Chapter

Chapter 4. The Treasury Single Account in Latin America: An Essential Tool for Efficient Treasury Management

Editor(s):
Mario Pessoa, and Carlos Pimenta
Published Date:
January 2016
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Author(s)
Israel Fainboim Yaker, Claudiano Manoel de Albuquerque and José Adrián Vargas 

Introduction

Good public financial management (PFM) is about ensuring that all of a government’s cash is available for management by the treasury. This requires creating a treasury single account (TSA), which contributes to the efficient use and control of these financial resources. Establishing a TSA is essential in modern treasury management. It enables the centralization of public funds and their consolidated management. It also acts as a catalyst and facilitator for cash management reform by transforming treasuries and allowing them to go beyond their traditional payer role to perform the functions of a modern financial manager by adopting efficient planning, forecasting, financing, and financial investment mechanisms, as well as actively managing cash.

Many countries in Latin America have recently made efforts to create a TSA to improve their financial management;1 others, such as Argentina, Brazil,2 and Colombia, established TSAs decades ago, although they are still seeking ways to manage them more efficiently. Some countries have made more progress than others in their reforms, and their operational models and the scope and functionalities of their TSAs differ.

This chapter presents the current status of TSA implementation in 17 countries: Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, the Dominican Republic, Ecuador, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru, and Uruguay. While this publication in no way recommends a particular framework or model for all governments, it presents some guiding principles of implementation and benefits the ongoing reform processes by identifying and describing the achievements made so far by countries that were successful in consolidating this tool. The objective of the chapter is to provide a synopsis of the experience of the countries of the region in developing or consolidating a TSA to support similar developments elsewhere in Latin America and in other regions.

This chapter highlights some successful innovations and identifies areas where work is yet to be done to guide reform and promote the use of modern practices. Key factors that have influenced reform during the last six years in the region include, to a large extent, peer learning and emulation resulting from the creation of the Latin American Treasury Forum (FOTEGAL). This forum delivers seminars and implements annual work programs (including courses, research, and technical assistance) supported by various international organizations (International Monetary Fund (IMF), Inter-American Development Bank, World Bank).

The chapter includes four sections besides this introduction. The second section presents the conceptual framework that is used as a reference to examine the current status of TSA implementation in Latin America and to identify the basic characteristics of an efficient TSA. The third section examines aspects of its conceptual design (or structure), using the legal framework as a starting point, as this usually defines some basic features of the TSA in the countries. It also includes the issues of TSA coverage, the degree of fungibility of the resources, key operational aspects (revenue collection, payments, accounting), and the role played by integrated financial management information systems (IFMIS) in these operations and in TSA management in general. The fourth section examines the degree to which active cash management is used, discussing topics such as the remuneration of TSA balances and the existence and use of instruments and mechanisms for the treasury to finance temporary cash shortfalls and invest temporary cash surpluses, without which all the benefits of a TSA cannot be obtained. The final section of this chapter includes suggestions for improving areas that may generate substantial progress toward modern treasury management.

Finally, this study contains information gathered from various sources. Most important are those from (i) the authors who, as technical assistance providers, have visited almost all the countries in the region; (ii) the annual surveys of the treasurers performed for the FOTEGAL seminars (most recently in July 2014); (iii) the presentations made by the treasurers during an event on TSA development in Latin America; and (iv) the presentations made at the FOTEGAL seminars.

Characteristics of an Efficient TSA

In a narrow sense, a TSA can be defined as a single bank account (preferably held at a central bank) or a unified structure of bank accounts and accounting or “virtual accounts” (subaccounts) with which the government, through a single administrator (generally the treasury),3 manages the revenues and payments centrally to obtain a consolidated cash position at the end of each day (Fainboim and Pattanayak, 2011). Defined in a broader sense, a TSA is a set of systems, processes, norms, and procedures applied to a national treasury for the consolidation of funds and their financial management. An efficient TSA has six main characteristics (Fainboim and Pattanayak, 2011):

  • Location: The TSA should be operated at the central bank because the resources held there are exposed to less counterparty risk compared to private or public commercial bank deposits and, therefore, will not face moral hazard risks.

  • Coverage: At a minimum, coverage should include all central government entities and resources.4 The cash resources of these entities should be integrated in the TSA, covering budgetary and extrabudgetary resources (irrespective of their source of revenue), collecting agencies, beneficiary entities, or end users of those resources to ensure that the maximum amount of cash resources is centrally managed. This will reduce explicit and opportunity costs that the treasury incurs by managing government cash.5,6

  • Concentration: Government agencies should not maintain resources in bank accounts that are beyond the oversight of the treasury, and the treasury should be given the power to authorize the opening or closing of bank accounts within the government treasury. This feature follows the former one whereby the balance of all government bank accounts is swept into the TSA at the end of each day.

  • Fungibility: For the treasury to manage its cash flow according to financial principles, fungibility of resources should be allowed to achieve maximum efficiency.7 Book-entry accounts are designed to guarantee the fungibility of TSA resources for treasury use, irrespective of their budget earmarking or appropriation.8 The principal function of these accounts is to ensure that earmarked resources are owned and available to the beneficiaries without having to hold them in separate bank accounts. Thus, they facilitate bookkeeping and the control of cash flows and balances, usually functions of bank accounts. Best practice is to hold book entries in a government IFMIS, although it is possible to adopt a system whereby TSA subaccounts within the same bank function as book entries.

  • Timely revenue and payment transactions: Government resources should be placed into the TSA immediately after being collected and disbursements made only when expenditures are justified. This is referred to in the literature as minimizing the float; in other words, reducing the time it takes to receive and make payments, which is an opportunity cost for the government.

  • Timely information: Information about the government’s aggregate cash position should be available and accessible on a daily basis, preferably in real time.9 Timely information about the availability of cash is indispensable to update the cash planning and daily operations of the treasury in the financial markets (e.g., investment of temporary surpluses, short-term debt issuances).

Finally, it is essential to establish a solid legal base for the adoption of a TSA. Its coverage and granting authority to the treasury should be defined to enable the opening and closing of bank accounts.

Although the concept of cash unity and a TSA had existed for a long time, it was boosted in the 1990s with the advent of information and communications technology (ICT), which has led to the development of new tools to record and manage government cash flows and balances.10 As a result, operational procedures have been streamlined and processing times for financial transfers have been reduced. The technological change has also eliminated processes that previously were carried out only through ledger records and procedures over a wide range of bank accounts, distributed throughout various offices in different localities.

Likewise, ICT has facilitated automated recording and reconciliation, as well as strengthened the control of cash flows and balances. More importantly, it has enabled access to information in real time on the entire resources of the treasury,11 as well as offered mechanisms to support the centralization of cash resources for treasury management, even in situations where the government’s operational processes or institutionalized practices still require a system that will operate various bank accounts.

The TSA Conceptual Model

Despite sharing the same objective, there are significant differences in the TSA conceptual models that have been adopted in each country in Latin America. Before examining these models, the term “conceptual model” used in this chapter should be defined. The following definition of a TSA is an initial reference point: “(…) it is a bank account or a set of linked bank accounts through which the government transacts all its receipts and payments and gets a consolidated view of its cash position at the end of each day” (Fainboim and Pattanayak, 2011). Fainboim and Pattanayak also say “At least four key issues should be addressed in designing a TSA system: (i) the coverage of the TSA; (ii) the government bank account structure; (iii) the transaction processing arrangements and associated cash flows; and (iv) the roles of the central and commercial banks in managing the TSA and providing banking services.” To these issues should be added the fungibility of government resources available to the national treasury (i.e., the capacity to temporarily use the resources of other entities while they are not required by those entities) and also the possibility of temporarily using the resources that are not included in the TSA (by, for instance, borrowing them) as two key additional characteristics.

These elements of the conceptual design are examined below for the different countries of the region. The examination starts with an analysis of the legal basis for the TSA, as it usually determines key features of the conceptual design, and is followed by an analysis of the aspects described in the previous paragraph.

Legal Basis for the TSA

As with all public actions, managing the resources of a government should be supported by appropriate legislation in compliance with the principle of legality. This chapter examines the nature of the rules that establish the TSA, its institutional coverage, the competencies or power assigned (usually to the treasury) for authorizing the opening and closing of bank accounts, and the choice of bank that will operate as general cashier, where the resources to be managed will be concentrated.

Nature of the law establishing a TSA

The higher the hierarchy of the law that creates the TSA, the more stable its legal support will be. It will also be more difficult to make exceptions that may weaken the operation of a TSA and reduce its benefits.

A TSA is most commonly established in Latin America by law (Table 4.1),12 as is the case in 13 of the 17 countries included in this analysis. Costa Rica, Ecuador, and El Salvador allow for a TSA within their respective constitutions, while in Bolivia, its legal support is provided by a supreme decree of the executive power (Decreto Supremo del Ejecutivo).

Table 4.1Legal Basis by Country for a TSA
CountryRuleArticles
ArgentinaFinancial Administration Law (Ley de Administración Financiera) No. 24156 of 199280
BoliviaSupreme Decree (Decreto Supremo) No. 25875 of 2000.3 and 4
BrazilPublic Finances Law (Ley de Finanzas Públicas) No. 4.320 of 196456
ChileOrganic Decree Law on Financial Administration of the Government (Decreto Ley Orgánico de Administración Financiera del Estado) No. 1263 of 197532
ColombiaBudget Law (Ley de Presupuesto) No. 38 of 1989, thereafter incorporated in the Organic Statute of the Budget (Ley Orgánica de Presupuesto)73, 98, 101, and 103
Costa RicaPolitical Constitution184
Financial Administration Law (Ley de Administración Financiera) No. 8131 of 200166
Dominican RepublicLaw of the National Treasury (Ley de Tesorería Nacional) No. 567 of 2005.11
EcuadorPolitical Constitution299
Supreme Decree (Decreto Supremo) 1429 of 1977 Organic Law on Financial Administration and Control (Ley Orgánica de Administración Financiera y Control)166, 172, and 173
El SalvadorPolitical Constitution224
Organic Law on Financial Administration (Ley Orgánica de la Administración Financiera) No. 516 of 199572
GuatemalaOrganic Law on the Budget (Ley Orgánica de Presupuesto) No. 101 of 199755
HondurasOrganic Law on the Budget (Ley Orgánica de Presupuesto) No. 83 of 200494
MexicoFederal Law on Budget and Treasury Responsibility (Ley Federal de Presupuesto y Responsabilidad Hacendaria) of 2006; latest reform in 201251
NicaraguaFinancial Administration and Budget Regime Law (Ley de Administración Financiera y del Régimen Presupuestario) No. 550 of 200594
PanamaLaw 56 of 2013, creating the National Treasury System (Sistema Nacional de Tesorería) and the National Treasury Single Account (Cuenta Única del Tesoro Nacional)6
ParaguayState Law on Financial Administration (Ley de Administración Financiera del Estado) No. 1535 of 1999.32
PeruLaw on the Financial Administration Framework (Ley Marco de la Administración Financiera) 2812 of 2003.25
UruguayLaw 17.213. Substitution of certain articles of the Annotated Text on Accounting and Financial Administration (TOCAF) (Texto Ordenado de Contabilidad y Administración Financiera) of 14 September 1999.22
Source: Authors’ elaboration.

In 11 countries, the law that creates a TSA is an organic or special law, which is a better option compared to an ordinary law, because its higher rank requires a qualified majority in congress to be amended. If countries with higher-ranking laws were added to those that have a constitutionally established TSA, the number of countries with a strong legal framework would increase to 14. This highlights the high level of legal standing of the TSA within the region.

