92723 Vietnam Economic Management and Competitiveness Credit EMCC Policy Note Implementation of Treasury Single Account and Strengthening of Cash Management in Vietnam THE WORLD BANK IBRD-IDA WORLD BANK GROUP Implementation of Treasury Single Account and Strengthening of Cash Management in Vietnam WORLDBANK THEWORLD THE BANK IBRD-IDA WORLD BANK GROUP IBRD-IDA WORLD BANK GROUP T í n h M i n h b ạc h c ủ a D oa n h n g h i ệ p N h à n ư ớ c tạ i V i ệ t N a m: T h ự c t r ạ n g và ý t ư ở n g c ả i c ác h Foreword This Policy Note provides a review of progress in discussions in production of this note. The Team implementing a Treasury Single Account (TSA) also would like to thanks Messrs. Cem Dener system in Vietnam, the remaining challenges (Senior Public Sector Specialist, World Bank), and obstacles, and how to overcome these for Habib Rab, (Senior Economist, World Bank), further TSA and cash management reforms. Suhas Joshi (Regional PFM advisor, International It was prepared as part of the Economic Monetary Fund) and Luu Hoang (Vietnam Management and Competitiveness Credit State Treasury) for their very useful comments (EMCC) Programmatic Analytical and Advisory and suggestions on the earlier draft of the work to help the Government of Vietnam’s note as well to Leah April (Senior Public Sector efforts to improve public finance management. Specialist), Vu Hoang Quyen (Economist) and The adoption of a TSA is a policy action under Van Pham Cung (Senior Financial Management the EMCC. Specialist) for providing peer comments on the final draft which have been taken into account. This note was prepared by a Bank Team led by Nguyen Van Minh (Senior Economist, World Support for the preparation of this Policy Bank), and including Nguyen Phuong Anh, Note is gratefully acknowledged from the (Research Analyst, World Bank) and Janis Platais following Development Partners: the UK (consultant, World Bank). The team worked Department for International Development; under the overall guidance of Victoria Kwakwa the Australian Department for Foreign Affairs (World Bank Country Director for Vietnam), and Trade; the Department for Foreign Affairs, Sudhir Shetty (former Director of PREM East Asia Trade and Development of Canada; and the and Pacific, World Bank), and Sandeep Mahajan Swiss Secretariat for Economic Affairs for their (Lead Economist for World Bank Vietnam). The generous support to the Economic Management Team would like to thank the officials from the and Competitiveness Credit Analytical and State Treasury of Vietnam MOF and State Bank Advisory work. All errors remain the authors’. of Vietnam for their collaboration and fruitful 3 T í n h M i n h b ạc h c ủ a D oa n h n g h i ệ p N h à n ư ớ c tạ i V i ệ t N a m: T h ự c t r ạ n g và ý t ư ở n g c ả i c ác h Table of Content Foreword................................................................................................................................................3 Abbreviations........................................................................................................................................7 Executive Summary.......................................................................................................................... 10 A. Background and motivation....................................................................................................... 18 B. Overview of State Treasury System in Vietnam....................................................................... 20 C. Progress in setting up a Treasury Single Account (TSA)........................................................ 24 Current status............................................................................................................................... 24 Vietnam TSA arrangements in the international context.................................................... 26 Pros and cons of placing TSA in the central bank.................................................................. 30 Remaining challenges and obstacles...................................................................................... 32 Priority TSA reforms and strategy............................................................................................. 33 D. Strengthening Cash Management............................................................................................ 38 Current status............................................................................................................................... 38 Analysis.......................................................................................................................................... 38 Key recommendations................................................................................................................ 40 5 T í n h M i n h b ạc h c ủ a D oa n h n g h i ệ p N h à n ư ớ c tạ i V i ệ t N a m: T h ự c t r ạ n g và ý t ư ở n g c ả i c ác h Abbreviations BIDV Bank for Investment and Development of Vietnam CB Commercial Bank EMCC Economic Management and Competitiveness Credit FIs Financial Institutions G2P Government to Person GFMIS Government Finance Statistics Manual GL General Ledger HQ Head quarter IBPS Interbank Payment System ICT Information and Communication Technology IMF International Monetary Fund IT Information Technology PEMNA Public Expenditure Management Network POS Point of Sale SBV State Bank of Vietnam SOCB State-owned Commercial Bank ST State Treasury TABMIS Treasury Accounting and Budget Management Information System TCS Tax Collection System TSA Treasury Single Account VBARD Vietnam Bank for Agriculture and Rural Development VND Vietnamese dong 7 Implementation of Treasury Single Account and Strengthening of Cash Management in Vietnam Executive Summary 1. The State Treasury (ST) System the state budget through a centralized in Vietnam was established in 1994 to financial management information system, provide essential finance management on a transparent and real-time basis. services to the Government. The State Treasury has consolidated payment 3. Vietnam has made progress in processing and custody of government improving oversight and control over cash cash for budget operations at four levels of balances for the State Budget. Spending government: (i) central; (ii) provincial; (iii) units are no longer permitted to maintain district; and (iv) commune through a network their own bank accounts. Instead, cash of offices operating down to the district level balances are held by the State Treasury at the to provide walk-in access for government State Bank of Vietnam (SBV) and four State agencies. ST offices use the services of the Owned Commercial Banks (SOCBs), resulting State Bank of Vietnam (SBV) – the central in reduced fragmentation in handling bank, having presence in the center and government receipts and payments. Despite provincial centers – for operations of the this, the current arrangement still falls central and provincial treasury offices, and short of a Treasury Single Account (TSA) as four state-owned commercial banks (SOCBs) government cash held at different levels for State Treasury operations in districts. and branches of the SBV and SOCBs is not centrally consolidated on a daily basis, 2. The State Treasury applies budget leaving substantial idle cash holdings at and payment controls, when processing about 700 Treasury offices, which earn below spending unit payment requests in market interest rates. Lack of information accordance with State Budget Law on these cash holdings has led to additional provisions. To improve its operations and borrowing to cover for perceived cash support effective budget management shortages, which in turn raises public debt and efficient budget execution, ST has servicing costs. recently successfully deployed the Treasury Accounting and Budget Management 4. In response to this, the Government Information System (TABMIS) in all 1,500 of Vietnam has embarked on reforms treasury offices and financial agencies to adopt a TSA and strengthen overall across all 63 provinces/cities, enabling the cash management. State Treasury has government to plan, execute and monitor been proceeding with the consolidation 10 Executive Summary of payment arrangements based on the idle cash balances will be reduced from concept of the TSA and developing plans to over 700 to 5 once the bilateral payment start active cash management. These plans arrangements are fully implemented. are now a top priority because all treasury offices have started using TABMIS for budget 7. So far, the consolidation of bank control, payment and receipt processing and balances at four SOCBs has been accounting since October 2012. completed, while delays have occurred with the consolidation of accounts in the 5. This Policy Note provides an overview SBV. Up to date, the bilateral payment system of the State Treasury system in Vietnam; between the State Treasury and commercial it reviews the progress in establishing a banks has been fully implemented TSA1, including against benchmarks of throughout the networks of four SOCBs. The international good practice, and makes State Treasury at the central level (Hanoi) and recommendations for priority next steps. its offices at six other large cities/provinces The note concludes with a review of cash have established connectivity to SBV’s management functions. It is a product of Interbank Payment System (IBPS). Rolling out ongoing discussions between the World of TSA to remaining SBV provincial branches Bank, Development Partners and the Ministry is being held up by some unfavorable cash of Finance (MOF) as part of policy dialogue collateral requirements imposed by the under the Vietnam Economic Management SBV and the IBPS’s inability to meet ST and Competitiveness Credit. accounting information requirements for reconciliation. The State Treasury has been 6. The strategy of the State Treasury is actively engaged with the SBV to overcome to consolidate banking arrangements in these hurdles for achieving full roll out of TSA SBV and each of the four SOCBs separately arrangement by the end of 2014. with the State Treasury balances being cleared to a single account at each of 8. Implementation of TSA is helping the these banks. So instead of having one TSA at State Treasury to realize a range of benefits, the Central Bank as is usual the case of most namely: (i) complete and timely information countries, the Vietnam TSA model includes on the government cash resources, (ii) five accounts for the operations in national comprehensive budget appropriation currency. TSAs cover all budget operations control, (iii) improved operational control, of the central government as well as all three (iv) reducing fees and transaction costs, (v) levels of sub-national governments. The improved quality of bank reconciliation and number of State Treasury accounts holding government fiscal data (vi) enabling efficient 1 This Note covers only VND Dong Accounts only. State Treasury has around 20 foreign currency accounts and plans to move to consolidate these one the consolidation of VND Accounts has been completed. 