Cash Management

September 23, 2013

Training the Trainers Program Builds Capacity in Bangladesh

Posted by Chita Marzan

With the objective of building capacity in macro-fiscal analysis and cash management in Bangladesh, a training program was conducted by the IMF Fiscal Affairs Department (FAD) and the Bangladesh Ministry of Finance from July 27 to August 5, 2013 in Dhaka. Two training modules were delivered. The module on Macro-fiscal Analysis included topics such as budget and revenue forecasting, fiscal balance and stabilization, debt dynamics, and the use of a statistical software called Econometric Views (E-Views). The Cash Management module included concepts of cash forecasting and the treasury single account, and their application to debt management and budget management.

The course was the second to take place in the country since 2012. A year ago, a first batch of Bangladesh officials mainly from the Ministry of Finance were trained jointly by FAD and the Singapore Training Institute (STI) on similar topics. Following the success of this initiative, the authorities expressed enthusiasm to train more staff in the Ministry, the Bangladesh Central Bank and the Planning Commission.

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February 08, 2013

New FAD Technical Note and Manual: Cash Management and the Relationship Between Treasury and Central Bank

Posted by Renaud Duplay

Cash management is one of the main issues when reforming PFM systems in developing countries. Bad cash management is costly because it hampers budget execution, causes arrears and increases funding costs. For this reason the Fiscal Affairs Department (FAD) has already released two Technical Notes and Manuals (TNMs) on this subject and is now releasing further guidance material. A new TNM, prepared by Mario Pessoa and Mike Williams, expands the review of cash management issues by specifically addressing the relationship between the treasury and the central bank.  

The note was prepared at the request of the Latin American Treasurers' Forum (FOTEGAL) and addresses both institutional and technical issues and is particularly relevant to developing countries. Based on international experience, the TNM describes the modern framework of a formalized relationship between both institutions standing on two key principles:

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August 07, 2012

New PFM Newsletter in Khmer

Posted by Chita Marzan

The IMF Technical Note and Manual on Modernizing Cash Management has recently been translated into Khmer (attached below), and more such translations are now underway. An article on this technical note and manual (TNM) was featured in the first PFM Newsletter in Cambodia (also below) which was launched in May 2012. This newsletter is a joint effort of Mr. Suhas Joshi, PFM Regional Advisor for Southeast Asia of the IMF Fiscal Affairs Department (FAD), and Mr. Seng Sreng, Director of the Economics and Finance Institute (EFI) of Cambodia. Another article focused on gender-budgeting describing the practices in Pacific Island countries.

The PFM Newsletter evolved from an idea to set up a knowledge exchange group which would connect all the participants of joint IMF/EFI lectures on PFM by email and also through a quarterly newsletter. The newsletter is expected to cover developments in the field of PFM and to bring to the recipients improvements in this field from across the world and in Cambodia itself. The newsletter is to be sent out every quarter jointly with the EFI and also aims to establish a forum for PFM practitioners in Cambodia to exchange ideas and knowledge, and to widen the dissemination of available materials that are relevant for the improvement of PFM in the country. Improving cash management is one of the key objectives of the PFM Reform Program (PFMRP) of the Royal Government of Cambodia. The newsletter is available both in Khmer and in English so that country officials have greater access to international developments in the PFM area.

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February 16, 2012

Modernización de la gestión de caja

Juan Ramón Ruiz

TNM_09_03_SPA_web (2) Lienert 1
¿Cuáles son los principales objetivos de una gestión de caja moderna? ¿Cuáles son las buenas prácticas de gestión de caja en los países desarrollados? ¿Cuáles son las características principales del marco para la planificación de caja a corto plazo? ¿Cuáles son los principales desafíos que se deben abordar para mejorar la gestión de caja en los países de ingreso bajo y mediano? ¿Qué secuencia deberían seguir las reformas de la gestión de caja?

Estas son las preguntas que responde la Nota Técnica elaborada por Ian Lienert. Esta Nota indica que una gestión de caja eficaz contribuye al cumplimiento ordenado de las metas operativas de la política fiscal, la estrategia de gestión de la deuda pública y la política monetaria. Los cuatro objetivos principales de una gestión de caja moderna son: (1) garantizar que se disponga de fondos en efectivo suficientes para pagar los gastos en el momento de su vencimiento; (2) obtener préstamos sólo cuando sea necesario y minimizar los costos del endeudamiento público; (3) maximizar el rendimiento de los saldos de caja inactivos, y; (4) gestionar los riesgos, invirtiendo los excedentes temporales de manera productiva y con garantías adecuadas.

La Nota Técnica distingue nueve características importantes que pueden observarse en  la gestión de caja moderna y eficaz en los países avanzados de la Organización para la Cooperación y Desarrollo Económico (OCDE), de las cuales seis de ellas tienen carácter fundamental, y otras tres son recomendadas. Entre ellas tiene especial importancia la centralización de los saldos de caja del gobierno, estableciendo un sistema de Cuenta Única de Tesorería (CUT).

