Budget Management and Public Financial Accountability in Sub-Saharan Africa

1. Budget Management and Public Financial Accountability in Sub-Saharan Africa MANAGING CASH – ENSURING PREDICTABILITY AND DISCIPLINE IN BUDGET EXECUTION By Vijay Ramachandran PFM Advisor East AFRITAC A Partnership of the CABRI senior budget officials network, SIDA, WBI, South African National Treasury and East-AFRITAC June 18 to 22, 2007 Pretoria, South Africa

2. Outline of the presentation • Objectives • Prerequisites • Institutional arrangements • Banking arrangements • In year budget authority • Commitment Control • Cash forecasting • Monitoring and evaluation • Challenges

3. Objectives of cash management • Making cash available at the right place, at the right time and in the required amount • Minimizing the cost of government borrowing and maximize the returns on financial resources, given a prudent degree of risk • Promote fiscal transparency and good governance • Provide efficient services to stakeholders

4. Prerequisites • A realistic budget, • Clear procedures for the release of appropriations, • Strict observance of the budget execution rules, • Experienced and skilled staff to prepare and monitor the financial plans, and • Clear borrowing rules.

5. In-yearbudgetauthority: • MoF issues quarterly or monthly commitment limits before the beginning of each quarter. • Commitment limits are based on appropriation, annual cash flow plans, and Treasury cash flow forecasts. • Limits may be issued for each budgetary line or for each program. • Forms the basis for commitments and expenditure. • All commitments must be recorded. No payment without commitment. • MoF prescribes clearly defined procedures for multi-year commitments and carry-overs.

6. Commitment Control 1: • Commitments: are obligations which arise by virtue of a contract or agreement or purchase order duly concluded for the supply of goods or services to a government entity, or where an agreement binds the government entity to make future disbursements to a contracting party.

7. Commitment Control 2

8. Institutional Arrangements

9. Banking arrangements 1 Treasury Single Account: An account or set of linked accounts through which the government manages its cash flows. Advantages: • Centralizes banking to improve flow of cash • Reduces associated operational risk • Reduces uncertainty in fiscal flows • Reduces uncertainty in fiscal impacts on the monetary base • Expedites use of electronic payment and settlement systems • Lower transaction costs from economies of scale in processing

10. Banking Arrangements 2

11. Banking arrangements 3 Challenges: • Concentration of revenues • Selection of banks • Remuneration of banks • Bank reconciliation • IT interface • Payment systems • Monitoring of performance of banks

12. Cash Forecasting: • Annual, broken down by months • Based on monthly work plan and procurement plan • Some transactions known precisely (bond redemptions, external transfers) • Regular monthly pattern of some flows • Historical patterns, rules of thumb • Inclusive of own resources • Consolidated, reviewed and agreed before start of FY. • Revised rolling quarterly plans conforming with projected commitments and quarterly spending limits from budget agencies. • Indicative cash flow plans from MoF to budget agencies. • MoF responsible to ensure cash availability for covering indicative cash flow plans. • Debt synchronized with Central Bank. • Composition and role of a cash management committee.

13. Monitoring and evaluation • Determine the deviations between planned cash flows and actuals • Determine the causes for the deviations • Improve the cash flow planning system to remove systemic problems • Improve networking with other players • Feed back into the cash flow planning system • Arrears • Exchange rates • Interest rates • Changes in investment schedules

14. Challenges • Active participation of budget agencies-incentives and disincentives • Coordination with monetary policy, fiscal policy and debt management • Coverage of donor projects, sub-national governments and extra budgetary funds • Business process engineering and IT solutions