11 Implementation of Treasury Single Account and Strengthening of Cash Management in Vietnam cash management, (vii) facilitating efficient risk exposure related to engagement with payment mechanisms, and (vii) reduced commercial banks. By placing cash balances liquidity needs. in the SOCB, the Government has implicitly increased responsibility for the performance 9. The implementation of five main of SOCB. State Treasury cash holdings in accounts for the TSA management would commercial banks would also affect the provide reasonably good arrangements efficiency of coordinating monetary and for cash pooling and government cash fiscal policies. management. Additionally, the cash requirement for this arrangement would 11. There are issues with other aspects not substantially differ from an arrangement of treasury operations. Decentralized with one consolidated account in the SBV. payment processing to State Treasury district The bilateral payment system with SOCBs offices increases the workload in the State provides good service for the State Treasury Treasury compared to an option of a single at low cost while the SBV collateral conditions clearing center. So far efforts in improving for the State Treasury’s participation in public financial management have focused IBPS are imposing substantial cost for ST. on meeting the operational requirements Furthermore, SOCBs benefit from attracting of State Treasury, while process and additional business interested in fast and controls improvement for budget units is efficient clearing of payments with the still pending. Furthermore, the Ministry of government, while offering essential services Finance is planning to further modernize to the State Treasury free of charge. Although the revenue collection arrangements by State Treasury seems to be comfortable with using dedicated revenue accounts once the the current arrangements, it may find difficult revenue agency’s accounting systems have to support multiple payment systems in the been upgraded. Finally, the use of cash in future. transaction processing remains significant. 10. The current TSA arrangements are 12. To address these challenges and presenting a number of challenges. to further improve the efficiency of TSA Typically TSA is placed in the central bank operations, a set of reform priorities because of several important benefits. and strategy is recommended. They are Despite earlier consideration to follow grouped into short-term (next 1-2 years) the international common practice, State and medium term (beyond two years) Treasury has opted for proceeding with activities. Medium term priorities include the model of consolidating government important strategy considerations to be cash holdings in the SBV and also in four examined as soon as possible, while their full SOCBs. Holding government accounts in the implementation might go beyond the short- central bank would allow avoiding credit term two-year horizon. 12 Executive Summary Short term priorities (1-2 years) extending the delegation of control authority to budget units, starting with i. The immediate focus of TSA certain thresholds. The delegation of development would be to complete control should go hand in hand with consolidation of the government bank progress in establishment of a sound accounts that is already underway. The internal control at the budget units. obstacles for efficient use of SBV’s IBPS iii. The State Treasury should improve by State Treasury should be removed to payment systems and expand usage enable completion of roll out of TSA to of plastic payment cards for the petty all State Bank of Vietnam branches. cash and travel payments operations ii. The State Treasury would need to to reduce transactions in cash, while develop and launch Treasury e-portal for improving the availability of electronic budget units to access and use treasury records for upload on the government information systems and services for accounting and financial management further optimization of public financial systems. management processes. iv. The State Treasury should also explore iii. The rationale for dedicated revenue the options for reducing gradually the collection accounts and options for number of servicing banks to further meeting the revenue accounting reduce the fragmentation of the requirements through regular payment government cash balances. system (IBPS) data format should be reviewed. The TSA coverage should be 13. Cash Management Reform. The State extended, through amendments of Treasury Development Strategy until 2020 appropriate legislations, to include all approved by the Prime Minister in 2007 general government funds, adding all stipulates that State Treasury would assume extra-budgetary funds, autonomous the responsibility for managing the State (extra-budgetary) agencies, excluding Treasury’s financial resources safely and government corporations. efficiently. However, the busy agenda of implementing TABMIS as well as the drive for Medium term priorities (beyond 2 year devising approaches for TSA have postponed horizon) the State Treasury’s efforts to develop cash i. The State Treasury, when planning major management capacity and effectively upgrade of IT systems, should consider assume this responsibility. The benefits of centralizing the clearing through the substantial efforts made in consolidating main account in the center. government cash resources have not yet fully ii. The State Treasury in cooperation with materialized due to insufficient investment other stakeholders should consider in cash management capacity. State Treasury rationalizing the payment controls with does not yet have the necessary resources 13 Implementation of Treasury Single Account and Strengthening of Cash Management in Vietnam and authority for increasing the efficiency instruments for financial asset and liability of managing government cash resources. management and (iii) Establishing appropriate So far State Treasury has been focusing on organization structure, staffing, and legal basis processing of government transactions, of operation. Key recommendations for each performing budget controls, accounting and of these areas are summarized below. reporting. The capacity and the facilities for cash management are yet to be developed. 16. Cash forecasting function. Providing Moreover, the State Treasury has not been timely information on cash flows and given the authority to perform active cash positions to the management is an management – the transactions in assets immediate priority in developing the cash and liabilities, which would allow earning forecasting function. A first step should be interest from investing temporarily idle producing cash projections for the current financial assets. fiscal year with a monthly breakdown and three-month rolling cash projections by day, 14. Recently the State Treasury has taken using historical patterns and debt payment a number of important steps to move schedules. State Treasury should develop towards establishing a cash management the facilities for extracting necessary data function within the organization. The from TABMIS into Excel to assist its staff Legal Department of State Treasury central to analyze the actual performance, assess office has been charged with putting in place the deviations, simulate and format the the preparatory steps for implementing the projections for presentation. State Treasury cash management function. ST has drafted a should compare actual budget performance number of proposals for legislative changes against the projections to draw lessons to enable active cash management. The and refine the forecasting methodology. To staff of ST has also started studying the smooth cash out-flow, State Treasury should patterns of cash flows, while formal cash require budget spending units booking flow projections have not yet been launched. with 2-3 business day notification funds for Other studies, study tours and professional large value transactions out of the ordinary exchanges within the framework of the spending pattern to accommodate big value Public Expenditure Management Network outflows. in Asia (PEMNA) have helped develop the understanding of key requirements for active 17. Instruments for financial asset cash management. and liability management. Different instruments for financial asset and liability 15. In developing cash management management should be developed to enable capabilities, it is recommended that the saving on net borrowing cost and ensuring ST focus on three key areas: (i) Developing that funds could be raised quickly, if the cash cash forecasting function, (ii) Developing outlook changes abruptly. State Treasury 14 Executive Summary should consider offering interest on deposits regarding changes in the cash flow patterns in its accounts, if the funds deposited do and their impact on the State Treasury not originate directly from the government operations and budget management general resources (tax and other funds should be considered through a Cash received in the general fund). Furthermore, Management Committee. State Treasury government domestic security repurchase should appoint risk management staff as agreements should be implemented a separate function to provide the State to provide safety of investment and, Treasury management with independent potentially, better interest income compared risk management assessment separately to commercial bank deposit rates. from other analysis and considerations. State Treasury should aim for a dynamic 18. Organization structure, staffing, organization structure and ensure intensive and legal basis of operation. In the hiring effort and continuous training, merit- medium term, it would be more appropriate based appointment and promotion for the to keep all domestic financial asset and staff engaged with the cash management liability functions in State Treasury to functions. And finally, State Treasury should allow development of a comprehensive adopt a cash management capacity building organization structure and staffing under and training plan. a single management. The consultation 15 Implementation of Treasury Single Account and Strengthening of Cash Management in Vietnam A. Background and Motivation 19. Vietnam has made progress to 21. In response to this, the Government improve oversight and control over cash of Vietnam has embarked on reforms to balances for the State Budget. Spending adopt a TSA and strengthen overall cash units are no longer permitted to maintain management. This has been a key area of their own bank accounts. Instead, cash dialogue between the Development Partners balances are held by the State Treasury at the and the Ministry of Finance, and is also one SBV and four State Owned Commercial Banks. of the important policy actions supported This has reduced fragmentation in handling under the Vietnam Economic Management government receipts and payments. and Competitiveness Credit. 