## 1. Summary of Findings and Recommendations

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---

### Mission overview and outputs
- Mission dates: June 20–July 1, 2016.
- Mission team: Amitabh Tripathi (AFE Public Financial Management Advisor) and John Gardner (Expert).
- Purpose: Provide practical assistance to the Ministry of Finance, Planning, and Economic Development (MoFPED) on strengthening cash management.
- Mission outputs:
  - Practical guidance on development of the cash management guidelines.
  - Discussion and training on cash forecasting templates.
  - Wrap-up workshop with senior officials of the MoFPED.
  - This aide memoire, structured with Sections II–IV and Appendices I–IV.

### Key findings
- The institutional structure for cash and debt management has been officially approved, enabling formal establishment of a Cash Policy Department (CPD) with staff recruitment in FY2016–17.
- Delay in Cabinet approval of the cash management policy document is expected; therefore, it is important to define and promulgate CPD roles, responsibilities and working relationships via Guidelines being developed by MoFPED.
- The CPD has created a cash flow forecasting spreadsheet template and has been using it to understand the government’s cash position.

### Principal recommendations
- Finalize and issue the Guidelines with the approval of PS/ST as soon as possible.
- Start implementing the Action Plan for strengthening cash management (Appendix I).
- Establish a high-level Cash Management Committee (CMC) to provide authority to the CPD for relationships, improving cash flow forecasts, and operating active cash management transactions.
- Improve cash flow forecasting by:
  - capturing actual outturn data alongside forecast data to analyze forecast errors;
  - ensuring all significant cash flows are covered and consistent with IFMS scope;
  - ensuring the timeframe conforms with the existing quarterly cash limits and the AGO weekly cash movements.
- Formulate and start implementing a capacity building program for MDAs to explain cash management objectives and benefits of good forecasting.
- In the medium term, once cash flow forecasting gains sufficient accuracy, prepare for active cash management operations (short-term borrowing and investment). Calculate an appropriate cash buffer level to define necessary money market transactions to smooth government cash operations.
- Negotiate with the BoU to enable market-based term deposit facilities and coordinate with the Debt Policy and Issuance Department on borrowing needs.

### Background and context
- This mission follows prior AFE missions (notably June 2015) which recommended:
  - (i) extending the TSA arrangement by including selected donor funded and local government accounts;
  - (ii) concluding an MoU between MoFPED and Bank of Uganda (BoU);
  - (iii) finalizing and implementing the Cash Management Policy and Procedures Manual to improve cash flow forecast reliability.
- Progress since June 2015:
  - Cabinet approved the MoFPED restructuring including establishment of the Directorate of Debt and Cash Policy.
  - The CPD developed draft guidelines for cash management operations and conducted benchmarking trips to South Africa.
  - Cash flow forecasting templates were developed to capture forecast and actual data for revenues, expenditures and financing; sources of forecast and actual data were identified and templates are being used to understand the consolidated government cash position.
- The MoFPED requested AFE guidance to assess progress, identify emerging issues and review plans to operationalize the CPD.

### Regulatory framework and institutional arrangements
- Cabinet approved the Directorate of Debt and Cash Policy as part of MoFPED restructuring. The approved structure for the CPD exceeds the maximum necessary when fully operational; approved positions to be filled in a phased manner.
- The budget for FY 2016/17 has provisions for the recruitment of fourteen positions including a Commissioner and Assistant Commissioner. The approved structure has positions for a Commissioner, two Assistant Commissioners and 29 other technical staff. Recruitment priority must be accorded by the Ministry of Public Service.
- The Public Finance Management Act, 2015 (PFM Act) provides a basis for cash management, oversight and monitoring of banking arrangements for the GoU:
  - Section 33 requires PS-ST to prescribe the framework for votes’ banking and cash management.
  - Votes must submit cash flow plans to MoFPED.
  - PS-ST must issue the annual cash flow plan for GoU, forming the basis for quarterly spending limits for MDAs.
  - Provisions exist for in-year revisions to the cash flow plan.
- The Regulations to the PFM Act have not yet been issued; the latest draft shared with the mission does not provide adequate guidance on operationalizing cash management. Additional subordinate-level legal documentation is required to define roles and responsibilities for government cash management.
- The cross-cutting nature of cash management requires clear articulation of institutional roles, timely sharing and analysis of information and coordination between MoFPED, BoU, URA, and MDAs. The new CPD must establish and coordinate these relationships.
- Because the PFM Act preceded establishment of the Directorate, formalizing the cash management mandate is important. The formal cash management policy is pending Cabinet consideration and expected to take a long time; hence CPD is developing operational guidelines to be approved by PS-ST under Section 33 of the PFM.

### Proposed CPD core functions
- Developing effective cash management policies and procedures, including legal and administrative processes for short-term borrowing and investment activities.
- Developing cash flow forecasting capability within the Directorate and among MDAs.
- Developing capacity to perform active short-term cash management market operations.
- Coordinating development and expansion of the TSA system and monitoring scope of longer-term cash flow forecasting profiles.

### Guidelines: scope and operational elements
- Draft Guidelines provide:
  - Overview of government cash management concept and primary objectives with focus on cash flow forecasting.
  - Detailed scope of borrowing and investing operations to meet temporary shortages and surpluses.
  - Description and authorization for establishing relationships needed to build comprehensive government cash flow forecasts.
- Essential prerequisites for effective cash management discussed in the Guidelines include:
  - a comprehensive legal framework;
  - defined TSA banking structure as the scope for cash management activity;
  - an effective payment and accounting system;
  - MDAs’ capacity to produce regular updated accurate expenditure and revenue forecasts;
  - effective relationships to be built and maintained.
- The Guidelines specify counterparties and required data provision to CPD:
  - DEA and URA—for revenue forecasts;
  - Budget Directorate—for budget execution information;
  - MDAs—for expenditure forecasts;
  - DP&ID—for planned debt raising and debt servicing information;
  - AGO—for short-term forecasts and actual outturn data.

