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Treasury and Cash Management

Treasury and Cash Management. Bill Dorotinsky, PRMPS Budget Execution Course January 16-17, 2003. Core Treasury Functions. Cash management (flow and stock) Financial asset management Debt management, servicing; guarantee management

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Treasury and Cash Management

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  1. Treasury and Cash Management Bill Dorotinsky, PRMPS Budget Execution Course January 16-17, 2003

  2. Core Treasury Functions • Cash management (flow and stock) • Financial asset management • Debt management, servicing; guarantee management • Accounting (policy, chart of accounts, general ledger) and reporting • Revenue collection, forecasting • Account management (payment, collection, reconciliation) • Central Bank relations

  3. Varied organizational options • Treasury as an organization • MoF – core treasury plus formulation • Core treasury only • Treasury system – system for managing government transactions • Centralized • Distributed – treasury, commercial banks • Automated, mixed, manual • Widely differing authority • Complete authority to reduce below budget, vire • No authority to reduce, vire without Government or legislative approval

  4. Cash management • Objectives: • Assure fund availability for meeting government obligations (liquidity) • Cash conservation • Minimize borrowing, borrowing cost • Maximize returns from idle cash • Risk management • Tools: • Treasury consolidated fund (single account) • Financial plans • Warrants (allowable draws on TCF) • Invoice payment/cash rationing • Debt issuance • Supplemental budgets

  5. Treasury Consolidated Fund(treasury single account) • Single account or accounts under treasury management – consolidation of cash • The more accounts, the more difficult to manage, report • Payment arrangements will vary: • Centralized: direct transaction from TCF • Deconcentrated: payment by spending agency from TCF • Decentralized: payment by spending agency from imprest account

  6. Financial plans • Important link between budget, agency programs and activity, cash flow • Links commitments and cash • Used for cash flow forecasting when combined with revenue forecast • Allows planned, orderly debt issuance • Usually monthly • Periodic variance analysis to plan, budget

  7. Cash rationing(misnomer cash budgeting) • Last resort liquidity management • Disruptive to programs, vendors • High corruption potential • Need transparent ex ante rules • Public procedure • Likely to undermine budget priorities

  8. Debt management • Debts and liabilities need to be recognized and inventoried • Debt can include: • Bills, notes and bonds • Budgetary arrears • Accounts payable • Unfunded pension liabilities • Accrued but unpaid employee benefits, to name a few • Debt can also include certain obligations of sub-national governments

  9. Contingent liabilities • Government acts as a guarantor of debt repayment in the event that the borrower cannot make repayment, or of payment under certain conditions • Loan, pension benefit, bank deposit, agricultural price • Contingent debt must be managed with the same detail as direct debt. • As with direct debt these contingent debts must be inventoried and monitored in a central location • Active identification, monitoring, management of risk important

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