20. The current arrangement however 22. This Policy Note provides an overview falls short of a Treasury Single Account of the TSA and cash management reform (TSA), which has led to inefficiencies in process, and makes recommendations the management of cash balances and for next steps. It is the product of ongoing higher than necessary borrowing costs. discussions between the World Bank and Government cash held at different levels the Ministry of Finance. Part B provides and branches of the SBV and SOCBs is not an overview of the State Treasury system centrally consolidated on a daily basis. This in Vietnam; part C reviews the progress leaves substantial idle cash holdings at in establishing a TSA, including against about 700 Treasury offices, which earn below benchmarks of international good practice, market interest rates. Lack of information and makes recommendations for priority on these cash holdings has led to additional next steps; part D concludes with a review of borrowing to cover for perceived cash cash management functions. shortages, which in turn raises public debt servicing costs. 18 Implementation of Treasury Single Account and Strengthening of Cash Management in Vietnam B.Overview of State Treasury System in Vietnam 23. The State Treasury (ST) of Vietnam to province and district to district reflecting since its establishment in 1990 has differences in revenue raising capacity as been ensuring the management of the well as different spending needs of the State Budget and government finances. respective government levels. State Treasury Specifically, State Treasury has consolidated also processes payments upon budget unit payment processing and custody of requests. State Treasury operations cover government cash for budget operations all operations of the state budget except at four levels: (i) central; (ii) provincial; (iii) the Social Insurance Fund and the Health district; and (iv) commune. State Treasury has Insurance Fund, which manage their finances offices operating at three levels: (i) central, (ii) independently. provincial, and (iii) district to provide walk-in access for government agencies. 25. State Treasury offices use the services of the State Bank of Vietnam 24. State Treasury ensures proper (SBV) – the central bank, having presence custody of government financial assets2 in the center and provincial centers – for through collection of funds due to the operations of the ST central and provincial government, including tax and customs offices, and four state-owned commercial revenues, as well as processing of banks (SOCBs) for operations of its offices payments on behalf of the budget. State in districts – with a total of more than 700 Treasury accounts for the collected budget bank accounts. Each ST district office may revenues shares these receipts according to open one VND account in one of the SOCBs. the rules and rates stipulated in the State The SOCBs providing services to the State Budget Law (2002), as well as decisions Treasury are the following: passed by Provincial Councils. The revenue Vietnam Bank for Industry and Trade sharing arrangements differ from province (Vietinbank) – about 100 accounts; 2 ST has the general responsibility for the financial asset management related to the government budgetary operations, including the requirements for managing the revenues that budget units collect in cash. Some government-wide financial assets, e.g. equity in state-owned enterprises is managed by other government agencies. 20 Overview of State Treasury System in Vietnam Joint Stock Commercial Bank for Foreign role in effective budget implementation Trade of Vietnam (Vietcombank) – 10 and execution. TABMIS is now operational accounts; in all intended 1,500 treasuries and Bank for Investment and Development financial agencies across all 63 provinces/ of Vietnam (BIDV) – about 50 accounts; cities, 37 central ministries and 3 provincial Vietnam Bank for Agriculture and Rural sector departments. TABMIS enables the Development (VBARD) – about 560 government to plan, execute and monitor accounts; the state budget through a centralized financial management information system, 26. State Treasury district offices also on a transparent and real-time basis. TABMIS conduct vault operations providing general ledger provides new improved customers a window for cash deposits information on the status of the government and providing cash to budget units for financial operations shared from a single withdrawal. Cash transactions have been database, thus enabling better cooperation reduced and limited to payments of less among different State Treasury offices, than VND 5 million. All payments above VND specifically ensuring accuracy in the budget 5 million should be settled through bank allocations and up to date status on the transfer (direct deposit to beneficiary’s bank budget execution performance. account – except when the beneficiary does not have bank/State Treasury account(s)). 28. State Treasury applies budget and Tax payments as well as penalty and payment controls, when processing other revenue payments (in cash or by spending unit payment requests. The bank transfer) are collected in commercial State Budget Law (2002) stipulates State banks and at Treasury offices. However, the Treasury responsibility and authority to Treasury is now authorizing commercial perform control of expenditure and to reject banks where it has accounts to collect State payment requests that are not compliant. budget revenues and administrative fines Budget units submit supporting documents and penalties. The use of cash has been together with the payment requests. The reduced over the past years especially in controls verify that payments are within the larger centers. Though there are still not approved budget, supporting documents many alternatives to using cash in more are attached, the payment has been properly remote areas. authorized by respective officials of the spending unit, and the payment complies 27. Implementing the Treasury with applicable cost and spending norms. A Accounting and Budget Management process chart is provided in Appendix I. Information System (TABMIS) has been a key step towards improving State 29. State Treasury has been using the Tax Treasury operations and supporting its Collection System (TCS) application for 21 Implementation of Treasury Single Account and Strengthening of Cash Management in Vietnam accounting information on tax receipts in all expenditures through, a system of four SOCBs. Banks record data on taxpayers centralized/concentrated payment accounts, and the type of revenue collected. This supported by a consolidated computerized enables State Treasury to properly account system with improved accounting, controls, for the receipts and provide the necessary and taxpayer services in the collection and information for the sharing of revenues payment process. In cash management, the among different budgetary levels – center, State Treasury has been charged with safe provincial, district, and commune. The tax and efficient management of the entrusted sharing ratios as noted above may differ funds and government debt. from location to location. A process chart is provided in Appendix II. 31. State Treasury has been proceeding with the consolidation of payment 30. State Treasury has been further arrangements based on the concept of developing its services in accordance with the TSA and developing plans to start the State Treasury Development Strategy active cash management. These plans have until 2020 approved by the Prime become important priority since all State Minister in 2007. State Treasury is aiming Treasury offices have now been using TABMIS to collect all revenues in, and processing for budget control, payment processing and accounting. 22 Implementation of Treasury Single Account and Strengthening of Cash Management in Vietnam C. Progress in setting up a Treasury Single Account (TSA) Current status reserves with SBV to secure the settlement for the transaction processed through IBPS. 32. The State Treasury has decided to Unlike commercial banks the State Treasury consolidate banking arrangements in has been required to keep cash balance as each of the five banks used for treasury collateral instead of securities. Moreover, operations. In particular, the State Treasury SBV does not provide retail services to the balances would be cleared to a single public to receive government tax and other account at each of these banks at the end revenue deposits, while transfers (especially of every business day, covering transactions of State budget revenues) initiated to State processed until 3.30pm (later to be extended Treasury accounts in SBV do not meet the to 4pm). Transactions processed after the cut- State Treasury accounting requirements off time would be attributed to the account (because information format standard of of the next business day (but the commercial IBPS is not compatible with that of TCS/State banks still have to record and account for the Budget revenue collection application of the transactions in the State Treasury accounts in State Treasury).3 the business day). 34. The State Treasury has implemented 33. The State Treasury at the level of the a set of reformed payment services with central State Treasury and seven provincial all four SOCBs. The arrangement specifically offices has established connectivity to an includes the following features: Inter-Bank Payment System (IBPS) for the last two years already. The payment The bank provides Treasury offices services have been fast and efficient, though with electronic interface providing for the arrangement has not been further rolled convenient integration with TABMIS; out for several reasons. SBV operates only in Treasury offices prepare payment Hanoi and provincial centers. It is planned vouchers in TABMIS based on budget to consolidate the provincial operations unit payment requests subject to into five regional offices of SBV. SBV requires approval by a Chief Accountant of the ST State Treasury to maintain holding deposit office; 3 See more on SOCB services for the ST on revenue collection in 26. 