All this would not have been possible but for the wave of cash management reforms that Georgia started in 2015. The objective was to identify excess cash resources and keep a sufficient balance on the Treasury Single Account (TSA) to meet daily routine expenditures, while investing the excess cash in highly liquid and interest-earning financial instruments. In parallel, the cash forecasting methods applied by the Treasury have been substantially improved. Regular consultations are held with the major spending entities. And coordination with the Central Bank has become more structured and comprehensive arrangements for exchanging data have been implemented. Trends in cash requirements can now be estimated with high accuracy, and large one-off flows quickly identified.
Nowadays, the Treasury produces monthly forecasts of cash requirements for the fiscal year and daily forecasts for at least the upcoming month. The Treasury’s forecasting models have been refined and enriched over the years, so that the forecasts have a proven track record of accuracy and reliability.
In consultations with development partners, the Central Bank and commercial banks, the Treasury prepared a new regulatory framework to manage cash resources in 2017 and launched an active cash management policy. These regulations include the following features:
- Money is placed in financial instruments (bank deposits) through a Bloomberg auction, which ensures the identification of winning bids in a freely competitive environment.
- Only highly liquid and reliable financial securities (with a relevant haircut) may be used as collateral for deposits.
- The transfer of funds to banks that are successful in the auction is carried out thorough a money management module built into the Treasury system, which incorporates a modern approach to operational risk management.
As a result of active cash management, the average balance on the TSA (which does not generate any interest income) has been declining at an accelerating rate over the past three years, proof that cash flows are accurately forecasted. Only a minimum operational balance is maintained on the TSA and the excess funds are placed in commercial banks. These activities have mobilized substantial additional revenues in the form of interest income, equivalent to some 0.5 percent of the annual state budget, or a cumulative GEL 150 million since July 2017.
Well established procedures and daily consolidated forecasts of the government’s cash flow position, active coordination with internal, external and international counterparties, and the availability of robust technical systems and platforms (e.g., TSA, RTGS), have helped the government evaluate the impact of the COVID-19 crisis and provide sufficient cash to finance emergency measures as well as maintaining regular public services.
The Treasury continues its investment activities during the crisis, though with relevant caution. In particular, the placements in commercial bank time deposits are shorter-term and for smaller amounts in times of uncertainties, collateralized by liquid securities with appropriate “haircuts” and callable at any time. Having the option to withdraw the full amount prior to the maturity of the deposit, provides some flexibility, but it should be used only in extreme situations, so as not to incur reputational risk and not to impose an unnecessary burden on the banking sector.
This article is part of a series related to the Coronavirus Crisis. All of our articles covering the topic can be found on our PFM Blog Coronavirus Articles page.
[1] Head of the Cash Forecasting and Management Department, State Treasury, Ministry of Finance, Georgia (d.gamkrelidze@mof.ge), and Associate Professor at Ilia State University (davit.gamkrelidze@iliauni.edu.ge).
Note: The posts on the IMF PFM Blog should not be reported as representing the views of the IMF. The views expressed are those of the authors and do not necessarily represent those of the IMF or IMF policy.
