province.
Total debt consists of bonds issued in the public capital markets, non-public debt, treasury bills and U.S. commercial paper.
Public debt, as of March 31, 2014, totals $282.9 billion, primarily consisting of bonds issued in the domestic and international public markets in 10 currencies. Ontario also has $12.9 billion outstanding in non-public debt issued in Canadian dollars. Non-public debt consists of debt instruments issued mainly to public-sector pension funds in Ontario and the Canada Pension Plan Investment Board. This debt is not marketable and cannot be traded.
The Province continues to take a very prudent approach to managing the risks associated with its borrowing program. Liquid reserves averaged $24.9 billion in 2013–14, ensuring that the Province will always have adequate liquidity to meet its financial obligations. Ontario has also been proactive in extending the term of its borrowing to reduce refinancing risk and exposure to changes in interest rates. The average term of borrowing in 2013–14 was 13.6 years.
Ontario limits itself to a maximum net interest rate resetting exposure of 35 per cent of debt issued for Provincial purposes and a maximum foreign exchange exposure of five per cent of debt issued for Provincial purposes. As of March 31, 2014, the interim values for net interest rate resetting exposure and foreign exchange exposure were 11.0 per cent and 0.4 per cent respectively. All exposures remained well below policy limits in 2013–14.
The Province uses derivatives, which are a type of financial contract, to manage risk exposure and minimize interest costs. The use of derivatives allows the Province to offset existing obligations and convert them into obligations with more desirable characteristics. Specifically, the Province uses interest rate swaps and currency swaps to reduce the risks associated with issuing bonds in different currencies and hedge interest costs.
This hedging process may become more complex due to the Dodd-Frank Act and Basel III regulations. Hedging may also become more expensive if proposals such as financial transaction taxes or mark-to-market derivatives taxes are legislated and implemented in Europe or the United States.
Initiatives that assist regulators in ensuring the future stability of capital markets are welcome. However, it must be recognized that these initiatives may increase the cost of hedging through substantially higher transaction costs and capital charges on the Province’s counterparties.
The Province’s consolidated derivative portfolio for 2013–14 (as of March 19, 2014) had a notional value of $198.8 billion (2013, $199.0 billion), which consisted of $117.6 billion (2013, $117.0 billion) in interest rate swaps, $54.6 billion (2013, $61.9 billion) in cross-currency swaps, $25.9 billion (2013, $19.3 billion) in forward foreign exchange contracts, and $0.7 billion (2013, $0.8 billion) in swaptions. Notional amounts represent the volume of outstanding derivative contracts and are not indicative of credit risk, market risk or actual cash flows.
|Publicly Held Debt|
|U.S. Commercial Paper2||3,087||3,242||4,701||6,611||8,388||8,388|
|Infrastructure Ontario (IO)3||1,920||1,989||1,854||1,909||1,625||950|
|Canada Pension Plan Investment Fund||10,233||10,233||10,233||10,233||10,233||10,233|
|Ontario Immigrant Investor Corporation||929||1,063||1,185||1,108||1,111||842|
|55 School Board Trust||797||779||759||739||726||704|
|Public Service Pension Fund||1,713||1,403||1,048||656||225||–|
|Canada Mortgage and Housing Corporation||755||696||635||569||501||430|
|Ontario Public Service Employees' Union Pension Fund (OPSEU)||814||667||498||312||107||–|
|Ontario Teachers' Pension Fund||1,765||1,205||625||–||–||–|
|Cash and Temporary Investments||(17,102)||(22,416)||(21,180)||(29,037)||(23,518)||(20,250)|
|Total Debt Net of Cash and Temporary Investments||195,020||214,213||236,098||252,028||272,252||290,299|
|Other Net (Assets)/Liabilities4||(15,598)||(13,261)||(14,862)||(13,839)||(17,311)||(15,390)|
|Broader Public Sector(BPS) Net Debt||14,167||13,559||14,346||13,899||14,214||14,342|
|1 Includes debt issued by the Province and Government Organizations, including OEFC.|
