1. Budget Execution and Cash Management Ministry of Finance – Lebanon Cash Management Department – July 2013

2. Presentation Contents 1. Legal framework for cash management in Lebanon 2. Cash management in Lebanon – Institutions 3. Cash management in Lebanon – Current practice 4.Commitment Control in Lebanon – Current practice 5.Towards implementing TSA and other plans for reforms 6. Problems encountered by the Cash Management in Lebanon

3. Legal Framework of Cash Management in Lebanon

4. Legal Framework of Cash Management in Lebanon Memorandum No. 1085/S1 dated 29/08/2007 issued to create a Cash Management Unit at the Ministry of Finance Decree No. 1518 dated 13/03/2009 issued to create a Cash Management Department at the Treasury Directorate - Ministry of Finance

5. Legal Framework of Cash Management in Lebanon Preparing studies and reporting, collecting and analyzing statistics to identify short-term projected revenues and expenditures when executing the different budget and treasury operations Communicating with administrations and units responsible for collecting the public revenues, to get the necessary information needed in order to project, in an accurate manner, the size of revenues and the dates of their transfer to the treasury Coordinating with different public administrations and institutions to draw a time frame for the execution of their budget expenditures so that relevant units at MoF are continuously informed about the projected size and date of expenditures Following up treasury account position, so that Directorate of Treasury is able to manage projected cash surplus/deficit and make necessary propositions in this regard. Making proposals to relevant staff at Public Finance Directorate – MoF, according to laws and regulations, to provide cash in line with real expenditures needs.

6. Cash Management in Lebanon Institutions - -

7. Cash Management in Lebanon - Institutions The following institutions play a major role in coordinating with the Cash Management Department: Ministry of Finance Ministries and public administrations, institutions and councils The Central Bank

8. Cash Management in Lebanon - Institutions Ministry of Finance: MoF is the central body for cash management in Lebanon. Cash Management Department conducts internal and external coordination. - Internal coordination Particularly with: Budget Directorate Revenues Directorate Disbursement Directorate Public Debt Directorate Public Accounting Directorate UNDP at MoF

9. Cash Management in Lebanon - Institutions Ministry of Finance (continued) External coordination Particularly with: Public administrations Central Bank of Lebanon Public institutions, agencies, councils,… concerned in budget execution

10. Cash Management in Lebanon Current practice - -

11. Cash Management in Lebanon – Stages and Tasks The main role of cash management is designing a mechanism for budget execution which materialize in the following applied aspects: Forecasting revenues Scheduling Payments Preparation, reporting and management of cash plan and cash flow tables Monitoring government bank accounts and working on consolidating them/cash reporting Preparing monthly, quarterly and yearly financial statistical tables related to PFM report

12. Cash Management in Lebanon – Forecasting Revenues Preparing monthly revenues forecasts at the beginning of each year based on the budget project. Issuing adjustments of the monthly forecasts based on available information collected from different institutions /administrations. Issuing monthly comparative tables between forecasts and realized revenues Internal and external coordination with public administrations concerned in collecting revenues and transferring and/or depositing them into treasury accounts at the Central Bank of Lebanon.

13. Cash Management in Lebanon – Scheduling Payments Scheduling payments acquires exceptional importance in preparing forecasts. It is done based on information provided by public administrations because it is directly and closely related to the nature of their work. It happens in three stages: I. Cash planning of expenditures II. Payment profile of expenditures III. Stocks of liquidated credits of expenditures ready for payments extracted from budget and treasury systems

14. Cash Management in Lebanon – Scheduling payments I. Cash Plans Circular No. 15/2010 dated 21/5/2010 enforces public administrations to do the following: Preparing the annual cash plan intended to be adopted for the expenditures of each public administration, for the whole year distributed on a monthly basis, based on expected dates of liquidation of these expenditures. Presenting Cash Plans mentioned above to MoF within 15 days of sending the budget project from the Council of Ministers to Parliament for approval. Adjusting the Cash Plans quarterly, 15 days ahead of the beginning of each quarter.

