From the Foreword to the first issue: “Among the responsibilities of the International Monetary Fund, as set forth in the Articles of Agreement, is the obligation to ‘act as a center for the collection and exchange of information on monetary and financial problems,’ and thereby to facilitate ‘the preparation of studies designed to assist members in developing policies which further the purposes of the Fund.’ The publications of the Fund are one way in which this responsibility is discharged. “Through the publication of Staff Papers, the Fund is making available some of the work of members of its staff. The Fund believes that these papers will be found helpful by government officials, by professional economists, and by others concerned with monetary and financial problems. Much of what is now presented is quite provisional. On some international monetary problems, final and definitive views are scarcely to be expected in the near future, and several alternative, or even conflicting, approaches may profitably be explored. The views presented in these papers are not, therefore, to be interpreted as necessarily indicating the position of the Executive Board or of the officials of the Fund.” The authors of the papers in this issue have received considerable assistance from their colleagues on the staff of the Fund. This general statement of indebtedness may be accepted in place of a detailed list of acknowledgments. Subscription: US$6.00 a volume or the approximate equivalent in the currencies of most countries. Three numbers constitute a volume. Single copies may be purchased at $2.50. Special rate to university libraries, faculty members, and students: $3.00 a volume; $1.00 a single copy. Subscriptions and orders should be sent to: THE SECRETARY International Monetary Fund 19th and H Streets, N.W. Washington, D. C. 20431


From the Foreword to the first issue: “Among the responsibilities of the International Monetary Fund, as set forth in the Articles of Agreement, is the obligation to ‘act as a center for the collection and exchange of information on monetary and financial problems,’ and thereby to facilitate ‘the preparation of studies designed to assist members in developing policies which further the purposes of the Fund.’ The publications of the Fund are one way in which this responsibility is discharged. “Through the publication of Staff Papers, the Fund is making available some of the work of members of its staff. The Fund believes that these papers will be found helpful by government officials, by professional economists, and by others concerned with monetary and financial problems. Much of what is now presented is quite provisional. On some international monetary problems, final and definitive views are scarcely to be expected in the near future, and several alternative, or even conflicting, approaches may profitably be explored. The views presented in these papers are not, therefore, to be interpreted as necessarily indicating the position of the Executive Board or of the officials of the Fund.” The authors of the papers in this issue have received considerable assistance from their colleagues on the staff of the Fund. This general statement of indebtedness may be accepted in place of a detailed list of acknowledgments. Subscription: US$6.00 a volume or the approximate equivalent in the currencies of most countries. Three numbers constitute a volume. Single copies may be purchased at $2.50. Special rate to university libraries, faculty members, and students: $3.00 a volume; $1.00 a single copy. Subscriptions and orders should be sent to: THE SECRETARY International Monetary Fund 19th and H Streets, N.W. Washington, D. C. 20431

This paper, which is based primarily on the experience of the authors in West and Equatorial Africa, concentrates on problems of budget analysis and treasury management in French-speaking African countries.1 Before achieving independence, these countries had almost identical institutional arrangements regarding budgetary and treasury operations, modeled after the French financial system. Subsequently, individual countries in this group have introduced various modifications in their financial systems, but the underlying principles have remained sufficiently similar to justify a general analysis.

The most distinctive feature of the French financial system is the high degree of centralization of financial transactions of the public sector in the treasury. This centralization enables the treasury to function as a cashier and banker for the public sector as a whole. As a cashier, the treasury executes all financial transactions of the central government, of the local authorities, and of those public agencies without financial autonomy. As a banker, it pools liquid resources of the public sector and extends credit. The strategic position of the treasury provides the government with a powerful medium for economic, fiscal, and monetary policy.

The economic and monetary implications of the treasury as a financial institution have become more evident with the growth of the public sector. In the newly independent African countries, where the public sector generally represents a large share of the modern sector of the economy, the deposit liabilities of the treasury have occasionally exceeded total private sector deposits with commercial banks. However, the format of budget and treasury records is still geared primarily to the requirements of accountability and administrative control rather than to the needs of macroeconomic and monetary analysis. Consequently, there is a danger that the implications of government financial policy remain veiled, which would mar the pursuit of conscious and consistent economic, fiscal, and monetary policies.

The present study limits itself to a description of existing procedures and accounting practices and sets out a method for analyzing budgetary performance and treasury operations on a cash basis. Part I deals with problems of budgetary analysis and shows that a cash-flow analysis forms the only consistent technique to obtain a consolidated picture of the financial operations of the central government. Records of budgetary results as presently used in most of the countries under review are inadequate in this respect because of insufficient coverage as well as discrepancies in the periods of execution of the various budgets. Part II describes the operations of the treasury and their economic and monetary implications.2

I. Budgetary Operations of the Central Government

The revenues and expenditures of the central government are regulated by annual financial laws, which generally distinguish three categories of budgets: the ordinary budget, the investment budget, and the annexed budgets, which are those of public agencies without financial autonomy. Certain operations of a budgetary nature are executed by means of special accounts, which are not subject to the normal budgetary procedures.