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December 19, 2011

New Flyer on "Government Finance Statistics: Cash and Accrual Data"

Posted by Claudia Dziobek and Phebby Kufa, Statistics Department, IMF

A state-of-the-art fiscal data presentation should follow a balance sheet approach similar to the private sector accounting. The main principles are laid out in the Government Finance Statistics Manual 2001 (GFSM 2001). Some policy makers and fiscal analysts assume incorrectly that theGFSM 2001 requires onlythe accrual-recorded data, which may imply substantial reform of the fiscal reporting and government accounting system.

This assumption is only partially true. The GFSM 2001 in fact requires both, cash and accrual-based data. The misconception has contributed to delays in phasing-in the GFSM 2001 framework for various purposes e.g. budgeting, auditing, or macroeconomic analysis.

A new flyer on Government Finance Statistics: Cash and Accrual Data was prepared to address this misconception. It explains why both the cash-recorded and accrual-recorded data are needed for fiscal management. Cash-recorded data are used to produce a cash flow statement, which explains changes in the stock of cash and deposits, helps control payments, and determines the cash-financing gap. Accrual-recorded data are presented in an operation statement, which links in with the balance sheet. These accrual-based data better capture economic events and are needed for macroeconomic analysis.

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August 10, 2011

Cash Management: More Than Just Public Financial Management

Posted by Greg Horman

The overriding objective of cash management is to ensure that the government is able to fund its expenditure in a timely manner and meet its obligations as they fall due. Cost-effectiveness, risk reduction, and operational efficiency are also important. Cash management is a critical, albeit not so visible, dimension of effective public financial management, with important linkages to monetary policy implementation. More precisely, cash management encompasses two distinct but related activities: cash flow forecasting and cash balance management. The former is concerned with these questions: (i) Over a given time period (daily, weekly, monthly, and so on), what is the volume of the government’s aggregate cash inflows and outflows? (ii) At the end of each time period, what is the balance of cash at hand? The latter is concerned with this question: (iii) What actions does the government take to ensure that it has the “correct” amount of cash at hand at any point? This posting highlights some of the issues related to managing cash balances, which is not very well covered in the public financial management literature.

Changes in the daily cash balance of the treasury single account (TSA), domiciled at the central bank, are mirrored by changes in banking sector liquidity. Indeed, they may be the most significant autonomous influence on liquidity. The central bank takes these changes into account in its monetary policy operations. Effective cash management is characterized by agreement between the ministry of finance and the central bank on the flow of information from the ministry of finance to the central bank on the likely future size of the TSA. Ideally, this should be provided in real time, or at least before the start of each day. Insofar as the ministry of finance can manage its cash flows reasonably tightly around a target balance for the TSA, the government’s cash balance becomes largely neutral for monetary policy purposes.

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June 17, 2011

How Can Development Partners Decrease Fiduciary Risk in the Caribbean?

Posted by Mark Silins

Most agree that moving towards a treasury single account makes sense.[1]  It means countries need to reconcile only one or a small number of accounts, cash balances are consolidated allowing idol positive balances to offset any overdraft, controls are enhanced (as all receipts are collected in a common way), and payments are paid only when consistent with appropriation and warrant authority.

Why then do many development partners insist on new bank accounts for each project?  It is clear that development partners are concerned, particularly in the current cash-challenged times, that their earmarked grants or loans are only used for the purpose prescribed. However, in my opinion, requiring a separate bank account for each project is not the best solution. In fact, in many cases this approach reduces internal controls.

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March 28, 2011

2nd Annual Regional Seminar of the Latin American Treasurers Held in Mexico City (March 16-18, 2011)

Posted by Israel Fainboim

An initiative launched by the Fiscal Affairs Department (FAD) of the IMF two years ago and supported by the Inter American Development Bank and the World Bank, to create a forum for the Latin American Treasurers to discuss treasury management issues on a regular basis, organize an annual seminar, and create a web page for exchanging ideas and materials, has been a success.

In April 2010 the Peruvian Treasury, under the direction of Mr. Carlos Diaz, did an excellent job in hosting the first seminar on treasury management. The 2010 seminar discussed cash planning, cash balance targeting, the adoption of a treasury single account (TSA), and the use of information systems for treasury and cash management. During that seminar the treasurers agreed to get organized, to propose an action plan, and to develop a web page. These and other objectives were included in a document signed by all of them, which was called the “Lima Declaration.”

