## 1. Summary of Findings and Recommendations ## Source details **Canonical URL:** [1. Summary of Findings and Recommendations](https://www.imf.org/-/media/files/publications/cr/2017/cr17272.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2017/cr17272.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2017/cr17272.pdf.json) --- ### Introduction and mission scope - AFE fielded a technical assistance (TA) mission to Kampala during November 21 to December 2, 2016. - Mission team: Amitabh Tripathi (AFE public financial management advisor) and John Gardner (expert). - Objectives: provide practical assistance to MoFPED on strengthening cash management and implementing the Treasury Single Account (TSA). - Mission outputs included: - Practical guidance on development of the cash management function. - Discussion and training on cash forecasting templates. - Review of TSA implementation and coverage. - Wrap-up workshop with senior MoFPED officials. - This aide memoire. ### Key findings - The Cash Management Guidelines have been approved and are consistent with advice from the previous AFE mission. - Establishment of the high-level Cash Management Committee (CMC) together with the Guidelines should provide an appropriate basis for formalizing the cash management function. - Uncertainty remains around the role and institutional arrangements for the new Directorate of Debt and Cash Policy (DDCP). - Cash flow forecasting is still at an early stage. - Coverage of the cash resource pool must be precisely defined and non-budget flows excluded. - The cash flow forecasting model should continue to be developed along the lines given in previous TA reports. - Publication and dissemination of the Guidelines will provide authority to the Cash Policy Department (CPD) to implement training and capacity building within central government entities in coordination with other MoFPED directorates. - The Cash Management Committee should be formally established; CPD should design a reporting structure to assist regular reporting to the CMC. - CMC will be central to leading change from cash rationing to active cash management; active cash management operations can supersede regular cash limits once forecasting is sufficiently accurate. - Reasonable progress on TSA implementation: core TSA arrangements confirmed; sub-accounts funded when payments are ready and unspent balances swept back daily. - Local governments are being included within the TSA but inclusion of donor funds has not progressed. ### Key recommendations (Box 1) - Issue and start implementing the Cash Management Guidelines. - Continue to implement the Action Plan for strengthening cash management (Appendix 1). - Operationalize the new DDCP as approved by the Cabinet. - Define precisely the cash resources pool used for cash flow forecasting and continue developing the cash flow forecasting model. - Design and implement a training and capacity building program by CPD for the MDAs. - Design the CPD reporting structure to the CMC and commence formal CMC meetings. - Continue to bring local governments within the TSA coverage; and rationalize the Uganda Consolidated Fund/TSA bank account structure with extension of IFMS. - Continue to explore with receptive donors the options for piloting donor funds in the TSA. - Finalize the agreement between MoFPED and Bank of Uganda on banking arrangements. ### Background and recent progress - AGO confirmed core TSA arrangements comprising: - Separate Uganda Consolidated Fund (UCF). - TSA holding accounts. - TSA sub-accounts for accounting entities. - Sub-accounts are funded when payments are ready; unspent balances swept back to the TSA holding account on a daily basis. - TSA arrangements are being progressively extended to local government; pilot for inclusion of donor funds in TSA has not progressed as planned. - Follow-up to July 2016 AFE mission which recommended: - Finalizing cash management guidelines. - Improving cash flow forecasting by analyzing forecast errors and ensuring coverage of all significant cash flows consistent with IFMS scope. - Coordination with Debt Policy and Issuance Department on borrowing needs. - Finalizing and implementing action plan for strengthening cash management. - PS-ST has approved the Guidelines for Cash Management in Government. - CPD has identified sources of forecast and actual data and has used previously developed cash flow forecasting templates to monitor actual revenue, expenditure and financing. - CPD prepares a summary quarterly report to understand the consolidated cash position of government. ### Strengthening the regulatory framework and institutional aspects - “Guidelines for Cash Management in Government” have been formally approved by PS-ST. - PFM Act (2015) assigns PS-ST responsibility for prescribing the framework for cash management in government. - The Guidelines formalize the cash management mandate for CPD and include: - Specification of the institutional restructuring for cash management as approved by the Cabinet. - Overview of government cash management objectives. - Government cash flow forecasting. - Scope of short-term borrowing and investing operations to meet temporary cash shortages and surpluses. - Institutional roles and responsibilities of MoFPED directorates and other stakeholders. - Role and composition of the CMC and its relationship with CPD and counterparties. - Mission suggested changes to clarify and streamline provisions, including: - Exclusion of public enterprises from coverage of cash management. - Clarifying the role of the CMC. - Monitoring and reviewing the process of issuing quarterly cash limits given improvements in cash flow forecasting. - Streamlining references to Accountant General oversight of government banking arrangements. ### Status and role of the Directorate of Debt and Cash Policy (DDCP) and staffing - Cabinet approved the structure and establishment of DDCP early this year; approved positions were to be filled in a phased manner with initial provision in the budget for FY 2016/17. - New positions in the Directorate have not been filled; some officials seconded from AGO are being called back. - There is rethinking within MoFPED on the role and independence of DDCP; some stakeholders argue for moving cash management and debt middle/back office functions under the Accountant General. - PFM legal framework and approved Guidelines provide basis for operationalizing the institutional structure; PS-ST retains overall responsibility for cash and debt management. - Integrated debt management with front, middle, and back offices under a single entity is recommended. - A complete and updated debt database is necessary for settlement procedures, analysis, review, and reporting. - Confusion exists about required skills for cash and debt management positions; essential skills include relationship management, data handling and forecasting, and financial markets expertise. - Filling established positions promptly is important for DDCP functionality following Guidelines publication. ### Institutional and regulatory recommendations (with timing where specified) - Issue the Cash Management Guidelines as soon as possible and organize sensitization workshops for MoFPED officials and MDAs (Jan-April 2017). - Establish the high-level CMC as provided in the Guidelines (February 2017). - Operationalize the new Directorate of Debt and Cash Policy as approved by Cabinet (February 2017). - Continue to implement the Action Plan (Appendix 1) for strengthening cash management (ongoing). ### Cash flow forecasting and cash management: authority, scope and model design - Publication and dissemination of the Guidelines will provide CPD authority and institutional standing to perform cash flow forecasting and build necessary stakeholder relationships within MoFPED and across government. - Once forecasting improves, CPD in coordination with CMC, debt managers, and BoU can perform money market transactions to smooth government cash balances and alleviate mismatches. - Initial forecasts are expected to be highly inaccurate under strict cash rationing; analyzing forecast errors and capacity building at MDAs can improve accuracy quickly. - Immediate priority for CPD: define precisely the cash resources it plans to forecast over the fiscal year. - Current CPD selection comprises a set of bank accounts roughly matching existing TSA structure, including: - Core accounts: Uganda Consolidated Fund account (UCF); TSA Holding account; LG TSA Holding account. - Several other autonomous and semi-autonomous agency accounts, many connected to LG payments systems. - Non-budget flows must be excluded from the forecast coverage. ### Principle of simplicity and cash pool definition - Principle: use simplicity throughout the forecasting function. - Define the available cash resource pool succinctly to cover all budget cash movements without including every detailed transaction. - Recommendation for the initial cash pool: UCF plus the TSA Holding and LG TSA Holding accounts. - The LG TSA Holding account operates like the central TSA Holding account for LGs which are incorporated into the IFMIS ledger. - All other agency bank accounts should be excluded from the pool definition and the forecasting model at this early stage. - Other significant bank accounts of central and LG agencies should be monitored for possible aggregation into forecasts if they build up large surplus balances. - At a more advanced stage it may be necessary to include large-balance accounts such as donor accounts and accounts of the EBF funds. ### Simple model versus complex model for the government cash pool - Both models include all budget cash movements: budget revenues and deficit financings flow into the pool and expenditures and transfers flow out. - Simple model: does not incorporate other bank accounts; only transfers from the pool to external accounts are relevant to forecasting. - Complex model: includes other bank accounts in the defined pool; their individual outflows must be forecast in detail. - Starting simply reduces forecasting workload; pool can be expanded as needed. - A precise definition of the cash resource pool is necessary to avoid misunderstandings. ### Government Position (GP) interpretation (Box 2) - AGO viewpoint: - Aggregates every bank account (UCF; TSA Holding accounts; EBFs; non-IFMIS LG accounts; donor project accounts; LC deposits; special funds) as government flows—similar to the “complex model”. - A drawdown (balance at end of fiscal year lower than at start) represents a net outflow over the fiscal year from all funds/accounts whether or not they comprise budget flows. - AGO considers this drawdown does not represent an “overdraft” or “advance” and does not need to be financed separately. - IMF viewpoint under the PSI program conditions: - Uses a narrower definition: “excludes deposits in administered accounts (including the energy and petroleum funds), project accounts with the central bank, and net recapitalization securities”—concentrates on budget execution (similar to the “simple model”). - A credible budget should balance—during the full fiscal year, total budget expenditures equal budget revenues plus budget deficit financing. - Interpretation of a drawdown in the broader pool: - If the budget subset executed credibly, other funds must have incurred greater outflows than inflows and no advance is necessary. - If the budget subset has not been executed credibly, total budget expenditures have exceeded budget revenues plus budget deficit financing; this would lead to a negative end-year balance in the IMF-defined pool and imply greater financing was required. - Suggested practice: - Do not automatically conclude excess budget expenditures were financed monetarily; analyze use of other funds’ cash to determine extent. - Any borrowing from other funds should be transparent; government should issue government securities to the funds to make transactions transparent and efficient. ### Non-budget transactions and the UCF - Some inflows and outflows of the UCF are non-budget based and must be understood when defining the pool. - The simple pool excludes most non-budget transactions because they move through EBF accounts outside the definition. - Non-budget transactions that move through the UCF must be monitored and compensated for when comparing actual pool cash resources against forecasts. ### Further development of the cash flow forecasting model - Current model: - Spreadsheet template aggregating projected expenditures, revenues and deficit financing to produce a forecast TSA (pool) balance profile. - Revenue data obtained from the tax policy department and debt data from the debt management office. - CPD is using basic seasonal forecasting methods on historic IFMIS expenditure data to project expenditures. - Future sourcing of forecasts: - Expectation that expenditure forecasts will be sourced from the MDAs once Guidelines issued. - MDA forecasts will often be superior to historically-based projections for volatile expenditures (e.g., capital projects). - Spreadsheet adjustments and granularity: - Configure to accept MDA forecasts; design individual templates per MDA according to size and capacity. - Small MDAs may provide forecasts only for major heads (often three lines—personnel, recurrent, and development expenditures—by month initially). - Larger MDAs require higher granularity; optimal granularity determined over time via error and variance analysis. - Error analysis: - Adjust spreadsheet to handle error analysis by adding columns for actual outturns for expenditures and revenues; determine significant errors and highlight exceptions. - IFMIS integration: - Investigate using IFMIS functionality to ensure MDAs send forecasts in the format required by CPD; data can then be downloaded to the spreadsheet model. - Capacity building: - Issue Guidelines to all MDAs and implement a detailed capacity building program by CPD. - Emphasize forecasts must be realistic and service-delivery focused, not distorted by cash rationing. - MDAs’ forecasts will be scrutinized; significant avoidable errors will be reported to the CMC. ### The Cash Management Committee (CMC) and reporting - CMC role and authority: - Terms of reference and composition included in the Guidelines. - CMC must provide CPD authority to obtain accurate forecasts and maintain relationships with stakeholders and counterparties. - CMC must lead transition from cash rationing to active cash