The analysis of budgetary operations presents a number of conceptual problems with respect to coverage and to duration of the fiscal period. Section 1 describes problems of coverage in the various budgets and special accounts as well as the double counting that results from interaccount transfers. The complexities of the different fiscal periods over which budgetary operations may be executed are dealt with in section 2, and the problems of consolidating all operations of a budgetary nature over an identical period of time are outlined in section 3.

Local authorities and incorporated public agencies are financially autonomous. Hence, their budgets are not discussed in this context; however, insofar as their execution affects treasury operations, attention is given to them in Part II.

1. The format of budgetary operations

The ordinary budget

Receipts of the ordinary budget, as traditionally presented, consist of tax revenues, fees for services rendered, proceeds from sale of government property, etc., and repayments on loans extended by the central government. Furthermore, they may include drawings on surplus balances accumulated in earlier budgets and kept in a reserve fund with the treasury. In the years immediately following the achievement of independence, receipts in a number of countries also included budget subsidies from France, but, with few exceptions, French subsidies for the ordinary budget have now disappeared. Expenditure appropriations include recurrent expenditures of the central government. In addition, they generally provide for loans, subsidies, and transfers of earmarked tax revenues to the investment budget, annexed budgets, special accounts, local authorities, and autonomous public agencies. In countries with no separate investment budget, the ordinary and investment expenditures are provided for in one budget.

The investment budget

Most of the countries under review maintain a separate investment budget. In some countries, receipts include the proceeds from special taxes or levies earmarked for development purposes. However, the bulk of recurrent revenues as recorded in the investment budget usually consists of a transfer from the ordinary budget, which involves double counting if budgets are aggregated. Unspent revenue balances from previous years may also be re-entered as revenues. In addition, investment budget receipts generally include proceeds from domestic loans and foreign budgetary grants. However, a major part of the disbursements under foreign aid programs is usually administered outside the budget.

Appropriations under the investment budget generally include expenditures for administrative and social infrastructure, economic development, and capital participations in public or semipublic enterprises. The criteria for the inclusion of individual items under either the ordinary budget or the investment budget vary from country to country and may be changed from year to year.3 Practices in this respect often appear to be determined by convention or by administrative considerations rather than by the economic nature of the expenditure concerned. For example, comparable items for debt service, maintenance, or support cost may be found under the ordinary budget in one country, and under the investment budget in another. As a result, comparisons of successive investment budgets in any one country, or between different countries, often require reclassification of many revenue and expenditure items.

The annexed budgets

The annexed budgets cover the operations of public agencies that do not have corporate status and, hence, do not have financial autonomy. Like the ordinary and investment budgets, these budgets are subject to detailed ex ante authorization by the legislature, and their execution is directly controlled by the central government. Annexed budgets cover both the ordinary and investment expenditures of the agencies concerned. Furthermore, agencies controlled through annexed budgets may be permitted to accumulate reserve funds and to program for investment projects implemented over a period exceeding the budget year. This system provides public entities with the necessary flexibility for their management while retaining close supervision by the legislature. These agencies are in principle expected to be financially self-supporting, although they may receive subsidies from the ordinary or investment budget of the central government.

There appears to be no uniform practice among the countries under review as to whether individual agencies should be controlled either through the ordinary budget or through an annexed budget, or be granted corporate status and financial autonomy. The post office, which is one of the most important public agencies, exemplifies the flexibility in the approach. In Chad, postal services are an item in the ordinary budget, and in Ivory Coast they are covered in an annexed budget; in the Malagasy Republic, the post office is organized as an entity with financial autonomy. Other public agencies administered by annexed budgets may include ports, railways, national hospitals, national pharmacies, government-owned radio and television stations, and government printing offices.

The special accounts

The special accounts record a variety of operations of the central government that are kept outside the budget. These operations require annual approval by the legislature on a global basis and are executed on directives of the executive branch of the government. Unlike the annual budgets, special accounts are, in principle, never closed. At the end of the year, their balance is established from the net difference between the total of credits and debits during the year and the year’s opening balance; this balance is then automatically carried over as the next year’s opening balance.

The most important special accounts record central government operations, the economic nature of which is similar to those recorded in the ordinary or investment budgets.4 Special accounts of a budgetary nature are created by the legislature for a variety of reasons, e.g., to link certain expenditures with specific sources of revenue, to provide for financial flexibility in meeting contingencies, to permit less rigid control procedures than apply under the ordinary and the investment budgets, and to divert revenues from the budget for the purpose of reducing pressure to increase spending. These accounts may include road funds, investment funds for state enterprises, calamity funds, disease control funds, central purchasing funds for office supplies or drugs, national lotteries, and funds for accumulating the government’s proceeds from financial investments. Most of these accounts have their own sources of revenue which are in principle expected to cover expenditures, although some also receive subsidies or transfers on account of earmarked revenues from the central government budgets.

