CASH FORECASTING IN TURKEY REPUBLIC of TURKEY MINISTRY of TREASURY & FINANCE

Contents Cash Forecasting and Treasury Cash Plan 1 Forecasting Inflows 2 Forecasting Outlows 3 4 Institutional Capacity & Reporting 5 Challenges & The Way Forward

Cash FORECASTING & TREASURY CASH PLAN 1

Forecasting as a Process Inputs Process Outputs Forecasting Approach and Methodology Info Sources Forecasting Outputs Input Data Beneficiaries Internal&external stakeholders (data providers) Granularity of the input data Periodicity of the data provision Internal&external stakeholders (beneficiaries of the forecasting product) Granularity of the forecasting outputs Periodicity of the forecast production Top-down vs. bottom-up forecasting approach Forecasting infrastructure, tools & techniques

Forecasting Frame in Turkey-I Forecasting Period Time Forecasting Horizon Approach Annual End October-Previous Year 2+12 months (daily numbers) Top-down&bottom -up mixed Monthly End of Each Month Primarily- 90 days Secondarily- rest of the year Mostly bottom-up Daily Every day-twice Primarily-rest of the month External Stakeholders Internal Stakeholders Spending Agencies MoT&F-DGs of Budget&Revenue Policy Privatization Administration SDIF Other 01 02 Debt Management Unit Treasury Middle Office Treasury Back Office Shareholder Executive Other IT Infrastructure Daily Information Sharing Treasury Information System Cash Request System Public Electronic Payment System Public Treasurership Information System Ms Excel 03 04 Treasury’s Top Management DMU&Middle Office Central Bank of Turkey

Forecasting Frame in Turkey-II (Revenue) Treasury Budget Monitoring Dept. Special Budget DG of Revenue Policy Regulatory Bodies Overall Revenue Projections Updated Revenue Projections Surplus Projections Treasury Receivables Dept. Resolution Revenue Projections Receivable Collection Projections SDIF Cash Management Department Tax Payment Projections Privatization Projections Large Taxpayers (BOTAS, TUPRAS) Privatization Admin. Dividend, Treasury Levy Projections Shareholder Executive

Forecasting Frame in Turkey-III (Expenditures) Spending Agencies Ministry of Treasury&Finance Budget Release Information E-Budget System Treasury Spending Units Approved Budget Releases Consolidated Budget Release Proposals SOE payment projections etc. Consolidated Cash Requests Approved Budget Releases Budget Projections Strategy Development Departments Spending Units Accounting Units Budget Proposals/Projections Cash Request System Payment Program Cash Requests Approved Cash Program Treasury Budget Monitoring Dept. Cash Management Department Treasury Accounting Units DG of Budget (Former MoF) Approved Payment Documents Payment Documents Payment Orders Public Electronic Payment System Treasury Internet Banking System Expenditure Management System Public Electronic Payment System Accounting System

Treasury Cash Plan

2 ForecastIng Inflows

Forecasting Tax Revenues 1 2 Granularity Info Sources Special Consumption Tax-I Special Consumption Tax-II-III-IV VAT/Income Tax Corporate Tax Other Taxes Budget-Annual Projections DG of Revenue Regulations-Current Outlook&Projections Treasury Budget Monitoring Dept.-Revised Projections Methodology Using budgetary figures&growth assumptions-arranging one-off receipts Tax calendar&time series analysis for daily forecasts Continuous update based on revised projections 3

Tax Revenue Patterns

Forecasting Non-Tax Revenues 1 2 Granularity Info Sources SOE&Public Bank Dividends Treasury Levy GSM Revenues Receipts from Regulatory Bodies Etc. (Highly granular) Shareholder Executive Regulatory Bodies Revenue-Collecting Agencies Methodology Mostly bottom-up projections Periodic information flow from revenue-collecting agencies 3

Forecasting Non-Tax Revenues-Example

Forecasting Financing Items 1 2 Granularity Info Sources Foreign&Domestic Debt Privatization Revenues SDIF Transfers Land Sales Treasury Receivables DMU-Borrowing Program Treasury Back Office-Receivable Collections Revenue Collecting Agencies Privatization Admin. SDIF Methodology Fully bottom-up projections Monthly information flow from PA and SDIF Weekly information flow from Treasury Offices 3

