Effective Cash Management Strategies for Government Financial Stability

Cash Investment Management Sharon P. Almanza Deputy Treasurer of the Philippines

NATIONAL GOVERNMENT ACCOUNTING ASSET LIABILITY MANAGEMENT MANAGEMENT

Cash Management Having the right money in the right place at the right time to meet government s obligation in the most cost effective way (Ian Storkey, 2010) Strategy and associated processes for managing cost-effectively the government s short-term cash flows and cash balances, both within government and between government and other sectors (Mike Williams, 2004)

The Budget Cycle and Cash Management 1. Fiscal Framework 2. Budget Preparation and Legislation 5. Control and Audit Legal Framework Managing Financial Resources 4. Accounting and Reporting 3. Budget Execution Debt Cash Management Management 4

Why do we need to manage Cash? Timing Mismatch Cash Inflows Cash Outflows Tax Revenue Non Tax Revenue Grants Sale of Assets Borrowing Salaries Subsidies/Transfers Interest Payment Operational expenses Purchase of assets/ investment Debt Repayment

Why do we need to manage Cash? Timing Mismatch Cash Inflows Cash Outflows Salaries Subsidies/Transfers Financial Expenses Operational expenses Purchase of assets/ investment IRA Tax Revenue Real Property Tax Transfer Tax Business Tax

Cash Management Objectives Timing Mismatch CASH MANAGEMENT Ensure that adequate cash available to pay for expenditures when they are due Minimize borrowing costs by integrating debt management with cash management and avoiding unnecessary borrowing Maximize returns on idle cash Manage risks when investing temporary surpluses

Objectives of Cash Management AGENCY LEVEL NATIONAL LEVEL Economizing on cash within government (time value of money) Managing efficiently the government s aggregate short term cash flows Ensuring that debt management is aligned with the monetary policies Ensure line agency is able to prepare forecast of its cash flows Management of NCA to avoid lapsing and ensure at least 90% utilization Accomplish accurately the monitoring templates Coordinate with sub-units under the department for accurate forecasting

Cash Management Cycle Cash Outflow Cash Inflow Deficit Borrow Surplus Invest 9

Cash Forecasting or Cash Planning Measuring the timing and magnitude of cash inflows and outflows At least for the following three (3) months Can be made bottom-up; i.e. by receiving detailed information from spending agencies/collecting units or top-down(historical data)

Cash Flow Forecasting or Cash Planning Forecast daily Cash flow Requirement Timely Information Cash Outflows Cash Inflows Salaries/wages Tax Revenue Subsidies or Transfers Non Tax Revenue Grants Interest or Financial Expense Operational Expenses Sale of Assets Purchase of Assets 3 months CPR Borrowing Debt Repayments 11

Cash Planning Report FY 2018 CASH PLANNING REPORT (CPR) UACS ORGANIZATION CODE: DEPARTMENT: AGENCY: OPERATING UNIT: LOCATION: (In Thousand Pesos) Note: * Input only your final cash plan in this worksheet. * Do not add or delete a column or a row. * Use this worksheet only, do not add sheets. Only this sheet (Agency) is link to the master consolidator. * Input your UACS Organization Code in the yellow box. The department, agency, operating unit and location will be automatically filled up. * Make sure that amount in this report is in thousand pesos. Cash Planning Report GRAND TOTAL 1-Jan-18 2-Jan-18 Tue 3-Jan-18 Wed 4-Jan-18 Thu 5-Jan-18 Fri 6-Jan-18 Sat 7-Jan-18 Sun 8-Jan-18 Mon 9-Jan-18 10-Jan-18 11-Jan-18 12-Jan-18 13-Jan-18 14-Jan-18 15-Jan-18 Tue Wed Thu Fri Mon Sat Sun Mon I. FISCAL YEAR'S (FY) BUDGET A. Recurring Expenditures RE-PS RE-MOOE RE-FINEX SUB-TOTAL B. Non-Recurring Expenditures NRE-MOOE NRE-CO NRE-FINEX SUB-TOTAL TOTAL PROGRAM, FY BUDGET 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 II. ACCOUNTS PAYABLES (A/P) AP-PS AP-MOOE AP-CO AP-FINEX TOTAL PROGRAM, A/P 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 TOTAL FOR THE DAY 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Cash Management Cycle Cash Inflows Cash Outflows Deficit Surplus Borrow Invest Tax Revenue Non Tax Revenue Financial Grants Salaries/Wages Goods and Services Debt Services

Investment Management: Handling idle cash Until when is cash idle/free? Determine investment horizon Set hurdle rate of return BSP s overnight deposit facility (ODF) rate Choose appropriate instrument Short-term: Term Deposits or Treasury Bills Medium/Long-term: Treasury Bonds

What are Government Securities? GOVERNMENT INVESTORS Form of funding to augment budget for financing projects, social services, debt repayments, etc. Debt obligation of the government to investors (holders) Investment outlet for investors; usually the fixed-income part of their portfolio (asset in their books) Generally for conservative investors as GS is virtually risk-free investment CURRENCY PHP, USD, CNY, JPY, EUR TENOR 91D, 182D, 364D, 3Y, 5Y, 10Y, 20Y, 25Y Domestic vs External LISTING LOCATION Discount, Fixed Coupon Rate, Floating Rate INTEREST RATE

What are Government Securities? CURRENCY TENOR LOCATION INTEREST 91D, 182D, 364D Fixed Discount Treasury Bills Fixed Rate Treasury Notes Retail Treasury Bonds Floating Rate Notes PHP Domestic Fixed Coupon PHP Up to 25Y Domestic Fixed Coupon PHP Up to 25Y Domestic Floating Coupon PHP Up to 25Y Domestic

GS Issuance Regular Auctions BUREAU OF THE TREASURY TREASURY BONDS TREASURY BILLS GOVERNMENT SECURITIES ELIGIBLE DEALERS GOVERNMENT SECURITIES INVESTORS

GS Issuance - LGUs SANGGUNIAN BOARD RESOLUTION This document is required for an LGU to be able to invest in GS. Authorizes representatives who could transact on the behalf of LGUs. SPECIAL POWER OF ATTORNEY LGUs should approach their respective dealers/brokers and accomplish the SPA form provided by the dealers/brokers to be able to participate in GS issuances. The SPA document authorizes the dealers/brokers to invest the funds of the LGUs in GS as discussed with them. INVESTOR S UNDERTAKING FORM Authorizes the creation of a principal National Registry of Scripless Securities (NRoSS) account for the investor. Requirement in the purchase of peso-denominated GS. The Investor s Undertaking Form will be provided by the dealers/brokers of the LGU; also available in the BTr s website.

How much will you earn annually from an investment of one billion pesos? VS RTBs T-BILLS TIME DEPOSITS 4.75% 1.00% 6.25% 8,000,000 50,000,000 38,000,000

Productive Spending EDUCATION HEALTH CARE AGRICULTURE

Why Invest in GS? Time Deposits Government Securities Higher return than savings accounts Higher return than time deposits Default-risk free as full amount is direct obligation of the government Usually guaranteed by the up to 500,000 pesos only per depositor Negotiable can be sold should liquidity need arises Non-withdrawable must be deposited for the length of time stated in the contract Principal amount is regained upon maturity, but may not be the case if sold before maturity (market risk) Principal amount is regained upon maturity Interest earned quarterly Interest earned on maturity