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August 16, 2010

New FAD Technical Note & Manual on the Interaction Between Government Cash Management and Other Financial Policies

Posted by Mike Williams

TNM_10-13_cover 1
Good government cash management matters. It matters not only from the fiscal and budgetary perspective of cost effectiveness and efficiency, but also because of the benefits it can bring to other financial policies—in particular to debt management, to monetary policy, and to the development of the local financial markets. This interaction between cash management and other financial policies is the focus of a new IMF Fiscal Affairs Department (FAD) Technical Note and Manual.

There is a growing understanding of what constitutes good practice in government cash management. Guidance is available from FAD on the core components: the development of the Treasury Single Account (TSA) and cash flow forecasting and management. Although this TNM touches on those issues, I have written it primarily for governments and their advisers looking to develop a more sophisticated cash management function, and specifically to move towards more active cash management. 

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July 12, 2010

A Treasury Single Account is an Essential Tool for Consolidating and Managing Governments’ Cash Resources – A New IMF Working Paper

Posted by Sailendra Pattanayak and Israel Fainboim

WP10143
It is not uncommon to find fragmented government banking arrangements, with multiple bank accounts in commercial banks belonging to different government ministries/agencies, with idle cash sitting there. Such arrangements hinder effective cash management and control over cash balances.

A government that lacks effective control over its cash resources can pay for its institutional deficiencies in multiple ways. First, idle cash balances in bank accounts often fail to earn market-related remuneration. Second, the government, being unaware of these resources (or being unable to use them), incurs unnecessary borrowing costs on raising funds to cover a perceived cash shortage. Third, idle government cash balances in the commercial banking sector are not idle for the banks themselves, and can be used to extend credit. Draining this extra liquidity through open market operations also imposes costs on the central bank.

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June 11, 2010

The Cash Planner, the IFMIS, the Spreadsheet, and the Very, Very Simple Objective

Posted by John Gardner 

The principle objective of central government cash flow planning is very, very simple. The aim is to forecast the total liquid cash resource available to the government at a point in time—typically the end of each day for the current month; the end of each week for the next two months; and then the end of each month to the fiscal year-end. This is one single figure per time period; a uni-dimensional time series; the profile of the government bank statement across the year.

It is not the purpose of this piece to go into detailed discussion on the reasons why getting that single number reasonably correct is so difficult for many countries. Neither is it necessary to dwell on the clear sense and benefits for a government to have that single sum held at a single bank account at the central bank—the TSA. It will also not go into why the rest of government—budget departments, spending units, and revenue agencies alike—can rarely understand that there is this one clear objective. Government agencies in many developed, as well as developing, countries often attribute nefarious ulterior motives to these cash flow projections. They believe that the cash manager is given the authority to obtain cash planning data in order to exert secretive powers over the execution of the budget. If provided with true plans of a spending unit, the cash manager will conspire with the budget department to ration the amount of cash available, or somehow manage to control planned procurement policies—steal some of the power of the institution. Such motives would not be very, very simple—but the sole objective of cash planning is.

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May 26, 2010

Prioritizing PFM Reforms: A Robust and Functioning Accounting and Reporting System is a Prerequisite

Posted by Sanjay Vani, Lead Financial Management Specialist, World Bank 

Much has been written about prioritizing and sequencing PFM Reforms, including Allen Schick’s often-quoted 1998 article, Why Most Developing Countries Should Not Try New Zealand's Reforms.  While working on the OECD-DAC Report on the Use of Country Systems in PFM a year or two ago, I was struck by how much more we know about what does not work than about what does work. For example, almost all PFM professionals would agree that introducing a medium-term budget formulation or performance budgeting in an environment of poor budget execution is not likely to be effective; and attempting performance audit without agreed performance benchmarks and proper systems to record and track performance is equally unlikely to be effective.

Here I would like to develop a hypothesis that, I am convinced, deserves serious attention from the community of PFM professionals. The hypothesis is this:  NO significant PFM reforms are likely to succeed unless a robust and functioning accounting and reporting system is in place.  In other words, a robust and functioning accounting and reporting system is a prerequisite to other PFM reforms.

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March 16, 2010

China’s Local Government Cash Management – Regulation or Centralization?

Posted by Holger van Eden 

Not all governments around the world are anxiously looking at their empty state treasury coffers. The Chinese central and local governments have accumulated large cash reserves over the past decade. In part these accumulations represent continued under-execution of the budget over a number of years, a quite common phenomenon in the developing world. These reserves, however, also reflect the success in setting up Treasury Single Account (TSA) structures by central, provincial, and larger city governments. The liquidity that in the past would have accumulated in line ministry and agency commercial bank accounts at various levels of government–China has 5 distinct layers of government–has in part been brought back into TSA accounts held at the People’s Bank of China (PBoC).

Local government reserves in China represent an estimated 3-4 percent of GDP. This represents a sizable amount by any international standard and raises the question of how these resources should be managed: to what extent should treasury management power of local government be centralized? What sort of autonomy in financial investment management should be granted to local government to maximize financial return while preserving investment security, etc.?