In Panama, a Treasury Law (Ley de Tesorería) was approved in 2013 (Law No. 56 of September 17, 2013) and, in Guatemala, several amendments have been made recently to the legislation (Legislative Decree No. 13–2013) (Decreto Legislativo No. 13–2013). The law in place in both countries established, in general terms, the principle of a TSA, although it has not been more extensively developed.

Authority of the treasury to open and close bank accounts

The explicit granting of power to authorize the opening or closing of bank accounts is essential to prevent cash resources being managed outside of the TSA in bank accounts that are not approved by the national treasury. In 12 countries (Brazil, Colombia, Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Paraguay, Peru, Uruguay), the law grants the national treasury the right to open bank accounts and to close those without authorization to achieve greater TSA efficiency. In 4 countries (Argentina, Bolivia, Chile, Ecuador), this power is granted to the national treasury through executive decree (Decreto Ejecutivo) and, as in Panama, by a law that gives power to the comptroller general for those institutions that are not included in the TSA and to the national treasury for those institutions that are.

Selection of the bank, acting as general cashier bank for consolidating TSA resources

Placing the TSA in the central bank has advantages and disadvantages (Table 4.2) compared to holding the account at a private or public commercial bank. The advantages include the elimination (or substantial reduction) of credit or counterparty risk and the prevention of moral hazard—risks that could be significant if the TSA were to be held at a commercial bank. The central bank, therefore, is a much safer haven for government deposits than a commercial bank.

Table 4.2Advantages and Disadvantages of the TSA in the Central Bank
AdvantagesDisadvantages
  • Counterparty (credit) risk is minimal.

  • There is no moral hazard risk.

  • No public commercial bank is placed in an advantageous situation with respect to the rest of the commercial banks.

  • If the treasury uses active cash management to maintain low and stable balances at the central bank, the direct monetary impact of the treasury’s inflows and outflows is minimal, as is the effort the bank must make (and the lower the costs) to minimize the changes in the banking system’s liquidity. The effort and the costs of controlling liquidity in this case become the responsibility of the treasury or the Ministry of Finance.

  • Facilitates coordination between fiscal and monetary policy.

  • Facilitates cost-effective banking arrangements and rapid settlements. Agreement can be reached for the central bank to act as a clearing house for government operations, which can speed up settlements.

  • Risk of the central bank failing to remunerate the TSA cash balance or setting lower-than-market interest rates (lower than those offered by commercial banks). This disadvantage could be reduced, however, if cash is managed actively by maintaining minimum and stable balances at the central bank and investing excess cash in the commercial banks.

  • If the treasury fails to engage in active cash management, its cash movements will have a strong and direct monetary effect on the economy (as it is the most important entity with regard to mobilizing an economy’s resources) that will force the central bank to undertake significant open-market operations to control bank liquidity, thereby affecting the central bank’s financial situation. In this case, the cost and the effort to control liquidity will fall to the central bank. If, as a result of these activities, the central bank suffers losses and these are not covered by the government, the bank’s independence will be threatened.

Source: Authors’ elaboration.

In most countries (13) in the region, the law assigns the bank (general cashier)13 that consolidates TSA resources. In 11 countries, it is assigned to the central bank. Interestingly, in two of three economies in the region that are fully dollarized (Ecuador and El Salvador) the central bank has reserve functions and acts as a general cashier for TSA resources. In six countries, the law requires a public commercial bank to fill the role of general cashier (Argentina,14 Chile, the Dominican Republic, Panama,15 Peru,16 Uruguay).

Participation of commercial banks as auxiliary bank cashiers

In all countries included in this study, the regulations permit a commercial bank to act as collector and disburser of funds, but the level of services provided to the treasury varies considerably between countries, as described below.

Existence of specific TSA regulations

In Costa Rica, the Dominican Republic, and Peru, there is a specific set of regulations that governs the operation of the TSA. Most commonly, the arrangements are incorporated into either the general regulations of the law that establishes the TSA, the regulations governing the treasury subsystem, or the technical rules of the treasury subsystem. Irrespective of the type of legal instrument, it is crucial that a clear and complete set of regulations is established and complemented by procedures that explicitly stipulate the functioning of the TSA.

Other Aspects of the TSA Design

Structure of bank accounts

The classification proposed by Fainboim and Pattanayak (2011) includes three different account structures:

  • Centralized: The TSA is composed of a single account, generally held at the central bank. This system is managed by either a centralized authority (for example, a centralized treasury, with or without regional units) or by individual line agencies/spending units. Either way, the relevant transactions are accounted for and managed through a well-developed accounting system that identifies the ownership of resources by way of subaccounts or book-entry accounts, acting as substitute bank accounts.

  • Distributed: This structure comprises various independent accounts (generally at zero-balance, held at commercial banks) operated by line agencies/spending units for transactions—for payment or collection—with the condition that the positive and negative balances maintained in these accounts are netted into the TSA main account whenever possible. The money is transferred (usually, at the beginning or end of each day) into these accounts as and when approved payments are made, and the general cashier bank (holding the TSA) provides the consolidated cash position at the end of each day. This structure enables funds to be consolidated through procedures known as cash pooling services.17

  • Mixed: This combines the features of the above two structures. The consolidation of resources is complemented by payment accounts that decentralize the payment process within regional management units or treasuries. In each case, the balances within the banking system are also swept into the TSA at the end of the day.

Taking these concepts as references, it becomes clear that the mixed structure model predominates in eight countries, which is explained by the use of collection and payment accounts (although, in some cases, these are zero-balance accounts). Nearly all of these countries claim that the mixed model accounts operate as temporary mechanisms, until such time when more efficient collection and payments processes are available. In five countries (Bolivia, Chile, El Salvador, Guatemala, Mexico), the model adopted is decentralized, and in four countries (Brazil, Ecuador, Honduras, Nicaragua), it is centralized, although in the latter two countries there are certain exceptions.

Number of bank accounts

There is still a considerable number of bank accounts for cash management in the “general cashier bank” and in commercial banks (“auxiliary cashiers”), which is an indication that TSA rationalization has not yet been achieved, nor have the advantages it offers fully materialized. The replacement of bank accounts by ledgers and book entries in the IFMIS and by zero-balance accounts remains a pending task in many countries. In seven countries, more than 1,000 bank accounts are still held at commercial banks (Figure 4.1), with some countries holding more than 5,000 commercial accounts. In Bolivia, for example, the number of mixed fiscal, payment, and collection accounts held at private banks is as high as 6,800.

Figure 4.1Percentage of Countries with Bank Accounts Held in Commercial Banks (“Auxiliary Cashier Banks”), by Number of Accounts

Source: Authors’ elaboration.

Note: N/A = Not available.

Similarly, six countries (Argentina, Bolivia, Chile, Colombia, El Salvador, the Dominican Republic) maintain between 101 and 1,000 accounts at the “general cashier bank,” demonstrating that it has been a challenge to simplify the structure of bank accounts for TSA management (Figure 4.2). Bolivia holds 395 fiscal accounts at its central bank. In Chile, treasury resources are deposited in 5,286 accounts at the State Bank (Banco del Estado), which is responsible for the TSA, as well as in private commercial banks. The high number of bank accounts is explained by providing all the necessary information for operational management, such as information on the collecting bank, revenue sources, and earmarked resources. This does not contribute to improving efficiency, since it will perpetuate the operational activities related to the opening, reconciliation, and maintenance of each account.18

Figure 4.2Percentage of Countries with Bank Accounts at the General Cashier Bank in Which the TSA is Maintained, by Number of Accounts

Source: Authors’ elaboration.

Note: N/A = Not available.

Furthermore, in countries that do apply book-entry accounting (i.e., bank books or single accounts to track the ownership of the resources in the TSA), not all have the same functionality and/or their range is limited. In Peru, for example, book-entry accounting has limited scope: there are TSA subaccounts at the Bank of the Nation (Banco de la Nación) to monitor and manage revenues and payments, as well as bank accounts at the central bank to control earmarked resources. Moreover, some entities still maintain accounts to manage their own-source resources. Book entries (accounting or “virtual accounts”) exist in Bolivia, although payments are charged to the bank accounts. In Nicaragua, the system of book entries also has limited scope, given that a significant part of government resources continues to be managed through bank accounts that remain beyond the coverage of the TSA.

Coverage of the TSA

The higher the volume of resources managed by the TSA, the greater the benefits it will generate. It is therefore argued that the TSA should have the widest possible coverage of public resources that are used to fulfill governmental functions. As Fainboim and Pattanayak (2011) indicate, “The TSA should have comprehensive coverage; that is, it should ideally include cash balances of all government entities, both budgetary and extrabudgetary, to ensure full consolidation of the government’s cash resources.”

This section presents information that relates to the scope of coverage of the TSA in Latin American countries. The degree of legal and institutional coverage, as well as coverage according to type of funds (or revenue sources) is also examined. Regarding institutional coverage, the institutional or administrative classification of the public sector—put forward by the Government Finance Statistics Manual of the IMF (IMF, 2014: 8–39)19—is used as a reference.

Among the countries that are examined, Argentina, Brazil, and Mexico are federal states and Bolivia is a Plurinational State (Estado Plurinacional de Bolivia), where reference will be made to liquid resources at the federal or national level. In addition, there is a difference in some countries between devolved and decentralized institutions. This depends on the level of autonomy that the legislation grants to one or the other; however, they are treated in this chapter as a single category: decentralized institutions.

Legal coverage versus real coverage

In only 3 of the 17 countries reviewed (Argentina, Brazil, Costa Rica) have all institutions under current regulation been incorporated into the TSA. This goes to show that, except in a few cases, the creation of TSAs in Latin America is a work in progress with most countries facing significant challenges in terms of coverage to fully meet regulation requirements.20 It also underlines the fact that implementation of a TSA not only requires legal support; it also calls for a series of complementary operational and political measures to be effective.

Sector and institutional coverage of the TSA

The situation is noticeably heterogeneous regarding institutional coverage, with plenty of room to enhance coverage in most countries. Only Brazil, Colombia, and Costa Rica have implemented a TSA throughout central government, including the judicial and legislative branches (Table 4.3).21

Table 4.3Subsectors and Types OF Entities not Included in a TSA
CountryMinistriesJudiciaryLegislatureSocial securityDecentralized entityAutonomous entityUniversitiesElectoral CommissionOthers
Argentina(a)
Bolivia(b)
Brazil
Chile(c)
Colombia(d)(d)(d)
Costa RicaIP(d)IPIP
Dominican Republic(l)
EcuadorRG(e)
El SalvadorIP
Guatemala
HondurasIPIPIP(f)
Mexico(g)
NicaraguaIP(h)
PanamaIP
ParaguayIPRGIP
PeruIP(j)(i)
Uruguay(k)
Subsector or type of entity not included in the TSA
Subsector or type of entity included in the TSA
Source: Authors’ elaboration.RG = Indicates that the resources from general revenues are not included in the TSA.IP = Indicates that only the independent revenue of the respective group of entities is not included in the TSA.The notes in parentheses refer to other entities not listed under separate columns that are not included in the TSA, such as (a) fiduciary funds; (b) healthcare agencies; (c) entities with independent revenue; (d) entities obliged to invest their cash surpluses in government securities; (e) Comptroller-General; (f) Public Ministry, Supreme Audit Institution, Public Security Secretariat (Secretaría de Seguridad), Presidency; (g) National Institute of Statistics and Geography (Instituto Nacional de Estadística y Geografía (INEGI)), economic and salary provisions, federal contributions for federative and municipal entities (Aportaciones Federales oara Entidades Federativas y Municipios); (h) electoral commission; (i) trusts, donations, external and internal project loans, and revenue directly collected by local governments; (j) ESSALUD; (k) revenue of the State Health Service Administration (Admmistración de los Servicios de Salud del Estado (ASSE)); (I) Electoral Commission (Junta Central Electoral), Supreme Electoral Court (Tribunal Superior Electoral), transfers to decentralized institutions (including social security and universities) and municipal councils, Attorney General’s Office (Procuraduría General de la República), and Chamber of Accounts (Cámara de Cuentas).

