Cash management – Liquidity forecast

1. Cash management – Liquidity forecast Tamás Pál Török Head of Division

2. The Treasury System • Treasury and ÁKK carry out the central management tasks related to the financial management and financing of the budget’s implementation. •  The Treasury • participates in the liquidity management of the Treasury Single Account by agreement with ÁKK, • forecasts the evolution of the aggregate balance of the expenditures and revenues of the accounts managed, to which the daily debt management data is coming from ÁKK. • The Treasury is entitled • to provide cash management services, including the management of accounts and the execution of cashless payment transactions, • to create money electronically, • to carry out investment service activities in respect of debt securities issued by the State • to use remote access payment instruments.

3. Treasury Single Account 1. • It was set up when the Treasury was established. • HUF account, kept by the Hungarian National Bank. • Money circulation of the budget is executed through this account, incomes are arriving to this account, and expenditures are paid from here. • Benefits of TSA: • ensures effective control over budget funds; • provides faster and more complete information; • reduces financing needs; • enables more efficient debt management options; • improves the quality of fiscal data.

4. Treasury Single Account 2. In Hungary, the TSA covers: • accounts of central budget institutions and chapters; • social security funds and separate government funds; • accounts linked to centrally managed appropriations; • finance related accounts; • accounts of regional development councils; • accounts of county governments and their offices; • accounts of public foundations; • accounts of state-owned non-profit companies; • accounts of other organizations defined in the law on public finances. Altogether nearly 10,000 accounts  

5. Treasury Single Account 3. TSA does not cover: • accounts of local governments and their institutions; • state-owned companies, businesses; • individuals.   The entity responsible for liquidity management: • ÁKK; • Treasury contributes: • preparing forecasts; • running government securities sales points.

6. Liquidity management • The Treasury continuously monitors revenue developments to be able to fulfil payments.  • Treasury requires liquidity plans and financing plans on monthly basis.  • In some cases specified in Government's decree, the Treasury may advance the coverage of certain expenditures from the TSA. Prepayments may be made without any charges and interest.

7. Liquidity forecasts Treasury is responsible for: • Providing an estimate of expected revenue and expenditure: • Daily plan, • Three months in advance,  Forecast Source: • Facts, historical data, • Financing plans, forecasts from larger institutions (based on legal obligation, or on agreement), • Pre-notification of large-scale payments

8. Structure of liquidity forecasts

9. Release of funds • YTD/Year-to-date allotment • Operating budget of governmental bodies. • Performance proportioned allotment • Cumulative budget of governmental bodies, chapter-managed estimates. • Modification of schedule • Institutions with temporary liquidity problems, chapter-managed estimates. • with different time-frame replacement • with non-different time-frame replacement • Appropriationsincreases without amendment • Exceeded appropriations

10. Payments • Submission of transfer orders • Paper-based • Electronic • Prior notification of big lump sum payments • Transfers in excess of HUF 1,000 million to be announced at least 3 days in advance • Double cover test • Liquidity coverage test • Appropriation line item test • Identification of performance • Single Column headings established under the order number (ERA) and government ID are used to identify the transfer lines.

11. 1.85 mn transaction monthly >12k accounts managed 11

12. Banking arrangements Treasury Single Account (TSA) at Central Bank of Hungary • provision of funds for operations (performance or monthly basis): gross expenditure – own income = net expenditure (budgetary contribution) • liquidity management • via TSA (central government) • municipalities can hold bank accounts at commercial banks • rolling cash-flow plan (T+2 months) • data exchange to prepare overnight operations • new Accounts Management System (from 2020) • other related fields

13. Liquidity forecasting • Daily forecasts for three months • Sources: • a large amount announcements • Bottom-up information: institutional reports, commitments, financing plans • Top-down information: planning on basis of last years and main information • Liquidity Board

14. Liquidityforecasting • Others: • Continuous information exchange with Central Bank, MoF, Tax Authority and other large entities • Problems: • Large fluctuation of cash balance within a month • Lot of disbursements at the beginning of month (wages, family allowance, pension, disbursement of VAT, etc. • Incomes: in the second half of month • Difficult to plan some types of incomes (e.g.: payments from European Commission • Efficiency: • 91.7 % accuracy in 2017 • 863 bn HUF TSA average balance in 2017 • 61 billion HUF average deflection

15. TSA balance and daily forecastYear 2017

16. Liquidity forecasting difficulties • Items difficult to plan with: • Schedule of EU revenues; • Institutional expenditure - in particular accumulation expenditure (Treasury does not have detailed commitment data); • Money transfers of organizations outside the treasury circle (e.g. non-profit corporations, local governments). • The Treasury does not have an integrated IT system that would support the preparation of forecasts (purchase of an IFMIS system in process).

17. Others • The Treasury provides the estimated day-to-day position of TSA for overnight repo bonds every day. • On the basis of the Treasury's daily forecasts, ÁKK not only adjusts the timing of financing, but also manages cyclical cycles within a month, primarily with repo operations. • At present, the Treasury is also managing the currency management and cash flow of the central government subsystem through the euro and dollar nostro accounts managed by the central bank. However, there is no active liquidity management on these accounts. 

18. Thank you for your attention!