### Role of the Cash Management Committee (CMC)
- The CMC is a high-level committee providing ongoing authority to the CPD’s work. Its roles include:
  - Receiving reports from CPD on accuracy of cash flow forecasts and reasons for significant deviations.
  - Assessing whether deviations were avoidable or unavoidable and determining actions required by counterparties if deviations were avoidable.
  - Using its high-level authority to instruct MDAs to improve forecasting accuracy where deviations are avoidable.
- CMC responsibilities and interaction with CPD:
  - The CMC will provide guidance to the CPD relating to active cash management market operations.
  - Once cash flow forecasts are deemed sufficiently accurate by the CMC:
    - The CPD will need to propose making short-term borrowings (usually most effectively through issuance of cash management T bills) and short-term deposits to earn remuneration on idle cash balances.
    - These transactions should initially be approved in advance by the CMC.
    - The CMC must be involved in negotiations with the BoU regarding the availability of term deposits at the central bank.
  - The CMC should be empowered to take decisions on assurances to MDAs regarding future treatment of their forecasts.

### Central bank term deposits and operational rationale
- Many central banks do not willingly propose to offer the government a term deposit facility, though the report asserts there is little reason for this reluctance.
- Once government cash flow forecasts are reasonably accurate, they should be provided regularly to the central bank to assist in monetary policy operations.
- Periods with anticipated short-term cash surpluses should be compensated by utilizing term deposits for the requisite duration.
- If surplus deposits are removed from the TSA structure at the central bank and placed with commercial banks, ceteris paribus, the central bank will need to drain them by performing open market operations, which cost the central bank an interest rate quite close to that earned on the term deposit.
- Keeping surplus cash on term deposit at the central bank:
  - Saves work, transactional costs, and credit risk exposure.
  - Should be discussed with the BoU to set up the facility to make term deposits.

### Importance of stable TSA balances and central bank liquidity visibility
- When forecasts are reasonably accurate, short-term borrowing and investment activities are designed to maintain as stable a balance in the TSA structure as possible.
- Stable TSA balances enable the BoU to understand closely the effect of government transactions on financial sector liquidity and the state of monetary policy.
- Because government is often the largest cash operator (including Uganda), this visibility significantly assists central bank monetary policy operations.

### Institutional arrangements and memorandum of understanding
- The CMC provides high-level access to BoU relationships, but an ongoing relationship must be maintained and specified in guidelines.
- Normally, a memorandum of understanding (MOU) between the MoFPED and the BoU would explicitly define the service relationship of the BoU with the DEA, AGO, CPD, and the DP&ID.
- The agreement should:
  - Set out principles of the relationship between MoFPED and BoU.
  - Develop a service level agreement covering banking arrangements, including computation of and compensation for the UCF/TSA and government cash positions and charges for retail services provided by the BoU.
- While the MOU is finalized, guidelines should specify expected cash management relationship behaviors.

### Capacity building, MDA forecasting behavior, and monitoring
- A primary task of the CPD during early stages is to build capacity among relevant stakeholders and explain cash management objectives and benefits.
- Current data constraints:
  - Revenue projections and debt plans are available from DEA/URA and DP&ID.
  - MDAs only provide block quarterly expenditure estimates used by the Budget Directorate to set quarterly spending limits; this is not sufficiently granular for cash flow forecasting.
- Desired MDA behavior:
  - Provide accurate and updated expenditure forecasts in the format prescribed by the CPD.
  - Move away from strategic “front-loading” driven by past cash rationing behavior.
  - Understand that realistic forecasts, once credible, will reduce the need for spending limits; unrealistic estimates will be penalized.
- Monitoring and enforcement:
  - CPD will constantly monitor forecast expenditures and revenues against actual outturns and report to the CMC to highlight poor or contrived forecasts.
  - MDAs that historically make significant forecast errors should be informed that assurances will not be forthcoming until forecasts closely match actual requirements.

### Cash flow forecasting model: status, shortcomings, and recommendations
- Status:
  - The cash flow forecasting model developed by the CPD is described as an excellent start.
  - It aggregates revenue, expenditure, and debt forecasts net of each other and uses opening balances to produce a profile of available cash resources across forthcoming periods.
  - Model sources: previous FAD/AFE missions, US Treasury TA, benchmarking visits to South Africa.
- Shortcomings and recommended fixes:
  - a. Forecasts overwritten by outturns
    - The model currently contains forecast data for revenues and expenditures for future periods but these are overwritten as actual outturn data is input and the forecasts are lost.
    - This prevents forecast error analysis.
    - Recommendation: expand templates to include columns for forecast data, actual outturn information, and level of forecast error.
  - b. Excessive granularity from IFMS chart of accounts
    - The model uses the entire chart of accounts classification from the IFMS for forecasts and actuals.
    - Current forecasting relies on seasonal trend analysis from previous years’ outturns recorded in IFMS.
    - For future use, many classifications should use forecast data from MDAs directly rather than seasonal trends, implying a more aggregated structure than the full IFMS chart.
  - c. MDA templates and aggregation guidance
    - Training and formatted templates for MDAs should focus on more aggregated expenditure groups chosen to capture the most volatile and uncertain spending needs.
    - Constant expenditures or clear seasonality can be input in aggregate using the annual budget overlaid with seasonal patterns.
    - Highly variable spending (particularly capital expenditure) must be forecast by the responsible MDA.
    - The format for requesting forecast information from MDAs must be carefully constructed.
  - d. Define scope of the ‘pool’ of cash resources
    - Precisely define the scope of the forecast modeling (the ‘pool’ of available cash resources) so all inflows/outflows are consistently included or excluded.
    - The main bank account structure forming the ‘pool’ appears well constructed, but flows need consistency checks.
    - Example: For local governments fully within the IFMS, include detailed expenditures and ignore associated transfers; for local governments not fully within IFMS, include only transfers as they move directly out of the ‘pool’.
  - e. Modeling timeline and quarterly spending limits
    - Although modeling further out than the current quarter remains relevant, the model must account for quarterly spending limits provided by DEA and the Budget Directorate.
    - Future goal: once forecasts are accurate and active cash management commences, quarterly cash limits should not constrain budgeted expenditures since shortages will be met by short-term borrowing.
    - Until then, modeling should take cash limits into account.
  - f. Recommended initial forecasting timeframe
    - Weekly transfers by the AGO from the UCF to the TSA are based on known payment instructions and invoices; hence the model need not include the nearest week.
    - Initial model coverage should concentrate on a timeframe of two weeks to three months from the present.