In 6 countries (El Salvador, Honduras, Nicaragua, Panama, Paraguay, Peru), the own-source revenues directly collected by ministries are excluded from the TSA.22 Financial resources of the judiciary are not included in 9 countries (partially included in Paraguay), and the resources of the legislature are excluded in 10 (partially excluded in Paraguay).

In Mexico, the TSA only applies to the executive branch, although within that area there are the following exceptions with budgetary and management autonomy: autonomous branches (public independent organizations); the National Institute of Statistics and Geography (Instituto Nacional de Estadística y Geografía (INEGI)); social security contributions; economic and salary provisions, and Federal Contributions for Federative and Municipal Entities (Aportaciones Federales para Entidades Federativas y Municipios). These exceptions represent a significant percentage of the budget, whereas the legislature’s and the judiciary’s share of the total budget is only 2 percent.

Proposals have been frequent to exclude the legislative and judicial branches from the TSA, based on the principle of independence. It is important to highlight, however, that incorporating any entity into the TSA does not imply a loss of autonomy in terms of spending decisions, which should be emphasized when the TSA is being set up. Moreover, neither the legislature nor the judiciary has the institutional capacity and the technical know-how for good treasury management. Therefore, costs and efforts would be duplicated without achieving benefit. In the countries that have yet to incorporate the legislative and judicial powers into the TSA, resources are usually transferred to bank accounts in the name of the respective branch (or power). These accounts are used as payment accounts, and they often involve idle balances; even if the balances are invested by these powers in the commercial banking sector, the treasury does not receive the interest on them and the choice of bank does not generally reflect an analysis of the risk it may represent.

The distinction between cash and budgetary autonomy is essential regarding the legislature and the judiciary, as well as vis-á-vis autonomous and decentralized entities. The legal power to spend is not represented by the fact that these entities and powers maintain cash in their accounts or have independent revenues. Modern legislation should allow the central management of resources without detriment to budgetary independence. Legal financial management frameworks should include rules that protect these entities from the potential risks of government action that may affect their capacity to execute budgets efficiently and effectively. Moreover, government accounting systems are able to clearly distinguish between the independent revenues of these entities and the resources received from the government.

Regarding decentralized nonbusiness institutions, in only Argentina, Bolivia, and Brazil have resources been fully included in the TSA. In Colombia and Costa Rica,23 legal arrangements oblige certain subsectors not included in the TSA to invest their cash surpluses in government securities—another way of ensuring that the treasury manages these resources—although this way of achieving a wider coverage entails the payment of interest by the treasury. In Latin America, decentralized entities are legally independent bodies, generally created to be the executive arm of government, and a majority of them are financed entirely—or almost entirely—from the budget. In this case, their resources should be included in the TSA.

Furthermore, only Honduras includes revenues from public nonfinancial corporations, albeit on a partial basis. If public nonfinancial corporations are noncommercially oriented—that is, they do not sell products in the market, follow government policies, and depend to a large degree on transfers from the budget—they are considered enterprises in name only but not in practice. Consequently, they should be classified as part of the government sector and be incorporated into the TSA. Regarding decentralized nonbusiness entities and public enterprises, it is worth highlighting that the nature of an entity’s activity (governmental versus commercial), rather than its legal status, should be the deciding factor for inclusion in the TSA.

Regarding social security institutions, revenues are not included in the TSA in 12 countries (Table 4.3) and in 2 others, a proportion of their revenue is not included. In Bolivia, Brazil, and Colombia, social security revenues are included in the TSA—a logical inclusion for resources that derive from defined-benefit pension plans (or pay-as-you-go plans), whereby pensions are financed primarily with resources from the budget. Capitalization-based pension plans (with fixed contributions), where the reserves are invested in medium- and long-term securities (and benefits are fully funded), are usually managed by private pension funds and their resources should not be included in the TSA. Most countries in the region still maintain pay-as-you-go schemes managed outside the TSA, a decision justified by the financial autonomy that the law bestows on the managing institutions. This is not to ignore the fact that in either of the two situations, a significant part of the reserves (which, in any defined-benefit scheme, tend to be very limited) is channeled to the national treasury by way of investing in government Tbonds, since it is up to the institution responsible for administrating the resources to decide on the composition of the investment portfolio, according to the policies set by the appropriate authority. The government, however, should not compel social security institutions to buy bonds nor permit them to do so at below-market rates.

Finally, only Costa Rica, Panama, and Peru include municipality resources in their TSA,24 specifically those central government funds that are transferred to local governments. The resources are credited to the local government, while the treasury processes the payment orders forwarded by the account holder. In this way, the coverage of the TSA partially extends to public institutions excluded on the grounds of autonomy—often the case with provinces, departments, or municipalities. To follow this course of action would be a means by which the management of intergovernmental transfers, through the TSA, could influence subnational governments to include other resources—such as those generated or directly collected by these levels of government—in the TSA.25 It appears to be considerably easier for the treasury to manage these resources through the TSA in countries where the own resources of a few subnational governments represent a large share of total subnational own resources. In certain countries, intergovernmental transfers are made periodically (usually every 10 days, once a month, or every two months), and the resources remain in the TSA until they are distributed. In a few other countries, transfers have conditions attached (e.g., for public investment purposes) and remain in the TSA longer because of delays in execution.

There is still a long way to go in terms of coverage, although progress to date has been encouraging. The scope of the TSA in seven countries has increased over the last three years in such a way that the following are now included: (i) in Argentina, the accounts of six entities (Agencia de Administración de Bienes del Estado, Consejo Nacional de Coordinación de Políticas Sociales, Defensoría del Público de Servicios de Comunicación Audiovisual, Unidad de Información Financiera, Centro Internacional para la Promoción de los Derechos Humanos, and Junta de Investigación de Accidentes de Aviacion Civil); (ii) in Mexico, pensions and payments of certain social programs, as well as tax rebates; (iii) in Peru, resources collected by the national and regional executive units; funds earmarked for universities (through transfers); revenue from the Municipal Compensation Fund (Fondo de Compensación Municipal); Contributions to Funds of the Office of Pension Normalization (Contribuciones a Fondos de la Oficina de Normalización Previsional (ONP)); and disbursements from international organizations; (iv) in Bolivia, the judiciary and entities that were not previously connected to the Integrated Management and Administrative Modernization System (Sistema Integrado de Gestión y Modernización Administrativa (SIGMA)); (v) in Guatemala, loans and donations; (vi) in the Dominican Republic, resources directly collected by central government entities and those of public hospitals (in process); and (vii) in Uruguay, the State Health Service Administration (Administración de los Servicios de Salud del Estado (ASSE)), which is under negotiation.

To further enhance the scope of TSA, it is essential to use persuasion to convince decentralized or autonomous institutions to consolidate their resources in the TSA (including the savings gained on interest payments as a result of improved expenditure controls) so as to gain such benefits as (i) operational facilities for revenue collection and spending; (ii) expenditure autonomy; (iii) elimination of financial management experts, systems, and controls; and (iv) a more developed and better maintained automated system than that in each entity. While interest should not be transferred to budgetary resources, it is possible for the revenue of these entities to be calculated at the same rates that the treasury uses for its own financial investments. These rates tend to be higher than those of the market since their transaction volume is much lower. The last measure may entice entities to accept the TSA in the view that their revenues will not be affected as a result of the inability to make their own financial investments.

Brazil, in only one year, was able to establish a comprehensive TSA, validating that technical or financial conditions do not limit implementation (see more details in the Annex). Resistance is often of a political nature and can only be overcome by firm commitment to reform from the highest authorities, up to and including the Presidential Cabinet.

Coverage according to type of funds

To analyze coverage according to type of fund or revenue source, this study identifies three categories: tax revenues, external loans, and donations. Although 12 countries now include tax revenues in the TSA, 5 have yet to fully do so—an extremely important objective to achieve substantial improvement in TSA coverage. This is mainly as a result of certain earmarked taxes and tariffs being managed beyond the scope of the TSA, a decision based on the legal arrangements that created the revenues. These arrangements originated from the false premise that to guarantee revenue for a specific purpose, it should be managed outside the TSA (an exception to the principle of fungibility or unified cash management).

Only four countries (Bolivia, Costa Rica, Ecuador, Mexico) have successfully included external credits in their TSAs based on the conditions creditors usually impose on such resources.26 Likewise, hardly any country has included revenue from donations, with the exception of Guatemala, although Costa Rica is in the process of doing so. Lenders and donors often request that resources be held in separate accounts because of concerns of fiduciary risk. They may relax this requirement once cash management practices have improved in such a way as to guarantee the availability of funds for projects or other allocations, improve expenditure controls, and strengthen transparency and accountability through better communications, auditing, and external oversight. Improvements in budget execution and internal monitoring by institutions will assure lenders and donors that fiduciary risks have been adequately addressed. Nevertheless, lenders and donors need to be convinced that procedures are in place to ensure that funding is available for projects (or other uses) when needed.

Bank accounts beyond TSA control

Partial coverage of the TSA is reflected in the significant number of public bank accounts that remain beyond the scope of the treasury, either at the central bank, the public commercial bank that operates the TSA, or in private commercial banks (Table 4.4). In Peru, where nearly 14,000 accounts remain outside the control of the TSA, these correspond mainly to accounts opened before TSA implementation and to operations that involve financial transfers to national sanitation and social programs, many of whose accounts are dormant. In the Dominican Republic, bank accounts beyond the scope of the TSA represent 92 percent of total public accounts.

Table 4.4Bank Accounts Beyond Treasury Control
CountryBank accounts with public resources beyond treasury control (at the central bank or in public or private commercial banks)
Argentina2,267 (social security, legislature, judiciary, universities, tax agency, etc.)
BoliviaAccounts belonging to public universities
BrazilTrust fund accounts in public commercial banks and resources from external credit
ChileUnavailable
Colombia300 (in commercial banks)
Costa RicaUnder 30, although some are authorized by the national Treasury
Dominican Republic3,264 accounts (2,640 held by the central government, 468 by decentralized public institutions, 156 by social security institutions)
EcuadorDecentralized, autonomous governments: 4,400; social security: 182
El SalvadorAccounts held by decentralized institutions (58 entities), receiving funding from the State
GuatemalaUnavailable
HondurasAt least one account per institution (there are at least 25 institutions)
Mexico324 trust funds
NicaraguaUnavailable
PanamaUnavailable (implementation of the TSA currently underway)
ParaguayApproximately 50 (universities, decentralized entities)
Peru14,000 accounts held at the National Bank (Banco de la Nación) (accounts containing revenues from the municipalities; transfers of funds between national government entities and subnational governments; deposits for works guarantees; and economic intervention)
Uruguay1,780 (central bank, 113; commercial bank, 1,667)
Source: Authors’ elaboration.

