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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 Accounting (policy, chart of accounts, general ledger) and reporting Revenue collection, forecasting Account management (payment, collection, reconciliation) Central Bank relations

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

Cash management
Assure fund availability for meeting government obligations (liquidity) Cash conservation Minimize borrowing, borrowing cost Maximize returns from idle cash Risk management

Treasury consolidated fund (single account) Financial plans Warrants (allowable draws on TCF) Invoice payment/cash rationing Debt issuance Supplemental budgets

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

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

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

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

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