management, relaxing cash limits or aligning them with cash flow forecasts once sufficiently accurate. - Monitoring and benefits: - Good cash management with effective commitment control should prevent expenditure arrears. - Forecasting function should monitor variances and report unexpected patterns (inefficient reporting, contingency warnings, or fraudulent activity) to the CMC. - Evolution of CPD reports to the CMC: - Initial reports: instances of unrealistic MDA forecasts and error analysis. - Evolving reports: general cash flow forecast for senior management and BoU; compare forecasts to outturns and explain significant variances; update forecasts of cash resources and monitor other accounts for significant build-ups. - Proposed Cash Management Report structure (high-level items from Box 3): - a) Actual cash balances in the defined pool and other accounts at period end; - b) Updated projected government cash resource profile for remainder of the FY held in the defined pool; - c) Actual outturn of expenditures and revenues—including deficit financing—for the latest period; - d) Report on accuracy of recent forecasts against outturns and reasons for material variances; - e) Detailed report on significant errors in MDA-provided forecasts with classification and recommended action; - If active cash management not implemented: reports f) through h) on recommended transactions, simulations of prior recommendations, and timing/level for commencing active cash management; - If active cash management implemented: reports i) through l) on target cash buffer calculation, market transactions undertaken and success, approvals requested for upcoming market transactions, and CPD relationship management activities. ### Recommendations and timing (cash forecasting, CMC, IFMIS, capacity building) - CPD should design the CMC reporting structure and initiate CMC meetings when required (February 2017). - CPD must precisely define the pool of cash resources to be forecast using budget flows as the simplest model, carefully noting non-budget cash flows to and from the defined pool (March 2017). - MoFPED should analyze the cash resource pool used for the definition of the Government Position and determine exactly how it relates to budget cash flows and non-budget cash flows in order to understand where any budget advances have been made (March 2017). - CPD should investigate the possible use of the IFMIS system to interface MDA forecasts with the cash flow forecasting model (March 2017). - CPD should continue to develop the cash flow forecasting model (ongoing). - CPD must design and implement a capacity building and training program for MDA forecasting functions—in coordination with the BD and the AGO (ongoing). ### TSA structure, operations, extension and banking arrangements - Core TSA structure: - Separate Uganda Consolidated Fund (UCF). - TSA holding account. - TSA sub-accounts for accounting entities. - TSA covers budgeted domestic revenues, expenditures and financing and concentrates on balances held at the BoU and managed through the IFMS. - Cash balances aggregated overnight; unspent TSA sub-account balances are swept back overnight to TSA holding accounts. - Operational enhancements supporting TSA: - IFMIS roll-out; establishment of a centralized payment system by Accountant General; straight through processing of payments using electronic fund transfers. - BoU support: extending banking hours; reconfiguring their system; daily sweeping of balances; linking BoU IT systems with IFMIS. - Changes in centralized payment processing after 2015 frauds: - Payments now processed with a lag of two days. - Once payment instructions received from AGO, BoU deducts amount from TSA sub-account and sends an e-statement to AGO/MDAs. - MDAs have thirty hours to challenge correctness of payment; unchallenged payments are processed automatically. ### Extension and phased implementation for Local Governments (LGs) - Implementation of LG TSA started in July 2015. - Since then eighty out of the one hundred fifty-two LGs have been included in the TSA arrangements. - AGO adopted a tiered approach for LG TSA sub-structure: - Tier 1: use Oracle IFMS (same as national government MDAs) — 14 LGs serviced through the LG TSA holding account. - Tier 2: use Microsoft Dynamics (standalone IFMS not interfaced with main IFMS) — 66 LGs serviced through their own TSA sub-accounts. - Tier 3: do not use IFMS and, except for payrolls, process payments manually — 78 LGs currently outside TSA arrangements except for salary processed centrally through IFMS. - AGO plans to close multiple TSA holding accounts at BoU for secondary and primary schools, primary health centers and town councils, and instead transfer funds from the UCF to the LG TSA holding account to enable LGs to make direct transfers to beneficiary entities through the IFMS. - Rationalization benefits: reduce inter-account transfers, accounting entries and bank reconciliations; clarify scope and coverage of the UCF/TSA for cash flow forecasting. ### Donor project accounts, special funds, autonomous agencies, and SOEs - Inclusion of donor project accounts into TSA continues to pose challenges: donor concerns on diversion of funds, reporting requirements, and project implementation impacts. - African Development Bank and IFAD have been receptive to piloting donor project accounts; renewed efforts recommended to reach early agreement. - Special purpose funds (Road, Energy, Petroleum and Contingencies) are held at BoU but established legally outside the UCF; TSA should allow aggregation while recognizing legal separation and ring-fencing where agreed. - Autonomous and semi-autonomous government agencies that receive primary budget funding, are outside IFMS, and deliver central government services (e.g., referral hospitals, tertiary educational institutions, commissions) should form part of the TSA; AGO should explore feasibility of maintaining their balances in BoU using TSA sub-accounts. - Government-controlled state owned enterprises that are profit oriented and government financial entities should be left outside of the TSA. ### MoU/SLA between MoFPED and BoU and banking arrangements - Further extension of the TSA and improvements in banking arrangements would benefit from early finalization of the MoU between MoFPED and BoU. - Work on revising the existing MoU (2008) is ongoing: an advanced draft has been circulated and commented on but progress deferred pending proposed amendments to the BoU Act. The draft was not shared with the mission. - The MoU/SLA should cover: - Management and operational roles around banking arrangements. - Definition of the government cash position. - Treatment of and compensation for the UCF/TSA position including payment of interest on government deposits. - Fees and charges to be paid to the BoU for services provided. - Take into account the new PFM Act rules and controls on intra-year use of UCF balances, and the East Africa Monetary Protocol requiring partner states to phase out any central bank lending to its government or public entities. - Recommendations (timing where specified): - Continue to bring LGs within the TSA coverage; and rationalize the UCF/TSA bank account structure with extension of IFMIS