|2 All balances are expressed in Canadian dollars. The balances above reflect the effect of related derivative contracts.|
|3 Infrastructure Ontario's (IO) interim 2013–14 debt is composed of Infrastructure Renewal Bonds ($950 million) and short-term commercial paper ($675 million). IO's debt is not guaranteed by the Province.|
|4 Other Net (Assets)/Liabilities include accounts receivable, loans receivable, investments in government business enterprises, other assets, accounts payable, accrued liabilities, deferred revenue and capital contributions, pensions and other employee future benefits, and other liabilities.|
|5 Non-financial assets include the tangible capital assets of the Province and broader public sector.|
|Source: Ontario Ministry of Finance.|
|Cash and Temporary Investments||(20.2)||(20.2)|
|Total Debt Net of Cash and Temporary Investments||306.3||317.5|
|Other Net (Assets)/Liabilities||(14.9)||(13.5)|
|Broader Public Sector (BPS) Net Debt||13.9||13.2|
|Note: Numbers may not add due to rounding.|
|Fiscal Year Payable|
|Debt Issuedfor Provincial Purposes||204,123||52,934||1,531||6,579||4,460||269,627||253,729|
|1 Other currencies include Australian dollar, New Zealand dollar, Norwegian kroner, Swiss franc, Hong Kong dollar and South African rand.|
|2 The longest term to maturity is to June 2, 2062.|
|3 The foreign currency denominated debt for Interim 2013–14 is $67.3 billion (2012–13, $68.2 billion). Of that, $65.9 billion or 97.9 per cent (2012–13, $66.3 billion or 97.1 per cent) was fully hedged to Canadian dollars.|
As at March 31, 2014, the weighted average term of borrowings was 13.6 years. The average term to maturity of new long-term Provincial borrowing has been extended significantly from 8.6 years in 2008–09.
The Province’s 2013–14 borrowing program totalled $36.0 billion, and consisted of $25.5 billion of syndicated bonds, $2.3 billion of domestic floating rate notes, $0.02 billion domestic medium-term notes, $0.4 billion of Ontario Savings Bonds, a $1.1 billion domestic bond auction, and $6.6 billion of U.S. dollar global bonds.
The Province’s 2013–14 borrowing program totalled $36.0 billion. $29.4 billion, or 82 per cent, was borrowed in the domestic market and $6.6 billion, or 18 per cent, was borrowed in the international market.
As at March 31, 2014, the average unrestricted liquid reserve was $24.9 billion. The average unrestricted liquid reserve level has been steadily increasing from $8.3 billion in 2008–09.
As at March 31, 2013, as determined by the Minister of Finance, the residual stranded debt was $3.9 billion, a decrease of about $0.6 billion compared to residual stranded debt of $4.5 billion as at March 31, 2012, and a decrease of an estimated $8 billion from the estimated peak of $11.9 billion as at March 31, 2004.
Net debt-to-GDP ratio is projected to be 38.9 per cent as at March 31, 2014. The net debt-to-GDP is projected to peak at 40.8 per cent in 2015–16.
The accumulated deficit-to-GDP ratio is projected to be 25.6 per cent as at March 31, 2014. The accumulated deficit-to-GDP is projected to peak at 26.5 per cent in 2014–15 and 2015–16.
As at March 31, 2014, the interim effective interest rate (calculated as a weighted average) is 3.9 per cent on the Province’s total debt. This compares with 4.1 per cent in 2012–13 and 4.4 per cent in 2011–12. The effective interest rate has been steadily decreasing from 10.9 per cent in 1990–91.
As at March 31, 2014, the Province’s total debt was $295.8 billion, and consisted of $198.9 billion of domestic bonds, $12.9 billion of non-public debt, $21.2 billion of treasury bills and U.S. commercial paper, and $62.8 billion of international bonds.
The Province’s interim net interest rate resetting exposure, calculated as a percentage of the debt issued for Provincial purposes was 11.0 per cent on March 31, 2014. This compares to 8.9 per cent as at March 31, 2013, and 8.3 per cent as at March 31, 2012. The interest rate exposure limit is set at 35 per cent.
The Province’s interim foreign exchange exposure, calculated as a percentage of the debt issued for Provincial purposes, was 0.4 per cent as at March 31, 2014. This compares to 0.8 per cent as at March 31, 2013, and 1.0 per cent as at March 31, 2012. The foreign exchange exposure limit is set at 5 per cent.