TREASURY MANAGEMENT PRACTICES IN LATIN AMERICA - PowerPoint Presentation

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TREASURY MANAGEMENT PRACTICES IN LATIN AMERICA -Results of a Survey of State Treasuries-

Holger

van Eden, IMF

Fanny Weiner, WBSlide2

ContentSurvey ParticipantsLegal Basis for Treasury Management

Cash Flow Forecasting

Treasury Single Account (TSA)

Commercial Bank Accounts & TSAActive Cash ManagementTreasury & Central BankTreasury Management at the subnational levelTentative Conclusions - for Discussion

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1. Survey ParticipantsArgentinaChileColombiaCosta Rica

Ecuador

Brazil

El SalvadorGuatemala

Mexico

Nicaragua

Panama

Peru

12 Countries*

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*Data in charts not adding up to 12 is due to missing answers or non-applicable questionsSlide4

2. Legal Basis for Treasury Management

*All countries with NO Treasury Law, have regulations on Treasury Management in other Public Financial Management laws.

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3. Cash Flow Forecasting

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Cash Flow Forecasting Slide6

Projecting Inflows

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Cash Flow Forecasting Slide7

Cash Flow Plan Revision

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Cash Flow ForecastingSlide8

Cash Management Responsibility

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Cash Flow Forecasting Slide9

Cash Flow Policy Making

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Cash Flow Forecasting Slide10

Policy Making CommitteesCountry

Members

Argentina

Secretaries of Finance and Economy ColombiaSub-directors of Treasury, Internal F

inance, External Finance,

Multilateral

Finance, Risks, and Sub-Director of Operations ChileBudget Directorate, General Treasury, and Central BankCosta RicaTreasury, National Sub-Treasury, Coordinator of the Account Programming Unit, Manager of Debt ManagementPeru

Vice Ministers of Hacienda and Economy, Director of Budget Directorate, General Managers of the Central Bank, and Banco

de la NaciónEcuador

Sub-Secretary of Budget and TreasuryBrazil

Budget Execution Board: Ministry of Economy and Finance, Planning and "Casa civil”

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Cash Flow Forecasting Slide11

4. Treasury Single Account (TSA)

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Treasury Single AccountSlide12

Resources Included in the TSA

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Treasury Single AccountSlide13

Central Government Resources NOT Included in TSA(other than mentioned before)13

Country

Other

resources% of budgetArgentinaFiduciary Funds

40%

El Salvador

N/A

30%ColombiaPublic-Private Joint VenturesChileFunds not included in the budgetPanamaUniversities, Public Financial Entities, and Hospitals35%Costa RicaN/A60%PeruDirectly collected resources (own revenues), Resources from official credit operations,

Donations, and Transfers20%MexicoLegislative and Judiciary, autonomous entities35% EcuadorFinancial Institutions22%

BrazilIndependent Public Enterprises, other funds that by law are authorized to have separate budgets

Treasury Single AccountSlide14

Structure of TSA

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Treasury Single AccountSlide15

Determination of Daily TSA Balances

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Treasury Single AccountSlide16

Reconciliation of TSA

Mainly manual reconciliation of the accounts

Task mainly performed by Treasury and/or Central Bank

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Tax Collection

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Treasury Single AccountSlide18

Speed of Transfer of Tax RevenuesMost countries have formal agreements with commercial banksRegulates time and fees of transfers

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Treasury Single AccountSlide19

Fees for Collection and Transfer of Tax Revenues

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Treasury Single Account

Transaction-based

% -based

How is this fee set? Slide20

Payment Arrangements

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Treasury Single AccountSlide21

Extent of Electronic Payment Country

% of Expenditures

% of Agencies

Argentina

90%

Colombia

98%

100%

Chile

100% of payroll, payment system for suppliers in test

Panama

56% of private suppliers

80%

Guatemala

99.99%

Costa Rica

100%

Peru

28% (excluding Regional

Governments)