### Preparations for active cash management operations
- Medium-term preparations to perform active cash management operations should include:
  - Preparing reports on cash flow forecasts to the CMC including recommendations for action to improve forecast accuracy and for active cash management money market transactions.
  - Calculating an appropriate buffer level of cash to guide sizes and terms of active cash management instruments.
  - Coordinating with the DP&ID on issuance of T bills for cash management purposes and ensuring the money market is aware of such transactional activity when it starts.
  - Coordinating and negotiating with the BoU on managing market-related interest earned on term deposits for cash management purposes.

### Action Plan: timelines and key tasks (Appendix I)
- Short Term: 1 to 3 months
  - Finalize draft of formal CPD Guidelines and send to PS/ST for approval and distribution.
  - Devise Financial Circulars to formalize CMD relationships and requirements with external MDAs for approval by PS/ST and distribution.
  - Review institutional aspects of forecasting data relationships and improve as necessary.
  - Continue to develop cash flow forecasting spreadsheet templates to facilitate daily monitoring of cash flows and error analysis.
  - As actual data is available, enter into model and analyze errors. Report significant errors to CMC with reasons and recommended action where avoidable.
  - Make rigorous consistency checks on the pre-defined scope of bank account structure of the model to ensure no double counting or exclusions of transactions.
  - Agree on timescale to be used for detailed forecasting––initially two weeks to three months is recommended.
  - Retain single quarter basis but start modeling development expenditures on half-yearly basis and report to CMC on results.
  - Contact all revenue, expenditure, and debt counterparties to discuss format required for data requests.
  - Arrange capacity building and guidance sessions with major spending MDAs to assist with developing required forecasts. Commence receiving all necessary forecast data for input to model. Continue historic seasonal analysis for comparison purposes.
- Medium Term: 3 to 12 months
  - Continue development of templates and error analysis.
  - Increase scope of model as IFMS and TSA is rolled-out to include more LGs and donor accounts and projects.
  - Include further out forecast data for reference.
  - Extend forecasting base to two quarters and then to full year basis. Once sufficiently accurate, recommend that CMC amends cash limits timing accordingly.
  - Refer recommended terms of reference and membership of CMC to PS/ST for approval.
  - Commence CMC meetings with CPD as secretariat. CPD to report on forecasting results of cash resource profile for quarter ahead and error analysis of previous quarter for action.
  - Analyze whether seasonal projections are becoming more accurate than direct input.
  - Commence discussions with BoU to arrange for short-term market-based term deposits when suitable. PS/ST to formalize this agreement.
- Long Term: 1 to 3 years
  - When feasible, commence active cash management activity by determining a suitable cash buffer level to be maintained and to guide borrowing and investment amounts––with tenors determined by forecasts.
  - Towards end of full year, determine whether forecast accuracy is sufficiently accurate to commence active cash management operations for short-term borrowing and investing.

*Source: cr17273 - 1. Summary of Findings and Recommendations (cr17273 - 1. Summary of Findings and Recommendations)__*

### 1. Summary of Findings and Recommendations __________________________________________________ 4

### 1. Summary of Findings and Recommendations

### Mission overview and outputs
- Mission dates: June 20–July 1, 2016.  
- Mission team: Amitabh Tripathi (AFE Public Financial Management Advisor) and John Gardner (Expert).  
- Purpose: Provide practical assistance to the Ministry of Finance, Planning, and Economic Development (MoFPED) on strengthening cash management.  
- Mission outputs:
  - Practical guidance on development of the cash management guidelines.
  - Discussion and training on cash forecasting templates.
  - Wrap-up workshop with senior officials of the MoFPED.
  - This aide memoire, structured with Sections II–IV and Appendices I–IV.

### Key findings (Box 1 and summary)
- The institutional structure for cash and debt management has been officially approved, enabling formal establishment of a Cash Policy Department (CPD) with staff recruitment in FY2016–17.  
- Delay in Cabinet approval of the cash management policy document is expected; therefore, it is important to define and promulgate CPD roles, responsibilities and working relationships via Guidelines being developed by MoFPED.  
- The CPD has created a cash flow forecasting spreadsheet template and has been using it to understand the government’s cash position.

