public financial management (pfmx) module 8 outlook cash management medium and long-term horizon...

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Module

Cash and Debt Management

Public Financial Management (PFMx)8

The Budget Cycle and Cash Management

ManagingFinancialResources

CashManagement DebtManagement

Key Stages of the Budget Execution Cycle

IncurrenceofObligations

AuthorityandIntenttoSpend

ClearanceofObligations

1.Authorization 2.Apportionment 3.Reservation

4.Commitment 5.Verification

6.PaymentOrder 7.Payment

Definition of Cash Management

GovernmentobligationsRightamountofmoney.RightPlaceandtime

Need for Cash Management

$$$$ $$$$CashInflows CashOutflows

TimingmismatchSalaries

Transfers

Interest

Operationalexpenditures

Purchaseofassets

Debtrepayments

Taxrevenue

Nontaxrevenue

Grants

Saleofassets

Borrowing

Objectives of Cash Management

CashInflows CashOutflows

Timingmismatch

Cashmanagement

Minimizingcostoffunding

Investingexcessgovernmentbalances

Cash Management and Budget Execution

BudgetexecutionCashmanagement

Enoughcashresources

Approvedappropriations

Features of Modern Cash Management

Fundamentalfeatures Advancedfeatures

Prerequisites

Fundamental Features of Modern Cash Management

FourFundamentalFeatures

Forecastingofshort-termcashinflowsand

outflows–cashforecasting

Consolidationofgovernmentcashbalances-TSA

Timelyinformationsharing

Adequateinfrastructure

Advanced Features of Modern Cash Management

AdvancedITandbanking

technologies

Activecashmanagement

Integrationofcashanddebtmanagement

Centralizationofgovernmentcashbalances-TSA


Projectionsofshort-termcashinflowsand

outflowsAdequateInfrastructure

CentralBankTSA

$$$$AllCashReceived

$$$$AllCashPaid

Centralizationofgovernmentcash

balances




CentralBank

Subaccount4Subaccount1 Subaccount2 Subaccount3

TSA

CommercialBanks

Revenuecollection Projectaccounts

Transactionalaccountsofministries


balances




Sub-accounts Zerobalanceaccounts

TwoTSAConcepts


balances




CentralBank

Subaccount1

TSA

Subaccount2 Subaccount4Subaccount3


balances




Zerobalanceaccounts

Sweepingarrangement Disbursementlimit


balances




TSAatCentralBankOperationalAccountat

CommercialBanks

Paymentstosuppliers,

employees,etc.

NightlytransferofbalancetoTSA


balances




TSAatCentralBankOperationalaccountat

commercialbanks

Paymentstosuppliers,

employees,etc.