2. The duration of the fiscal period

Although all countries under review legislate their budgets on an annual basis, the recording of budgetary operations may stretch over a longer period. The duration of the fiscal period depends on whether budget operations are permitted during a complementary period before and after each budget year, and varies according to the type of budget system used. There are three different types of budget systems currently used in the countries under review: (1) the commitment system (règie de l’exercice); (2) the extended cash period system (règle de la gestion prolongee); and (3) the cash period system (règle de la gestion). Practices in this respect differ from country to country and, within the same country, often between different types of budgets as well. Most countries maintain their ordinary and annexed budgets on either a commitment or an extended cash period basis. Investment budgets are generally executed on a cash period basis.

The differences in the three systems currently used, which will be outlined in more detail in the following pages, are related to the system of expenditure control. Payments by the treasury are preceded by three consecutive expenditure control operations, executed by an official (ordonnateur) in the department where the expenditure is incurred. The procedure is as follows.5

(1) Commitments (engagements) are initiated by each government department within the limits of its budgetary appropriations.

(2) This is followed by the verification of documentary evidence that the service was actually performed (vérification) and the establishment of the exact amount of the claim (liquidation).

(3) Subsequently, a pay order (ordonnancement) is issued and sent to the treasury. The final step of the expenditure control process is made by the treasury, which—after collecting all documentary evidence—checks whether the previous expenditure controls have been properly executed. Upon its approval, the account for which the expenditure was incurred is debited6 and the pay order is executed by issue of cash voucher, check, postal transfer, or, if the creditor holds an account with the treasury, by interaccount transfer.

The commitment system (“règle de l’exercice”)

Under the commitment system, revenues are collected and expenditures are made, in principle, during the budget year in question. Commitments for certain expenditures may commence one month before the first day of the budget year for which they were appropriated, but pay orders may generally not be issued before the beginning of the budget year. No commitments are permitted after the close of the budget year. Uncommitted appropriations lapse automatically at the end of the fiscal year, and reappropriation under the next budget usually requires approval by the legislature for the ordinary budget or by ministerial decree for the investment budget. However, after the end of the budget year a complementary period of up to six months is allowed for settlement of expenditures and issue of pay orders. Pay orders issued during the complementary period are recorded for account of the budget in which they were authorized. Revenues are also recorded in the year of their assessment when received during the complementary period and when received at a later date are entered into the accounts of the actual year of receipt. In other words, the execution of the budget for the calendar year 1968 might commence on December 1, 1967 and continue until the closing of the books on June 30, 1969.

The commitment system provides for flexibility when the actual timing of revenues and expenditures differs from the budget estimates. The leeway provided under the complementary period is also considered to strengthen budgetary control and to facilitate the evaluation of budgetary performance in terms of original estimates. However, budget records under this system are not appropriate for a cash-flow analysis because they exclude transactions in one fiscal year attributable to the preceding year’s budget while including expenditures for which settlement was made after the end of the year.

Under a rigid application of the commitment system, the overlap of fiscal operations during the complementary period should not be excessive. However, in several countries, the system has been eroded in many ways, related mostly to pressures to utilize fully appropriations that remain uncommitted at the end of the budget year. Partly to prevent these appropriations from lapsing, in some countries the practice has developed to commit during the last days of the budget year appropriations that otherwise would have remained unutilized. In other instances, commitments continue to be made after the closing date of the fiscal year and are subsequently backdated. Furthermore, payments, or even commitments, are sometimes made after the end of the complementary period, and the simultaneous execution of two or three budgets is a permanent phenomenon in certain countries. Final results become available only after a considerable lapse of time and lose much of their relevance as a basis for the preparation of subsequent budget estimates.

The extended cash period system (“règle de la gestion prolongée”)

With the recognition of the disadvantages of the commitment system for the formulation of budget policy, an increasing number of countries have taken measures to bring their accounting systems closer to a cash basis. The recording on an extended cash period basis, which several countries have introduced in recent years for the execution of ordinary budgets and annexed budgets, is a hybrid system modeled after the French budgetary reforms of 1955 and 1959.7 Under this system, revenues are generally recorded in the years in which they are actually received, or, in other words, on a pure cash basis. An effort is also made to bring expenditures closer to a cash basis. To that effect, standing commitments are suspended at the end of the budget year, and commitments that may take some time to settle are suspended at an even earlier date, in order to facilitate completion of expenditure control and payment before the end of the year. However, pay orders for expenditures committed before that date may continue to be issued during a complementary period of two months or less after the end of the year. Commitments for which no pay orders have been issued by the end of the complementary period must be charged against appropriations of the current year. In Chad, where budgets are on a calendar year basis, no commitments for materials and supplies are permitted after November 30 of the year of their appropriation, and the issue of pay orders is suspended as of February 20 of the following year.