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December 12, 2007

Automating Public Financial Management Systems for Results

Posted by Bill Dorotinsky

Over the past few decades, governments and development agencies alike have invested enormous financial and human resources into automating public financial management (PFM) systems, and often the results have been less than hoped. Governments have had difficulty implementing systems, and not achieved desired functionality. And development partners have invested large sums of money, only to find systems delayed in implementation, having limited impact, and often with real challenges to the sustainability of the systems. On December 2-4, 2007, the International Consortium of Governmental Financial Management (ICGFM) held a two-day workshop entitled "Use of Financial Management Information Systems (FMIS) to Improve Financial Management and Accountability in the Public Sector".  While the conference title and topic might cause eyes to glaze over with visions of technical issues, the conference was a useful glimpse into current thinking on PFM system automation, and full of practical advice to those concerned with PFM system automation.

Conference presentations from government authorities, international organizations, and consultants covered topics such as how FMIS fits within the over-all PFM reform agenda, planning for FMIS development, FMIS design components, IT alternatives, project management, procurement, and capacity building. The conference program and all the presentations made are available on-line at the ICGFM website under Winter Conference.

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November 30, 2007

7th IMF Debt Management Forum

Posted by Brian Olden

Debt The 7th IMF Debt Managers Forum, hosted by the IMF’s Monetary and Capital Markets Department, was held in the IMF’s HQ building in Washington D.C. between November 5th and 6th. This two day event was attended by leading public debt managers from advanced and emerging market economies, participants from the financial markets, including leading investment banks and hedge funds and other international financial institutions. 

Many interesting topics were discussed including the effects of the recent credit crunch on sovereign debt management and issuance strategies, trends in the composition of public debt portfolios, use of derivatives to assist in the implementation of debt management strategies, asset and liability management strategies and the issue of sub-national and public enterprise debt management.

The involvement of private sector financial market participants was useful as they were able to provide some commentary on the credit crises and their take on how this would affect , issuance spreads for sovereign issuers over the short to medium-term. Most of the participants were relatively optimistic about the prospects for emerging markets but perhaps less so about the more advanced economies. The most interesting message from the Forum was the view that, for once, this was a crisis that had originated in the advanced economies and that the affect on emerging markets was proving much less severe than has been the case in other international financial crises of recent years.  Lack of exposure of domestic financial institutions to the sub-prime mortgage market and the improvement in the fiscal management of emerging markets has insulated these economies from the worst effects and this has been reflected in the relatively mild reaction of investors to EM sovereign debt as evidenced by the relatively mild widening of spreads in binds issued by these countries. 

The attached note highlights the main areas of discussion in more detail. [Download highlight_7th_imf_debt_forum_2007.DOC]

November 26, 2007

PFM Reforms and Public Expenditure Efficiency: Key PFM Reforms Playing a Role in Effectively Controlling Public Expenditure

Posted by Michel Lazare

There are seven key institutional arrangements for budgeting that play a key role in effectively controlling public expenditures in OECD countries.

This is at least the view presented in 2005 by Jon Blondal (the then Acting Head of the Budgeting and Management Division of the OECD) on the occasion of the 7th Banca d'Italia Workshop on Public Finance. In Jon Blöndal's view, there are three major determinants of the fiscal outcomes of OECD member countries: (1) the general performance of the economy (which is the main driver), (2) the political commitment to fiscal discipline, and (3) the institutional arrangements for budgeting. The presence of the two first factors being insufficient to experience a successful fiscal outcome.

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October 29, 2007

Expenditure Commitment Controls, the essence of fiscal discipline – IMF Technical Guidance Note

Posted by Dimitar Radev and Pokar Khemani

Fiscal discipline, one of the key objectives of good public financial management (PFM), requires a well developed expenditure control framework, including at the commitment level, to prevent accumulation of payment arrears. A July 2006 IMF FAD Technical Guidance Note, "Commitment Controls," by FAD staff members Dimitar Radev and Pokar Khemani, provides technical advice on a number of areas related to commitment controls, including objectives, preconditions for successful implementation, and institutional design. These guidelines are intended to apply primarily to IMF operational work and technical assistance but have also implications for the relevant government departments and agencies within national, provincial/state and local jurisdictions.

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October 11, 2007

Public Investment: Good Project Management is an Issue of ...Capital Importance

"Unexpected changes to payment schedules related to capital projects can create significant difficulties for finance officers responsible for cash management" remarks Steven R. Kreklow (*) in his short article ("Capital Project Cash Flow Management") of the August 2007 issue of the Government Finance Review, the membership magazine of the US-based Government Finance Officers Association.

This adverse impact on cash management and more generally budget execution can be mitigated by good budget and project management techniques described in Steven R. Krelow's article.

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