balances



outflows

PublicSector

GeneralGovernment

PublicCorporations Public

FinancialCorporations

PublicNon-financialCorporations

StateGovernments

CentralGovernment

LocalGovernments

AdequateInfrastructure

SocialSecurity

BudgetaryCentral

Government

ExtrabudgetaryCentral

Government


balances



outflows

PublicSector

GeneralGovernment




StateGovernments

CentralGovernment

LocalGovernments


SocialSecurity

BudgetaryCentral

Government


Government

Donors


balances



outflows

PublicSector

GeneralGovernment




StateGovernments

CentralGovernment

LocalGovernments


SocialSecurity

BudgetaryCentral

Government


Government


balances


balances




outflows


outflowsAdequateInfrastructureAdequateInfrastructure

CommercialBanks

CommercialBanks

CommercialBanks StateBanksStateBanksStateBanks

CentralBankCentralBank$

Bank

$

Bank

CentralBank$

Bank

CommercialBanks StateBanks

CentralBank$

Bank

TSA


balances


balances




outflows



CommercialBanks

CommercialBanks

CommercialBanks StateBanksStateBanksStateBanks

CentralBankCentralBank$

Bank

$

Bank

CentralBank$

Bank


CentralBank$

Bank

Safe-haven

Effectiveliquiditymanagement

Clarityofbankingarrangements


CentralBank$

Bank

Safe-haven

Effectiveliquiditymanagement

Clarityofbankingarrangements

TSA


balances


balances




outflows



TSADesign

Inventoryofgovernment’sbanksaccounts

Closedormantbankaccounts

Definescope,structureandphaseofTSA

DevelopmentofITsystems

DevelopaTSAstrategy

Legalauthoritytomanagebank

account

Developmentofaccountingsystem

TSADesign

Inventoryofgovernment’sbanksaccounts

Closedormantbankaccounts

Definescope,structureandphaseofTSA

DevelopmentofITsystems

DevelopaTSAstrategy

Legalauthoritytomanagebank

account

Developmentofaccountingsystem


balances


balances




outflows



Forecastdailycashflows

3months

Forecastdailycashflows

3months

Timelyinformation

Cashinflows

Taxrevenue

Nontaxrevenue

Grants

Saleofassets

Borrowing

Cashoutflows

Salaries

Transfers

Interest

Operationalexpenditures

Purchaseofassets

Debtrepayments

Cash Flow Forecasting

31-Dec 1-Jan 2-Jan 3-Jan 4-Jan 5-Jan week1 8-Jan 9-Jan 10-Jan …… week4 Jan Feb MarCashInflows 1,500 600 320 100 3,200Tax 1,000 500 300 100 3,000Non-Tax 500 100 20 0 200

CashOutflows 3,600 1,000 300 400 1,200Salaries 0 0 0 0 0Interest 600 0 0 0 300Subsidies 0 100 0 0 400MDAs 3,000 900 300 400 500

CashBalance -2,100 -400 20 -300 2,000

Financing 2,100 400 -20 300 2,000

Borrowing 0 0 0 0 4,000External 0 0 0 0 0Internal 0 0 0 0 4,000

Redemption -2,000 0 0 0 5,000External -200 0 0 0 2,000Internal -1,800 0 0 0 3,000

Other 0Privatization

Cash/Bank 4,100 400 -20 300 -7,000

CashBalance 120,000 115,900 115,501 115,522 115,223 122,224LocalCurrency 100,000 95,900 95,500 95,520 95,220 102,220FX 20,000 20,000 20,001 20,002 20,003 20,004