Fungibility of Resources

The level of access to or the possibility of unified management (degree of fungibility) by the treasury in terms of institutional resources is critical to the design of a TSA. A country may have a centralized TSA structure, but have very little or no capacity to use the available resources of the various entities. An ideal model would provide the treasury unrestricted freedom to manage funds in the TSA that are not required by account holders, and only to comply with the cash plan agreed with the holder. There may be situations, however, in which the use of resources is restricted as a result of a previous arrangement or owing to regulatory obligations. This would apply, for example, when resources are legally earmarked for specific purposes or when revenues are collected by institutions, making them inaccessible. Another scenario would be where a developed structure consolidates resources through book entries or “virtual accounts” (bank books or sub-accounts) with no provision for the treasury to use the entry balances, thus placing it in a position of having to borrow despite the resources it holds.

The treasury has full access to resources in only few cases: Brazil, Costa Rica, and Ecuador. Limitations on short-term use of government resources by the treasury exist in 12 countries,27 mainly because of the legal arrangements that restrict treasury discretion to use earmarked or external resources. This, however, reflects confusion between the budget principle of not earmarking resources and the principle of cash unity or fungibility, given that the short-term use of resources is not considered detrimental to their specific purpose if the treasury is to guarantee the availability of such resources.

The regulations of Honduras and Nicaragua do not limit the principle of unity or fungibility of cash although, given the limitations of the conceptual model, the ICT developments for managing book-entry accounts have lacked foresight of a mechanism to record the short-term use of resources without reducing book-entry balances.28 In certain countries, the term for using resources is restricted to the current budget period to ensure that resources are replaced before the end of the budget term, thus limiting financial efficiency.

In addition, a key aspect that relates to cash fungibility is the existence of funds whose resources must be managed separately, thus fragmenting the management of cash. A common practice in various Latin American countries is to establish funds to guarantee resources for specific purposes or to manage them, thus avoiding controls that other fiscal resources are subject to. Some of these funds are made up of fiscal resources, some of nonfiscal resources, and others are made up of mixed resources.

To determine the treasury’s role in managing these funds, the time by which they should be used requires consideration. There must be a distinction between special and sovereign funds, the latter of which include stabilization, savings, investment, and pension funds, among others. In this chapter, a special fund—generally extrabudgetary—is one that has earmarked budget resources and follows specific policy objectives. The term for managing these funds is often shorter and they can be managed (partially or entirely) jointly with other cash resources. Therefore, the treasuries in Latin America usually hold these resources, together with other cash resources but not necessarily in a unified way.

Sovereign funds are funds or investment entities that are owned by or belong to the state. They are normally invested in financial or real assets (e.g., bonds, shares, real estate, precious metals, private equity funds, covered bond funds) and, to a large extent, in the external market. Generally, they are set up in response to macroeconomic conditions (i.e., fiscal stabilization) or for savings for future generations. These funds, also usually extrabudgetary, are created with resources that derive from fiscal surpluses, natural resource exports, and/or revenues as a result of privatization, among others.

Sovereign funds exclude international reserves and public employee pension funds that are financed by contributions from employers and employees. Stabilization funds follow macroeconomic objectives, and their resources are invested over the medium term, although a percentage may be invested over a shorter period. Finally, pension funds and savings—or investment funds—are invested over the long term with specific objectives (e.g., saving part of the investment revenues from natural resources for future generations). These require more specialized management and must be considered in the government’s asset and liability management strategy. Their resources must be invested in a long-term portfolio. The above explains why these funds are usually managed by a specialized body, and why their investment portfolio may be entrusted to private sector investment firms (or banks).

One of the most significant challenges facing the efficient management of TSAs in Latin America, besides limited coverage, is the proliferation of special funds. Eight countries (Argentina, Chile, Colombia, Costa Rica, the Dominican Republic, Guatemala, Mexico, Uruguay) manage such funds, including guaranteed funds from international organizations (e.g., United Nations), other donors, and third parties as well as those for education, promotion of regional and local public investment (in this case, various countries), and maintenance.29,30 Some funds are managed jointly with TSA funds and others are managed separately. In countries where they are managed jointly within the treasury, their recording (accounting) and custody are separate.

In some countries, the law that allows the establishment of these special funds stipulates the manner in which they should be invested. In Colombia, they are managed according to the investment policies set by law, coinciding with policies that have been established for national government resources. For instance, certain funds whose management has been entrusted to the Colombian Treasury (e.g., communications, civil aeronautics, transportation, revolving funds) must place up to 100 percent of the quarterly average of the available cash balance into public debt securities. Several of these funds include the pensions of liquidated institutions or staff on early retirement, and the Treasury must therefore ensure that deposits are kept liquid. The Treasury may borrow these funds to cover temporary cash needs. In Argentina and Uruguay, funds also can be loaned to the government, and in Uruguay they are integrally managed with the resources of the Treasury.

Trust funds are often used in the region and, occasionally, their creation is associated with the management of special funds, although in other cases they arise as a result of the independent decision of a public entity. Trust funds are used for public resource management in 14 of 17 countries,31 although of the 14, only two have integrated trust funds into their TSAs (Costa Rica and Ecuador).32 This indicates that trust funds are used to manage public resources with the flexibility offered by the private sector and the process, in most cases, remains outside the TSA.33

Costa Rica and Ecuador have managed to include their trust funds in their TSAs, demonstrating that this is not incompatible with the principle of unity of cash (or fungibility) and, at the same time, suggesting that the advantages of both mechanisms can be achieved. The use of trust funds, however, should be limited or be avoided entirely to prevent the duplication of public resource management costs that often lead to fragmented cash balances.

For the treasury, managing these funds in a unified way may yield the following benefits: (i) availability of resources for short-term financing of cash needs; (ii) guarantee of more effective management in terms of return and reduced administrative costs; and (iii) less risk to the treasury as a result of its all-encompassing view of assets and liabilities, where the treasury also manages the special funds of government entities that are financed with public resources. It is the role of the treasury to ensure that it has the operational capacity to maintain detailed records of the amounts invested on behalf of each fund and to guarantee the fungibility and ownership of resources, as well as the interest due to each one. Moreover, the treasury should have sufficiently skilled human resources to manage short- and medium-term investment portfolios.

There are currently eight sovereign funds in Latin America (Table 4.5), four of which are stabilization funds (Chile, Colombia, Mexico, Peru), one is a savings fund (Brazil), two are stabilization and savings funds (Mexico, Panama), and one is a pension fund (Chile). Stabilization funds usually have a short-term portion to be managed in a similar way to the TSA resources, with part of the resources invested, for instance, in demand deposits at the central bank. In Peru, these are managed separately, are in independent accounts in strategic portions, and are split between cash and term deposits—similar to the TSA.

Table 4.5Sovereign Funds in Latin America
CountryName of fundAssets in US$ millions*Year createdFund sources
BrazilSovereign Fund of Brazil (Fondo Soberano de Brazil)6.62008Financed by the 2008 budget surplus
ChileEconomic and Social Stabilization Fund (Fondo de Estabilización Económica y Social (FEES))15.92007The positive balance that results from subtracting the contributions to the Pension Reserve Fund (Fondo de Reserva de Pensiones (FRP)) from the fiscal surplus, plus copper revenues
ChilePension Reserves Fund (FRP)8.22006Minimum contribution of 0.2 percent of gross domestic product from the previous year, plus copper revenues
ColombiaSavings and Stabilization Fund (Fondo de Ahorro y Estabilización)2011Petroleum
Mexico**Petroleum Revenue Stabilization Fund (Fondo de Estabilización de Ingresos Petroleros (FEIP))3.52000Petroleum
Mexico**Mexican Petroleum Fund for Stabilization and Development (Fondo Mexicano del Petróleo para la Estabilización y el Desarrollo)N/A2014Petroleum
PanamaPanama Savings Fund (Fondo de Ahorro de Panamá)1.32012Trust Fund for the Development of Panama and the Panama Canal Authority
PeruFiscal Stabilization Fund (Fondo de Estabilización Fiscal)9.11999Budgetary balance from ordinary resources, percentage of sales of assets, plus concessions
Sources: ESADE, KPMG, and Invest in Spain (2014); laws that establish funds and relate to fund management reports.Note: N/A = Not available.

Figures from 2014.

Mexico has five other funds classified as budgetary stabilization funds (as well as FEIP): Federal Entities Revenue Stabilization Fund (Fondo de Estabilización de los Ingresos de las Entidades Federativas (FEIF)), Natural Disasters Fund (Fondo de Desastres Naturales), Federal Entities Reconstruction Fund (Fondo de Reconstrucción de Entidades Federativas), Infrastructure and Security Support Fund (Fondo de Apoyo para Infraestructura y Seguridad), and Mexican Petroleum Infrastructure Investment Stabilization Fund (Fondo de Estabilización para la Inversión en Infraestructura de Petróleos Mexicanos). The FEIF and the Natural Disasters Fund have significant balances. All are considered to be special funds, although FEIF can be classified as a sovereign fund. The latter also transfers resources to the stabilization fund and other funds.

The conditions under which pension funds should be included in a TSA have been mentioned above. Savings or investment funds, however, usually have a long-term horizon and do not fall within the cash management function; rather, they are managed based on medium- and long-term public investment policy, independent from the adopted TSA model. These funds are usually managed by autonomous bodies rather than the treasury and, in a few cases, by the central bank. Nevertheless, the Ministry of Finance is a key actor in defining their investment policy, with ministry representatives frequently on the executive boards of these fund agencies.

Stabilization or savings funds need to be invested overseas or a small portion should remain at the central bank to avoid the negative effects of inflation and real exchange rates. This scenario is referred to in the economic literature as “Dutch disease.”

Operational Aspects: Revenue Collection, Payments, Account Reconciliation, and Accounting Register

This section provides an analysis of the operational characteristics of a TSA that identifies the most efficient mechanisms for four critical processes that relate to cash management; namely, the collection of revenues, payments, account reconciliation, and accounting registration. Best practices in these areas will ensure greater TSA benefits. Also examined are the ways in which an IFMIS has supported or may support such processes.

The application of mechanisms, such as electronic fund transfers, direct debits, or payment schemes using a real-time gross settlement (RTGS) system are, to a large degree, conditioned by the degree of national payments system development in the different countries of the region. External conditions, therefore, may be a factor in the differences detected between countries, rather than a lack of interest by the treasuries in making these processes more efficient.

Tax revenue collection

In addition to a review of tax and tariff collections of resources belonging to the central government, this section examines own-source revenues of institutions within the sphere of the TSA. Usually, these entities set their own collection mechanisms—in many cases, by instituting physical cashiers within the entity itself—and do not transfer their revenues to the TSA. In some countries, the own-source revenues of government entities, such as ministries and separate institutions, are not included in the TSA.

The revenue collection processes of Latin American countries vary based on the characteristics of each country (i.e., size, infrastructure, degree of banking penetration). In Brazil, revenues are collected by more than 100 public and private banks and transferred directly to the TSA held at the central bank through the mechanisms of a national payments system. In Bolivia and Mexico, the treasuries have a revenue collection account in each collecting bank, which transfers the amounts directly to the TSA at the end of each day. In Peru, the collection process is carried out through a network of state and private banks, whereby transfers are made to the appropriate subaccount at the Bank of the Nation (Banco de la Nación)—a public bank with limited commercial activities—as indicated by the tax and customs agencies. A significant portion of the revenues is then automatically transferred daily to the TSA at the central bank (only a cash reserve is left at the Bank of the Nation). In Argentina, all entities whose resources are included in the TSA can maintain a revenue collection account at the Bank of the Argentine Nation (Banco de la Nación Argentina)—the public commercial bank that holds the TSA—under each revenue concept and source of financing. Each day, the revenues collected are transferred automatically to the TSA at that bank.

