PEMPAL - TCOP WG thematic workshop – Moscow – 5 April 2017 Republic of Croatia - Ministry of Finance The Relationship between the Treasury Cash Management Function and the Central Bank Functions PEMPAL - TCOP WG thematic workshop – Moscow – 5 April 2017

The Croatian National Bank Act Regulates correlations: The Croatian National Bank is exclusively owned by the Republic of Croatia The Republic of Croatia is the guarantor for all liabilities of the CNB The CNB is independent and the Republic of Croatia cannot influence its decision-making or execution process, especially: Monetary and FX policy – price and FX rate stability – where necessary, the CNB performs fine tuning operations in the open market – repo and reverse repo operations The government cannot borrow funds from the Central Bank – but the Central Bank can buy government securities on the secondary market.

The Budget and Budget Execution Act Public Debt Management Service Contacts and consults market investors, assesses the financial market situation, conducts risk assessment Negotiates long-term liabilities - credits and bond issuance; and short-term liabilities - credits and treasury bills Transparent publication: annual reports and the public debt management strategy 2017 - 2019, the borrowing and T-bill auction calendar Liquidity Management Service Prepares quarterly and annual liquidity plans which are updated on a daily basis Placement of occasional free cash flow surpluses by using short-term deposits on the money market in commercial banks (with collateral), and government securities (through the Croatian National Bank, for FX placements). Basic principles of investment: security, liquidity and cost-effectiveness Committee for Liquidity - considers monthly liquidity plans

FISCAL, MONETARY AND PUBLIC DEBT POLICY officially - the CNB Act from 2008, 2013; unofficially - where needed, at the highest level MINISTRY OF FINANCE THE CROATIAN NATIONAL BANK borrowing plans bank system liquidity; interest rates PAYMENT OPERATIONS Execution of payment operations - officially - contracts; unofficially - intensive daily contact Development of payment operations - Technical working group - National Committee for Payment Operations, 2003 - Cooperation Agreement Defined deadlines, conditions, technical requirements for execution methods and fees defining and proposing common measures in payment operations, proposing new services pursuant to international standards, e.g. the national SEPA project

MANAGING THE FINANCIAL CRISIS ANALYSES AND PROJECTIONS STATISTICS officially - Cooperation Agreement - 2013 MINISTRY OF FINANCE THE CROATIAN NATIONAL BANK government finance statistics for the IMF the public debt report, government finance statistics for the ECB MANAGING THE FINANCIAL CRISIS officially - memorandum of understanding - 2009 highlighting system risks which threaten financial stability ANALYSES AND PROJECTIONS unofficially regular publishing of macroeconomic projections and analyses, cooperation of experts from both institutions

REPUBLIC OF CROATIA FUNDS AT THE TSA IN THE CNB IBAN: HR12 1001 0051 8630 0016 0 HRK - CNB manages accounts for the RC but is not in charge of the payment operations for these accounts (electronically through FINA) - CNB pays interest on the deposited funds - CNB charges fees for providing services and performing operations to the depositor (and to FINA, as well) €/$/£ - CNB performs payment operations electronically - CNB does not pay interest on foreign deposits, nor does it charge fees for performing payment operations - Since June 2014, interest rates on EUR deposits, as well as for all short term deposits and investments, have been negative (following the ECB decision) - operations via the TSA - CNB does not use cash and certain foreign currencies - account balance accessible in real time, electronically - still no account balance targeting

POSSIBLE PROGRESS IN COOPERATION Cooperation adequate, but can it be better? Increased cooperation (speed) at the operational level Lack of readiness to conduct certain transactions Engaged investment (f/x) consultant, FX rate developments The role of the fiscal agent in reducing public debt management expenses Liquidity fine tuning A common IT system A more pro-active approach

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