15. Cash Management in Lebanon – Scheduling payments II. payment profile Circular No. 2984/S1 dated 9/9/2010 enforces public administrations to do the following: 1. For all types of expenditures: Entering expected dates of receiving equipments, goods and services and entering expected dates of expenditures liquidation upon reserving the expenditures on the budget system. Note that the expected dates of receiving equipments, goods and services are limited to the following types of expenditures: Bids, Tenders, Agreement contract and bills, while expected dates of liquidation has to be entered for all types of expenditures. It is not possible to reserve a credit in the budget system unless the dates mentioned above have been entered. Adjusting the dates entered previously in case of mistakes or when new available information occurs and mentioning the reasons behind it.

16. Cash Management in Lebanon – Scheduling Payment 2. For the following types of expenditures: Agreement contract, bidding In addition to above, public administrations are enforced to do the following: When suppliers are notified about contracts, the date of notification should be entered into the budget system and the necessary adjustments must be made. Note that expenditures liquidation could not be accepted by the budget system unless notification date is entered and necessary adjustments were made Adjusting the dates entered previously in case of mistakes or when new available information occurs and mentioning the reasons behind it.

17. Cash Management in Lebanon – Cash plan Table Preparing cash plan table at the beginning of each year on monthly basis based on revenues estimates, cash plans prepared and sent by each public administration and the stocks of liquidated credits ready for payments. Incorporating public debt maturities and treasury payments into cash plan table. Monthly adjustments of the cash plan table in terms of revenues, expenditures and estimates related to public debt maturities. Issuing monthly comparative tables between the actual and the projected figures in order to minimize gaps and improve the mechanism adopted, in terms of expenditures and/or revenues projections.

18. Basic Cash Plan 2013 (billion LBP) Forecasted Total Forecasted JanuaryFebruaryMarchAprilMayJuneJulyAugustSeptemberOctoberNovemberDecember 2013 Total Revenues 1-Tax on profits and capital gains 2-Cadaster Fees 3-Fuel Oil 4-Excise Taxes on Cars 5-Value Added Tax 6-Customs 7-Telecommunication Service Revenues 8-Port of Beirut revenues 9-Other Revenues Total Expenditures of which interest from debt account of which interest from account 36 1-Current Expenditures 1.a-salaries,wages and related items including retirements(excluding contractuals of MOE) 1.b-contractuals of Ministry of Education 1.c-end of service 1.d-transfers for public institution excluding 14-1-9 1.e-transfers by article 14-1-9 1.f-other transfers 1.g-other current expenditures without hospitalisations 1.h-hospitalisations 2-Capital Expenditures 3-Treasury Expenditures 3.a-EDL 3.b-municipalities 3.c-other treasury expenditures Budget and Treasury balance Primary surplus/deficit Redemptions of principals from debt account Redemptions of principals from account 36 Required Borrowing, Account 36 available balance (excluding debt accounts & link accounts) Debt account balance Debt account balance (deficit account in$ converted in LBP) CONSOLIDATED BALANCE

19. Cash Management in Lebanon –Governments Bank Accounts The Central Bank The Central Bank was created by Decree 13513 of 1963 (amended in 1994) The Central bank acts as the main banker for the Government of Lebanon Government Treasury accounts eventually consolidate all revenues and provide all expenditures funds. The Central Bank plays a central role in monetary and fiscal operations of the Government. The Central Bank also acts as a banker hub for funds transfers to other Lebanese and International banks. MoF permission should be obtained in order to open, manage or close any bank account referring to public administrations at the Central Bank.