implementation (ongoing). - AGO should continue to explore with receptive donors the options for piloting donor funds within the TSA arrangement (March 2017). - Finalize the MoU/SLA between MoFPED and BoU setting out terms of engagement for banking arrangements including treatment of and compensation for the UCF/TSA balance and charges for banking services (March 2017). *Source: cr17272 - 1. Summary of Findings and Recommendations* ### 1. Summary of Findings and Recommendations __________________________________________________ 4 ### 1. Summary of Findings and Recommendations ### Introduction and mission scope - AFE fielded a technical assistance (TA) mission to Kampala during November 21 to December 2, 2016. - Mission team: Amitabh Tripathi (AFE public financial management advisor) and John Gardner (expert). - Objectives: provide practical assistance to MoFPED on strengthening cash management and implementing the Treasury Single Account (TSA). - Mission outputs included: - Practical guidance on development of the cash management function. - Discussion and training on cash forecasting templates. - Review of TSA implementation and coverage. - Wrap-up workshop with senior MoFPED officials. - This aide memoire. ### Key findings (Box 1) - The Cash Management Guidelines have been approved and are consistent with advice from the previous AFE mission. - Establishment of the high-level Cash Management Committee (CMC) together with the Guidelines should provide an appropriate basis for formalizing the cash management function. - Uncertainty remains around the role and institutional arrangements for the new Directorate of Debt and Cash Policy (DDCP). - Cash flow forecasting is still at an early stage. - Coverage of the cash resource pool must be precisely defined and non-budget flows excluded. - The cash flow forecasting model should continue to be developed along the lines given in previous TA reports. - Publication and dissemination of the Guidelines will provide authority to the Cash Policy Department (CPD) to implement training and capacity building within central government entities in coordination with other MoFPED directorates. - The Cash Management Committee should be formally established; CPD should design a reporting structure to assist regular reporting to the CMC. - CMC will be central to leading change from cash rationing to active cash management; active cash management operations can supersede regular cash limits once forecasting is sufficiently accurate. - Reasonable progress on TSA implementation: core TSA arrangements confirmed; sub-accounts funded when payments are ready and unspent balances swept back daily. - Local governments are being included within the TSA but inclusion of donor funds has not progressed. ### Box 1: Key recommendations (as provided) - Issue and start implementing the Cash Management Guidelines. - Continue to implement the Action Plan for strengthening cash management (Appendix 1). - Operationalize the new DDCP as approved by the Cabinet. - Define precisely the cash resources pool used for cash flow forecasting and continue developing the cash flow forecasting model. - Design and implement a training and capacity building program by CPD for the MDAs. - Design the CPD reporting structure to the CMC and commence formal CMC meetings. - Continue to bring local governments within the TSA coverage; and rationalize the Uganda Consolidated Fund/TSA bank account structure with extension of IFMS. - Continue to explore with receptive donors the options for piloting donor funds in the TSA. - Finalize the agreement between MoFPED and Bank of Uganda on banking arrangements. *Source: cr17272 - 1. Summary of Findings and Recommendations* ### Background and recent progress - AGO confirmed core TSA arrangements comprising: - Separate Uganda Consolidated Fund (UCF). - TSA holding accounts. - TSA sub-accounts for accounting entities. - Sub-accounts are funded when payments are ready; unspent balances swept back to the TSA holding account on a daily basis. - TSA arrangements are being progressively extended to local government; pilot for inclusion of donor funds in TSA has not progressed as planned. - Follow-up to July 2016 AFE mission which recommended: - Finalizing cash management guidelines. - Improving cash flow forecasting by analyzing forecast errors and ensuring coverage of all significant cash flows consistent with IFMS scope. - Coordination with Debt Policy and Issuance Department on borrowing needs. - Finalizing and implementing action plan for strengthening cash management. - PS-ST has approved the Guidelines for Cash Management in Government. - CPD has identified sources of forecast and actual data and has used previously developed cash flow forecasting templates to monitor actual revenue, expenditure and financing. - CPD prepares a summary quarterly report to understand the consolidated cash position of government. ### Mission methodology and stakeholder engagement - Mission reviewed approved guidelines, plans for developing cash management function, processes and templates for cash plans; provided practical training to CPD staff; reviewed TSA implementation and extension plans. - Consultations included meetings with senior MoFPED officials and BOU Banking Operations and Financial Markets Departments. - Findings validated with officials of the Debt and Cash Policy Directorate and presented at a wrap-up workshop. --- ### II. Strengthening the Regulatory Framework and Institutional Aspects ### Status of the Guidelines and institutional mandate - “Guidelines for Cash Management in Government” have been formally approved by PS-ST. - PFM Act (2015) assigns PS-ST responsibility for prescribing the framework for cash management in government. - The Guidelines formalize the cash management mandate for CPD and include: - Specification of the institutional restructuring for cash management as approved by the Cabinet. - Overview of government cash management objectives. - Government cash flow forecasting. - Scope of short-term borrowing and investing operations to meet temporary cash shortages and surpluses. - Institutional roles and responsibilities of MoFPED directorates and other stakeholders. - Role and composition of the CMC and its relationship with CPD and counterparties. ### Observations and suggested clarifications - Mission suggested changes to clarify and streamline provisions, including: - Exclusion of public enterprises from coverage of cash management. - Clarifying the role of the CMC. - Monitoring and reviewing the process of issuing quarterly cash limits given improvements in cash flow forecasting. - Streamlining references to Accountant General oversight of government banking arrangements. ### Status and role of the Directorate of Debt and Cash Policy (DDCP) - Cabinet approved the structure and establishment of DDCP early this year; approved positions were to be filled in a phased manner with initial provision in the budget for FY 2016/17. - New positions in the Directorate have not been filled; some officials seconded from AGO are being called back. - There is rethinking within MoFPED on the role and independence of DDCP; some stakeholders argue for moving cash management and debt middle/back office functions