Mexico

100% to suppliers, 71% of

payroll

Ecuador

100%

Nicaragua

30% of payroll, and suppliers financed through external resources

Brazil

100% of Federal Government

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Treasury Single AccountSlide22

Accounts Outside of the Treasury Control

Country

Accounts outside of the TSA

El Salvador/Colombia/Brazil/ChileNoneEcuadorCentral Government: None; decentralized governments have own accountsPanama

Approx. 6150

Guatemala

All decentralized and autonomous entities and the implementing agencies of the central government

PeruThe 1834 local governments have accounts outsideMexico336822Treasury Single AccountSlide23

5. Commercial Bank Accounts

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Do central government agencies hold accounts at commercial banks? Commercial Bank Accounts & TSASlide24

No. of Commercial Bank Accounts and Government Agencies

Ministries and associated institutions/dependencies (4x)

Entities part of the general budget

Ministries and MunicipalitiesAgencies in the TSA (ministries, universities, etc.)Agencies of the Federal Public Administration

Health, Education, Police, Defense, and Cultural Institutions

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Commercial Bank Accounts & TSASlide25

Purposes for Holding Commercial AccountsPetty cash (3)

Receive funds from the Treasury (2)

General Budget execution (2)

Payroll Expenses (3)Management of certain Financial Funds (Trust Funds, Fiduciary & Revolving Funds, Donations, Loans, Subsidies etc.) (5)Manage revenues of services and goods sales (1)

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Commercial Bank Accounts & TSASlide26

Monitoring of Commercial Accounts

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Commercial Bank Accounts & TSASlide27

Transfer of Balances to Treasury*Other:Transferred after 2 months of excess fundsTransferred if not executed after 5 days

Balances (petty cash) are never transferred back, but fixed amount can be reduced

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Commercial Bank Accounts & TSASlide28

Government Institutions’ Own Revenue 28

Commercial Bank Accounts & TSASlide29

6. Active Cash Management

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Commercial Bank Accounts & TSASlide30

Short–term Investments

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Short-Term investments & BorrowingSlide31

Short-term Borrowing Instruments

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Financial Instruments used for liquidity needs*

Short-Term investments & BorrowingSlide32

Payment of Government Obligations with Government Securities

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Commercial Bank Accounts & TSASlide33

Coordination of cash and debt management

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Maturity of Treasury Bills:

360 days (5) (AR, SV, GT, NI, EC)90, 180 and 360 days (CO)3 and 6 month (PA)Less than 3 months (CR)Less than 1 year (PE)28, 91, 182 and 364 days (MX)6 months (BR)

Short-Term investments & BorrowingSlide34

Financial Information System

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Short-Term investments & BorrowingSlide35

7. Relationship Treasury and Central Bank

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The relationships between Treasury and the Central Bank are defined throughSlide36

8. Treasury Management at the Subnational Level

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9. Tentative Conclusions - for Discussion (I)The legal basis for Treasury Management can be strengthened - would clarify role, enhance powers

TSAs have been established but coverage and Treasury control needs to be increased

Progress has been made in centralizing payment mechanisms and introducing electronic transfers

Integration of commercial bank accounts in TSAs is just starting (daily zero-balancing needs to be introduced) Monitoring and control over central government liquidity still needs to be further enhanced (requires connectivity, IFMIS systems, and forecasting capacity)37Slide38

Tentative Conclusions - for Discussion (I)Payment for banking services needs to be made more transparent (tax and other revenue inflows need to be accelerated, the float reduced)

Cash rationing still part of cash management in quite a few countries

Active cash management still in phase of “rough-tuning” (further money and capital market development is needed) – institutional role not always clearly assigned to Treasury

Issuance of IOU needs to be discontinued – bad for credit rating and for payment terms governmentRelationship with Central Banks can be made more structured, transparent and communicative38Slide39

Thank you very much for your attention!Muchas gracias por su

atenci

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