20. Cash Management in Lebanon –Governments Bank Accounts 1- Ministry of Finance accounts: The Lebanese treasury has current accounts at the Bank of Lebanon in different currencies with fragmented sub accounts working as separate accounts in addition to accounts for grants received by public administrations. Funds can be transferred between all treasury accounts and sub accounts; but payments are currently made only through MoF current account opened in the Lebanese currency, VAT refunds paid through a specific account opened for that purpose in addition to public Debt accounts designated to receive funds (loans) and pay maturities related exclusively to public debt and sometimes to EDL (LCs)

21. Cash Management in Lebanon –Governments Bank Accounts 2- other public sector deposits: The law 49 - article 3 stated that Public administrations with annexed budget, Public Enterprises, Municipalities and other public entities are allowed to open independent current bank accounts at the central bank. In specific cases, Some public enterprises and public entities were allowed to open bank accounts at commercial banks (such as EDL and water authorities). In Commercial banksIn Central BankTotal Public sector deposits 30%70%average

22. Cash Management in Lebanon – Cash reporting Summary on Cash Reporting: Yearly forecast of expenditures and revenues on monthly basis adjusted monthly cash plan table Daily cash forecast of expenditures and revenues for the upcoming month adjusted daily Daily Treasury report daily available cash balance, monthly & daily expected cash surplus / deficit Monthly summary cumulative cash flow report -effective operating / debt cash inflows/outflows, net cash flows and end of month cash balances -projection operating / debt cash inflows/outflows, net cash flows and end of month cash balances for the upcoming three months -Discretionary/Non Discretionary expenditures -Stock of liquidated expenditures ready for payments Monthly cash bridge report effective cashiers inflows/outflows, commercial banks, grants … Daily Flash report current accounts inflows/outflows and balances Monthly Public Sector Deposits report Deposits in Central bank and commercial banks

23. Cash Flows - LL & FX¹ - Monthly, 2013 (in LL Billions, unless noted otherwise) Effective Projection JanuaryFebruaryMarchAprilMayJuneJulyAugust Cash Inflows Operating inflows² LL-TB auctions³LL-TB auctions 7 FX borrowing Telecom transfersTelecom transfers 8 OtherOther 9 (o/w in FX ) Cash Outflows Operating outflows² LL-TB maturities³LL-TB maturities LL-debt amortization 4 LL-debt amortization FX-debt amortization 4 FX-debt amortization 10 L/Cs & Loans for EDL 5 L/Cs & Loans for EDL 11 Other (o/w in FX ) Net Cash Flows (o/w in FX ) Operating flows LL-TB auctions LL-debt and other flows FX debt flows Cash balance (end previous month) Plus: Adjustment: (+ or -) 6 Cashiers balances (excluding Mechanics) Cash balance (end month) in LL Billions Stock of ready- for- payments as of end of June 2013 o/w: NSSF contractual of education Transfers for non public sector

24. Cash Management in Lebanon – cash reporting A daily Flash report is issued, revealing movements of the current accounts opened at the Bank of Lebanon in different currencies that has occurred during the last day, through the eOBBS system. A daily treasury report is issued based on the monthly cash plan table. The daily treasury report reveals the expected and actual cash movements of bank accounts in addition to other information but not limited to the following: 1- Available cash balances allowed to be used on daily basis. 2- Monthly and daily detailed expected cash inflows and outflows. 2- Monthly and daily expected cash surplus/deficit. 3- Remaining expected cash inflows and outflows till the end of the month.

25. Cash Management in Lebanon –cash reporting A summary cumulative cash report is issued based on the daily treasury reports at the end of each month revealing: 1- Monthly actual operating cash inflows/outflows. 2- monthly actual T-bills and Eurobonds issuances and Debt maturities. 3-monthly actual net cash flows. 4- beginning and end of month balance of the treasury bank accounts. 5- The monthly expected operating cash inflows/outflows, T-bills and Eurobonds issuances, Debt maturities, net cash flows, beginning and end of month balance of the treasury bank accounts for the upcoming three months. A cash bridge report is issued based on the summary cumulative cash report. It includes additional information that reflect the monthly actual cashiers inflows and outflows, grants, commercial bank deposits...

26. Cash Management in Lebanon – Preparing Monthly Financial Statistics Daily review of the current accounts statements sent by Bank of Lebanon and classifying collected revenues and paid expenditures according to the depositing source and payment mechanism (transfers, checks, payment orders). Monthly reconciliation of expenditures paid and also monthly reconciliation of tax & fees collected through commercial banks and deposited in the treasury accounts. Preparing final statistical tables of expenditures and revenues which are incorporated into the monthly PFM reports.

