1. Treasury and Cash Management
Bill Dorotinsky, PRMPS
Budget Execution Course
November 4, 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: Tools:
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 Forecast and Balances: Rudiments of cash management
Revenues
Central Forecasts
Spending
Agency Financial Plans/Allotments
Balance
Seasonal
revenue
fluctuation, spending patterns
Structural
revenue
fluctuation, spending patterns
Arrears
Over-commmitment
Random revenue shocks
Annual predictable pattern

8. Corrective Measures: Smoothing cash flows
Cash Balance
Structural:
Budget retrenchment
Long-term debt
Allow commitment/spending only if revenues actually received
Contingent liability management
Comprehensiveness
Commitment controls
Seasonal:
Keep allotments or commitments below revenue, build balances
Short-term debt
Limit cash payments to cash balances (arrears)
Who bears the risk of fiscal adjustment under each option?

9. 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

10. 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

11. 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