Effective cash planning and management is crucial to developing countries’ public expenditure management. Good management of both the timing and the amounts of expenditure ensure smooth financing, preventing variations from budgeted expenditure. These variations can lead to over-borrowing and hence failure to meet fiscal policy objectives. This chapter from the IMF book Guidelines for Public Expenditure Management outlines the main cash planning requirements for well managed annual budgets. It discusses who is responsible for an effective system and the main constraints that can disrupt expenditure plans.
The main findings are:
- An effective cash planning system should be realistic, responsive and comprehensive and take into consideration both the long and the short term
- Prerequisites for good cash management are: A realistic budget, clear procedures for the release of appropriations, adherence to clear borrowing rules and a skilled and experienced workforce
- Developing countries’ daily budgeting systems often pay out tomorrow what flowed in today. Such a system should be avoided as it affects the timings of service delivery and often results in the build up of debts
- In developing the cash plans the Treasury needs to get all necessary information from all relevant sources and departments. This task is too often not carried out so reforms may be needed.
Policy relevant implications are:
- Developing countries should deliver their budget with a monthly cash plan. This should start from an annual plan with monthly projected cash flows
- From these monthly cash plans, rolling three month projections which are updated monthly can be produced. These plans can keep expenditures within cash limits if updated at least every week
- A cash management unit within the Ministry of Finance should be established to manage these cash plans.