### Principal recommendations (from Box 1)
- Finalize and issue the Guidelines with the approval of PS/ST as soon as possible.  
- Start implementing the Action Plan for strengthening cash management (Appendix I).  
- Establish a high-level Cash Management Committee (CMC) to provide authority to the CPD for relationships, improving cash flow forecasts, and operating active cash management transactions.  
- Improve cash flow forecasting by:
  - capturing actual outturn data alongside forecast data to analyze forecast errors;
  - ensuring all significant cash flows are covered and consistent with IFMS scope;
  - ensuring the timeframe conforms with the existing quarterly cash limits and the AGO weekly cash movements.  
- Formulate and start implementing a capacity building program for MDAs to explain cash management objectives and benefits of good forecasting.  
- In the medium term, once cash flow forecasting gains sufficient accuracy, prepare for active cash management operations (short-term borrowing and investment). Calculate an appropriate cash buffer level to define necessary money market transactions to smooth government cash operations.  
- Negotiate with the BoU to enable market-based term deposit facilities and coordinate with the Debt Policy and Issuance Department on borrowing needs.

### Background and context
- This mission follows prior AFE missions (notably June 2015) which recommended: (i) extending the TSA arrangement by including selected donor funded and local government accounts; (ii) concluding an MoU between MoFPED and Bank of Uganda (BoU); and (iii) finalizing and implementing the Cash Management Policy and Procedures Manual to improve cash flow forecast reliability.
- Progress since June 2015:
  - Cabinet approved the MoFPED restructuring including establishment of the Directorate of Debt and Cash Policy.
  - The CPD developed draft guidelines for cash management operations and conducted benchmarking trips to South Africa.
  - Cash flow forecasting templates were developed to capture forecast and actual data for revenues, expenditures and financing; sources of forecast and actual data were identified and templates are being used to understand the consolidated government cash position.
- The MoFPED requested AFE guidance to assess progress, identify emerging issues and review plans to operationalize the CPD.

### Regulatory framework and institutional arrangements
- The Cabinet approved the Directorate of Debt and Cash Policy as part of MoFPED restructuring. The approved structure for the CPD exceeds the maximum necessary when fully operational; approved positions to be filled in a phased manner. The budget for FY 2016/17 has provisions for the recruitment of fourteen positions including a Commissioner and Assistant Commissioner. The approved structure has positions for a Commissioner, two Assistant Commissioners and 29 other technical staff. Recruitment priority must be accorded by the Ministry of Public Service.
- The Public Finance Management Act, 2015 (PFM Act) provides a basis for cash management, oversight and monitoring of banking arrangements for the GoU:
  - Section 33 requires PS-ST to prescribe the framework for votes’ banking and cash management.
  - Votes must submit cash flow plans to MoFPED.
  - PS-ST must issue the annual cash flow plan for GoU, forming the basis for quarterly spending limits for MDAs.
  - Provisions exist for in-year revisions to the cash flow plan.
- The Regulations to the PFM Act have not yet been issued; the latest draft shared with the mission does not provide adequate guidance on operationalizing cash management. Additional subordinate-level legal documentation is required to define roles and responsibilities for government cash management.
- The cross-cutting nature of cash management requires clear articulation of institutional roles, timely sharing and analysis of information and coordination between MoFPED, BoU, URA, and MDAs. The new CPD must establish and coordinate these relationships.
- Because the PFM Act preceded establishment of the Directorate, formalizing the cash management mandate is important. The formal cash management policy is pending Cabinet consideration and expected to take a long time; hence CPD is developing operational guidelines to be approved by PS-ST under Section 33 of the PFM.

### Proposed CPD core functions (as identified)
- Developing effective cash management policies and procedures, including legal and administrative processes for short-term borrowing and investment activities.  
- Developing cash flow forecasting capability within the Directorate and among MDAs.  
- Developing capacity to perform active short-term cash management market operations.  
- Coordinating development and expansion of the TSA system and monitoring scope of longer-term cash flow forecasting profiles.

### Guidelines: scope and operational elements
- Draft Guidelines provide:
  - Overview of government cash management concept and primary objectives with focus on cash flow forecasting.
  - Detailed scope of borrowing and investing operations to meet temporary shortages and surpluses.
  - Description and authorization for establishing relationships needed to build comprehensive government cash flow forecasts.
- Essential prerequisites for effective cash management discussed in the Guidelines include:
  - a comprehensive legal framework;
  - defined TSA banking structure as the scope for cash management activity;
  - an effective payment and accounting system;
  - MDAs’ capacity to produce regular updated accurate expenditure and revenue forecasts;
  - effective relationships to be built and maintained.
- The Guidelines specify counterparties and required data provision to CPD:
  - DEA and URA—for revenue forecasts;
  - Budget Directorate—for budget execution information;
  - MDAs—for expenditure forecasts;
  - DP&ID—for planned debt raising and debt servicing information;
  - AGO—for short-term forecasts and actual outturn data.

### Role of the Cash Management Committee (CMC)
- The CMC is a high-level committee providing ongoing authority to the CPD’s work. Its roles include:
  - Receiving reports from CPD on accuracy of cash flow forecasts and reasons for significant deviations.
  - Assessing whether deviations were avoidable or unavoidable and determining actions required by counterparties if deviations were avoidable.
  - Using its high-level authority to instruct MDAs to improve forecasting accuracy where deviations are avoidable.

### Institutional change and next steps emphasized by mission
- Finalize and secure PS/ST approval of the CPD Guidelines to authorize CPD operational relationships across government.  
- Realign and define some existing roles and responsibilities across DEA, Budget Directorate, AGO, DP&ID and CPD; supplement Guidelines with MoFPED Circulars and Treasury Instructions to ensure effective ongoing relationships.  
- Implement the Action Plan (Appendix I) and commence capacity building of MDAs for forecasting and cash management.  
- Prepare for medium-term active cash management operations contingent on attainment of sufficient forecasting accuracy, including calculation of an appropriate cash buffer and negotiation with BoU for market-based term deposit facilities.