In many countries, tax collection agencies have become more autonomous, with the right to negotiate the terms of banking services (number of days of float or fees). The treasury participates in these negotiations in only eight countries (Bolivia, Chile, Costa Rica, El Salvador, Honduras, Mexico, Nicaragua, Uruguay), which is especially important to ensure rapid transfer of funds to the TSA. In other countries, it is the central bank, other banks, or the tax agency that determines or negotiates the conditions.

In most countries, revenues are first deposited in bank accounts held by the collection agencies before transfer to the TSA. Furthermore, revenue collection bank accounts that are not zero-balanced are used in 12 countries, reflecting a need for more efficient revenue collection mechanisms. Their balances are transferred to the TSA with some delay, thus increasing the float and collection costs for the government. Revenues should be deposited directly into the TSA as quickly as possible, and the RTGS system is, without doubt, the ideal channel for their transfer.34

Even though 14 countries remunerate the collection services (including the transfer of resources to the TSA) provided by commercial banks based on a fee per transaction (Table 4.6.), in only five countries (Argentina, Bolivia, Brazil, Mexico, Costa Rica) is this procedure the predominant form. In most countries where banks are remunerated by days in which resources are held (i.e., the number of days resources can be used by commercial banks without additional cost), this is the most common form of remuneration.

Table 4.6Method of Remuneration of Banks for Revenue Collection Services
CountryPercent of revenue collectedDays of floatTransaction charges
ArgentinaXX
BoliviaX
BrazilX
ChileX
ColombiaX
Costa Rica*XX
Dominican RepublicXX
EcuadorXX
El SalvadorXX
GuatemalaXXX
HondurasXXX
MexicoX
NicaraguaX
PanamaXXX
ParaguayXX
PeruXX
UruguayXXX
Total51314
Source: Authors’ elaboration.

All revenues collected by Costa Rica’s Customs are covered by transaction charges, as well as a high percentage of internal taxes. Lesser tariffs have remuneration schemes for revenue colection based on days of float.

As Table 4.7 shows, the fiscal revenues of 11 countries remain in commercial banks from one to three days, and in 2 countries for four or more days. Over the last five years, 4 countries have managed to reduce the number of float days.

Table 4.7Number of Days Fiscal Revenues are Retained by Commercial Banks Before Transfer to a TSA
RemunerationDurationCountry
Number of days that fiscal revenues are retained in commercial banks0 daysBolivia, Costa Rica (80 percent of revenues), Mexico, Paraguay, and Uruguay
Between 1 and 3 daysArgentina, Brazil, Chile, Costa Rica (20 percent of revenues), Dominican Republic, Ecuador, El Salvador, Honduras, Mexico, Panama, and Peru
Between 4 and 5 daysGuatemala
≥ 5 daysColombia
Recent reduction in number of float days1 dayDominican Republic, El Salvador, and Peru
Source: Authors’ elaboration.

In all countries, taxes can be paid by cash or by check, which are the traditional payment mechanisms. Direct debits are less common and payment by credit card is even rarer (Figure 4.3). Argentina, Costa Rica, Mexico, and Peru make use of direct debits—a mechanism where, from the tax return submitted to the tax administration agency, an electronic transaction is created that translates into a direct debit into the taxpayer’s previously registered account.35,36 This automatic mechanism is undoubtedly more efficient, although it requires that the electronic payments system has the means of information technology (IT) required for this operation. In addition, nine countries have implemented the use of credit cards for tax payments, which makes it easier for the taxpayer to comply with tax obligations; it is a method that will no doubt become more popular.37

Figure 4.3Payment Mechanisms for Taxes Paid, According to Percentages of Countries Using them

Source: Authors’ elaboration.

Using banks and financial institutions as auxiliary cashiers for revenue collection is common throughout Latin America, although five countries (the Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua) combine them with revenue collection offices of the tax administration (i.e., civil servants who receive over-the-counter payments or payments through specially designed payment boxes). El Salvador, for instance, collects nearly 12 percent of its revenues with a mechanism known as direct management (gestión directa) through collection offices of the Treasury Directorate-General (Colecturías de la Dirección General de Tesoreria) and Institutional Auxiliary Revenue Collection offices (Colecturías Auxiliares Institucionales) staffed by civil servants responsible for the collection, liquidation, custody, and deposit of funds. In Nicaragua, the revenue collection process through banks is now underway, although the tax administration continues to rely on collecting offices (colecturías).

Electronic methods to prepare and submit tax returns and pay taxes are available in all Latin American countries, especially for large taxpayers. There is a dearth of information, however, regarding the relative share of these methods in terms of total revenue collection, although Brazil and Costa Rica have established that tax returns can only be submitted online. The experience of Chile’s National Treasury (Tesorería General de Chile), which introduced the concept of a tax portal for paying contributions via Internet to any public entity within the scope of the TSA, is compelling. This experience can certainly be a reference point, in particular regarding the reduction in costs and the economies of scale that can be achieved through these methods.

Government payment methods

As Figure 4.4 indicates, the use of checks for some payments (including payments for special circumstances) in the region is high, at 82.4 percent, while electronic payments to bank accounts are also very common (used in all countries). Much progress has been achieved in the use of electronic deposits: 12 countries (Bolivia, Chile, Colombia, Costa Rica, the Dominican Republic, Ecuador, El Salvador, Guatemala, Honduras, Mexico, Paraguay, Uruguay) have informed electronic payments to exceed 90 percent of expenditures; in Colombia, Costa Rica, Ecuador, and Guatemala, this is the general mode of payment, while in the Dominican Republic it represents 99.2 percent of all operations. Electronic payments in Argentina represent 99 percent of all payments made in the local currency. Less progress is seen in other countries, although the commitment to increase the use of electronic payments continues.

Figure 4.4Government Payment Methods (As a Percentage of Countries Using Each Method)

Source: Authors’ elaboration.

Direct payment by electronic means to a beneficiary reduces treasury costs and minimizes the risk of intervention by intermediaries along the payment chain. The electronic payment of salaries in Mexico has been estimated to save the federal government an annual amount of Mex$5 billion, while electronic pension payments have generated a savings of Mex$11.5 billion (Babatz, 2013).

Although eliminating checks entirely remains a challenge for most countries, payment by check in many of them represents a very small percentage of total payments. Promissory notes continue as a payment instrument made in person, as do transfers between the subaccounts of a TSA or ledger.

From a total of 12 countries that identified the main challenges that hamper the introduction of electronic payments, 5 have stated issues of a technological nature (Bolivia, El Salvador, Nicaragua, Peru, Uruguay), such as failure to integrate the procurement system with the financial management system; 3 countries (Bolivia, the Dominican Republic, Ecuador) experience difficulties arising from their communications infrastructure (e.g., poor signal reception in some areas); 2 countries have problems associated with the low level of penetration of banking services (the Dominican Republic, Nicaragua); Panama lacks coordination among the relevant parties; and Mexico faces resistance from some payees (unions).

Only in Panama, Paraguay, and Peru are payments by electronic transfer between subaccounts or ledgers of the TSA yet to be implemented, a mechanism especially practical for paying taxes to the treasury or for inter-institutional transfers. Payments or transfers in other countries between entities included in the TSA are carried by accounting records that exclude the physical transfer of funds—a significant benefit of a TSA. To transfer tax payments between subaccounts, the IFMIS notifies when tax has been paid and submits it to the tax collection agency as if it were a bank.

Nearly all countries have discretionary funds as petty cash or minimum expenditure accounts (i.e., revolving funds) for urgent or minimal payments. Only Brazil, Costa Rica, and Ecuador manage without revolving funds.38,39 Revolving funds are an exception to the principle of unity of cash and their elimination is potentially challenging. They involve bank accounts managed beyond the scope of a TSA and, frequently, the use of checks for payments. Some countries are replacing revolving funds with debit cards, a payment method that is swifter than electronic payment, since electronic payments require prior registration in the IFMIS, as well as a processing period, which make it unsuitable for small payments.

Accounting record of resources deposited in the TSA

Countries within the region vary significantly regarding their accounting of the resources deposited in the TSA (based on information obtained from 15 of the 17 countries). Although the use of subaccounts or book-entry accounting (“virtual accounts”) for managing deposits is more common, the way in which these resources are treated is not consistent from an accrual accounting perspective.

In Brazil and Chile, the resources that correspond to the revenues of other accounting entities are simply recorded as revenue (budgetary revenue in Brazil and nonbudget revenue in Chile), although they are not reflected in the accruals accounts of the beneficiaries.40 They are recorded and treated as a liability in Argentina, Colombia, Costa Rica, Ecuador, El Salvador, Mexico, and Peru—a liability that increases when funds are deposited and decreases at the time of withdrawal or when payments are made with the backing of these resources. As Figure 4.5 illustrates, the most common approach is to record revenues as a liability (41 percent) and to record them solely as book entries (35 percent) which, in this case, are considered auxiliary accounting records. The liability approach is not only more rigorous; it also increases the willingness of the owning entity to deposit the revenues, since it resembles the approach to resources in a bank account as the ownership of revenues is respected.

Figure 4.5Accounting Treatment of Resources in the TSA

Source: Authors’ elaboration.

Note: N/A = Not available.

The role of IFMIS in supporting collection, payment, and accounting processes

PFM requires the execution of a combination of macrobusiness processes, which include (i) budget preparation and execution; (ii) revenue management; (iii) cash planning; (iv) payments management; (v) debt management; and (vi) accounting. The use of ICT simplifies and automates operational processes, thereby substantially improving management throughout the various areas of activity of an organization. Benefits include the elimination of manual processes, reduction of errors and time taken to process operations, and development of an extensive database that has the potential to generate information for decision making at operational and strategic levels.

An IFMIS is an IT tool that has been developed to support the execution of core PFM activities. In addition, an IFMIS interfaces with other management systems (e.g., personnel, goods and services, procurement) and with other government entities’ systems to exchange information more efficiently. More detail of the role of IFMIS in Latin America is available in Chapter 8.

Analysis of the different automated systems that have been adopted in Latin America indicates that no particular system is predominant in supporting the activities of government in the execution of various processes. In some cases, the IFMIS is a system of integrated modules, while in others, various systems operate different processes. No country has one automated system that supports all the processes involved in PFM. In general, the various systems provide support for the execution of the budget, cash management, and accounting.

Chile, Ecuador, and Honduras still lack a TSA management information system or a module for fully centralized cash management. The following section presents the main elements and functionalities of the TSA that have been incorporated into the IFMIS in Latin American countries.

Revenue collection

In general, tax collection in all countries is administered by one or a handful of government entities. These entities usually have their own mechanisms and operational agreements with the financial system, which are not included in the IFMIS. To provide more efficient collection services to benefit both taxpayers and the government, tax administrations in most of the region use the computerized services of the banking system. Customs and tax collection agencies do not usually deal with all the revenues that the government receives, especially in relation to nontax revenues. There are cases in which a large number of government entities manage the collection of their own-source revenues. Provided through the IFMIS, a module for the different stages of revenue management (e.g., assessment, collection, classification, accounting) could increase efficiency in these processes. Only in Argentina does the IFMIS currently have the functionalities for this purpose. In Argentina, Brazil, Guatemala, and Mexico, IFMIS development has standardized bank documents for revenue collection (Figure 4.6).

