Posted by Jacques Charaoui and Merle Wilkinson[1]
Because of the COVID-19 pandemic, most countries in the Middle East and North Africa (MENA) region face decreasing revenues and increasing expenditure. Some governments are also experiencing constrained access to financial markets as well as challenges in raising cash to finance crisis-related emergency spending. All these factors put pressure on governments’ treasury and cash management operations. They necessitate a multipronged approach to cash management that provides enough liquidity to satisfy the government’s payment obligations while maintaining adequate cash balances at all times.
Efficient cash management relies, among other things, on effective expenditure controls, the capacity to provide reliable cash forecasts and on a Treasury Single Account (TSA) system with adequate coverage of government cash balances. However, all this is easier said than done during a financial crisis.
This was the background to a four-day virtual course presented by the IMF’s Fiscal Affairs Department during January 11 to 14, 2021 at the Center of Economics and Finance in Kuwait. The course focused on budget execution and cash management. It brought together managers and technical staff of ministries of finance and central banks from eight countries from the MENA region.[2]
Course participants examined common features and different approaches used in carrying out cash forecasting in countries with different level of development (e.g., Sudan, Turkey, France, Slovakia) and digitalization (e.g., Finland). They also explored how countries have set up their TSAs. The coverage of the TSA is often larger in countries which do not have easy access to financial markets. Participants also examined banking and payment management practices. Most countries keep their TSA main bank accounts in the central bank but may use a mix of the central bank, commercial banks, state-owned banks and clearing houses to make payments.
In addition, participants looked at various issues in the management of cash balances, including the role of the cash buffer and how to invest temporary cash surpluses. Various approaches to setting cash buffer policies and targets were discussed based on a recent IMF Note.[3] One good practice example cited was Estonia’s experience in setting up a cash buffer policy during the global financial crisis in 2011. This country’s existing cash buffer has served as a first line of defense against heightened risks during the COVID-19 pandemic.
The participants from Egypt and Tunisia described their countries’ cash and debt management practices, focusing in particular on the recent cash management reforms in Egypt and how these are integrated into the country’s overall PFM reform plans.
The course finished with a case study on cash management practices set in a fictional country. This exercise helped participants understand how various cash management functions are interlinked with each other. Participants analyzed and identified risks in banking arrangements, cash forecasting, expenditure controls and the coordination of cash and debt management. They then discussed what kind of advice to give decision makers to strengthen cash management in the country.
By combining the theory of budget execution and cash management with examples from a wide variety of countries and sharing and learning from their own experiences, participants gained inspiration and encouragement to engage in continuous improvements in their home countries.
[1] Jacques Charaoui is a Senior Economist in the IMF’s Fiscal Affairs Department; Merle Wilkinson is an expert on cash management and treasury issues.
[2] Egypt, Jordan, Mauritania, Saudi Arabia, Syria, Tunisia, United Arab Emirates and West Bank and Gaza.
[3] Hürcan, Koc, Balibek (2020) “How to Set up a Cash Buffer: A Practical Guide to Develop and Implement a Cash Buffer Policy”, IMF.
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