under the Accountant General. - PFM legal framework and approved Guidelines provide basis for operationalizing the institutional structure; PS-ST retains overall responsibility for cash and debt management. - CMC (headed by PS-ST) will decide on cash prioritization and allocation and advise the Minister on modalities for meeting short-term mismatches between cash inflows and outflows. - Important to clarify institutional issue in line with Cabinet approval and Guidelines. ### International good practice and operational considerations - Integrated debt management with front, middle, and back offices under a single entity is recommended to enable efficient medium-term debt management strategy development and implementation. - A complete and updated debt database is necessary for settlement procedures, analysis, review, and reporting. - Separating the database operation from non-settlement functions risks inefficient updating, uncoordinated analysis, and market development difficulties. - Cash management often starts as a division of the Accountant General’s Office; once established, it is good practice to move cash management to the debt management office for daily coordination efficiencies. - Pulling apart an early-stage integrated cash and debt institution would be retrograde. ### Skills and staffing issues - Confusion exists about required skills for cash and debt management positions: many view positions as requiring accountancy qualifications, whereas essential skills include relationship management, data handling and forecasting, and financial markets expertise. - Filling established positions promptly is important for DDCP functionality following Guidelines publication. ### Recommendations (institutional and regulatory) - Issue the Cash Management Guidelines as soon as possible and organize sensitization workshops for MoFPED officials and MDAs (Jan-April 2017). - Establish the high-level CMC as provided in the Guidelines (February 2017). - Operationalize the new Directorate of Debt and Cash Policy as approved by Cabinet (February 2017). - Continue to implement the Action Plan (Appendix 1) for strengthening cash management (ongoing). *Source: cr17272 - 1. Summary of Findings and Recommendations* ### III. Cash Flow Forecasting and Cash Management ### Role of Guidelines and CPD authority - Publication and dissemination of the Guidelines will provide CPD authority and institutional standing to perform cash flow forecasting and build necessary stakeholder relationships within MoFPED and across government. - Once forecasting improves, CPD in coordination with CMC, debt managers, and BoU can perform money market transactions to smooth government cash balances and alleviate mismatches. ### Importance of commencing forecasting despite initial inaccuracies - Previous TA reports emphasized steps required to commence cash flow forecasting; the action plan has started with Guidelines approval and needs rapid implementation (Appendix I). - Initial forecasts are expected to be highly inaccurate under strict cash rationing; analyzing forecast errors and capacity building at MDAs can improve accuracy quickly. - Starting the forecasting process is imperative to prevent resistance to reforms. ### Definition and coverage of the cash resource “pool” - Immediate priority for CPD: define precisely the cash resources it plans to forecast over the fiscal year. - Current CPD selection comprises a set of bank accounts roughly matching existing TSA structure, including: - Core accounts: Uganda Consolidated Fund account (UCF); TSA Holding account; LG TSA Holding account. - Several other autonomous and semi-autonomous agency accounts, many connected to LG payments systems. - Non-budget flows must be excluded from the forecast coverage. *Source: cr17272 - 1. Summary of Findings and Recommendations* ### 21. At this early stage, it is very important that the principle of simplicity is used ### cr17272 - 21. At this early stage, it is very important that the principle of simplicity is used ### Principle of simplicity and cash pool definition - At this early stage, it is very important that the principle of simplicity is used throughout the forecasting function. - The available cash resource pool should be defined as succinctly as possible in order to cover all budget cash movements but without necessarily including every detailed transaction. - Many government entities receive direct transfers from the budget and these transfers can be used in forecasting the outflows instead of forecasting the detailed expenditures made by the entities themselves. - This simplification allows forecasting and its subsequent error analysis to be manageable without loss of budget comprehensiveness. - It is recommended that the initial cash pool be defined as the UCF plus the TSA Holding and LG TSA Holding accounts. - The LG TSA Holding account operates like the central TSA Holding account for LGs which are incorporated into the IFMIS ledger—see Section IV below. - All other agency bank accounts should be excluded from the pool definition and the forecasting model at this early stage. - Other significant bank accounts of central and LG agencies should be monitored since it will be necessary to aggregate these into the cash forecasts if they build up large surplus balances. - At a more advanced stage it may be necessary and important to include in the pool definition those accounts which maintain large balances like the donor accounts and accounts of the EBU funds in order to analyze their operations more closely. ### Simple model versus complex model for the government cash pool - Both models include all budget cash movements: all budget revenues and deficit financings flow into the pool and all expenditures and transfers flow out. - Difference: - Simple model: does not incorporate other bank accounts. Only flows associated with these accounts that are relevant to forecasting are transfers from the pool to the external accounts. - Complex model: other bank accounts are included in the defined pool. Their individual outflows (or expenditures) must be forecast in detail to ascertain the projected size of the pool balance. Transfers to these accounts are internal to the pool and, as internal cash flows, do not require forecasting since they do not affect the overall balance of the pool. - Defining the precise components of the government cash pool ensures that all budget cash flows are included in the forecasting of the pool balance across the fiscal year. - Starting simply reduces the amount of work necessary to forecast individual bank account transactions but the pool can be expanded to include other bank accounts as necessary. - A precise definition of the cash resource pool of the government is necessary to avoid misunderstandings and confusion. ### Box 2 — Uganda: Discussion on the Government Cash Position (GP) - The GP statistic is meant to represent the total cash resources of the government at a particular point in time; confusion exists regarding coverage and meaning of movements in the overall balance. - AGO viewpoint: - Takes the most comprehensive view by assuming that every bank account should be aggregated and that all flows should be considered as government flows. - Aggregation