The cash period system (“règle de la gestion”)

When budget records are kept on a cash period basis, all receipts are recorded in the year in which they are actually received and all expenditures are recorded in the year in which the pay order has been issued. This system is used in many countries for the execution of the investment budget, but at present only Tunisia is known to execute its ordinary and annexed budgets, as well as its investment budget, on a cash basis. Though expenditures are not permitted after the close of the budget year, the continuity in the execution of the investment expenditure is generally ensured through the carry-over and reappropriation by ministerial decree under the next year’s budget of unutilized appropriations and commitments for which pay orders have not yet been issued. In some instances, other transitional arrangements have been developed to ensure this continuity, such as depositing unutilized appropriations in an investment fund administered by a public development bank.

3. Consolidation of budgetary accounts

A consistent analysis of the central government’s budgetary operations requires the aggregation of revenues and expenditures under the ordinary budget, the investment budget, the annexed budgets,8 and the special accounts of a budgetary nature. In this aggregation, financing items and double counting must be eliminated. As indicated above, ordinary and investment budget revenues usually include what are generally considered financing items, such as foreign loans and budget subsidies, as well as domestic borrowing. Double counting arises as a result of transfers between the various budgets and special accounts. Such transfers may be in respect of specified revenues collected under the ordinary budget, or they may represent outright subsidies. For example, taxes on gasoline may be accounted for under ordinary budget revenue and then transferred in part or in total to a road fund, while subsidies to the annexed budget of a national hospital may not be related to any specific budget receipts.

Finally, consistency requires expenditures, revenues, and financing to be analyzed over an identical period of time. The only consistent presentation of the budget accounts on an annual basis is provided by the actual cash flows shown in the treasury records. Moreover, the treasury records are the only source of information on special accounts of a budgetary nature. This underlines the importance of the treasury records as a comprehensive source of information on over-all budgetary operations.

If the consolidated budgetary operations on a cash basis leave a deficit, the first line of financing generally consists of foreign budget subsidies and foreign and domestic medium-term and long-term borrowing. If these funds are insufficient, the residual is financed by drawing on the treasury. If, on the other hand, the consolidated budget shows a surplus, or if nontreasury financing exceeds the deficit, the balance is credited to the government account with the treasury.

II. Treasury Operations

The functions of the treasury are outlined in section 1 below, and treasury operations are described by categories of accounts in section 2. Section 3 deals with the treasury’s operations on an over-all basis, i.e., the management of its total assets and liabilities, and shows how the operating conditions of the treasury differ in certain fundamental respects from those of a bank. Section 4 reviews the reallocation aspects and monetary implications of treasury operations.

1. The functions of the treasury

The most distinctive feature of the treasury is its role of banker for the public sector. In principle, all public entities keep their liquid resources on deposit with the treasury and rely on the treasury to meet their credit requirements. The central government keeps all of its liquid resources with the treasury. Agencies administered by annexed budgets and local authorities deposit the bulk of their liquid funds with the treasury and maintain small working balances elsewhere. On the other hand, incorporated public agencies may be permitted to maintain substantial cash balances with the banking system. In practice, the availability of treasury credit varies among the different public entities. Treasury credit is completely automatic and unlimited for the central government’s ordinary and investment budget, but it shows an inverse relationship to the degree of financial autonomy of the other public entities. In addition to its function as the bank of the public sector, the treasury also renders certain specified banking services to the private sector.

The banker’s function of the treasury has developed gradually from its original role of cashier for the state. The treasury continues to exercise this function of cashier for the central government, collecting revenues and making payments. Moreover, as part of its function of settling government expenditure, the treasury also forms the final link in the chain of expenditure control, as mentioned earlier. At the same time, the treasury performs cashier and expenditure control services for public entities without financial autonomy, and usually acts as the cashier of the local authorities and some other public entities. In its capacity as cashier, the treasury also compiles detailed information on receipts and expenditures of the central government, the local authorities, and certain other public entities.

2. Treasury operations by categories of accounts

Treasury operations are administered by the Treasurer-General, acting under the authority of the Minister of Finance. Treasury credit, which is generally extended within global provisions laid down in the annual financial law, may take three different forms: overdraft facilities, advances of up to two years (which are renewable), and medium-term and long-term loans.

The treasury maintains separate accounts for the central government’s ordinary and investment budgets, annexed budgets, and special accounts of a budgetary nature. Receipts and expenditures on account of the ordinary and investment budgets represent the major part of treasury operations and are generally the most important source of fluctuations in treasury liquidity. The central government enjoys unlimited automatic overdraft facilities with the treasury in its ordinary and investment budget operations. Since financial regulations in most of the countries under review require the balancing of ordinary and investment budget accounts, such overdraft facilities should be limited to ways and means advances. However, with the emergence of budgetary deficits of a more persistent nature, the requirement of budgetary balance has frequently been met in a nominal fashion. Once this requirement has been voided, there is no formal limit as to the extent to which the treasury may become involved in financing the central government’s budgetary deficit. An actual limit is, however, posed by the availability of liquid resources in the treasury and the extent to which it can obtain financing from other sources, e.g., the banking system and the French Treasury.