*Source: cr17273 - 1. Summary of Findings and Recommendations (cr17273 - 1. Summary of Findings and Recommendations)__*

### 19.      The CMC will also have responsibility to provide guidance to the CPD relating to

### The CMC will also have responsibility to provide guidance to the CPD relating to

### CMC responsibilities and interaction with CPD
- The CMC will provide guidance to the CPD relating to active cash management market operations.
- Once cash flow forecasts are deemed sufficiently accurate by the CMC:
  - The CPD will need to propose making short-term borrowings (usually most effectively through issuance of cash management T bills) and short-term deposits to earn remuneration on idle cash balances.
  - These transactions should initially be approved in advance by the CMC.
  - The CMC must be involved in negotiations with the BoU regarding the availability of term deposits at the central bank.
- The CMC should be empowered to take decisions on assurances to MDAs regarding future treatment of their forecasts (see paragraphs 24–28).

### Central bank term deposits and operational rationale
- Many central banks do not willingly propose to offer the government a term deposit facility, though the report asserts there is little reason for this reluctance.
- Once government cash flow forecasts are reasonably accurate, they should be provided regularly to the central bank to assist in monetary policy operations.
- Periods with anticipated short-term cash surpluses should be compensated by utilizing term deposits for the requisite duration.
- If surplus deposits are removed from the TSA structure at the central bank and placed with commercial banks, ceteris paribus, the central bank will need to drain them by performing open market operations, which cost the central bank an interest rate quite close to that earned on the term deposit.
- Keeping surplus cash on term deposit at the central bank:
  - Saves work, transactional costs, and credit risk exposure.
  - Should be discussed with the BoU to set up the facility to make term deposits.

### Importance of stable TSA balances and central bank liquidity visibility
- When forecasts are reasonably accurate, short-term borrowing and investment activities are designed to maintain as stable a balance in the TSA structure as possible.
- Stable TSA balances enable the BoU to understand closely the effect of government transactions on financial sector liquidity and the state of monetary policy.
- Because government is often the largest cash operator (including Uganda), this visibility significantly assists central bank monetary policy operations.

### Institutional arrangements and memorandum of understanding
- The CMC provides high-level access to BoU relationships, but an ongoing relationship must be maintained and specified in guidelines.
- Normally, a memorandum of understanding (MOU) between the MoFPED and the BoU would explicitly define the service relationship of the BoU with the DEA, AGO, CPD, and the DP&ID.
- The agreement should:
  - Set out principles of the relationship between MoFPED and BoU.
  - Develop a service level agreement covering banking arrangements, including computation of and compensation for the UCF/TSA and government cash positions and charges for retail services provided by the BoU.
- While the MOU is finalized, guidelines should specify expected cash management relationship behaviors.

### Capacity building and MDAs forecasting behavior
- A primary task of the CPD during early stages is to build capacity among relevant stakeholders and explain cash management objectives and benefits.
- Current data constraints:
  - Revenue projections and debt plans are available from DEA/URA and DP&ID.
  - MDAs only provide block quarterly expenditure estimates used by the Budget Directorate to set quarterly spending limits; this is not sufficiently granular for cash flow forecasting.
- Desired MDA behavior:
  - Provide accurate and updated expenditure forecasts in the format prescribed by the CPD.
  - Move away from strategic “front-loading” driven by past cash rationing behavior.
  - Understand that realistic forecasts, once credible, will reduce the need for spending limits; unrealistic estimates will be penalized.
- The CMC (via MoFPED) must provide high-level commitment to convince MDAs that realistic forecasts will be honored.

### Monitoring and enforcement
- CPD will constantly monitor forecast expenditures and revenues against actual outturns and report to the CMC to highlight poor or contrived forecasts.
- MDAs that historically make significant forecast errors should be informed that assurances will not be forthcoming until forecasts closely match actual requirements.

### Cash flow forecasting model: status and commendation
- The cash flow forecasting model developed by the CPD is described as an excellent start.
- It aggregates revenue, expenditure, and debt forecasts net of each other and uses opening balances to produce a profile of available cash resources across forthcoming periods.
- Model sources: previous FAD/AFE missions, US Treasury TA, benchmarking visits to South Africa.

### Shortcomings of the forecasting model (detailed)
- The report identifies several shortcomings in design, scope, and data:

  a. Forecasts overwritten by outturns
  - The model currently contains forecast data for revenues and expenditures for future periods but these are overwritten as actual outturn data is input and the forecasts are lost.
  - This prevents forecast error analysis.
  - Recommendation: expand templates to include columns for forecast data, actual outturn information, and level of forecast error.

  b. Excessive granularity from IFMS chart of accounts
  - The model uses the entire chart of accounts classification from the IFMS for forecasts and actuals.
  - Current forecasting relies on seasonal trend analysis from previous years’ outturns recorded in IFMS.
  - For future use, many classifications should use forecast data from MDAs directly rather than seasonal trends, implying a more aggregated structure than the full IFMS chart.

  c. MDA templates and aggregation guidance
  - Training and formatted templates for MDAs should focus on more aggregated expenditure groups chosen to capture the most volatile and uncertain spending needs.
  - Constant expenditures or clear seasonality can be input in aggregate using the annual budget overlaid with seasonal patterns.
  - Highly variable spending (particularly capital expenditure) must be forecast by the responsible MDA.
  - The format for requesting forecast information from MDAs must be carefully constructed.