24 Progress in setting up a Treasury Single Account (TSA) Each State Treasury office launches Prepared and approved in TABMIS payments are transferred in batches to operations for a new day with a zero the bilateral payment system through balance. its interface with TABMIS and approved 35. The TSA arrangements have been by Chief Accountant and Director of in the process of implementation. Key respective Treasury office – both by milestones of the roadmap have been the electronic signature assigned by the bank; following: Upon approval by both of these State Treasury officials, the bank would The bilateral payment system has process the payments as direct deposit been implemented in Vietinbank (pilot to recipient bank account; completed in mid-October 2013) and roll Any receipts to tax account would be out is fully completed by end of 2013; recorded in the TCS; The implementation of the bilateral Erroneous payment instructions would payment system for BIDV, Vietcombank be returned to the budget units (wrong and VBARD has been fully implemented recipient account number or account by end of June 2014 closed would be rare errors); The rollout of the SBV’s IBPS to State State Treasury would be able to monitor Treasury provincial level branches the status of the payment instructions to has been completed for seven large the bank (accepted, executed, rejected) provinces/cities and full roll out is as reflected in the bank statement; expected to complete by end of 2014, subject to a number of important State Treasury would run the interface agreements with SBV still pending. between TABMIS and the bilateral payment system with the bank to update 36. The State Treasury evaluates the the bank statement, which ensures bilateral payment implementation as automatic reconciliation of transactions a success. Key comments have been the during the day; following: State Treasury would confirm the Consolidating cash at the central level transactions in the bilateral payment system with the bank to close the and improving the liquidity of the whole transactions for the day and to confirm State Treasury system; the closing balance of the State Treasury Rapid, accurate, safe and less time- office; consuming, less effort-consuming State Treasury office balance with the payments; bank is cleared to the SOCB’s HQ to the State Treasury offices have been able to overall balance and reported to the reduce the trips to bank for delivering central ST; payment instructions and collecting 25 Implementation of Treasury Single Account and Strengthening of Cash Management in Vietnam bank statements and associated Complete and timely information on the vouchers; government cash resources State Treasury offices have been able to 39. Before the transition to the new reduce the number of payment vouchers bilateral payment system State Treasury from four to two thanks to the electronic offices used to receive bank statements the format of the vouchers for the bank, thus next business day. There is a requirement saving papers and their costs; however to maintain cash balances on the No need to follow account balance for bank account of each of the State Treasury guidance for the payment processing, offices to ensure uninterrupted processing thus removing the liquidity constraints; of payments. The balance of transactions The response time of core systems, during a day may shift depending on the including TABMIS, bilateral system with expenditure processing or revenue inflows. the bank and TCS should be improved to It is not always possible to rely on TABMIS allow smooth processing of transactions. ledger value for the State Treasury office Vietnam TSA arrangements in the bank account, while it may assist an ad hoc international context projection for the account balance. 37. The TSA arrangements are a key 40. After transition to the new bilateral element of treasury reforms to ensure payment system, State Treasury offices aggregate control over government are able to track the progress of payment cash resources and enable better cash transactions during the day on a real-time management. This section looks at State basis and to confirm the bank statement Treasury achievements against international at the time set for closing transactions. good practice in setting up a TSA. See The State Treasury office starts the day with a Appendix III for a summary of the analysis. zero balance and the balance is cleared from the bank branch to the SOCB HQ. The State 38. Consolidating government cash Treasury office normally would reconcile resources in five main accounts across five the transactions with TABMIS records on the banks is a major step ahead, which brings next business day. The State Treasury center a number of benefits as well as challenges. is now able to monitor the total balance of The expected benefits would come from cash resources with each of the SOCB on a better service provision and reduction of real time basis and confirm the outstanding cost. The management of government cash balances at the end of day, after all State resources among five accounts will require Treasury offices have confirmed the end- slightly higher operational balances and extra of -day balance and the balance has been effort in managing the arrangement on the cleared with the SOCB HQ. side of State Treasury and the servicing banks. 26 Progress in setting up a Treasury Single Account (TSA) Appropriation control units and reduction of excessive burden of centralized controls once well-functioning 41. TABMIS provides for comprehensive monitoring mechanisms are put in place. budget appropriation controls and The reforms should be implemented based the TSA arrangement ensures that no on the country’s specific circumstances and bank accounts are left outside the State control risk assessment. Future directions for Treasury control. Central TABMIS database control would be guided by a drive to reduce ensures the integrity of the appropriation payment processing costs and to rely more records as well as proper budgetary control, on computerized controls on the treasury while processing payments against the side. These reforms should be implemented appropriations. in tandem with efforts to improve internal Operational control audit function at the budget units. 42. The State Treasury has effective Enabling efficient cash management control over the funds in the TSA 44. Although the State Treasury has been according to the State Budget Law’s able to operate with a smaller level of idle requirement that all budget revenues and cash balances then before, the conditions payment requests are brought to the State for effective cash management have not Treasury. The State Treasury has effective been established yet. The ST has until authority to enforce the consolidation of recently focused its efforts on development budget revenues. The State Treasury is also of effective TSA and consolidation of bank specifically responsible for the management balances, while important components of of the State Budget funds. However, its the cash management system have yet to authority to borrow for liquidity-gap- closing be developed. Operation with reduced cash purposes and to invest temporarily idle cash balances has been achieved through better balances for active cash management has monitoring of State Treasury cash balances yet to be specifically established. and improved cash balances data collected 43. The centralization of payment from servicing SOCBs daily. More discussions controls under the State Treasury provides on improving cash management follow in a a greater degree of flexibility for designing separate section of this note. and implementing government controls 45. Analytical capacity to support active in the payment process so as to strike cash management is being developed in a good balance between the authority the State Treasury. An important indicator delegated to the budget units and the of progress here is the development of cash controls performed by the State Treasury. projection capacity to support the analysis International trends are moving toward of government cash flows, as well as to extended delegation of control to budget determine and target the cash balance for the 27 Implementation of Treasury Single Account and Strengthening of Cash Management in Vietnam required level to ensure smooth government public debt which includes treasury bills payment. Reliable cash projections would to a total debt stock and subject them to a help providing advice to the management threshold to limit borrowing. with regards to decisions on employing appropriate instruments of financial asset Reducing bank fees and transaction costs and liability management to adjust the 48. Consolidated management of actual cash balances for achieving the target. government cash under the State Treasury 46. Effective consultation mechanisms to allows for centralized negotiation of review cash projections and to recommend service terms and charges. The State management actions in the State Treasury Treasury enjoys free of charge payment have not yet been established. Formal and collection services from SOCBs, while consultation arrangements to engage the SBV charges remain at the general level. representatives of key revenue agencies, the Relatively high SBV charges for IBPS use budget, and debt officials do not exist. These discourage banks and the State Treasury arrangements would assist in reviewing cash from expanding the use of these services flow developments; help explain whether resulting in cost per transaction at relatively deviations from the cash flow projections high level. are permanent or temporary in nature; 49. The State Treasury should be determine the required target cash balance; able to negotiate better service terms evaluate the risks for maintaining the and charges for SBV services. It does government liquidity at the required level; not matter from a broader point of view and coordinate between the borrowing and whether ST pays higher charges for the short-term financial investment activities. SBV services because increased revenues of 47. The State Treasury has not yet SBV ultimately mean higher profit payment developed the financial asset and liability to the State Budget at the end of the fiscal management instruments to enable it year. Most importantly SBV should perform actively manage the overall cash position its functions efficiently and ensure equally for achieving the target level of the low costs for the services provided to State Treasury cash balance. The existing financial institutions and ST. Inefficiencies instruments – government domestic debt in SBV operations would result in increased securities are mostly used for financing costs for the economy and reduced budget the budget deficit, while the State Treasury revenues. However, the SBV would better demand deposits in banks (non-term achieve its monetary policy objectives, if in deposits) earn interest at levels that are exchange the services they offer for using substantially lower than the cost of financing modern payment systems are provided the deficit. The treasury bills have been at reasonably low fees and with favorable underused due to the current definition of conditions. 