Figure 4.6Number of Countries Using Banking Process Mechanisms

Source: Authors’ elaboration.

Payments

The IFMIS can provide mechanisms for payments charged against different types of accounts, including book entry accounts. IFMIS mechanisms in countries, according to the types of accounts that can be debited for payment, are characterized as follows:

  • In eight countries (Argentina, Brazil, Costa Rica, El Salvador, Guatemala, Mexico, Nicaragua, Peru), the IFMIS is able to process payment by charging directly to its own book-entry accounts.

  • In three countries (Argentina, Bolivia, Colombia), payments also can be processed through the IFMIS for resources held in accounts or subaccounts included in the TSA.

  • Another model, adopted only in Peru, provides a method for processing payments through the IFMIS by charging to a bank account outside of the TSA, using the same functionality as the IFMIS for the TSA. It includes bank drafts (giros bancarios) and the issuance of payment documents, and provides interconnection with the banking network.

  • In the four countries in which the systems lack a TSA management module (Chile, Ecuador, Honduras, Panama), payment operations continue to be conducted manually by issuing checks and other payment documents.

  • In the Dominican Republic, where the TSA is not yet fully implemented, payments cannot be made through the IFMIS but through bank accounts.

Regarding the operational facilities the IFMIS can provide, the following methods are worth highlighting:

  • In five countries (Argentina, Brazil, Colombia, Mexico, Peru), electronic payments are permitted through the Banking Payment System (Sistema Bancario de Pagos) which enables direct transfers to accounts in any bank without intervention from the government general cashier bank.

  • In eight countries (Argentina, Brazil, Colombia, Costa Rica, the Dominican Republic, Guatemala, Honduras, Nicaragua), transfers or payments between any units included in the TSA can be executed without a bank procedure.

Accounting Records

Good financial management requires comprehensive information relating to all financial assets and liabilities of government, as well as the availability of data according to accounting best practice standards. Many governments, nevertheless, produce accounting information that is out of date and focuses only on budgetary execution. Treasurers, therefore, have to depend on data supplied by banks, rather than from their own systems, thus preventing them from ascertaining the amounts held in accounts outside treasury control.

Two important aspects must be considered when using accounting information for financial management:

  • The treasury must not rely only on information supplied by banks. It should ensure that all government entities record the movements charged to their accounts on a daily basis.

  • Although administrative systems, other than the IFMIS, can provide the necessary data for treasury management, only accounting practices and standards can guarantee the quality of the information. Treasuries must, therefore, focus on the quality of accounting.

Managing the TSA on the basis of accounting information implies that supervision (control) of the book-entry accounts or subaccounts is integrated in the IFMIS and in accrual accounting (being in IFMIS is not necessarily a full and adequate reflection of the accrual accounts). Failure to integrate accounting data can affect the quality of accounting records and due reconciliation. An IFMIS can provide all the information necessary for financial management. However, standardized accounting practices, including reconciliation, double entry, and regular auditing mechanisms can offer information of a better quality, particularly if it is opportune. When the TSA system is a separate system from the IFMIS (i.e., when it is a different administrative system), account reconciliation requires an interface between them. The absence of interfaces would require frequent manual and a posteriori account reconciliation.

Only a few countries manage their TSA on the basis of accounting information, with most recording information in an administrative system, separate from the accounting processes. In Brazil, the IFMIS is the accounting system wherein transactions are made and reconciled every day and whereby the Treasury can have at its disposal information it requires regarding the account balances of government entities. In Argentina, the recording of accounting entries and reconciliation is automatic, so quality data is provided through the IFMIS for treasury management. The system developed in Guatemala is similar to that of Brazil, although it is being upgraded to ensure greater financial efficiency and comprehensive accounting control of TSA transactions.

The Treasury management model in Mexico is an automated accounting record mechanism, although the Treasury continues to operate various nonintegrated computerized systems for management.41 Daily cash management is conducted jointly with the Central Bank of Mexico. The process consists of preparing a liquidity report that details the amounts held in bank accounts and in the TSA, based on information obtained from the banks.

Other countries use administrative rather than accounting systems for financial management, such as Peru; that is, the IFMIS or another administrative system operated by the TSA will record the TSA balance—and sometimes of other accounts—using single-entry rather than double-entry bookkeeping. Some countries do not yet have such a system in place.

The most common approach is the recording as a liability or book-entry account recording which, for this purpose, is considered auxiliary accounting. As mentioned above, the liability approach is more rigorous and motivates the owning entity to deposit its resources in much the same way as in a bank account deposit, whereby ownership is maintained.

Mechanisms that classify funds according to various concepts (e.g., type of tax, revenue source, earmarked expenditures, independent entity revenue) are essential to financial management. In many instances, institutions often resort to opening accounts to gather the information required when the IFMIS is unable to monitor revenues and payments in detail, including those of the treasury. Given the advances in technology, this does not qualify as an efficient procedure. In fact, to eliminate accounts and to provide information through IFMIS records not only contributes to the effective unification of cash resources; it propitiates the elimination (or simplification) of many activities, such as transfers between accounts and account reconciliation, thus improving the operational efficiency of public management. In the more sophisticated systems, the IFMIS provides book-entry account details, which can be reflected in ledger (accounting) accounts or in a system’s simple ledger. This degree of detail of the information allows dispensing with bank accounts and converging to a single account model.

Only in six countries of the region (Argentina, Bolivia, Brazil, Mexico, Nicaragua, Peru) does the IFMIS provide details on the resources by source and other concepts. Likewise, only six countries have mechanisms that generate automated accounting entries, based on the budget and its execution recorded in their IFMIS (Argentina, Bolivia, Brazil, Colombia, Guatemala, Mexico). Furthermore, only four countries (Argentina, Brazil, Colombia, Peru) report that they have automated reconciliation mechanisms for the TSA and only the Dominican Republic and Paraguay have adopted automated reconciliation practices for other bank accounts.

The IFMIS of countries included in this study are set up to provide timely information on the resources deposited in the TSA. Regarding funds deposited in other accounts, the systems are, in general, limited with the exception of Brazil and Guatemala where the model used enables funds in government entity accounts to be recorded in ledger accounts, regardless of whether they are included in the TSA, and where the IFMIS provides timely financial information relevant to government funds. Box 4.1 provides details of this model.

Active Treasury Management

One of the most important objectives of cash resource centralization is to make active cash management feasible to reduce government financing costs and obtain a higher return on cash surpluses. Active treasury management can be defined as a combination of strategies and processes adopted to maximize the returns from short-term cash surpluses within acceptable risk levels. The intent is to reduce idle account balances, invest surplus liquidity, and limit the operational and credit risks that threaten treasury operations. Moreover, the mismatch between cash payments and receipts should be minimized.

The treasuries of the euro area and HM Treasury of the United Kingdom generally maintain a minimum and relatively stable balance at their central banks.42,43 The remaining cash is prudently invested, based on financial market options. The minimum balance is established as a target which could be achieved by using appropriate financial instruments, such as Tbills and repos, to average out the peaks and troughs. A so-called “rough tuning” process attempts to reduce weekly or monthly fluctuations through placing Tbills, while a “fine tuning” will smooth daily balances with the use of repos. For this, markets should be operationally sophisticated and financially liquid, and governments should have the capacity to ensure realistic cash forecasts, monitor them, update them when necessary, and actively participate in the money market.

Box 4.1.IFMIS as a Ledger Account System

In at least two countries, Brazil and Guatemala, the IFMIS is a system that has been designed for the preparation of the accounts. Given that there is no administrative module for budget execution, cash management, or a TSA, the TSA system is the accounting system. There is no specific system to manage the TSA as there is in other countries. Budget execution is carried out through entries in ledger accounts. Detailed as necessary, various ledger accounts record the amount of the approved budget, the committed amount, the accrual, and the payment amount. The act of committing an expenditure, accruing it, or paying it is an accounting operation undertaken in the IFMIS that affects the corresponding ledger accounts. The same occurs with financial programming and execution (control of payment ceilings, details of sources, uses of funds, and other financial information). In Brazil, a reporting tool generates the reports for management based on accounting data on cash flows and balances.

TSA management is performed through accounting records and using accounting information. Each government entity (or budget execution unit) is an accounting unit responsible for the asset ledger account. The sum of all balances of all units is equal to the amount deposited in the TSA at the central bank.

Under this model, revenues paid into the TSA generate corresponding records and increase the balance of the collecting agency. The transfer of resources from one entity or unit to another is done through accounting entries that reduce the amount available for the transferring unit and increases the balance of the receiving unit. The same occurs when one unit pays another, as in the case of the purchase of goods by entities within the same government. Payment to a beneficiary that is not included in the TSA records a reduction in the existing balance of the TSA.

The advantage of an accounting system for financial management is that it follows the standards of control inherent to accounting, such as the double-entry system, adoption of internationally recognized rules, and the systematization of auditing.

Active management reduces the uncertainty that surrounds banking liquidity, facilitates monetary policy, and contributes to a reduction in short-term interest rate volatility. Moreover, improved cash management will assist in the development of a short-term securities market that, in turn, will enhance the management of cash surpluses (a virtuous circle).

Only a few Latin American countries have implemented such effective active cash management mechanisms. Most treasuries are still very passive in their cash management and continue simply maintaining available cash at the central bank or the public commercial bank where the TSA is located.

Remuneration of deposits held in the TSA

Interest is paid on the amounts deposited in the TSA in eight countries (Argentina, Brazil, Chile, Colombia, Ecuador, Mexico, Paraguay, and Peru), and held at the central bank in six of these. Chile, Costa Rica, and Nicaragua invest in central bank securities.

In eight countries (Bolivia, Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, and Paraguay), the treasury maintains its resources in deposits at the central bank without remuneration. In five countries (Costa Rica, the Dominican Republic, El Salvador, Guatemala, Uruguay), organic laws that govern the central banks prohibit the payment of interest on government deposits.44 The Dominican Republic’s central bank pays interest at a market rate on account balances invested by its Treasury in term deposits at terms of less than six months. Nicaragua does similarly, although term deposits are issued by the Central Bank of Nicaragua (BCN) on the basis of an annual plan approved by the Treasury’s Financial Operations Committee (Comité de Operaciones Financieras) and the Executive Board of the BCN. In Uruguay, the central bank, where the TSA is located, does not remunerate the balances at the TSA.45 Receipts and payments in Bolivia are made through banking accounts called “fiscal bank accounts”, opened in private banks, under a contract with the Central Bank of Bolivia (Banco Central de Bolivia (BCB)) to provide banking services to the government. The balances at the collection accounts are swept into the TSA at the BCB at the end of each day. For payments, the resources are transferred through the TSA to fiscal bank accounts. The balances maintained in the fiscal bank accounts face a 100 percent bank reserve when not withdrawn by beneficiaries.

The nonremuneration of deposits at the TSA in several countries, besides ignoring the opportunity cost of resources, may distort the investment decisions of the treasury and will discourage the autonomous institutions from participating in a TSA. This may also give them cause to seek legal exemption.

In cases where the central bank pays interest, the rate of remuneration is not linked to a market rate, with a few exceptions. In Colombia it is based on a projection curve of term interest rates, at the same time taking into account the money market and the fixed income securities market. In Ecuador, a dollarized economy, the central bank remunerates the deposits based on the return obtained by the investments in international assets.