27. Cash Management in Lebanon – Preparing Monthly Financial Statistics Preparing quarter and annual statistical tables of expenditures and revenues. Preparing quarterly reports on social spending and monthly reports on personnel cost.

28. Commitment Control in Lebanon Current practice - -

29. Budget Directorate-Commitment Controllers Expenditures control is performed through Budget Directorate by: Central Commitment Controller Commitment Controllers representing the Central Commitment Controller at the Ministries Tools Budget system (linked and non-linked administrations) 2/7/2014

30. Budget Directorate-Commitment Controllers Commitment Controllers main tasks: Receive request from administration to reserve required credit for the expenditure Control the availability of credit for the requested expenditure and the proper budget classification of the expenditure Transfer the reservation request to the Court of Audit (if needed or required) Approval/disapproval of the requests within five days – additional five days are allowed in case of lack of documents Commitment Controllers Approval: Global approval Partial approval 2/7/2014

31. Budget Directorate-Commitment Controllers Commitment controller : partial approval or disapproval of the expenditure Central Commitment Controller Approval of the expenditure partial approval or disapproval Minister of Finance Approval of the expenditure Partial approval or disapproval Council of Ministers Council of ministers can never approve the requested expenditure if credit is unavailable. 2/7/2014

32. Towards TSA… and other plans for reforms

33. Towards TSA and other plans for reforms Action plan towards TSA: Issuance of circular 19/2011 addressed to all public sector to provide CMD with the balances of their bank accounts opened in Central bank or commercial banks. A monthly report on Public sector deposits is prepared by CMD, to reveal the size of each Public administration with annexed budget, Public Enterprise, Public entity and municipality. Issuance of circular 14/2011 to ensure the respect of the article 52 of public accounting Law that prohibit public administrations to open bank accounts outside the treasury.

34. Towards TSA and other plans for reforms circular Nb.14/2011 dated August,3-2011: Respecting Public Accounting Law (article 52): The funds offered to the State by natural and judicial persons are accepted by virtue of a decree taken by the Council of Ministers and recorded in the revenues section of the budget. If these funds have a specific way of use, correspondent credits, of the same amount, are opened in the expenditures section. Memo 3510/S1 dated April,3-2012 and its adjustments Nb. 376/S1 and 1257/S1: Mechanism to be adopted by public administrations to register their cash grants in the budget

35. Towards TSA and other plans for reforms Other plans for reforms: Input and respect the monthly ceilings for cash plans – Pilot Administrations. Register in the budget the cash grants received by Public Enterprises, agencies or municipalities… to implement projects in the profit of public administrations in addition to grants in kind received by public administration Maintaining the AMR and improving the BI reporting tool to meet the requirements of different stakeholders (Aid Monitoring and Reporting System - AMR ) Enhance and improve the internal and external coordination Implement a BI for Cash Management Department.

36. Problems encountered by Cash Management in Lebanon

37. Main Problems and Challenges Inexistence of approved budget since 2005. Inexistence of TSA Lack of specific penalties measurements in the existing laws concerning scheduling expenditures in addition to non-existence of monthly ceilings for expenditures. The cash plans and payment profiles figures prepared and filled by public administrations are often arbitrary. Inexistence of schedule in most cases for funds transfers to public institutions and others, for example, the transfers to the social security fund and others. Expenditures are currently managed through Disbursement Directorate which often delays due payments. Lack of information concerning the timing and value of transfers received from public administrations, institutions and agencies. High percentage of treasury payments are often made outside the budget framework (treasury advances). In addition, treasury revenues cannot be forecasted in an accurate manner. 2/7/2014

38. Main Problems and Challenges Ensure the closing of budget advances issued for cash grants by the public administrations. Unstable political situation in general, leads to differences between the realized and forecasted. Inexistence of integrated systems. Inexistence of system/BI for Cash Management Department which may lead to high risk of human errors and delays in reporting… 2/7/2014

39. Questions