  d. Define scope of the ‘pool’ of cash resources
  - Precisely define the scope of the forecast modeling (the ‘pool’ of available cash resources) so all inflows/outflows are consistently included or excluded.
  - The main bank account structure forming the ‘pool’ appears well constructed, but flows need consistency checks.
  - Example: For local governments fully within the IFMS, include detailed expenditures and ignore associated transfers; for local governments not fully within IFMS, include only transfers as they move directly out of the ‘pool’.

  e. Modeling timeline and quarterly spending limits
  - Although modeling further out than the current quarter remains relevant, the model must account for quarterly spending limits provided by DEA and the Budget Directorate.
  - Future goal: once forecasts are accurate and active cash management commences, quarterly cash limits should not constrain budgeted expenditures since shortages will be met by short-term borrowing.
  - Until then, modeling should take cash limits into account.

  f. Recommended initial forecasting timeframe
  - Weekly transfers by the AGO from the UCF to the TSA are based on known payment instructions and invoices; hence the model need not include the nearest week.
  - Initial model coverage should concentrate on a timeframe of two weeks to three months from the present.

### Preparations for active cash management operations
- Medium-term preparations to perform active cash management operations should include:
  - Preparing reports on cash flow forecasts to the CMC including recommendations for action to improve forecast accuracy and for active cash management money market transactions.
  - Calculating an appropriate buffer level of cash to guide sizes and terms of active cash management instruments.
  - Coordinating with the DP&ID on issuance of T bills for cash management purposes and ensuring the money market is aware of such transactional activity when it starts.
  - Coordinating and negotiating with the BoU on managing market-related interest earned on term deposits for cash management purposes.

### Action Plan: timelines and key tasks (Appendix I)
- Short Term: 1 to 3 months
  - Finalize draft of formal CPD Guidelines and send to PS/ST for approval and distribution.
  - Devise Financial Circulars to formalize CMD relationships and requirements with external MDAs for approval by PS/ST and distribution.
  - Review institutional aspects of forecasting data relationships and improve as necessary.
  - Continue to develop cash flow forecasting spreadsheet templates to facilitate daily monitoring of cash flows and error analysis.
  - As actual data is available, enter into model and analyze errors. Report significant errors to CMC with reasons and recommended action where avoidable.
  - Make rigorous consistency checks on the pre-defined scope of bank account structure of the model to ensure no double counting or exclusions of transactions.
  - Agree on timescale to be used for detailed forecasting––initially two weeks to three months is recommended.
  - Retain single quarter basis but start modeling development expenditures on half-yearly basis and report to CMC on results.
  - Contact all revenue, expenditure, and debt counterparties to discuss format required for data requests.
  - Arrange capacity building and guidance sessions with major spending MDAs to assist with developing required forecasts. Commence receiving all necessary forecast data for input to model. Continue historic seasonal analysis for comparison purposes.

- Medium Term: 3 to 12 months
  - Continue development of templates and error analysis.
  - Increase scope of model as IFMS and TSA is rolled-out to include more LGs and donor accounts and projects.
  - Include further out forecast data for reference.
  - Extend forecasting base to two quarters and then to full year basis. Once sufficiently accurate, recommend that CMC amends cash limits timing accordingly.
  - Refer recommended terms of reference and membership of CMC to PS/ST for approval.
  - Commence CMC meetings with CPD as secretariat. CPD to report on forecasting results of cash resource profile for quarter ahead and error analysis of previous quarter for action.
  - Analyze whether seasonal projections are becoming more accurate than direct input.
  - Commence discussions with BoU to arrange for short-term market-based term deposits when suitable. PS/ST to formalize this agreement.

- Long Term: 1 to 3 years
  - When feasible, commence active cash management activity by determining a suitable cash buffer level to be maintained and to guide borrowing and investment amounts––with tenors determined by forecasts.
  - Towards end of full year, determine whether forecast accuracy is sufficiently accurate to commence active cash management operations for short-term borrowing and investing.

*Source: cr17273 - 19. The CMC will also have responsibility to provide guidance to the CPD relating to (chapter content).*

### Appendix II. Uganda: Cash Management Guidelines

### Appendix II. Uganda: Cash Management Guidelines

### 1.0 INTRODUCTION
- 1.1. The government of Uganda continues to face intense pressure on their cash flows in the face of constrained revenues and the need to meet increasing statutory and social responsibilities.
- 1.2. The government has been undertaking Public Financial Management Reforms (PFM) of which the Integrated Financial Management Information System (IFMS) and Treasury Single Account (TSA) are major components to strengthen financial and cash management systems. This is consistent with the Public Finance Management Act 2015 and the constitution of the Republic of Uganda 1995 which provides the framework for conducting cash management.
- 1.3. The government has restructured the Ministry of Finance, Planning and Economic Development to create a cash management department under the Directorate of Debt and Cash policy to perform the cash management function.
- 1.4. The Secretary to the Treasury, in exercise of his powers as provided in Public Finance Management Act 2015, section 11, subsection 2 and section 33, subsection 1, hereby issues the following guideline on the management and operation of the cash management.

### 2.0 OBJECTIVE, SCOPE AND COMMENCEMENT OF THE GUIDELINE
- 2.1. Primary purpose: provide a clear framework to support implementation of cash management based on internationally-accepted principles, banking arrangements, operational processes and IT infrastructure. Intended outcomes:
  - improve accuracy of government cash forecasting;
  - provide more proactive cash management during the financial year so appropriation drawdowns can be based on votes’ actual cash needs rather than cash rationing restrictions;
  - operationalize a process for investing temporary cash surpluses.
- 2.2. Applicability: the cash management guideline will apply to all appropriation-supported MDAs in the general government sector.
- 2.3. Commencement and review: guideline is effective upon date of issuance and will be reviewed annually or when deemed necessary by the Secretary to the Treasury.
- Footnote: These guidelines shall be supplemented by the Treasury Instructions that are being drafted by the MoFPED.