Agencies operating under annexed budgets, which normally keep all their liquid resources on deposit with the treasury,9 are eligible to receive treasury credit in the form of advances. However, such advances are sometimes rolled over to make up for an insufficiency of working capital. Furthermore, these agencies may receive medium-term and long-term loans from the treasury for investment purposes. Of the special accounts of a budgetary nature operated by the treasury, only those of a commercial character, such as government purchasing funds, are generally permitted to show debit balances. These debit balances, which reflect the provision of working capital by the treasury to such agencies, are usually subject to an absolute ceiling. On the other special accounts of a budgetary nature, temporary debit balances may also be permitted occasionally. In most countries, the treasury acts as the cashier for the local authorities, and liquid balances of these entities are automatically kept on deposit with the treasury. The local authorities cannot use treasury overdrafts, and other treasury credit facilities either are not available to them or are rarely utilized.

Public entities do not appear to follow any uniform practice with respect to the disposition of their liquid resources. The depository is generally designated in the law establishing the entity or by subsequent ministerial decree. In many instances, however, options are kept open by specifying alternative possibilities, such as the treasury, or the development bank, or any other institution designated by the Minister of Finance. Treasury credit to financially autonomous enterprises is usually limited to medium-term and long-term loans, although certain facilities for short-term borrowing may also be provided. Many of the enterprises belonging to this category rely primarily on bank credit to finance their operations.

In some of the countries under review, there are major exceptions to the general rule of pooling public resources in the treasury. In these countries, a considerable part of public liquidity, in particular that of the public entities, is deposited elsewhere. This is done for several reasons, including the decision to reduce the scope of treasury operations, to earmark resources for economic development, and to safeguard the payment of debt obligations. Thus, in Ivory Coast part of public sector savings is invested outside the Treasury with the Caisse Autonome d’Amortissement, an autonomous public agency. In Niger, many public agencies keep their liquid assets on deposit with the national development bank, while in Dahomey the assets of a debt amortization fund are kept on deposit with the Central Bank.

In addition to deposits of the public sector, the treasury receives deposits from the private sector consisting, in part, of small balances awaiting settlement on account of estates, tax refunds, and indemnities. They also include balances on account of approved pay orders awaiting settlement. Moreover, when the liquid assets of the postal checking system and of public savings institutions are deposited with the treasury, as is usually the practice, the private sector provides the treasury indirectly with substantial additional liquid funds. Treasury credit to the private sector consists almost exclusively of promissory notes accepted in lieu of cash for the payment of indirect taxes, mainly customs duties.10 The notes have a maturity of three or four months, usually carry the guarantee of a commercial bank, and are up to a certain limit discountable with the central bank.

In addition to the above categories of operations, the treasury maintains a number of transit accounts 11 for various purposes, including the execution of some foreign aid programs. Some of these foreign aid accounts may show credit balances, representing foreign aid funds temporarily deposited with the treasury in anticipation of the execution of the project concerned, while others show debit balances reflecting prefinancing by the treasury. However, in most of the countries under review, operations on these accounts are of limited importance and have shown a tendency to decline in recent years.

With certain exceptions, no interest is paid on deposits, nor is any interest charged on treasury overdrafts and short-term advances. Interest on medium-term and long-term treasury loans is usually considerably below the ruling bank rates. Credit to the private sector carries interest charges and commissions at a total rate of 4 per cent to 5 per cent per annum, which may be slightly below commercial bank lending rates for similar types of credit.

3. The management of treasury operations

The cash position of the treasury comprises cash on hand and with the local branch offices, deposits with the central bank, and, where applicable, current balances with the French Treasury. Cash balances may vary with holdings of promissory notes that the treasury receives in payment for certain indirect taxes. The issue of these bills provides a highly liquid investment opportunity for surplus funds in the absence of a developed money market. Liquidity shortages can be met by reducing the portfolio of promissory notes or through discounting, by borrowing from the central bank and, in most cases, from the French Treasury, and by the issue of treasury bills. Short-term, medium-term, and long-term credit are the main other assets of the treasury in addition to its cash balances; liabilities consist of current account deposits and short-term credit from the central bank and other sources.

At first sight, the balance sheet of the treasury suggests a strong resemblance to that of a deposit money bank with investment banking activities. There are, however, fundamental differences between the two institutions, related to the degree of control exercised by each over its assets and liabilities. The volume of deposits of a bank is an exogenous variable and cannot be controlled directly by its management. The possibility for a bank to offset a decline in its deposits by borrowing elsewhere, e.g., by rediscounting at the central bank, is limited. A bank’s major operational variable is its extension of credit, which is in principle determined by microeconomic considerations of liquidity, solvency, and profitability.

