Post on 16-Dec-2015
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Treasury Appetizer Game
Requirements:•- 4 players (Treasury and 3 line ministries), One table•- budget size €119 billion, paid in quarterly tranches
Rules:•- Each line ministry spends according to approved budget•- Line ministries can put left over funds on a bank account
Three simulations:•1. ‘Standard’ developing country (no TSA and no transparency)•2. one Treasury Single Account (+ full transparency)•3. also a domestic capital market (interest rate 25%)
• 1. Definition and objectives
• 2. Problems with poor cash management
• 3. Efficient Cash Management
• 4. Cash flow forecasting
• 5. Treasury Single Account
• 6. Debt Management
Module Outline
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What is treasury management? Process of efficiently managing the
financial resources (cash and debt management) required to execute budget
1. Definitions and objective
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Treasury Management
Treasury Management
Debt Management
Debt Management
Cash Management
Cash Management
Cash management:
Avoid disruptive cash rationing
Avoid payments arrears
Support smooth financing of expenditure plans: use cash and minimize short-term borrowing costs
1. Definitions and objectives
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1. Definitions and objectives
Cash Management:
Optimize use of cash resources: surplus cash invested in interest-earning financial assets
Conduct cost-effective borrowing operations
Consistency with the monetary policy
• 1. Definition and objectives
• 2. Problems with poor cash management
• 3. Efficient Cash & Debt Management
• 4. Cash flow forecasting
• 5. Treasury Single Account
• 6. Debt Management
Module Outline
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Macro-economic instability: revenues unpredictable & shortfalls lead to in-year budget cuts
Unpredictable in-year reallocations between MDAs
Payments arrears accumulate, as MDAs enter into spending commitments that may be consistent with approved budget, but not supported by cash availability
2. Problems with poor cash management
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“Cash rationing” accompanied by commitment controls used as a means of controlling expenditure according to cash availability
Budget support from donors useful if it is predictable. Unpredictable budget support leads to same problems as unpredictable revenues
2. Problems with poor cash management
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Cash rationing opposite of efficient cash management. Will have adverse impact on service delivery
Danger is ”institutionalisation” of cash rationing, after need for IMF programs and cash rationing has gone
2. Problems with poor cash management
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• 1. Definition and objectives
• 2. Problems with poor cash management
• 3. Efficient Cash Management
• 4. Cash flow forecasting
• 5. Treasury Single Account
• 6. Debt Management
Module Outline
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3. Efficient cash management
One Account
Efficient Cash management Efficient Cash management
On time payment
s
On time payment
s
Idle cash deposite
d
Idle cash deposite
d
Cash Invested (short term deposits)
Principles of Cash Management
Donor funding on time
How to do this?
A pre-condition: sound budget preparation discussed in previous units
Weekly/monthly cash flow forecasting (revenue & donor funding, spending)
One unit in charge - cash management unit
Treasury Single Account (TSA)
Recording, monitoring and management of debt
3. Efficient Cash Management
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• 1. Definition and objectives
• 2. Problems with poor cash management
• 3. Efficient Cash & Debt Management
• 4. Cash flow forecasting
• 5. Treasury Single Account
• 6. Debt Management
Module Outline
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4. Cash flow forecasting
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Annual budget
Ministries
Departments
Agencies
Sub National
Monthly Revenue & Expenditure Forecasting
CashManagementUnit
CashManagementUnit
A cash plan
1 2 3 4 5 6 7 8 9 10 11 12Expenditures
PersonnelGoods and ServicesInterestsTransfersInvestment/domestic fund
ResourcesRevenuesBudget support
----> Investment/borrowing
• Cash plans should be updated monthly, but
• Cash plans should be announced in advance• To MDA• To the domestic financial market, if used for
borrowing
• Use in preparing borrowing plans or cash rationing • Do they take into account effectively
procurement plans?
Some issues
• 1. Definition and objectives
• 2. Problems with poor cash management
• 3. Efficient Cash & Debt Management
• 4. Cash flow forecasting
• 5. Treasury Single Account
• 6. Debt Management
Module Outline
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• Definition of Treasury Single account:
A bank account or a set of linked bank accounts used for all/most government transactions
• In case of linked bank accounts it are “zero” balance accounts: any balances “swept” back into TSA each day.
Treasury Single Account (TSA)
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• Advantages• No more idle balances in MDAs' bank accounts• Idle cash balances in TSA invested in interest
earning financial assets• TSA facilitates accounting control through bank
reconciliations • TSA facilitates timely & comprehensive accounting
statements/reports, which, in turn, facilitate cash flow forecasting
5. Treasury Single Account
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Different types of Treasury Single Account •The Treasury releases funds into MDA sub-accounts in central bank or treasury-controlled MDA accounts in commercial banks which are the Treasury’s fiscal agent
•The MDA bank provides to the MDA overdraft facilities up to a cash limit notified by the Treasury. The MDA bank is reimbursed daily by the Treasury (Sri Lanka –Colombo)
5. Treasury Single Account
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5. Treasury Single Account Case 1. Payment via centralised Treasury
Case 2. Payment via spending agencies' bank accounts
Spending Agency
Treasury Banking system
Supplier
Treasury
Payment order
Check
Clearance Ceilings
Transfer
SpendingAgency
BankingSystem
Supplier
Banking system
Fiscal Agent
Retail Bank
Supplier Account
Central Bank TSA
Payments
Receipts
Daily
Not common in all countries In many countries there are still hundreds of MDA bank accounts
Idle cash balances may lie in these accounts, resulting in lower interest earnings and higher interest expenses through unnecessary borrowing
5. Treasury Single Account
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Not common in all countries: Even if centralised TSA, donor-funded projects accounts are often kept outside the TSA and the Treasury controls
There is domestic resistance to the implementation of the TSA. Multiple bank accounts facilitate budget ring-fencing and potentially corrupt behaviour
Establishing TSA may require strong political leadership
5. Treasury Single Account
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• 1. Definition and objectives
• 2. Problems with poor cash management
• 3. Efficient Cash & Debt Management
• 4. Cash flow forecasting
• 5. Treasury Single Account
• 6. Debt Management
Module Outline
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• Debt management coordinated with cash management:
• Do not borrow unnecessarily if have liquid assets
• Debt management unit in same department as cash management unit
6. Debt Management
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• Only borrow:
• When no grant-financing alternatives available
• For medium/long term borrowing
• Best loan financing option selected:
• Take into account floating/fixed rate interest rate options, maturity, grace period, currency
• Use concessional (e.g. IDA) debt options if available low interest rate, long grace and repayment periods
6. Debt Management
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6. Debt management
• Good debt management information system: comprehensive, accurate, timely
• Use IT packages, for example:
• DMFAS (UNCTAD)
• CS-DRMS (CommonWealth)
Loan Guarantees
Government needs clear strategy for issuing guarantees to guard against contingent liabilities becoming actual liabilities
Includes guarantees to sub-national governments, state owned enterprises & private companies
6. Debt Management
Key Messages
• Efficient cash management recognises the opportunity costs of cash
• minimise idle cash held by government bodies• increase certainty that payments are made
properly by the due date
• Should avoid recourse to cash rationing