28 Progress in setting up a Treasury Single Account (TSA) Facilitating efficient payment mechanisms transacted day). The State Treasury matches the payment transactions processed with the 50. There are multiple benefits for record in TABMIS and marks the transaction the government, its agencies, and the reconciled. The timely bank reconciliation end users from using modern payment ensures high reliability of the fiscal data mechanisms as these become available. reported on cash basis. The government involvement usually benefits all payment system participants Reduced liquidity needs because the government participation would substantially increase the usage of 54. The bilateral payment system modern systems and thus driving down the provides most significant reduction in the unit cost. liquidity needs for the individual State Treasury offices. State Treasury district 51. State Bank of Vietnam through the offices after implementation of the bilateral IBPS has improved payment facilities for payment system rely on the balance of ST commercial banks and provided faster funds in the Head Quarter of the serving and secure payment services for the bank SOCB (instead of being dependent on their clients. IBPS has prompted commercial own account balances at the local branches banks to improve their systems and opened of the SOCB as was the case before) and the way for the State Treasury to proceed start operations with zero balance at the with the upgraded TSA arrangements. beginning of a business day. 52. The State Treasury has also Improved coordination of fiscal and implemented internal clearing system monetary policy for payments among ST accounts, which do not require separate instructions to 55. The consolidation of the State banks for processing. All transactions that Treasury cash balances in five accounts do not impact the balance accounts that the after completing the implementation State Treasury has in banks could be easily of TSA activities will facilitate better processed as internal book entry without information on the status of government requiring bank service. finances. Currently the State Treasury has a daily update of its cash position available Improved quality of bank reconciliation next business day. SBV receives monthly and government fiscal data data from commercial banks that allows SBV monitoring the level of government 53. The State Treasury ensures bank balances. Close cooperation and regular reconciliation next business day for the consultations between the State Treasury transactions processed after the cut-off and SBV would improve coordination of time of the previous day (all transactions fiscal and monetary policies. prior to the cut-off time is reconciled in the 29 Implementation of Treasury Single Account and Strengthening of Cash Management in Vietnam Pros and cons of placing TSA in the responsibility for the performance central bank of SOCBs over the normal level of guarantees provided by the deposit 56. Typically in most countries the TSA insurance scheme. In case of SOCBs facing is placed in the central bank because liquidity problems the pressure on the State of several important benefits. Despite Budget cash balances held with the banks earlier consideration to follow the common will increase as these balances constitute international practice the State Treasury an important source of fund for addressing has opted for proceeding with the model the liquidity and capital gaps. Implicit of consolidating government cash holdings government guarantees for SOCBs would in the SBV and also in four SOCB. See cause larger budget exposure than the table in Appendix IV comparing typical normal costs under the engagement with considerations for placing the TSA in the the deposit insurance scheme, because the central bank with the Vietnam context. State Treasury deposit amounts in the SOCBs Safe haven for the government cash normally exceed the ceilings insured by the resources deposit insurance. 57. Holding government accounts in the Efficient management of government central bank helps avoiding credit risk liquidity and coordination of exposure related to engagement with macroeconomic policies commercial banks. The State Treasury is 59. The implementation of five main reducing these risks with the consolidation accounts for the State Treasury banking of operations to a single account for each arrangements will improve the conditions SOCB. The State Treasury will have more for cash pooling and government cash flexibility managing the liquidity in the management, while the cash requirement servicing bank after the consolidation of the for this arrangement would not accounts. However, the risks of dependency substantially differ from the arrangement on the bank’s liquidity still remain high. with one consolidated account in the SBV. Most importantly, the State Treasury would The State Treasury would need to ensure face serious challenges, if it will need to that the balances in separate banks are reduce liquidity in a bank that is facing sufficient for smooth payment processing. credit problems. Furthermore, a bank having Ensuring separately the liquidity in five bank serious customer confidence problems accounts would add to the administrative may face other problems in providing cost and slightly increase the overall liquidity uninterrupted services to the State Treasury. requirements to cover the time needed for 58. By placing cash balances in the processing the interbank transfers. Specific SOCB, the Government has increased arrangements for payment prioritization would assist the State Treasury in case that 30 Progress in setting up a Treasury Single Account (TSA) it is operating with very low overall cash on the transaction value processed through balances. high value payment system unlikely reflects SBV cost to provide this service. Moreover, 60. State Treasury cash holdings in meeting the SBV reserve requirements for commercial banks would undermine the participation in IBPS provides about one efficiency of coordinating monetary and quarter cost recovery for the State Treasury fiscal policies. This arrangement would have as a difference between the interests paid more direct impact on SBV operations rather by SBV on non-term deposits and the than on the State Treasury ones. SBV should borrowing cost of T-bills. therefore proactively engage with the MOF on improvement of the coordination of 63. The State Treasury may find it monetary and fiscal policies and suggest difficult to support multiple payment appropriate ceilings of government cash systems in the future. The current payment holdings in SOCBs so as to reduce the cost of arrangements may prevent the State Treasury implementing monetary policy. Appropriate from setting up a centralized clearing system interest reward of State Treasury balances with one clearing center covering the in SBV would provide added stimulus for payment needs of all State Treasury offices improving the coordination. Increased through vouchers processed in TABMIS. Such cooperation between the SBV and the State commercial bank-style architecture may turn Treasury towards achieving full objectives of out to be the most efficient tool for ensuring the TSA and ensuring complete realization of comprehensive and cost effective banking its benefits should be made a top priority. requirements for the State Treasury. The cost efficiency here would include the reduced Cost efficient government payment clearing cost of performing tasks within the State arrangements Treasury. 61. The bilateral payment system Clarity of banking arrangements provides good service for the State Treasury at a low cost contrary to the 64. The agreements between the State SBV conditions for the State Treasury Treasury and banks regarding the use participation in IBPS. SOCBs benefit from of the bilateral payment systems have attracting additional business interested in been fixed in writing, while SBV applies fast and efficient clearing of payments with general conditions of the IBPS to the the government, while offering essential State Treasury. The State Treasury has been services to the State Treasury free of charge. happy with the agreements on operating the bilateral payment system, while it has 62. SBV conditions for participation in objections to the terms of cost and the the IBPS are imposing substantial cost for reserve requirements for participating in the the State Treasury. The variable cost based IBPS. 31 Implementation of Treasury Single Account and Strengthening of Cash Management in Vietnam Remaining challenges and obstacles also further improve financial controls in the State Treasury and provide workload 65. Decentralized payment clearing by savings through automated reconciliation State Treasury district offices involves of the processed transactions and returning a number of inefficiencies, mostly in erroneous payments to the originators for terms of increased workload in the State correction. Improved set of accounts might Treasury compared to an option of a single help automatic posting of receipts to the clearing center. The adopted approach for Treasury accounts. TSA seems to replicate the existing financial management arrangements without high 67. The efforts in improving public level reengineering to improve the efficiency financial management so far have been and to centralize the functions so as to focusing on meeting the operational reduce the costs for the government financial requirements of the State Treasury, while management. Decentralized payment and process and controls improvement for receipt clearing services at the State Treasury budget units is still pending. State Treasury result in increased costs because of higher online access to bank services is bringing workload to conduct repetitive payment efficiency gains primarily in the State clearing transactions at different offices of Treasury, while budget units benefit only the State Treasury. Moreover, maintaining from the reduction in time to be informed multiple ICT systems in the State Treasury about their payment transactions executed. offices at all levels instead of concentrating The tools for online services to budget units all functionality in TABMIS also adds costs. are being developed, while the functionality offered remains limited. 