comprises the UCF and the TSA Holding accounts but also EBFs, non-IFMIS LG accounts, donor project accounts, LC deposits, and special funds. - A drawdown (balance at end of fiscal year lower than at start) represents a net outflow over the fiscal year from all funds/accounts whether or not they comprise budget flows. AGO considers this pool similar to the “complex model”. - AGO argues the drawdown does not represent an “overdraft” or “advance” and that it does not need to be financed separately. - IMF viewpoint under the PSI program conditions: - Looks at a narrower definition of cash movements: “excludes deposits in administered accounts (including the energy and petroleum funds), project accounts with the central bank, and net recapitalization securities” and thus concentrates on budget execution more exclusively. - IMF considers the GP pool similar to the “simple model”. - A credible budget should balance—during the full fiscal year, total budget expenditures equal budget revenues plus budget deficit financing. If budget deficit financing is achieved through non-central bank borrowing, no advances from the BoU are necessary. - Interpretation of a drawdown in the broader pool (AGO-defined) — possible scenarios: - If the budget subset of the pool has been credibly executed, then other funds must have incurred greater outflows than inflows during the year (e.g., EBFs and donor fund accounts) and no advance is necessary. - If the budget subset has not been executed credibly, total budget expenditures have exceeded budget revenues plus budget deficit financing; this would lead to a negative end-year balance in the IMF-defined pool and imply that budget execution required greater financing than planned. - Confusion is caused by lack of proper analysis and clear understanding of cash movements and interaction between monetary and fiscal policy. - When a drawdown occurs in the broader pool, two further sub-scenarios are noted: - If the extra funds/accounts included have maintained their balances during the year, then BoU advances must have occurred. - If the drawdown on the pool equals the reduction over the year in the other funds, any excess budget expenditure has been financed by borrowings from these other funds. - Or a mixture of the two. - Conclusion and suggested practice: - It cannot be automatically concluded that excess budget expenditures have been financed monetarily; further analysis of the use of the other funds’ cash is required to determine extent of such activity. - Any borrowing from other funds should be made completely transparent; if legitimate, the government should issue government securities to the funds to make these transactions transparent and efficient. ### Non-budget transactions and the UCF - Although the simple structure is tailored to budget transactions, in Uganda certain inflows and outflows of the UCF are not budget-based. - These non-budget transactions must be understood when defining the pool and must be noted to compensate for movements in the size of the pool as they occur. - Creating the simple pool excludes most non-budget transactions because their movements are through EBF accounts outside the definition. - Those non-budget transactions which do move through the UCF must be carefully monitored and compensated for when comparing actual pool cash resources against forecasts. ### Further development of the cash flow forecasting model - Current model: - Based on a spreadsheet template which aggregates projected expenditures, revenues and deficit financing to produce a forecast TSA (pool) balance profile. - Revenue data obtained from the tax policy department and debt data from the debt management office. - CPD is using basic seasonal forecasting methods on historic IFMIS expenditure data to project expenditures. - Future sourcing of forecasts: - Once the Guidelines have been issued, the expectation is that the expenditure forecasts will be sourced from the MDAs. - For all, but the most consistent expenditures, MDA forecasts will be superior to historically-based projections (volatile expenditures are usually capital projects which do not follow a seasonal trend). - Historic data can be heavily distorted by strict cash rationing systems, so MDA-provided forecasts will often be more realistic regarding service delivery needs rather than cash availability. - Spreadsheet adjustments and granularity: - The spreadsheet model must be configured to accept MDA forecasts of expenditures; individual templates must be designed for each MDA in consideration of their size and capacities. - Only significant cash flow amounts are of concern in forecasting analysis; small MDAs may provide forecasts only for major heads of classification (often only three lines—personnel, recurrent, and development expenditures—by month initially). - Larger MDAs require a higher degree of granularity; optimal granularity will be discovered over time via error and variance analysis. - The model can be altered to adjust to the optimal degree of granularity since it aggregates total amounts expended in the time interval. - Error analysis: - The spreadsheet model still needs to be adjusted to handle error analysis by adding columns for actual outturns for expenditures and revenues. - The model will be able to determine the significant errors and highlight these on an exception basis. - IFMIS integration: - Once the spreadsheet model is complete and operational, investigation into utilizing the IFMIS functionality should be undertaken. - Although the IFMIS cash management module is not suitable for government cash flow forecasting (primarily designed for corporate needs), it can be used to ensure MDAs send their forecasts in the format required by the CPD using IFMIS screens; this data can then be downloaded to the spreadsheet model. ### Capacity building by the CPD at MDAs - Guidelines will be issued to all MDAs stating objectives, benefits, and requirements of government cash forecasting and management; these must be backed by a detailed capacity building program undertaken by CPD staff. - It is vital that MDAs appreciate the objectives of cash management and that the main benefit of good cash flow forecasting will be to enable them to make budget expenditures as necessary rather than under cash rationing control. - CPD must discuss data needs for each MDA and determine the degree of granularity required with the least effort. - Emphasize that cash flow forecasting is not an accounting exercise; detailed projections only where variances are sufficiently material to the aggregated forecast. - MDAs must understand forecasts required by CPD differ from those given to the budget directorate: - Existing work, cash, and procurement plans tend to be distorted due to MDAs front-loading projections to claim scarce resources under cash rationing. - Forecasts for cash management must be realistic and apply to service delivery needs rather than cash availability. - MDAs must appreciate their forecasts will be scrutinized by the CPD and significant avoidable errors will be reported to the CMC. - Forecasts will be monitored against actual outturns to determine realism. - Greater accuracy is necessary before active cash management operations can replace