3 FORECASTING OUTFLOWS

Forecasting Primary Expenditures 1 2 Granularity Info Sources Payroll&Obligatory&Discretionary Payments Agency–based classification Detailed classification for SOE payments, SSF transfers, agriculture supports etc. Spending Agencies-CRS Shareholder Executive-SOE Payments SSF Treasury Spending Units Methodology Mostly bottom-up projections Monthly information through CRS Weekly revision through CRS Monthly meetings with top-spending agencies Daily projections from SSF 3

Cash Request System-I CRS Since 2011 an internet portal for collecting cash requests, online and real time CRS eliminates paper based documentation the data of cash requests are saved to Treasury database different reports can be produced upon needs

Cash Request System-II cash request information of 200 public institutions regional accounting units, central accounting offices and special budget accounting offices. CRS feedback for the next month’s cash transfers weekly revision during the month classification based on main expenditure items

Cash Request System-III A sanction mechanism envisaged in the legislation for lack of submission applied as a penalty fine to the responsible personnel Treasury has the right to modify cash requests regarding the spending performance of the requesting institutions CRS Previous track record of the institutions in terms of forecasting is considered subjectively while evaluating their interim revision requests No direct link between CRS and the payment system The link between the data produced from two systems is established manually during the daily programming process

Forecasting Debt Repayments&Interest Payments 1 2 Granularity Info Sources Domestic&Foreign Payments Treasury Back Office DMU-Buy-back Operations Methodology Fully bottom-up projections Weekly updates from Treasury offices Day-to-day coordination with DMU 3

INSTITUTIONAL CAPACITY & FORECASTING PERFORMANCE 4

Institutional Capacity DG of Public Finance Cash&Debt Management, Risk Management, Treasury Guarantees&Receivables Management, Back Office&Treasury Accounting, etc. Cash Management Department 3 Treasury Experts&Civil Servants Preparing Regulatory Framework for the Management of All Public Financial Resorces Monitoring&Reporting Public Financial Resources on a Daily Basis Providing official Treasury remarks for any legislation related to public financial resources Coordination with State Mint & Approval of coin printing programs Cash Programming & Transactions Division Public Treasurership Division 6 Treasury Experts &Associates An expertise model based on main cash program categories Cash Forecasting & Programming Management of Treasury Reserves Execution of New TSA Project Commission&Fee Payments for Treasury Transactions Short-term Money Market Operations Coordination with Debt&Liquidity Management Other

Monitoring & Reporting Cash Forecasting Performance-I Deviations from daily cash program are reported daily to the top management and deviations from monthly program are examined at the regular meetings with DG and Undersecretary. Cash management KPIs are part of 5-year Strategic Plan and annual performance programs of Treasury since 2009/2010. Initially set as a single KPI based on deviations from the projected cash surpluses/deficits on a monthly basis. Since 2014, two separate indicators defined as the average monthly deviation in the total revenues (cash inflows) and expenses (cash outflows) of which the results are reported monthly. Additional KPIs for measuring the performance in terms on deviations from the daily cash balance projections will be added starting from 2019. CMD is subject to Turkish Court of Acccounts’s audits and accountable for these KPIs

Monitoring & Reporting Cash Forecasting Performance-II Due to relatively less controllability issue the benchmark for the revenue side ise higher. Benchmark values (the minimum acceptable performance) have been set more stringent year by year. Poor performance in terms of revenue forecasting was mainly due to unexpected overperformance in the tax revenue & legislation for restructuring of tax payables.

CHALLENGES & THE WAY FORWARD 5

Challenges 1 The dominance of Ms Excel in the whole forecasting and reporting process. Lack of systematic daily data provision from Tax Administration regarding daily tax revenue realizations and projections 2 Lack of full compatibility between daily payment data & budget data in terms of economic classification 3

The Way Forward 1 Programming & Reporting Modules of the New TSA IT System will provide an integrated forecasting media Integration between Tax Automation System and Treasury Information Systems (as part of the new IFMIS Project) 2 Arrangement in the Payment System in order to enable the provision of payment data fully compatible with the budget (as part of the new IFMIS Project) 3

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