Cash Flow Forecasting Practice in Macedonia for PEMPAL Thematic Group Meeting on Cash Management

1. Republic of MacedoniaCash flows forecasting practicefor the purpose of PEMPAL thematic group meeting on cash managementNovember 7-9, 2018Vienna, Austria

2. Organizational Chart of PFM Units within the Ministry of Finance

3. Model of the PFM • The systems (applications) involved in Public Financial Management in Macedonia may be compared to the solar system ! • The principal object (sun) around which all the others revolve is the Treasury Information System - TrIS. • The two largest systems (planets) which interact with TrIS are PRO (tax revenues) and Customs Administration (customs and excise duties). • The smaller planets closest to TrIS – e-Commitments and e-Budget – which both supply data to, and receive data from TrIS. • The planet e-Budget has a moon – e-Circular – which is connected to it. • These are followed by more distant planets that interact indirectly with TrIS – e-Debt, FAMA, and the MoF systems for accounting, fixed assets and inventory. These systems should be tightly bound to TrIS, but have evolved separately and with few or no direct digital links to TrIS, data being exchanged ‘informally’ via USB sticks, e-mail etc. • The solar system has links to the universe via the banking systems of the National Bank (via MIPS) and the commercial banks (via KIBS).

4. General remarks regarding the Cash Flow Forecasting • Forecasting and Liquidity Management Unit at the Treasury Department (Ministry of Finance) is responsible for cash management of the Treasury accounts (Treasury Single Account approach). • Projections of cash flows and aggregate cash balances are made on yearly, monthly and weekly basis (by days). • Weekly forecasts are being reported to a Liquidity Commission members (Treasury Department, Budget Department, Public Debt Department, Public Revenues Office, Customs Office, National Bank of the RM). • The Liquidity Commission is an informalbody that holds meetings each Monday and discuss about the realisation from the previous week and the forecast for the upcoming week. • There is also a high – level Liquidity Committee in the Ministry of finance that holds meetings once in a month (recently established practice).

5. Data collection Collection of information is being organized in the following manner: • Tax revenues data (PRO, Custom Office, historical data, Tax Dept., Macro diagnostics) • Social Contributions data (Pension Fund, Health Fund, Employment Agency, historical data, macro diagnostics) • Other revenues (historical data) • Expenditures (budget users announcements: according to the Manual on treasury operations, budget users are obliged to report/announce upcoming expenditures and revenues that exceed MKD 10 mil; Funds announcements on regular weekly basis; historical data/fixed expenditures are with defined date and dynamics) • Also, a regulated issue is submitting Financial quarterly and monthly plans by all budget users regarding the expenditures (available in the treasury software, but not often used) • Debt management data: close cooperation with the Public Debt Department - delivery of monthly and weekly announcements

6. PFM System, Forecasting Tools and Forecast accuracy • TRIS – Treasury Information System - In 2002 - Single Treasury Account (STA) introduced, together with the Treasury Information System (TrIS). The government transacts all payments and receipts through the STA. Within the treasury account are the separate sub-accounts of the budget users and other institutions according to law. • Cash flow forecasting SO FAR: Excel spreadsheets linked with formulas and comparisons between forecast and execution on daily basis (but not compiled as one time series data variable) • Forecasts accuracy - not yet measured systemically (lacking comprehensive time series and lack of human resources). At the moment we are compiling the time series on historical forecasts so we can compare and measure accuracy. • Information sharing and communication with other actors (mostly via email and telephone)

7. Debt Issuance policy • Issuance on the domestic market with limit for annual net issuance set in Government decision. • Monthly volume issuance in coordination with Treasury Department and liquidity needs; • No target for the balance of the government bank account; • No financing of liquidity buffer; • No active cash management. • Frequency of issuance set in semi-annual Calendar for government auctions published before the semester. • Two auctions per month • Issuing through a yield curve from 12m T-bills for cash management purposes up to 30y T-bonds for debt management purposes. • Improvements with a support from WB Treasury – GDRM reform program. • Improving communication around the annual borrowing plan; • organizing maturities and building benchmarks; • Reducing number of tenors offered on a single auction.

8. Our vision and expectations from this learning experience • Learn more about different countries’ experiences. We need to broaden our understanding and knowledge in order to improve our cash management framework. • Improve the ability to make more accurate forecasts. • Share our experience. We are developing new forecasting methodology (a tool in Excel, interlinked spreadsheets with historical data/baseline spreadsheet/forecast spreadsheet/dashboard/ - structure). We have also applied new forecasting technique (ARIMA), but we are still testing for the proper fit model for each of the revenues and expenditures types. • Talk about the challenges. Lack of procedures, practical transfer of know how, building sound cash flow forecasting procedure and organizational infrastructure. Lack of staff. • Strengthen our cash flow forecast framework and learn about how to make the proper institutional change and adapt the IT architecture in order to prepare for introduction of active cash management. It’s a long process and many steps need to be done.

9. Thank you for your attention!