In contrast to a bank, the treasury usually has a certain degree of direct control over its deposits, resulting in particular from the authority to designate the depositories of the public entities. On the other hand, the level of treasury credit for financing the government’s budgetary operations is beyond the control of the treasury, as this is determined by the budget decisions of the legislature. However, the treasury is in a position to take some offsetting action against credit provided for budget financing, usually the main form of treasury credit, by inducing the accumulation of credit balances on the central government’s special accounts of a budgetary nature. In addition, the supply of credit to other public entities—agencies operated by annexed budgets, local authorities, and incorporated agencies—and to the private sector is determined partly or entirely by the treasury.

Thus, the difference in operating conditions between a commercial bank and the treasury follows from the treasury’s unique position of a state bank operating as part of the central government.12 The primary concern of a commercial bank is generally that of liquidity and solvency, whereas the treasury’s special responsibilities by their very nature make these requirements secondary to macroeconomic considerations.

4. Reallocation aspects and monetary implications of treasury operations

In the countries under review, public finances play a predominant role in the monetized sector of the economy. The strategic position of the treasury in the center of the economy’s finances provides a subtle and comprehensive institutional framework for economic and financial policy. The pooling of public and of certain private sector financial resources in the treasury permits a reallocation of resources among sectors of the economy without reference to the market mechanism. The rate of interest on treasury credit or deposits, if paid at all, bears no direct relationship to that prevailing in financial markets. As long as the treasury has resources available, its credit operations need not be financed by borrowings in the financial markets.

Financing a central government budget deficit is the principal way in which resources are reallocated through the treasury. It appears that some countries have reached development objectives for some sectors of their economy by using treasury funds derived primarily from other sectors of the economy in financing deficits in their investment budget. In other countries, such treasury resources, including public savings, have been used for extensive financing of ordinary budget deficits. In several countries, where all treasury resources including credit facilities with the central bank and the French Treasury have been depleted, the treasury has had to resort to deferring payments to the private sector13 or delaying transfers abroad.

The financing of a budget deficit through the treasury is likely to escape public notice. This is because of the legal requirement to show a balanced budget of receipts and expenditures, including in receipts the proceeds of foreign aid and borrowing.

Though the most important, the financing of budget deficits is not the only form of treasury credit that implies a reallocation of resources. Resource allocation is in principle inherent in all treasury credit operations. It is based on the prerogatives of treasury management and, therefore, of the executive branch of the government, while the influence of the legislature on such operations is only marginal.

The maneuverability of liquid resources concentrated in the treasury has also its monetary implications. The pooling of these resources and the extension of credit by the treasury have effects on money supply. Hence, a constant awareness of the monetary implications of treasury operations is imperative; the treasury’s actions should be guided by the government’s macroeconomic and monetary policy objectives, rather than by considerations of liquidity and solvency.

Traditionally, however, the administration of the treasury has been motivated by the pursuit of a specific concept of monetary neutrality. According to this view, the treasury is neutral if it balances its accounts without recourse to the banking system.14 This is reflected in various regulations prescribing balanced budgets and allowing no debit balances on most treasury accounts. It is also reflected in the format of treasury records, which serve purposes of administrative control and accountability rather than requirements of macroeconomic and monetary analysis. In practice, treasury management appears to be determined by microeconomic liquidity objectives, i.e., the maintenance of maximum liquid counterparts for its liabilities.

It is evident, however, that the above-mentioned concept of neutrality does not guarantee monetary neutrality on the part of the treasury. Treasury operations may very well exert a monetary effect on the economy, even if the treasury does not resort to the banking system. In fact, expansionary impulses emanating from the private sector, usually the export sector, have in several instances been accompanied by a contractionary accumulation of funds in the treasury, reflecting in part profits of produce marketing boards. On the other hand, the impact of a decline in economic activity originating in the private sector may be partly compensated by a decline in treasury holdings through increased lending to the public sector or reduced deposits, e.g., as a result of the utilization of funds by the marketing board. In addition to these induced monetary movements of a compensatory nature, the treasury may generate autonomous monetary impulses in the economy, e.g., through deficit financing operations.

A consistent economic policy requires a close coordination between fiscal and monetary policy. The need for coordination between the central bank and the treasury is particularly strong in the countries under review, in view of the centralization of resources and the size of the treasury’s credit activities. If the liquidity position of the treasury is tight, coordination of treasury policy with restrictive central bank policies is assured through statutory provisions limiting the treasury’s access to the central bank’s credit facilities. However, if the treasury has excess resources at its disposal, there is no mechanism that assures parallelism of credit policies by the treasury and the central bank. In this situation, the position of the treasury appears to show certain similarities to that of a highly liquid commercial bank, which may not necessarily respond to central bank policies. However, where commercial banks are concerned, the central bank usually has instruments at its disposal to force compliance with its policies, e.g., the imposition of liquidity ratios; such instruments are usually not available in its dealings with the treasury. Hence, it is conceivable that, in the absence of policy coordination, the treasury impairs the policies of the central bank by continuing on an expansionary course until its resources are exhausted, which may involve a considerable time lag before central bank action becomes fully effective. Meanwhile, the basis on which the central bank can enforce adjustment policies is considerably narrowed, which implies a substantial aggravation of the burden of central bank policies on the banks and the private sector.