### 3.0 CASH MANAGEMENT CONCEPT
- 3.1. Aim: ensure sufficient cash resources to meet government expenditure requirements; effective cash management includes accurate daily/weekly/monthly cash flow forecasting which determines investment or borrowing requirements.
- 3.2. Cash resources are held within the Uganda Consolidated Fund and Treasury Single Account bank account structures at the Bank of Uganda until required for appropriated expenditures; effective management enables allocation of vote’s appropriation across the financial year to closely match required expenditures.

### 4.0 CASH MANAGEMENT OBJECTIVES
Cash management is designed to enable understanding and management of government cash resources to:
- i. Ensure cash availability for efficient budget execution;
- ii. Promote efficient management of anticipated short-term domestic borrowing requirements at minimal cost;
- iii. Allow optimal investment of projected short-term cash surpluses; and
- iv. Determine and maintain an optimal cash liquidity reserve in the government bank accounts to meet unanticipated requirements during the financial year.

### 5.0 INVESTMENT AND BORROWING
- Credible budget formulation should ensure projected revenues plus approved budget deficit financing are sufficient for annual budget execution without additional borrowing, but timing mismatches will occur during the year.
- Short-term borrowing will be necessary to meet expenditures in some in-year periods; surplus periods will require short-term investments until cash is needed again.
- The Public Finance Management Act 2015 and its Regulations provide a legal framework for short-term cash management borrowings.
- The Secretary to the Treasury will issue separate guidelines to manage the process of short-term investment of surplus cash resources within the financial year.

### 6.0 CASH MANAGEMENT ESSENTIAL REQUIREMENTS
Implementation requires:
- i. A legal framework including policies, cash management processes, financial regulations, and treasury circulars;
- ii. All public monies are under the direct control of government;
- iii. Government banking arrangements are consolidated to enable the Secretary to the Treasury to have full oversight of government cash flows across bank accounts;
- iv. A harmonized receipt and payment system allowing comprehensive reporting of government execution transactions;
- v. MDAs having financial management processes, procedures and systems necessary to support cash flow forecasting and cash management—MDAs should understand that good forecasting leads to ability to make expenditures as required, while poor forecasting results in cash rationing and expenditure constraints;
- vi. Effective relationship management to ensure accurate and timely provision of information to the Cash Policy Department by all counterparties.

### 7.0 CASH MANAGEMENT STAKEHOLDERS: ROLES AND RESPONSIBILITIES

- The success of cash management requires effective collaboration among stakeholders during implementation.

#### 8.1 CASH POLICY DEPARTMENT (CPD)
The CPD (Directorate of Debt and Cash Policy, MoFPED) is charged with:
- i. Ensuring government has efficient cash management policies and operating procedures including a definition of scope and coverage of cash management operations.
- ii. Building capacity in, and assisting with, preparation of accurate and updated cash plans for all votes.
- iii. Consolidation of cash plans and forecasts to prepare an overall government cash flow forecast on a monthly and weekly basis.
- iv. Prepare regular and timely cash flow projection reports that reflect budget compliance.
- v. Coordinating cash management so as to implement issued in-year budgetary spending limits.
- vi. Prepare a strategy for managing projected short-term cash shortages and surpluses.
- vii. Coordinate services relating to cash management operations with the AGO and the BoU; and ensure that cash flow forecasts are provided to the BoU for monetary policy purposes.
- viii. Participate in committee meetings held at the BoU and the URA which relate to cash management operations and policy.

#### 8.2 CASH FLOW COMMITTEE/CASH MANAGEMENT COMMITTEE (CMC)
- A high-level CMC is a vital requirement to provide CPD authority to demand accurate forecasts and manage institutional changes when money market transactions are undertaken.
- CMC responsibilities:
  - i. Maintain current approval process for issuing quarterly budgetary cash limits with objective of reviewing as forecasts improve;
  - ii. Review monthly/weekly cash flow forecasts produced by CPD;
  - iii. Develop policy for investment of temporary cash surpluses;
  - iv. Approve investment and borrowing recommendations of CPD based on net position and cash flow forecasts;
  - v. Include Members: Permanent Secretary/Secretary to the Treasury (Chair); Deputy Secretary to the Treasury; Accountant General; Director Economic Affairs; Commissioner General Uganda Revenue Authority; Director Budget; Deputy Governor and Director Banking Operations, BoU; Director Debt and Cash Policy. CPD is Committee secretariat and technical advisor.
  - vi. May call MDA representatives to discuss forecasts and outturns;
  - vii. Any other responsibilities assigned by the Secretary to the Treasury;
  - viii. Meet at least once every month and more frequently if needed.
- Note: Sample terms of reference and membership provided in Appendix 3 of the report.

#### 8.3 VOTES/AGENCIES
Votes/agencies should:
- i. Provide accurate and timely information as prescribed by the CPD from time to time;
- ii. Prepare and submit to CPD monthly cash flow projections in the format prescribed by the CPD including a disbursement profile and have the flexibility to amend forecasts and profiles at any time during the year;
- iii. Maintain or designate a help desk to coordinate cash flow forecasting capacity building and development, communicate regularly with the CPD, and respond to cash management issues or queries.

#### 8.4 DEPARTMENT OF ECONOMIC AFFAIRS
- Provide accurate and timely revenue projection information as requested, and in the format provided, to the CPD from time to time.
- Contribute to development of cash management policies in coordination with the CPD.