In Brazil, interest is calculated according to the median rate that applies to the treasury investment portfolio at the central bank. In Mexico, remuneration is calculated on the basis of its central bank’s own target reference rate (policy rate). In Peru, however, an agreement with the Bank of the Nation (Banco de la Nación) establishes that the remuneration is determined by a discretionary rate, set periodically by the central bank’s Monetary and Exchange Operations Committee (Comité de Operaciones Monetarias y Cambiarias) which, in recent years, has been set lower than the market reference rate.

Investments in the financial market

The cash surpluses in Argentina, Costa Rica, and the Dominican Republic are invested exclusively in public banks, with Bolivia, Chile, Colombia, and Peru investing in nonpublic commercial banks. The treasury in three countries—Chile, Mexico, and Panama—carries out overnight operations, while in Chile, it operates with reverse repos also (Table 4.8).

Table 4.8Investment of Short-Term Cash Surpluses
InstrumentsCountriesNumber
Overnight investments in the inter-bank marketChile, Mexico, and Panama3
Certificates of deposit from commercial banks or other commercial bank securitiesArgentina, Bolivia, Chile, Colombia, Costa Rica, Dominican Republic, Honduras, and Peru*8
Reverse repo operationsChile1
Source: Authors’ elaboration.

Until May 2015, Peru’s Treasury did not invest in commercial banks, although municipalities and central government entities had the authority to invest their own resources in the market. In the same month, the Ministry of Economy and Finance of Peru, through and in coordination with its central bank where the funds were held, auctioned for the first time treasury resources into fixed-term deposits. The auction took into account limits on credit exposure (to reduce counterparty risk) to each participating financial entity, the legal basis of which was provided by the central bank’s Circular N° 021–2015, allowing for similar auctions for treasury resources at the Bank of the Nation.

Only one country in the region (Chile) has adopted more active cash management practices, investing some available surplus cash, including investing in the public commercial bank, which holds the TSA. Investment auctions are performed in real time at the Santiago Stock Exchange (Bolsa de Comercio de Santiago), similar to the platform used for placing bonds. Chile’s investment policy takes into consideration a risk analysis, which includes an evaluation of the eligible financial entities, and market valuations (mark-to-market) of financial instruments held in the Treasury’s domestic and international investment portfolios.

In Mexico, the investment regime was updated in 2010 to include a wider variety of investment options. Mexico’s Treasury has an investment arrangement decided by a technical committee, which prioritizes its investments, investing at the central bank, at development banks, and at the commercial banking sector in that order.

Argentina’s legal framework authorizes its Treasury to adopt a wide range of options within its investment strategy. The investments, however, are concentrated in fixed-term deposits at the BNA of Argentina for a minimum of 30 days. The regulations in the Dominican Republic authorize its Treasury to place its surplus resources in remunerated accounts, either within the country or overseas, although an active management of temporary surpluses has yet to be put into practice. In El Salvador and Uruguay, surplus liquidity is not invested.

With the exception of Chile, none of the countries auction their resources among banks. In addition, those countries that invest in deposits at commercial banks do so without requiring collateral, which exposes them to counterparty risk. However, these countries’ treasuries use other mechanisms to protect their investments from this risk. Countries investing in commercial banks preselect them according to their credit risk rating and the return they offer on investment. In Bolivia, the banks’ risk rating must be A– at minimum and, for the short term, not lower than a P-1. In Colombia, the Deputy Directorate of Risk (Subdirección de Riesgo) evaluates the issuer and counterparty risk before allocating quotas to domestic and foreign banks. The CAMELS rating system is used to assess domestic banks in terms of their capital, assets, management, earnings, and liquidity, while for foreign banks, a rating methodology based on the probability of institutional failure to comply with its obligation uses data from credit default swaps and credit rating agencies. Mexico’s counterparty risk rating is set by international rating agencies, while in Peru, the Directorate-General for Public Credit and Treasury (Dirección General de Endeudamiento y Tesoro Público) communicates the maximum bank quota (or investment limit) to each spending unit on a quarterly basis, taking into account the credit rating and a self-sufficiency ratio of the financial institution.

In June 2013, Peru promulgated a new Law on Repo Operations (Ley de Operaciones de Reporto, No. 27.06.2013). The Dominican Republic, meanwhile, is creating an investment unit within its Treasury.

Short-term deficit financing

Short-term deficits are financed by Tbills in 11 countries (Table 4.9). In Bolivia, Nicaragua, and Panama, however, Tbills are authorized but currently not used. In Nicaragua, the central bank issues short-term securities and the Ministry of Finance and Public Credit (Ministerio de Hacienda y Crédito Público) issues medium- and long-term securities. Shortfalls are financed through short-term loans from Peru’s and Uruguay’s central banks. This also applies to Panama through its National Bank (Banco Nacional), in which the TSA is located, and to the Dominican Republic through a line of credit from its Reserve Bank (Banco de Reservas), a commercial bank. Peru currently issues Tbills for market development, rather than for temporary deficit financing.

Table 4.9Financing of Short-Term Cash Shortfalls
InstrumentsCountriesNumber
Treasury bills (Tbills)Argentina, Chile, Costa Rica, Ecuador, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Panama, and Peru11
Short-term central bank loansPeru and Uruguay2
Short-term loans from the bank that operates the TSA.Dominican Republic and Panama2
Others*Bolivia, Colombia, Costa Rica, Guatemala, and Honduras5
Source: Authors’ elaboration.

Inter-fund loans; temporary use of resources from specifically earmarked revenues in accounts managed by the TSA.

Conclusions and Recommendations

Although TSA implementation has progressed significantly over the last 10 years in many countries, there are major challenges. Most countries do not have a TSA in place that can provide comprehensive coverage for central government. One of the main obstacles is the legal autonomy enjoyed by some entities, and the limitations on the fungibility of earmarked resources (and/or special funds) and of external credits.

Consequently, a significant change in the legal environment should enable TSA coverage to include all central government resources. In the case of political or legal difficulties regarding specific bodies or revenues, fungibility can be guaranteed by loaning the funds or through providing better mechanisms for revenue collection, payment, and accounting.

Very few countries have fully consolidated a TSA model that centralizes the resources in a small number of accounts (mainly zero-balance accounts), nor have they complemented it with an automated system to control fund ownership through subaccounts or book-entry accounting (the most efficient mechanism). Consequently, a conceptual model should be sought whereby:

  • Controls regarding earmarked resources (whether or not it is own-source revenue of the entity) should be conducted through the budget and government ledger system (i.e., IFMIS or another system) and not through the creation of bank accounts.

  • Book-entry accounts (or “virtual accounts”) should form a part of the IFMIS or a management system in interface with the IFMIS to enable the replacement of the information provided by the bank accounts.

  • Bank accounts should be eliminated or substantially reduced. Their closure, however, may temporarily affect bank liquidity and, therefore, it should be gradual and in coordination with the corresponding banks.

  • The potential of zero-balance account schemes as a part of liquidity management should be considered, especially for revenues and payments processed in a decentralized manner.

  • Finally, a TSA model should be adopted that is consistent with the administrative autonomy granted to some entities and should include operational mechanisms compatible with their management needs.

Almost all countries in the region have not pursued an active cash management policy. The use of Tbills to cover temporary shortfalls is still very limited, and the use of repos is almost nonexistent. The cash surpluses are not auctioned among banks (with the exception of Chile). Many countries lack money markets sufficiently mature to be able to offer the financial instruments necessary for cash management on a daily basis. In some cases, however, it is not the market that is the challenge; rather, the obstacles that hamper progress toward a more efficient model include the legal environment, the capacity of institutions, and/or tax issues.

While there has been a considerable increase in the region of the use of electronic tax payments and immediate transfers of revenues to the TSA, operational limitations still remain; despite the rapid adoption of electronic payments, payments by check continue in many countries. The adoption of a TSA should result in more effective, safer, and economical financial management, and full advantage should be taken of technological changes and of the modern tools for recording, centralizing funds, and generating information for decision making (an IFMIS, as well as automated banking services, should be used).

The ICT solutions provided for financial management should cover (i) revenue collection, identification, classification, and recording; (ii) account management, reconciliation, and transactions through banking networks; (iii) payments and transfers, including those between TSA-integrated entities; (iv) investment of own-source revenues of the different institutions included in the TSA, and (v) cash-flow forecasting and the identification of surpluses to invest and shortfalls to finance.

Annex I: Brazil: Pioneer of an Efficient Implementation of the TSA

Implementing the treasury single account (TSA) in Brazil was only one of a set of public financial management (PFM) reforms proposed by the central government to tackle the macroeconomic crisis of the 1980s. Shortly following the creation of the National Treasury Secretariat (Secretaria do Tesouro Nacional (STN)) in March 1986, an integrated financial management information system was put in place—a process that took no more than eight months from the time of inception to implementation and accountability. This was conducted through financial statements produced by the system. The SIAFI was initially implemented with only key functionalities, with others added over time.

The SIAFI was received with little resistance by government entities (excluding public enterprises which do not depend on regular national treasury transfers). This was because few entities at the time had their own accounting and financial management systems and the SIAFI was a natural substitute for manual processing. Added to this was the understanding of members of the Brazilian Congress, who saw the benefits associated with the coverage of the system and recommended its adoption for the entire federal government.

The TSA was implemented a year later, in 1988, as a ledger account within the SIAFI, complemented by suspense accounts for controlling resources (from the Treasury or from the entities) in accordance with revenue source, earmarked expenditures, and other essential details. The TSA initially included only the resources administrated by the Treasury. Some preexisting bank accounts continued, specifically for collecting own-source revenues, for external loans, revolving funds (petty cash), investment of own resources, and for some special operations. The deposit of social security resources at the Bank of Brazil (Banco do Brasil), a public commercial bank, was maintained. However, since the implementation of the TSA, debits from these accounts were made only through bank orders issued within the system, requiring the corresponding accounting entries (with the exception of petty cash accounts where checks were still used).

Coverage of the TSA gradually increased: by the beginning of the 1990s nearly half of government funds were incorporated in the TSA and, by the end of the decade, the amounts outside the TSA were small. Only a few bank accounts for external loans and petty cash remained.

To achieve comprehensive coverage, regulations and operational mechanisms were put in place so that revenues flowed directly into the TSA, petty cash was managed by the use of a debit card drawing resources from the TSA, and an instrument to invest own-source revenues in the TSA was created. Adjustments were made to eliminate all bank accounts. Social security resources were incorporated into the TSA when the system started showing deficits as a condition for the Treasury to finance them.

Resistance to create a TSA by some institutions was overcome through a combination of incentives and sanctions. Key incentives were the operational facilities that were provided, better access to Treasury resources and, in accounts from which surplus liquidity was invested, higher-than-market rates were offered. An investment instrument was created in SIAFI. This mechanism could be implemented because the cost of financing the government is higher than the interest paid by the banks to their investors in term deposits. The Treasury decided to pay a rate equal to 97 percent of its average financing cost and higher than the rate paid for bank term deposits. As a result, institutional acceptance was high, given that it was difficult to justify the losses incurred by investing liquidity surpluses in the market. Of note is that the STN is legally authorized only to pay interest to entities with own-source revenues and authorized by law to invest these revenues (this is the case only in some autonomous entities, especially university foundations and a few other entities). One of the sanctions established was the enactment of a law that compelled entities to integrate their resources in the TSA under the threat of not approving their rendering of the annual accounts.