In modern legislation, there appears to be a tendency to strengthen the institutionalization of coordination between fiscal and monetary authorities. In the countries under review, the institutional framework for coordination between the treasury and the central bank consists in the Minister of Finance’s function as a member of the central bank’s executive board. However, the rules and regulations governing the central bank generally limit the board’s authority to matters relating to central bank credit to the treasury. Coordination of other treasury operations with central bank policies is not institutionalized and is left to informal discussions and gentlemen’s agreements between the Minister of Finance and the central bank governor.

Hence, the scope for discrepancies between treasury operations and central bank policies is wider than in countries with a different financial system. These discrepancies may arise unintentionally as a by-product of the financial policies of the government but also as a result of a divergence between the policies followed by the central bank and the central government. This may arise, in particular, if, as is true for many of the countries under review, a country belongs to a currency union. By definition, each member of a currency union is bound by decisions that are commonly agreed, and these decisions may not always be compatible with the particular interests of a member country as currently conceived by its government. In such cases, the treasury system gives the national government considerable room to take countervailing action. It may do so not only by reducing or expanding its credit operations but also by influencing directly the liquidity of the banks, i.e., by shifting treasury deposits to the banks and vice versa.

The possible inconsistencies of policy indicated above do not challenge the merits of the financial system of the countries concerned, if this system is properly used. At present, the treasury appears to be occupied primarily with its fiscal responsibilities, with only limited reference to the monetary implications of its actions. Hence, the central bank shoulders a relatively heavy burden in the execution of monetary policy, and the effectiveness of its action may therefore be marred. These considerations underline the imperative need for coordination of policies between the monetary and fiscal authorities, and the importance of analysis of treasury operations for identifying expansionary or contractionary impulses emanating from the public sector. They also highlight the relevance of this analysis in shaping comprehensive credit policies in connection with a stabilization program.

Les problèmes de l’analyse budgétaire et de la gestion du Trésor en Afrique francophone


Le système financier sur lequel se penche l’auteur présente comme caractéristique principale une centralisation très poussée, au niveau du Trésor, des transactions financières du secteur public et, dans une moindre mesure, du secteur privé. Cette centralisation permet au Trésor de jouer le rôle de banquier de l’ensemble du secteur public et fournit à l’Etat un moyen d’action puissant dans sa politique économique, budgétaire et monétaire.

Les conséquences politiques du rôle d’institution financière assumé par le Trésor sont apparues plus clairement à mesure que s’accroissait le secteur public. Dans les pays africains ayant accédé recemment à l’indépendance, pays où le secteur public répresente généralement une fraction importante du secteur moderne de l’économie, les dépôts auprès du Trésor ont parfois dépassé le montant total des dépôts du secteur privè auprès des banques commerciales. Cependant, la présentation des documents du budget et du Trésor demeure adaptée principalement aux exigences de la responsabilité financière et du contrôle administratif plutôt qu’à celles de l’analyse macroéconomique et monétaire. Les répercussions de la politique financière de l’Etat risquent done de rester cachées, ce qui contrarierait la mise en ceuvre de politiques économique, budgétaire et monétaire conscientes et cohérentes.

La première partie présente une méthode qui permet d’analyser l’exécution du budget en récapitulant toutes les transactions du gouvernement central en fonction des paiements, en éliminant les divergences de composition des données et de période d’enregistrement entre le budget de fonctionnement, le budget d’équipement, les budgets annexes et les comptes spéciaux. La deuxième partie soutient que la mise en commun des ressources financières au niveau du Trésor permet une large réaffectation de ces ressources entre les secteurs de l’économie et que les opérations bancaires du Trésor peuvent exercer une profonde influence sur la masse monetaire, même si le Trésor n’a pas recours au système bancaire. La mise en ceuvre de la politique monètaire exige done une étroite coordination entre la banque centrale et le Trésor.

Problemas de análisis presupuestario y de administración de las operaciones de la Tesoreria en el Africa de habla francesa


El aspecto más distintivo del sistema financiero que aquí se examina es el alto grado de centralización de las transacciones financieras tanto del sector público como, en menor medida, del sector privado, en la Tesorería. Esta centralización permite que la Tesorería funcione como banquero de todo el sector público y proporciona al gobierno un poderoso instrumento para la política económica, fiscal y monetaria.