cash rationing. ### The Cash Management Committee (CMC) and reporting - CMC role and authority: - Terms of reference and composition of the CMC are included in the Guidelines. - Initially, the CMC must provide the CPD with necessary authority to obtain accurate cash flow forecasts and maintain effective relationships with stakeholders and counterparties. - CMC must provide leadership and champion change management for transition from cash rationing to active cash management. - Transition entails relaxing cash limits or making them identical to cash flow forecasts once sufficiently accurate. - Cash management ensures liabilities are paid as due once commitments are formally approved; budget function retains control over commitments through IFMIS. - Monitoring and benefits: - Good cash management with effective commitment control should prevent incurrence of expenditure arrears. - Cash flow forecasting function should monitor significant variances between forecasts and actual outturns to persuade MDAs to improve forecasting and updating. - As forecasts become more accurate and active cash management begins, monitoring will highlight unexpected occurrences in expenditure and revenue patterns, which may indicate inefficient reporting, early contingency warnings, or fraudulent activity—these should be reported to the CMC. - Evolution of CPD reports to the CMC: - Initially, reports should concentrate on instances where MDAs are not providing realistic forecasts and on error analysis to press MDAs to make forecasts more consistent with actual payment needs. - Reports should evolve into a general cash flow forecast for senior management and the BoU, comparing forecasts to actual outturns and providing reasons for significant variances. - Reports should update forecasts of cash resources available to the government, indicate forecast profile of the defined pool, and monitor other accounts for significant build-up of cash balances. - As proficiency grows, the pool should be expanded to include accounts where transfers lead to large cash balances and include detailed forecasting and variance analysis for them. - Proposed structure of a Cash Management Report to the CMC (Box 3 highlights): - a) The actual cash balances in the defined pool and other accounts at the end of the period; - b) The updated projected government cash resource profile for the remainder of the FY held in the defined pool; - c) The actual outturn of expenditures and revenues––including deficit financing––for the latest period; - d) A general report on the accuracy of the most recent forecasts against the outturns and suggested reasons for material variances; - e) A detailed report on all significant errors in MDA-provided forecasts including area of forecast, degree of variance, extent of CPD investigation, avoidable/unavoidable classification, history of similar errors, and recommended action by CMC and CPD; - If active cash management operations are not yet implemented: - f) A report suggesting active cash management transactions recommended for the most recent projected cash profile; - g) A report giving a simulation of what would have been the effect of the cash management transactions suggested at the previous CMC meeting; - h) A recommendation regarding when forecasts will be sufficiently accurate to commence active cash management transactions and how the target cash buffer level will be calculated; - If active cash management operations are being implemented: - i) The calculation of the optimal target cash buffer level in the defined pool; - j) The market transactions undertaken in the most recent period and their success, or otherwise, of maintaining the target buffer level of cash resources in the pool accounts; - k) A request for approval of a list of recommended market transactions to be performed in the coming period to maintain the cash buffer level at the appropriate level; - l) A report on the ongoing relationship management of the CPD regarding cooperation and coordination with the debt managers, the budget and economic affairs directorates, the AGO, the URA, and large MDAs. ### Recommendations (as stated) - CPD should design the CMC reporting structure and initiate CMC meetings when required (February 2017). - CPD must precisely define the pool of cash resources to be forecast using budget flows as the simplest model, carefully noting the existence of non-budget cash flows to and from the defined pool (March 2017); - MoFPED should analyze the cash resource pool used for the definition of the Government Position and determine exactly how it relates to budget cash flows and non-budget cash flows in order to understand where any budget advances have been made (March 2017); - CPD should investigate the possible use of the IFMIS system to interface MDA forecasts with the cash flow forecasting model (March 2017); - CPD should continue to develop the cash flow forecasting model (ongoing); - CPD must design and implement a capacity building and training program for MDA forecasting functions––in coordination with the BD and the AGO (ongoing). *IMF staff report text (excerpts) from the supplied content unit.* ### 42. MoFPED has made significant progress with TSA implementation. This has been ### 42. MoFPED has made significant progress with TSA implementation. ### TSA structure and operations - The core central government TSA structure consists of: - A separate Uganda Consolidated Fund (UCF). - A TSA holding account. - TSA sub-accounts for accounting entities. - It covers the budgeted domestic revenues, expenditures and financing and concentrates on balances held at the BoU and managed through the IFMS. - Cash balances for the TSA structure are aggregated overnight and the components are: - The UCF that receives domestic revenues from the Uganda Revenue Authority and non-tax revenue holding accounts and receipts from domestic T-bills and T-bonds issued for fiscal purposes. - The TSA holding account that receives funds through transfers from the UCF based on quarterly expenditure limits approved by MoFPED and entered into IFMIS against each vote. There are separate holding accounts for transfers to missions, local government, hospitals and educational institutions. - TSA sub-accounts that are operational accounts for each accounting entity through which payments for recurrent and development accounts are effected. These are “just-in-time” funded from the TSA holding account up to three times a day to cover payments for authorized invoices in IFMS. Any unspent balances are automatically swept back overnight to the TSA holding accounts. ### Operational enhancements supporting the TSA - Complementary changes introduced by MoFPED and the BoU include: - IFMS roll-out. - Establishment of a centralized payment system by Accountant General. - Straight through processing of payments using electronic fund transfers. - BoU support measures: - Extending banking hours. - Reconfiguring their system. - Conducting daily sweeping of balances from the TSA sub-accounts. - Linking the BoU IT systems with the IFMS. ### Changes in centralized payment processing - Earlier process: straight through processing of consolidated payment files generated on IFMS by the AGO through electronic fund transfers (applicable to both domestic and foreign currency payments). - Revised process (after frauds reported in 2015): - Payments are now processed with a lag of two days. - Once payment instructions are received from AGO, BoU deducts the amount from the respective TSA sub-account and sends an e-statement to AGO/MDAs. - MDAs have thirty hours to challenge the correctness of payment after which all unchallenged payments are processed automatically. ### Extension and phased implementation approach - MoFPED has been implementing a phased approach to further extending the coverage of the TSA structure. - Factors to consider when deciding scope and timing of extension include: purpose of bank accounts; relative size of balances; IFMS roll-out; and MoFPED’s capacity to monitor and include them in the cash plan. - Initial phase: concentrate on the UCF and central government entities covered by IFMS—this approach is described as appropriate and consistent with previous FAD/AFE advice. ### Donor project accounts - Inclusion of donor project accounts into the TSA arrangements continues to pose challenges. - Donor concerns that require change management efforts include: - Assurance that project funding would not be diverted for other purposes. - Meeting donor-specific reporting requirements. - Ensuring individual project implementation would not be impacted. - Result: MoFPED has not been able to initiate the planned pilot for inclusion of sample project accounts within the TSA. - The mission noted that the African Development Bank and the International Fund for Agricultural Development (IFAD) have been receptive to the idea of the pilot and renewed efforts should be made to reach an early agreement. ### Local Government (LG) TSA arrangements - Quick progress has been made incorporating many LG accounts into the TSA due to: - IFMS roll-out to certain LGs. - Connectivity and technological advances reducing the need for multiple bank accounts. - Extension of the central government payment process to LGs. - Implementation of LGs TSA started in July 2015 and since then eighty out of the one hundred fifty-two LGs have been included in the TSA arrangements. - AGO adopted a tiered approach for LG TSA sub-structure: - Tier 1: use Oracle IFMS (same as national government MDAs). - Tier 2: use Microsoft Dynamics (standalone IFMS not interfaced with main IFMS). - Tier 3: do not use IFMS and, except for payrolls, process payments manually. Salary for all LGs is paid centrally through the TSA. - Box 4: Status of Treasury Single Account Arrangements for Local Governments - Tier 1: 14 LGs are serviced through the LG TSA holding account that receives transfers from the UCF and the LG revenue collection account at BoU for their own source revenues. Transfers from the holding account are made just-in-time to the respective LG TSA sub-account and balances swept back to the LG TSA holding account. - Tier 2: 66 LGs are serviced through their own TSA sub-accounts at BoU that receive transfers from the UCF and own source revenue collections from their holding accounts. LGs have access to their TSA sub-accounts and can monitor the balances. - Tier 3: 78 LGs currently are outside of the TSA arrangements except for salary that is processed centrally through the IFMS. The rest of the transfers are processed through warrants in IFMS and paid to the General Fund Accounts held at the district level in the commercial banks. Further progress on inclusion of these LGs will depend on extension of IFMS to cover their operations. ### Rationalization of TSA holding accounts for LGs and beneficiary entities - AGO plans to close multiple TSA holding accounts at BoU for secondary and primary schools, primary health centers and town councils, and instead transfer funds from the UCF to the LG TSA holding account to enable LGs to make direct transfers to beneficiary entities through the IFMS. - Rationale and benefits: - The holding accounts are mechanisms for identifying and accounting separately for transactions and balances and managing budget releases, but accountability can be managed through the IFMS ledger structure without separate bank accounts. - A smaller number of accounts will reduce inter-account transfers, corresponding accounting entries and associated bank reconciliations. - This will help clearly define the scope and coverage of the UCF/TSA for cash flow forecasting purposes. ### Special purpose funds, autonomous agencies, and SOEs - Inclusion of special purpose funds, autonomous and semi-autonomous government agencies into the TSA arrangements requires careful consideration. - Special funds (Road, Energy, Petroleum and Contingencies) are held at BoU but established legally outside of the UCF; the TSA should allow aggregation of balances while recognizing legal separation and ring-fencing requirements where agreed. - Autonomous and semi-autonomous government agencies that receive primary funding from the national budget, are outside IFMS, and deliver services on behalf of central government (e.g. referral hospitals, tertiary educational institutions, commissions) should form part of the TSA; AGO should explore feasibility of maintaining their balances in BoU using TSA sub-accounts. - Government-controlled state owned enterprises that are profit oriented and government financial entities should be left outside of the TSA. ### MoU/SLA between MoFPED and BoU and banking arrangements - Further extension of the TSA and improvements in banking arrangements would benefit from early finalization of the MoU between MoFPED and BoU. - Significant business process changes require formalized protocols to ensure smooth and coordinated operations, consistent with MoFPED’s ambition to manage the UCF/TSA through cash planning and active cash management. - Work on revising the existing MoU (2008) is ongoing: an advanced draft has been circulated and commented on but progress has been deferred pending proposed amendments to the BoU Act. The draft was not shared with the mission. - As advised previously, the MoU/SLA should cover: - Management and operational roles around the banking arrangements. - Definition of the government cash position. - Treatment of and compensation for the UCF/TSA position including payment of interest on government deposits. - Fees and charges to be paid to the BoU for services provided. - Take into account the new PFM Act rules and controls on intra-year use of balances of the UCF, and the East Africa Monetary Protocol requiring partner states to phase out any central bank lending to its government or public entities. ### Recommendations (as stated) - Continue to bring LGs within the TSA coverage; and rationalize the UCF/TSA bank account structure with extension of IFMIS implementation (ongoing). - AGO should continue to explore with receptive donors the options for piloting donor funds within the TSA arrangement (March 2017). - Finalize the MoU/SLA between MoFPED and BoU setting out the terms of engagement for banking arrangements including treatment of and compensation for the UCF/TSA balance and charges for banking services (March 2017). *Fiscal Affairs Department, International Monetary Fund* --- _Source: https://www.imf.org/-/media/files/publications/cr/2017/cr17272.pdf_