66. Typically a centralized payment clearing for the State Treasury would 68. Consideration has been given to mean centralizing the payment clearing further modernize the revenue collection function in one location and providing this arrangements using the dedicated service to all offices of the State Treasury. revenue accounts pending the upgrade A centralized payment clearing system could of the accounting systems for the revenue serve as a backbone for conducting of all authorities. The detailed accounting and banking operations, while the payment reconciliation responsibilities for transactions approval could be decentralized and located on these accounts would be delegated to the as per the established payment control revenue authorities. Cash deposits would be requirements. The centralized payment reconciled immediately at the resources of clearing system would collect the approved the State Treasury, while the actual balances payment vouchers from TABMIS and process would be swept to the State Treasury account automatically without separate approval at the end of the day. The State Treasury by the officers of the central office of the would have on-line access to the transaction State Treasury. Centralized clearing would data on revenue accounts. The State 32 Progress in setting up a Treasury Single Account (TSA) Treasury should ensure that the dedicated district State Treasury offices according to revenue accounts remain closely integrated the TSA roadmap would be the top priority with the rest of the treasury accounts to for consolidating government cash ensure that the accounting controls and the balances from 700 bank accounts to four cash management arrangements remain main accounts in SOCBs. Implementation adequate and in line with the further reform of bilateral payment system with four SOCBs steps and automation of the government provides the State Treasury with substantial financial management processes. operational benefits and helps improve conditions for successful cash management. 69. The use of cash in transaction This would reduce manual routine works in processing remains significant in producing payment instruments, delivering some locations, which is delaying the these to banks, collecting hard copy bank modernization effort. Cash facilities statements, and reconciling the bank continue to be provided even in State Treasury statements with TABMIS ledger record. offices located in large centers, where modern Particular attention should be paid to payment options are widely available. The improve the capabilities of the involved ICT use of cash involves substantial control and systems to enable stable user access and operational risks for the government and to meet user expectations regarding the hinders efforts to enhance transparency and systems’ response time. improve government revenue collection. 73. Developing and launching Treasury Priority TSA reforms and strategy e-portal for budget unit access to TABMIS 70. Priority TSA reforms and strategy are data and services would further optimize grouped into short-term (next 1-2 years) public financial management processes. and medium term –(beyond 2 year horizon) Particular improvements for budget units activities that should be considered to should be expected from (i) online access to achieve efficient TSA operation. expenditure progress reports and transaction details; (ii) providing cash flow information (for Short term priorities (1-2 years) revenues or expenditure exceeding thresholds specified by the MOF); (iii) exchanging other 71. The immediate focus of TSA information, including commitment data and development would be to complete cash management information; (iv) reporting consolidation of the government bank to the State Treasury the accounting data for accounts that is already underway. government consolidated financial statement 72. Enabling and stabilizing bilateral preparation4; and (v) preparing payment payment system with four SOCBs for all requests in budget units. The State Treasury 4 This would enable ST to perform the newly assigned State Accountant General Function. 33 Implementation of Treasury Single Account and Strengthening of Cash Management in Vietnam Assigning location codes to the taxpayers has not yet considered the latter because the existing financial controls are based on manual and retaining clear taxpayer register in review of original supporting documents, the State Treasury to allow allocation of while approving payment transactions. the collected revenues; However, the State Treasury may wish to start Creating a separate online portal with allowing budget units to make electronic for taxpayers, which also could be submission of payment requests to the State linked to other online services offered Treasury while embarking on the modification by tax administration or customs of the control requirements as a separate administration, allowing the taxpayer exercise. This step would enable involvement selecting the necessary location and of the budget units in the earlier stage of the revenue type parameters to complete automated budget management process. the revenue data entry before the This also saves the payment processing portal would link to the taxpayer’s bank workload for the State Treasury, ensuring that for automatic creation of a payment payment voucher is entered only once at the instrument with the necessary coding point of inception in the budget units without for the State Treasury accounting needs. having to re-type it in State Treasury offices. 75. The TSA coverage in the future 74. The rationale for dedicated revenue should be extended through amendments collection accounts and options for to appropriate legislation to include all meeting the revenue accounting general government funds, adding all requirements through regular payment extra-budgetary funds, autonomous system (IBPS) data format should be (extra-budgetary) agencies, excluding reviewed. Following options or any government corporations. The rationale combination of them could be considered for for this step is to enable management of all future improvement of taxpayer services and government cash resources in a centralized reduction of workload for banks and other manner, while allowing the State Treasury stakeholders in line with already existing to extend the necessary payment and TABMIS and TCS capabilities: accounting services to all units of the Expanding the set of revenue ledger general government. Any exceptions to this accounts (the accounts should have requirement should be authorized by the specific bank system account number Ministry of Finance in writing, where it is not convention to allow their standard use practicable for the ST to process payment in the payment instructions) in the State e.g. government representations abroad or Treasury to accommodate for specific specific types of national security payments, types of revenue and the locality of as well as other cases. taxpayer to attribute the revenue to 76. The obstacles for enabling efficient specific levels of local government for use of IBPS by the State Treasury should revenue sharing purposes; 34 Progress in setting up a Treasury Single Account (TSA) be removed by engaging the State Bank of 78. The State Treasury, when planning Vietnam. The State Treasury should develop major upgrade of IT systems should the negotiating position by persuading SBV consider that modern payment system to allow ST access to IBPS on beneficial terms, technologies usually rely on a financial taking into account economy-wide benefits institution centralizing the clearing from ST gradually consolidating its balances through the main account in the center. on the TSA in SBV. International experience Such changes allow consolidation and also shows that the transition of government automation of processes, rationalization of payments through IBPS would increase the internal controls in the State Treasury, as well use of the system substantially and therefore as the reduction in transaction costs over reduce the unit cost of a transaction. The SBV long term. The key change of the business should also be asked to consider accepting a process would involve central clearance of promissory note from the MOF as collateral payment vouchers prepared locally, where for the State Treasury participation in the bulk of effort could be assumed by systems IBPS, if SBV cannot abolish the reserve concentrated in the center. The State Treasury requirement for any reasons. would be able to develop more bank-style services for its clients and the arrangements Medium term priorities (beyond 2 year could further support the automation of horizon) routine accounting tasks. See the chart 1 77. Medium term priorities include important below. strategy considerations to be examined as soon as possible, while their full implementation might go beyond the two-year horizon. Chart 1: Centralized Payment Clearing Model SBV ST TABMIS IBPS Commercial banks Budget unit Bank client Budget unit Bank client Budget unit Bank client Budget unit Bank client 35 Implementation of Treasury Single Account and Strengthening of Cash Management in Vietnam 79. The State Treasury in cooperation in reducing the costs of government with other stakeholders should consider financial management. Improved payment rationalizing the payment controls with systems and the expansion of plastic extending the delegation of authority payment card usage for the petty cash needs to budget units. The automation of and travel payments operations in long public financial management processes term would reduce transactions in cash, normally leads to revision of the control while improving the availability of electronic framework. The State Treasury may wish to records for upload on the government consider expanding centralized records in accounting and financial management TABMIS to cover all stages of expenditure systems. The transition to plastic cards would by adding the phases of commitment, allow government units to reduce visits invoice, and goods received to the existing to banks for replenishing their petty cash functionalities distinguishing budgets, fund or disbursing travel cash. Point of Sale releases, and payments. Adding the records (POS) terminals would allow budget units on commitment, invoice, and goods to collect revenues from public through received would allow the State Treasury to plastic card payments instead of using have better accounting information and cash. Meanwhile, the advances to plastic audit trail for follow up. This would allow card accounts should be carefully managed extending the delegation of controls to to ensure that reasonable risk thresholds budget units. However, careful testing of are not exceeded and recovery could be the ICT facilities should be conducted to done from the employee claims on the see, if the additional information could be government. Phasing out cash transactions accommodated in TABMIS before the controls at the local levels and replacing these with could be modified. The State Treasury may a new petty cash procedure will have