Las consecuencias que entraña el hecho de que la Tesorería actúe como institutión financiera se han hecho más evidentes con el crecimiento del sector público. En los países africanos recientemente independizados, en los que el sector público generalmente representa una gran porción del sector moderno de la economía, los pasivos por concepto de depósitos en la Tesorería han llegado a veces a superar al total de los depósitos del sector privado en la banca comercial. Sin embargo, el sistema de registro del presupuesto y de la Tesorería se sigue rigiendo principalmente por los requisites de la renditión de cuentas y el control administrativo, en vez de regirse por las necesidades del análisis macroeconómico y monetario. Por consiguiente existe el peligro de que queden veladas las implicaciones de la política financiera del gobierno, lo que perjudicaría la prosecución de unas políticas económicas, fiscales y monetarias conscientes y coherentes.

En la Parte I se presenta un método para analizar la actuación presupuestaria, mediante la consolidación de todas las transacciones del gobierno central sobre la base de las corrientes de fondos, eliminando las discrepancias existentes en la cobertura y en el período de aplicacion del presupuesto ordinario, el presupuesto de inversión, los presupuestos de los organismos sin autonomía financiera, y las cuentas especiales. En la Parte II se mantiene que haciendo convergir los recursos financieros en la Tesorería se permite alterar sustancialmente la asignación de dichos recursos a los distintos sectores de la economíia, y que las operaciones bancarias de la Tesorería puedan influir significativamente sobre la oferta monetaria, aun cuando la Tesoreria no recurra al sistema bancario. De ahí que haga falta una estrecha coordinatión entre el banco central y la Tesorería para llevar a cabo la política monetaria.


Both Messrs. Van de Ven and Wolfson are graduates of the University of Amsterdam and economists in the African Department. Currently, Mr. Van de Ven is the resident representative of the Fund in Somalia and Mr. Wolfson is the resident representative in Liberia.


Algeria, Cameroon, Central African Republic, Chad, Congo (Brazzaville), Dahomey, Gabon, Guinea, Ivory Coast, Malagasy Republic, Mali, Mauritania, Morocco, Niger, Senegal, Togo, Tunisia, and Upper Volta. Though the financial systems of Burundi, Democratic Republic of Congo, and Rwanda show certain similarities to those of the other French-speaking African countries, they are not fully comparable.


The authors have prepared an Appendix to this article containing a model of the format of treasury accounts in the countries under review, followed by an analytical presentation of these accounts. This Appendix is available in typescript to any interested reader on application to the African Department, International Monetary Fund, 19th and H Streets, N.W., Washington, D.C., 20431 U.S.A.


The economic and functional budget classifications as developed by the United Nations have hitherto not been widely used in the countries under review. For details on these classification systems, see United Nations, Department of Economic Affairs, Budgetary Structure and Classification of Government Accounts (New York, 1951).


In addition, there is a number of special accounts that serve as bookkeeping devices for the recording of certain financial operations of the treasury.


See also United Nations, Department of Economic Affairs, Government Accounting and Budget Execution (New York, 1952), pp. 29-31.


Hence, all budgetary expenditure records show, in fact, pay orders approved by the treasury.


See Décret No 55-1487 du 14 novembre 1955 pris en exécution de l’article 11, alinéa 1er, de la loi No 53-611 du 11 juillet 1953 et portant application du système de la gestion, Journal Officiel de la République Française (Paris), November 18, 1955; Ordonnance No 59-2 du 2 Janvier portant loi organique relative aux lois des finances, Journal Officiel de la République Française (Paris), January 2/3, 1959; and François Bloch-Lainé and Pierre de Vogüé, Le Trésor Public et le Mouvement Général des Fonds (Paris, 1960), Chapitre II, pp. 49-71. In France, the recording of revenues on a cash basis had already been introduced in 1934.


Postal operations, when executed under the ordinary budget or an annexed budget, may be excluded from the consolidated budgetary operations if separate treasury data are not available on the revenues and expenditures of the postal service proper and on the change in deposits with the postal checking service. In that case, it seems most useful to consider postal operations as a whole under treasury financing, since by far the larger part of the balance kept by the post office with the treasury represents postal checking deposits.


However, some of these agencies may maintain small working balances with the banking system.


This practice finds its origin in the French system, where historically these operations formed a source of income for the Treasurer, who was personally responsible for the repayment of these loans. Most treasuries traditionally have also granted to civil service employees personal loans which are amortized through paycheck deductions, but these operations are at present of relatively minor importance.


Transit accounts are maintained for recording operations awaiting classification, the vast bulk of which usually pertains to central government operations of a budgetary nature.


For a discussion of the conceptual difference between a state bank forming part of the central government and a central bank (Elat banquier contre Banquier de l’Etat), see Bloch-Lainé and de Vogüé, op. cit., pp. 4 if.


In the financial system under review, the deferment of payments to the private sector may occur in two forms. Bills may be accumulated before the pay order is issued, or at the stage where the actual payment is made. As only the last step of the process takes place in the treasury, treasury records will not reflect an accumulation of unpaid obligations at the earlier stage.


For details on this concept of monetary neutrality and its various definitions and consequences, see Bloch-Lainé and de Vogüé, op. cit., pp. 328 ff.