#### 8.5 DIRECTORATE OF BUDGET
- i. Provide accurate and timely information as requested by the CPD from time to time on the annual cash plans by vote and mid-year updates;
- ii. Provide to CPD the quarterly vote’s expenditure limits and any further budget execution controls being planned.

#### 8.6 ACCOUNTANT GENERAL’S OFFICE (AGO)
The AGO should:
- i. Provide accurate and timely information as requested by the CPD from time to time;
- ii. Coordinate and communicate developments of TSA policy and framework with the CPD;
- iii. Ensure the CPD has access to IFMS database and real-time access to bank statements;
- iv. Provide input to development of cash management policies.

#### 8.7 DEBT POLICY AND ISSUANCE DEPARTMENT (DP&ID)
The DP&ID should:
- i. Provide accurate and timely information as requested by the CPD from time to time;
- ii. Provide weekly and monthly debt servicing and transaction projections;
- iii. Coordinate Treasury bill and other borrowing arrangements to meet cash management requirements;
- iv. Coordinate short-term money market investment arrangements if necessary to meet cash management requirements.

#### 8.8 BANK OF UGANDA (BoU)
The BoU should:
- i. Provide accurate and timely information as requested by the CPD from time to time;
- ii. Provide the CPD with real-time access to the daily cash balances on the government accounts in coordination with the AGO;
- iii. Consult with CPD on short-term borrowing to meet projected cash shortages;
- iv. Agree CPD policies on short-term investment of cash surpluses.

#### 8.9 UGANDA REVENUE AUTHORITY (URA)
The URA should:
- i. Provide accurate and timely information as requested by the CPD from time to time;
- ii. Ensure timely transfer of revenue from the collection accounts to the UCF within 24 hours.

### 9. GUIDELINE REVIEW
- This guideline is subject to periodic review by the Secretary to the Treasury.

### 10. GLOSSARY
- Cash rationing – control of the amounts and timing of budget expenditures to fit anticipated revenues.
- Cash flow forecasting – aggregation of the planned and projected revenues, debt transactions, and expenditures across a defined section of the government broken down by day/week/month/quarter which affect the expected cash resources available.
- Cash resources – the amount of cash held in a defined set of government-controlled bank accounts which receive budget revenue and debt-related inflows and from which budget expenditures are paid.
- Expenditure limits – an amount of a provision under the annual or supplementary estimates which have been allocated by a quarterly expenditure limit issued by MoFPED.
- Money markets – domestic markets used for short-term financial transactions: usually Treasury bills for short-term borrowing; and bank call and term deposits or repos for short-term investment.
- Scope/coverage – the definition of a set/structure of bank accounts which, in total, establishes the aggregate available cash resources of the government at any one time and therefore defines the extent of cash flow forecasting.
- Short term – within the current financial year; usually between one week and six months or less.

### Appendix III. Uganda: Sample Terms of Reference for Cash Management Committee (CMC)
- Role and objectives (high-level):
  - Advise the Minister, MOFPED on processes for optimum management of cash.
  - Provide the government and BoU with revenue and expenditure forecasts and analysis; project the financing gap between government inflows and outflows for each quarter or other periodicity as requested by MoFPED.
  - Advise the government and BoU on the best modality for financing the gap.
  - Work under overall guidance of the Permanent Secretary/Secretary to the Treasury (PS/ST) and take directions from PS/ST.
  - Shall not advise the BoU on investment or other matters vested in BoU by law.
  - Issue directives to MDAs to improve forecast accuracy.
  - Decide when forecasts are sufficiently accurate for CPD to commence active cash management operations.
  - Supervise and approve in advance, as necessary, all active cash management transactions and instruments undertaken by the CPD.
- Membership:
  - a. The PS/ST—Chair
  - b. Director of Debt and Cash Policy
  - c. The Budget Director
  - d. The Director of EAD
  - e. The AG
  - f. A nominee of the BoU
  - g. A nominee of URA
  - h. A minimum of two nominees of high-spending MDAs
  - i. CMC may co-opt any official as a temporary member or an observer
- Secretariat: CPD
- Meetings:
  - a. Meet monthly unless otherwise determined
  - b. Agenda and all information provided to members at least three work days prior to the meeting
  - c. Any CMC member may call for additional information as needed

### Appendix IV. Uganda: Division of Roles in the Cash Management Process
- Main functions across DD&CP, AGO, DB, DEA include (selected highlights):
  - Develop effective cash management policies and procedures; prepare cash management Guidelines for issuance by PS-ST; devise legal and administrative processes for short-term borrowing and investment activities.
  - Develop cash flow forecasting (CFF) capability: define coverage and timeframe; seasonal analysis; obtain CFFs for tax/non-tax revenues, debt servicing and issuance, and expenditures; coordinate with DP&ID for deficit financing activity; aggregate CFFs for whole of government.
  - Establish formal high-level CMC and perform secretariat functions; draft and present ToR for CMC; advise on short-term market activity for borrowing or investing.
  - Develop capacity to perform active short-term cash management market operations; advise AGO on future cash movements; through DP&ID, conduct “cash management” T bill issuance with explanation to the market; develop active TSA/UCF cash buffer level calculation.
  - Continue to develop TSA system and monitor longer-term CFF profiles; monitor structural cash surpluses or shortages and report to CMC; develop procedures to handle structural cash activity via investment funds or debt financing.
- Specific role allocations and coordination responsibilities are set out in the detailed matrix across DD&CP, AGO, DB, DEA.

*Appendix II. Uganda: Cash Management Guidelines — cr17273.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2017/cr17273.pdf_