critical consider revising the regulations to allow role for enabling effective centralization of for reviewing scanned document copies payment clearing services. instead of originals, excluding high financial risk cases, to reduce number of visits of the 81. The State Treasury should also budget units to the State Treasury offices. explore the options for reducing The establishment of effective internal audit gradually the number of servicing banks function at the budget units will be critical in to further reduce the fragmentation of the making further decisions for decentralizing government cash balances. The reduction the controls even if the new task would of using cash in government receipt expand over a longer time period. collection and payment operations would allow relaying on a smaller number of bank 80. Ongoing government efforts to accounts, while providing for the necessary facilitate the development of cash- operational flexibility. less payments will play a critical role 36 Implementation of Treasury Single Account and Strengthening of Cash Management in Vietnam D. Strengthening Cash Management Current status the cash management function. The State Treasury has drafted a number of 82. The State Treasury development proposals for legislative initiative to enable strategy until 2020 approved by the Prime the next steps for active cash management Minister in 2007 stipulates that the State in the State Treasury. The staff has also Treasury would assume the responsibility started studying the patterns of cash flows, for managing the State Treasury financial while formal cash flow projections have not resources safely and efficiently. Busy yet been launched. Other studies, study agenda of implementing TABMIS and rolling tours and professional exchanges within it out to all State Treasury offices as well as the framework of the Public Expenditure the drive for devising approaches for TSA Management Network in Asia (PEMNA) have postponed the State Treasury efforts have helped develop the understanding to develop cash management capacity and of key requirements for active cash effectively assume this responsibility. In management. addition, it has been recognized that cash management reform would have significant 84. The MOF has increasingly started implications on the operations of ministries, to borrow domestically for financing the agencies and sub-national governments, budget deficit and the government’s and is closely linked with the revision of the ambitious investment program. The MOF State Budget Law. Therefore, the MOF has has a Department of Debt Management decided to postpone the date of submission and External Finance charged with to the Government of the proposed Decree responsibilities for managing the external on Cash Management until when the and domestic debt. (revised) State Budget Law is approved by the NA. The Decree is expected to provide Analysis essential legal underpinnings for the State 85. Insufficient investment in cash Treasury to effectively perform Government management capacity prevents the cash management. State Treasury from reaping the full benefits of their substantial investment in 83. The Legal Department of the State consolidating government cash resources Treasury central office has been charged in the State Treasury. The resources required with the preparation for implementing 38 Strengthening Cash Management for improving cash management would be 88. Developing cash flow projections substantially smaller than the benefits from is an important primary function that net interest cost savings and reduced cost for the State Treasury should establish bank services. for successful cash management. State Treasury staff should be able to master 86. The State Treasury does not yet have the cash projections in order to maintain the necessary resources and authority analytical framework for monitoring budget for increasing the efficiency of managing execution and advising the management government cash resources. The State on necessary actions to be taken upon Treasury has been focusing on processing operational cash surplus or deficit. The government transactions, performing cash projections should be considered as a budget controls, accounting and reporting, cash management plan instead of focusing while both the capacity and the facilities on the accuracy of the projections. The for cash management have not been comparison of the actual cash flows against developed. Moreover, the State Treasury the projections (cash management plan) has not been given the authority to perform would allow the management to decide on active cash management – the transactions the required action. Materially important in assets and liabilities, which would allow deviations from the plan would require earning interest from investing temporarily modification of the borrowing program or idle financial assets. other changes of fiscal plans. The actions 87. Successful cash management in should be closely integrated with the both public and private sectors requires management of domestic financial assets adequate organization structure and and liabilities. capable staff. The State Treasury should 89. The State Treasury’s ability to earn consider a three-tier organization structure interest on short term financial assets or for the cash management functionality: attract financial resources to close short (i) a front office responsible for preparing term financing gaps depends on the and negotiating financial asset and liability development of adequate instruments. management transactions; (ii) a middle office The use of ad hoc instruments for financial responsible for analytical tasks, including asset and liability management should be cash flow projections and risk management; discouraged as it takes time to develop and (iii) a back office – responsible for such instruments and assess the benefits, the execution of underlying financial costs, and risks associated with the use of transactions, record keeping, and financial such instruments. The State Treasury should reporting. Clear functional segregation of use standard instruments for the financial tasks is important for the learning process asset and liability management instead of and institutional capacity building. designing ad hoc instruments, which would 39 Implementation of Treasury Single Account and Strengthening of Cash Management in Vietnam require substantial effort in design process management and the skill sets required in the compared to a standard facility. front office are the same. The duplication of tasks should also be avoided for the units of 90. Risk management is a challenging the DMO and the State Treasury completing function to start active cash management. the tasks of the middle and back office. Risk management does not mean excluding engagement in the transactions, which Key recommendations involve any degree of the risk. It helps State Treasury keeping risks at a manageable level Developing cash forecasting function so that appropriate actions could be taken 92. The State Treasury, as a first step in to minimize financial losses. It is advisable developing the cash forecasting function, to separate the risk management staff from should primarily focus on producing other State Treasury functions to allow the three-month rolling cash projections by former to focus on preventing the State day and cash projections for the current Treasury incurring substantial losses in the fiscal year with a monthly breakdown. process of active cash management. Using cash flow projections by day should 91. Best results can be achieved, if help State Treasury determining the target government financial asset and liability cash balances at any time of a month, management is placed in a single institution identifying cash balances available for short and under a single management. It allows term investment or required changes to saving scarce resources of qualified staff the borrowing program, or taking other through appropriate sharing of middle measure to ensure smooth payment. The and back office functions as well as better current fiscal year projections with monthly coordination among front office staff. A breakdown are important for tracking the general practice is to assign a complete budget performance and allowing State set of tasks for all domestic financial asset Treasury to arrive to independent opinion and liability management to one unit – regarding the feasibility of the fiscal outlook either in the State Treasury or in the Debt and the requirement for corrective measures Management Office (DMO), depending on to ensure smooth budget execution process. country specific institutional arrangements 93. The State Treasury should verify for debt management. However, if all debt the cash forecast model with the IMF management functions are consolidated Government Finance Statistics Manual in the DMO, the location of the financial 2014 edition (GFSM2014) methodology asset management function and close to ensure that a comprehensive analytical coordination with liability management framework for the government stocks functions would become important. The and flows of financial assets and liabilities instruments used for liabilities are mirror is followed. IMF GFSM2014 provides image of the instruments for financial asset 40 Strengthening Cash Management comprehensive grouping of assets and circumstances have been a better basis for liabilities and clarifies distinction among the cash management plans. flows and stocks and revenue, expense, assets and liabilities. The State Treasury 96. The State Treasury should compare should aim for gradually developing the actual budget performance against the capacity to compile the financial balance projections to draw lessons and refine the sheet representing the financial assets and forecasting methodology. This exercise liabilities under the State Treasury custody. will allow the State Treasury cash forecasting This reporting could be further extended to staff to develop the necessary skills quickly. the general government sector in the future. 97. The State Treasury should require 94. While developing cash flow budget spending units to book funds with projections, the State Treasury should 2-3 business day notification for large start first with using historical patterns value transactions out of the ordinary and debt payment schedules. Additional spending pattern to accommodate big data from the revenue authorities and value outflows. This data may assist the budget units for estimating the key cash flow State Treasury adjusting the cash projections aggregates may not be very helpful, as these and making remedial steps, if the cash counterparts have different assumptions for situation is tight or there is need to liquidate the projections. any short term investments. 