The main factor that facilitated the adoption of SIAFI and a TSA was a well-prepared team that was put in place to implement the reform, including experts in ICT, accounting, budget execution, and PFM with experience in the development of similar transactional accounting systems at the Bank of Brazil and the Brazilian Navy (Marinha do Brasil). The team had also high operational capacity, which is rare in the public sector. That these tools were rapidly and robustly implemented is also owed to the leadership provided by the Treasury, where many civil servants—including the Minister who took office in January 1988—had participated since 1984 in the preparatory work for public finance reform with the support and guidance of the IMF. Leadership was strong, planning was effective, commitment for change was firm—given the need to tackle the economic crisis while, at the same time, gaining support from the IMF—and the team was very capable in developing and implementing the reforms. Finally, a contributing factor was a government ICT agency on hand to assist in putting the SIAFI and TSA in place. This obviated the need for an external developer, the procurement of which could have taken between six months and one year. At that time, an adequate off-the-shelf ICT software was not available that could have been easily adapted for government use; this, however, was a less important factor.

References

The most recent efforts to create a TSA are taking place in the Dominican Republic, El Salvador, and Panama.

See Annex I which offers more details about TSA development in Brazil, where the TSA was first implemented in Latin America.

In Latin America, there is no unique term that refers to a national government treasury, although many local variations exist (e.g., national treasury, general treasury, public treasury). For this study, reference will be made simply to treasury.

Decentralized entities that are not business-related and central government entities that are autonomous should be included when fulfilling government functions and when they are entirely or largely financed by the government, as occurs in many Latin American countries, and do not offer goods or services to the market at economically meaningful prices. Decentralized business entities (public enterprises) should be included in the TSA if a significant part of their budget is financed with government resources or they fulfill important government functions whose costs are not covered by the government. Inclusion of subnational governments should be encouraged rather than enforced (as their degree of autonomy is higher), especially those with larger budgets. Social security resources should be included in the TSA if the system operates as a pay-as-you-go system. If this is not the case, the treasury could propose that some portion of social security resources that are usually invested in the short term are either loaned to the treasury at a market rate or invested in treasury bills (Tbills).

With regard to opportunity costs, the TSA generates savings by reducing the need to issue short-term Tbills. In terms of explicit costs, it enables the government to earn higher revenues by making the most of temporary surpluses when compared with a TSA with reduced coverage. For example, the Guatemalan Treasury estimated a saving of approximately Q 42 million (US$5.6 million) in 2014, following the establishment of the TSA.

The concentration of revenues in the TSA facilitates the automation of recordings, account reconciliation, and control of financial transactions, as well as provides for more transparency.

A corollary of the last two characteristics (concentration and fungibility) is that the TSA can promote the operational efficiency of budget execution units by streamlining the receipt, transfer, and payment processes even within government. Standardizing budget processes and documentation, in turn, will reduce banking and operating costs.

The use of these accounts should be accompanied by legislation that prevents the earmarking of resources or, alternatively, permits the temporary use of resources by the treasury for cash management purposes whenever these are not required in the short term for the purpose for which they were set aside.

Treasury information for decision making should include not only the resources that it manages directly, but also the cash or cash equivalent managed by government entities. Moreover, the treasury should be capable of independently producing statements on the government’s financial position. This includes the amounts deposited in the entities’ bank accounts, the financial investments, and the interest earned on these investments.

Among these are cash pooling and the use of so-called sweep accounts, electronic fund transfers, real-time gross settlement systems, and automated account reconciliation.

To generate financial data, the treasury must maintain an operational mechanism that can guarantee the receipt of information regarding bank account movements and balances. It is possible to develop and include functionalities in the IFMIS that can permanently update information on all types of government funds, whether or not they are included in the TSA. When there is no automated system for recording these movements and balances, the treasury can only prepare reports of the government’s financial position on the basis of information supplied by the banks (bank statements). In this case, the process usually takes far longer, resulting in out-of-date information, thus preventing appropriate financial management.

It is important to highlight that in two countries the rule that establishes the TSA is a Treasury Law (Ley de Tesoreria), while in the rest of the countries it is a Financial Administration Law (Ley de Administración Financiera) or an Organic Budget Law (Ley Orgánica de Presupuesto).

This study applies the term “general cashier bank” when referring to the bank in which the TSA is held, which, in some countries, may not be the central bank, but a public commercial bank (see next footnote). The term “auxiliary cashier bank” refers to commercial banks that provide services to the treasury.

In Argentina, the role of general cashier is exercised by the National Bank of Argentina (Banco de la Nación Argentina), the leading public commercial bank; in Chile, the State Bank (Banco del Estado); in Panama, the National Bank of Panama (Banco Nacional de Panamá); in the Dominican Republic, the Reserve Bank (Banco de Reservas); and in Uruguay, the Bank of the Oriental Republic of Uruguay (Banco de la República Oriental del Uruguay).

Panama has no other option, since its currency is the US dollar, and it does not have a central bank.

In Peru, the law states that the TSA must be held at the National Bank (Banco de la Nación), although the daily transfer of a large part of government resources to the Central Bank of Peru (Banco Central de Reserva del Perú (BCRP)) implies that in practice, the TSA operates mostly in the BCRP.

Cash pooling is defined as “(…) centralized management by the Treasury for groups of enterprises or for corporations with several branches. This management practice enables various accounts operated by each business in the group to be transferred to a single, centralized account, with the corresponding information advantages and cost reductions.” See www.ibercaja.es/contenidos.php.

Furthermore, most countries hold an account for each foreign currency as part of the TSA, which entails a cost of carry. The decision to create these kinds of accounts should only be taken when the level of international reserves is low and there is a significant risk that reserves are inadequate to service debt.

According to this manual, the public sector can be divided into two main subsectors: financial and nonfinancial. The general government and nonbusiness public enterprises pertain to the second subsector. The general government can be further classified into various levels: central, state, and local, while within the central government, there are ministries or secretariats and nonbusiness decentralized institutions. Social security can either be considered a separate subsector or it can be included in the subsector that organizes and manages its funds (e.g., central government and/or the regional and local governments). In both cases, social security is considered a part of the general government.

This chapter does not discuss whether the existing legal coverage is suitable or should be reformed.

Only in Brazil does the TSA include the totality of central government resources and the nonbusiness decentralized entities. It is the only country of which it may be said that the TSA’s coverage is almost comprehensive, with the exclusion of certain trust funds and external credit resourses. (See Note 29 and Annex 4.1.)

In Panama, the law establishes that transfers made by the Treasury to entities not included in the TSA should be managed by the TSA, in accordance with the operational regulations of the TSA with respect to criteria of amount and nature. The independent revenues of these institutions can be included in the TSA voluntarily and in coordination with the Treasury.

In Costa Rica, decentralized entities (53) and nonbusiness decentralized entities (30) which, overall, represent approximately 59 percent of expenditure, are not included in the TSA. Decentralized entities include autonomous entities, state universities, and university colleges, as well as Costa Rica’s Social Security (Caja Costarricense de Seguridad Social).

In Peru, only some of the municipal revenues are transferred to the TSA, as the changeover process remains incomplete. In the case of Panama, the transfer is stipulated by law, which has yet to be implemented.

In Costa Rica, there have been several cases where local governments have voluntarily deposited their revenues in the TSA to take advantage of the payment services it offers.

In Brazil, external credit resources disbursed by international organizations are deposited in bank accounts in foreign currency at the Bank of Brazil (Banco de Brazil), a public commercial bank, until they are transferred to the TSA or used to reimburse payments made by the spending units. These payments are made with advances from Brazil’s Treasury, showing that external credit resources are not deposited in the TSA.

In Argentina, for fiduciary funds, public universities, and state enterprises (excluded from the TSA), the treasury uses the idle liquidity of these entities to meet the temporary cash needs of the central government. This also applies to Colombia in a similar manner regarding the liquidity surplus of decentralized institutions.

In certain countries, the solution to overcome this limitation is to use an operational account that records the total amount of resources used in the short term by the treasury and which serves as a contra-revenue account to offset increases in its book-entry balance.

In Colombia, Mexico, and Peru, special and stabilization funds enjoy a high average share of the total resources managed by their Treasury.

In eight other countries, special funds are not managed by the treasury and only one country (Costa Rica) has assigned a custodian to manage these resources, which relate to a pension fund.

In many cases, trust funds have multiplied to evade legal and budgetary restrictions.

In the trust funds included in Costa Rica’s TSA, the trustee is a bank, although the resources, when not in use, remain in the TSA without remunerating its balances. As is the case with decentralized entities, the Treasury guarantees the availability of resources according to the cash plan provided by the trustee (the Treasury acts as the trustee’s bank, despite the former perhaps being a bank). Several of the trust funds included in the TSA are credit trust funds that were established with public resources.

In Mexico, for example, Table 4.4 shows 324 trust funds that are outside the scope of the TSA. In Guatemala, the use of trust funds—whose resources are not integrated into the TSA—is a general practice.

Brazil does not use special collection accounts; revenues collected are transferred directly to the TSA and are withheld for one day of float. Argentina, Bolivia, Mexico, and Peru use collection accounts with transfers to the TSA at the end of the day of receipt.

A feature of direct debit for tax returns is that the collection transaction is generated by the tax administration with the previous authorization of the account holder to debit the account in favor of the tax agency.

A distinction must be drawn between charging to a bank account, which requires the account holder to authorize the charge to the account on each occasion, and direct debit, which entails a standing order to the account by which the account holder issues a single authorization; the agency is then authorized to debit the account, which is thereafter executed directly.

Using credit cards to pay taxes is another option for the taxpayer, which would generate an incentive for taxpayers and offers additional facilities (at a cost) when compared with electronic transfers from bank accounts due to the cash flow alignment benefit it provides (payment can be made today, but is not effective until the day when the card payment is due). Credit card payments to the TSA must be immediate, however, for a comparison to be made with electronic transfers from bank accounts.

In Brazil, the petty cash fund operates through the use of a bank card, debited to the TSA.

In Costa Rica, the revolving funds operate by way of transfer payments rather than bank cards. The cards used for institutional procurement are for fuel and travel expenses, charged to the TSA.

The definition of accounting entities is not uniform in the region; however, in most countries, reference is made to entities with legal status with an independent budget and their own patrimony, as in the central administration, decentralized institutions, or public enterprises.

These include, among others, the Federal Integrated Financial Management System (Sistema Integral de Administración Financiera Federal (SIAFF)), Integrated Planning and Budget Process (Sistema del Proceso Integral de Programación y Presupuesto (PIPP)), Accounting and Budget System (Sistema de Contabilidad y Presupuesto (SICOP)), Integrated Federal Fund Accounting System (Sistema Integral de Contabilidad de Fondos Federales (SICOFFE)), Federal Treasury Debt Compensation System (Sistema de Compensación de Adeudos de la Tesorería de la Federación (SICOM)), Integrated Information System of Revenue and Public Expenditures (Sistema Integral de Información de los Ingresos y Gastos Públicos (SII)), and Bank Account Registration System (Sistema de Registro de Cuentas Bancarias (RCB)).

Not to be confused with the European Central Bank (ECB).

These countries consider this objective to be the central element of active cash management.

The Executive Board of El Salvador’s central bank can authorize the payment of interest on government deposits, with the vote of at least four of its members.

In Argentina, the resources deposited in the Bank of the Nation of Argentina (Banco de la Nacion Argentina (BNA)) are remunerated; the Treasury can also invest them in the financial market (although this is not common).

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