Finance Division would prepare a cash forecasting framework with total cash management forecast consistent with the budget and revenue forecast from the Federal Board of Revenue and ministries under Cash Management & Treasury Single Account Policy 2019-29. The government has committed to the International Monetary Fund (IMF) under $6 billion 39-month Extended Fund Facility (EFF) program that it would modernize the Public Finance Management Framework and stated, "We have adopted an organic budget law that will minimize variance in budget authorizations during the year, which would require ex-post parliamentary approval, restrict virements, expand the content of annual budget statements, define accounting standards, and provide the legal basis for a well-defined cash management system and establishment of a treasury single account."
Finance Ministry in the policy updated on its website noted that single treasury account policy is vital for improved public finance management for timely availability of cash to meet obligations, economizing on cash within government so as to save interest costs and management of the government''s cash flows efficiently in a way that it benefits debt management, and monitory policy.
The policy approved by the federal cabinet was consequently made part of the Finance Act 2019 states that core treasury functions primarily revolve around cash forecasting and management, as well as debt management strategy and monitoring of budget execution, besides processing of payments, accounting for government transactions, preparation of consolidated fiscal reporting, and oversight of financial management, etc.
The primary objectives of the cash management are timely availability of cash to meet obligations, economizing on cash within the government to save costs and reduce risk, management of government''s short-term cash flows efficiently (both cash deficits and cash surpluses) in such a way as to benefit debt management and monetary policy.
The government has so far not clearly stipulated and integrated cash management policy and different aspects of cash management have been managed independently for decades. There is no institutional framework under which these different aspects may have converge into one single platform of cash management.
As a result, traditional tools such as cash rationing, control on cash flows through controlled clearance of cash demand files and cash flow interruptions through an irregular instrument of ways and means clearance are being applied. Additionally, an agreement with State Bank of Pakistan (SBP) for cash cover and unbridled power of money printing are also applied frequently for smooth flow of cash. Moreover, a huge amount of government cash is taken out from the government accounts by different organizations in the name of statutory, strategic, operational and commercial requirements and placed in the private accounts maintained in the scheduled banks whereas the government has to raise debt from the scheduled banks to ensure its cash flows.
The governments tend to raise and keep higher amounts as a cash buffer which remains unutilized, sometimes for months, due to cash flows from other sources of income. The government''s trading in short-term securities and return of SBP loans for short-terms can make cash management operations more efficient. The SBPs'' cash injection into the scheduled banks and discount rate protection make the treasury market unfair for the government, which needs to be corrected.
The objectives of cash management policy is ; (i) to ensure availability of cash when it is required; (ii) to manage cash balance in the government bank accounts effectively by borrowing to cover expected cash shortfalls, and avoid "idle" balances by investing during periods of surplus and minimizing borrowing costs as well ; (iii) to neutralize impact of the government''s cash flows on the domestic banking sector by ensuring that overall monetary policy (including monetary growth and inflation targets, etc) are not undermined .
This cash management policy has been designed to achieve objective of efficient cash management with ability to forecast daily cash flows across the treasury single account which would result into smooth cash flows with lower average cash balances, reduced borrowing costs, lower interest on cash balances than interest on marginal borrowing and less pressure on monetary policy operations. The policy enlists actions, plans and implementation regimes to the Finance Division and actions under the policy would be required anticipation of cash needs of government and forecast of total net cash flow.
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