Accumulated Cash Balance

0

1,000

2,000

3,000

4,000

5,000

6,000

1 7 13 19 25 31 37 43 49 55 61 67 73 79 85 91 97 103

CumulativeDailyCash BalanceUSDmillions

Smoothing Cash Balance

0

1,000

2,000

3,000

4,000

5,000

6,000

1 7 13 19 25 31 37 43 49 55 61 67 73 79 85 91 97 103

CumulativeCashBalance

CumulativeCashBalanceafterBillIssuance

CumulativeDailyCash BalanceUSDmillions


balances




Loweraveragecashbalances

Interestoncashbalanceslessthanintereston

borrowing

ReducedborrowingcostsLesspressureonmonetarypolicy

operations

Smoothercashflows


balances




Fourkeyfeaturesforcashflowforecasting

Coverageofcashplans

Forecastinghorizon

Institutionalarrangements

Datacollectionmethods


balances


balances




outflows



CoverageofcashplansCoverageofcashplans

Forecastinghorizon

Forecastinghorizon

InstitutionalarrangementsInstitutionalarrangements



CoverageofTSA

Coverageofcashplans

Forecastinghorizon



CoverageofTSA


balances




Coverageofcashplans

Forecastinghorizon



3months

Monthly Weekly Daily


balances


balances




outflows



CoverageofcashplansCoverageofcashplans

InstitutionalarrangementsInstitutionalarrangements



Forecastinghorizon

Forecastinghorizon

SeparatecashmanagementunitSeparatecash

managementunitCashmanagement

committeeCashmanagement

committee

Cashforecastingandanalyzingtheresults

Collecting,analyzing,andcomparingthe

results

Coverageofcashplans



Forecastinghorizon

Separatecashmanagementunit

Cashmanagementcommittee

Cashforecastingandanalyzingtheresults

Collecting,analyzing,andcomparingthe

results


balances




Coverageofcashplans


Forecastinghorizon




balances


balances




outflows



CashbufferCashbufferMinimumcash

balances

Absorbcashflowforecasterrors

Contingencyreserve

CashbufferMinimumcash

balances

Absorbcashflowforecasterrors

Contingencyreserve


balances


balances




outflows



Determinantsofthesizeofthecashbuffer

Abilitytoforecastdailycashflows

Volatilityofdailycashflows

Scopeandtimelinetomanage

unanticipatedfluctuations

Availabilityofsafetynets

Determinantsofthesizeofthecashbuffer

Abilitytoforecastdailycashflows

Volatilityofdailycashflows

Scopeandtimelinetomanage

unanticipatedfluctuations

Availabilityofsafetynets


balances


balances


Timelyinformationsharing AdequateInfrastructureAdequateInfrastructure


outflows


outflows

Treasury Budget department

Debt Management department

Spending agencies

Revenue collection agencies

Central Bank


balances


balances




outflows


outflows

BigspendingunitsBigspendingunits

DatacollectionDatacollection

AllspendingunitsAllspendingunits

WebbasedsharepointsWebbasedsharepoints

Meetings/CashManagementcommittee

Meetings/CashManagementcommittee


balances


balances




outflows


outflows

Transactionprocessing=Paymentprocesses

Centralized Decentralized

TreasuryorAccountant

General’soffice


General’soffice

SpendingagenciesSpendingagencies

Transactionprocessing=Paymentprocesses

Centralized Decentralized


General’soffice

Spendingagencies


balances


balances




outflows


outflows

Accountingframework

Efficient Inefficient

TimelyandaccuratedataTimelyand

accuratedataDatafrom

bankaccountsDatafrom

bankaccounts

Summary of fundamental Features of Cash Management

Noneedofasinglebankaccount

Consolidatedviewofcashposition

Avoiddelaysinpayments

Avoidborrowingwithhighcosts

Establisheffectivechannelsforexchangeofinformation

Essentialforsupportingcashmanagement

Centralization of Government cash

balances - TSA

Projection of short-term cash

inflows and outflows – cash

forecasting

Timely information

sharing

Adequate infrastructure

Cash Rationing

Cash rationing

• Consideration of current cash balance only

• Cash balance rationed among competing cash requests

Advanced features of Cash Management

Integration of Cash and Debt Management

Active Cash Management

Advanced IT and Banking technologies

ActivecashmanagementActivecashmanagement

AdvancedITandBankingtechnologiesAdvancedITand

BankingtechnologiesIntegrationofdebtandcashmanagement

Integrationofdebtandcashmanagement

Processing and Payment systems

• Electronic transaction processing and payment through FMIS

• FMIS should interface with banks, and the central bank

Banking and Communication systems

Electronic banking and communication systems through:

• Payment Clearing systems

• Interbank settlement systems

Improvements in IT systems lead to better Cash Management





Credible cash plans



Prerequisite

DebtManagement

Establishmentandexecutionof

astrategy

Establishmentandexecutionof

astrategy

Requiredamountoffunding

Lowestcostpossible

Prudentdegreeofrisk









Short-term outlook

Cash Management

Medium and long-term horizon

Meet Government financing needs and payments at

lowest possible cost with prudent degree of risk

Correct amount of cash

Debt Management





Linkageofissuanceandredemptiondates

Maturitydateschosentooverlapwithcashinflowdates

Sensitivityoftheissuanceplantovolatilityinfinancingneeds

Coordinationrequirements

Managementofgovernment'sfinancialresourcesasaportfolio

Debtissuanceinthecontextofoverallcashflows

Consolidationofscarceprofessionalskills

Integrationofinformationsystems,andtransactionprocessingprocedures





Cash Management Debt Management

Objective of Cash Management

CashInflows CashOutflows Cashmanagement

Cashmanagement

Ensuregovernmentmeetsitsfinancial

obligations

Minimizingcostoffunding

Investingexcessgovernmentbalances

Timing mismatch

Summary of fundamental Features of Cash Management

Noneedofasinglebankaccount

Consolidatedviewofcashposition

Avoiddelaysinpayments

Avoidborrowingwithhighcosts

Establisheffectivechannelsforexchangeofinformation

Essentialforsupportingcashmanagement

Centralization of Government cash

balances - TSA

Projection of short-term cash

inflows and outflows – cash

forecasting

Timely information

sharing

Adequate infrastructure

Advanced Features of Cash Management



Advanced IT and Banking

technologies

public financial management (pfmx) module 8 outlook cash management medium and long-term horizon...

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