PFM Advisor East AFRITAC Budget Management and Public Financial Accountability in Sub-Saharan Africa MANAGING CASH – ENSURING PREDICTABILITY AND DISCIPLINE IN BUDGET EXECUTION By Vijay Ramachandran PFM Advisor East AFRITAC A Partnership of the CABRI senior budget officials network, SIDA, WBI, South African National Treasury and East-AFRITAC June 18 to 22, 2007 Pretoria, South Africa

Outline of the presentation Objectives Prerequisites Institutional arrangements Banking arrangements In year budget authority Commitment Control Cash forecasting Monitoring and evaluation Challenges

Objectives of cash management Making cash available at the right place, at the right time and in the required amount Minimizing the cost of government borrowing and maximize the returns on financial resources, given a prudent degree of risk Promote fiscal transparency and good governance Provide efficient services to stakeholders

Prerequisites A realistic budget, Clear procedures for the release of appropriations, Strict observance of the budget execution rules, Experienced and skilled staff to prepare and monitor the financial plans, and Clear borrowing rules.

In-year budget authority: MoF issues quarterly or monthly commitment limits before the beginning of each quarter. Commitment limits are based on appropriation, annual cash flow plans, and Treasury cash flow forecasts. Limits may be issued for each budgetary line or for each program. Forms the basis for commitments and expenditure. All commitments must be recorded. No payment without commitment. MoF prescribes clearly defined procedures for multi-year commitments and carry-overs.

Commitment Control 1: Commitments: are obligations which arise by virtue of a contract or agreement or purchase order duly concluded for the supply of goods or services to a government entity, or where an agreement binds the government entity to make future disbursements to a contracting party.

Commitment Control 2

Institutional Arrangements

Banking arrangements 1 Treasury Single Account: An account or set of linked accounts through which the government manages its cash flows. Advantages: Centralizes banking to improve flow of cash Reduces associated operational risk Reduces uncertainty in fiscal flows Reduces uncertainty in fiscal impacts on the monetary base Expedites use of electronic payment and settlement systems Lower transaction costs from economies of scale in processing

Banking Arrangements 2

Banking arrangements 3 Challenges: Concentration of revenues Selection of banks Remuneration of banks Bank reconciliation IT interface Payment systems Monitoring of performance of banks

Cash Forecasting: Annual, broken down by months Based on monthly work plan and procurement plan Some transactions known precisely (bond redemptions, external transfers) Regular monthly pattern of some flows Historical patterns, rules of thumb Inclusive of own resources Consolidated, reviewed and agreed before start of FY. Revised rolling quarterly plans conforming with projected commitments and quarterly spending limits from budget agencies. Indicative cash flow plans from MoF to budget agencies. MoF responsible to ensure cash availability for covering indicative cash flow plans. Debt synchronized with Central Bank. Composition and role of a cash management committee.

Monitoring and evaluation Determine the deviations between planned cash flows and actuals Determine the causes for the deviations Improve the cash flow planning system to remove systemic problems Improve networking with other players Feed back into the cash flow planning system Arrears Exchange rates Interest rates Changes in investment schedules

Challenges Active participation of budget agencies-incentives and disincentives Coordination with monetary policy, fiscal policy and debt management Coverage of donor projects, sub-national governments and extra budgetary funds Business process engineering and IT solutions