95. The facilities for extracting necessary Developing instruments for financial asset data from TABMIS into Excel would be and liability management the most practicable tool in assisting the 98. Different instruments for financial State Treasury staff to analyze the actual asset and liability management should budget execution performance, assess be developed to enable saving on net the deviations, simulate and format the borrowing cost and ensuring that funds projections for presentation. Specialized could be raised quickly, if the cash modeling in TABMIS based on actual data outlook changes abruptly. Well designed may be difficult to develop and may not and evaluated instruments for managing turn out to be practicable for arriving at financial assets and liabilities will allow cash flow projections quickly, especially the State Treasury to ensure adequate risk taking into account the high workload and management and reduce net borrowing the cost of programming such facilities. costs in the long term. Moreover, other countries have experienced difficulties in relying on the spending unit 99. The State Treasury should consider cash forecasts, while the Treasury projections offering interest on deposits in the State based on the patterns of past performance Treasury, if the funds deposited do not with adjustments for specific current year originate directly from the government 41 Implementation of Treasury Single Account and Strengthening of Cash Management in Vietnam general resources (tax and other funds keeping all domestic financial asset and received in the general fund). Market rates liability functions in the State Treasury to offered by commercial banks could serve as allow development of a comprehensive a good benchmark for setting award rates organization structure and staffing under a on non-term deposits in the State Treasury. single management. A comprehensive three – These deposits should help reducing the tier structure should be considered, including needs to issue T-bills and benefiting from front-office, middle office, and back office gains in interest cost reduction (from the with operational cooperation supported difference between the T-bills rates currently by a dedicated MIS. Effective coordination exceeding 4.3 percent and the rates paid arrangements should be developed, if it on bank deposits currently at 1.2 percent). would not be feasible to reassign the tasks. Alternatively the State Treasury may also Coordination could be ensured through a offer the facility of term deposits in line with cash management committee – to ensure the conditions provided by commercial sufficient funds in the TSA for meeting the banks. forthcoming government payments and a debt management committee – to schedule 100. Implementation of government the debt issuance and to avoid conflicts domestic security repurchase agreements between the domestic asset and liability would provide safety of investment management operations. and, potentially, better interest income compared to commercial bank deposit 102. A cash management committee rates. The use of this instrument could also for reviewing the developments in cash increase the liquidity and attractiveness of flows and preparing recommendations the government securities in the secondary for the management action should market allowing further potential savings of be considered. The cash management government interest cost through reduced committee should comprise of the experts interest rates offered for the securities. engaged in the cash forecasting as well as other critical fiscal management functions Organization structure, staffing, and legal – budget, key components of revenue, debt basis of operation management, to enable timely consultation 101. The State Treasury should consider and understanding of the nature of changes and discuss with the MOF the challenges to the cash flows. Temporary deviations for the operational arrangements of should require attention, if these do not financial asset and liability management result in permanent trends requiring changes taking into account the allocation of this to the borrowing plans or the key budget function between the MOF Departments parameters. and the State Treasury. In the near to 103. The State Treasury should appoint medium terms, the best option would be risk management staff as a separate 42 Strengthening Cash Management function to provide the State Treasury substantial limits to hiring very experienced management with independent risk professionals. Alternatively, the government management assessment separately may need to consider the practice of other from other analysis and considerations. countries in setting up a semi-governmental Developing a comprehensive risk organization with flexible pay structure, if the management function will be critical civil service model for organizing effective for ensuring that the risks involved with cash management is not feasible. managing government financial assets and liabilities remain manageable and the 105. The State Treasury should adopt State Treasury is able to react quickly and a cash management capacity building effectively to changing circumstances. and training plan. Cash flow forecasting staff will require very strong Excel and 104. The State Treasury should aim for a numerical skills to ensure effective learning dynamic organization structure and ensure and performance. Good English language intensive hiring effort and continuous knowledge will be instrumental for the training, merit-based appointment and legal support and front office staff to enable promotion for the staff engaged with learning from the international experience the cash management functions. The civil and information available over the Internet. service pay scale limitations may impose 43 Appendix Appendix I: Vietnam: Treasury payment arrangements (2014) 2 8 SBV HQ 8 3 TABMI Treasury HQ CB HQ 3 5 Payee 7 3 Interbank 4 Settlement 46 Budget System 6 4 agency 1 SBV prov. 8 CB prov. branch 2 branch Payee Provincial Treasury Budget 3 agency 7 1 6 2 District 3 8 CB district Treasury branch Payee Budget agency 1 7 Implementation of Treasury Single Account and Strengthening of Cash Management in Vietnam 1. Budget agency requests payment from respective Treasury office 2. Treasury office posts the payment request to TABMIS after completing the controls 3. Treasury office pass payment instructions to the assigned bank, bank branch, or directly to the Interbank Settlement System after completing the payment and TABMIS controls 4. SBV HQ and SBV branches upon receipt process payment instructions received from the Treasury HQ or from provincial treasury through the Interbank Settlement System 5. Interbank Settlement System receives and directs all interbank and inter-branch payments to respective recipients (the participants of the Interbank Settlement System) 6. CB offices direct out of the office settlements to other CB offices or into Interbank Settlement System 7. CB offices credit the accounts of their respective clients (payees may be suppliers to the government or recipients of other government payments, e.g. salaries, social benefits, etc.) received from the Treasury offices or payments received from other CB offices of the Interbank Settlement System 8. Respective bank branches provide Treasury offices with bank statements for reconciliation Note: This chart does not cover the cash management arrangements for consolidating the surplus funds on the STV main 47 accounts in respective bank HQs and supplementing the accounts with payment requirements exceeding the available balances. Appendix Appendix II: Vietnam: Treasury revenue collection arrangements (2014) 4 1.1 TABMI 3 Treasury Bank w/Trea- 2 HQ sury accounts Other CB 1.2 Revenue 6 Taxpayer statemen 5 Revenue 6 authority 4 1.1 Revenue 6 3 2 Provincial Bank w/Trea- statemen Treasury Other CB 1.2 sury accounts Taxpayer 5 Revenue 6 authority 1.1 48 4 Revenue statemen 6 District 3 Bank w/Trea- 2 Treasury Other CB 1.2 sury accounts Taxpayer 5 6 Revenue authority 1. Taxpayer completes tax assessment, issues payment instructions, and provides the information necessary to create a record in the Tax Collection System (TCS) to: a. TSA subaccount at a SBV or an office of one of four state-owned commercial banks (Vietcombank, Vietinbank, BIDV, VBARD), if the taxpayer is a client of this bank branch b. A bank branch different than the branch servicing the Treasury, where the taxpayer is client 2. The commercial bank branch, different than the bank branch having a TSA subaccount makes transfer of tax to the Implementation of Treasury Single Account and Strengthening of Cash Management in Vietnam bank with a TSA subaccount assigned for the revenue collection 3. The bank with TSA subaccounts credits Treasury general transactions account or a separate account opened for the revenue collection at the locations with large number of taxpayers, completes record in the TCS, and at the end of day transfers the balance from the revenue account to the Treasury general transaction account and provides respective Treasury offices with bank statements 4. Treasury office reconciles the bank statement with the TCS record and creates records in TABMIS. If the revenue is tax and fee, the CB system links directly with TCS to account for the revenue and to share revenue before it is posted in the GL of the TABMIS (through interface between TCS and TABMIS). If revenue is receipt other than tax and fee, the CB transfers the data back to the ST through bilateral payment system (for reconciliation) and from there it is posted in TABMIS (through interface between bilateral payment system and TABMIS - this interface is also used when payment instructions are sent from the ST to CB). 5. Treasury office provides revenue statement for the Revenue authority 6. The revenue authority clears the taxpayer’s obligation and reconciles with taxpayers as necessary 7. Treasury office based on revenue sharing arrangements established for respective governments at these levels informs respective government units of the amounts of revenue collected – Central Treasury for the central budget, a provincial treasury – for the central and provincial budgets, and a district treasury for four levels of the 49 government – central, provincial, district, and village Appendix Implementation of Treasury Single Account and Strengthening of Cash Management in Vietnam Appendix III: Vietnam: Achieving TSA objectives against international best practices No. International Vietnam status perspective 1. Allows complete and Achievement improved after the transition to bilateral timely information payment system. Bank statements at the ST office level and in on government cash the center are becoming available at the end of the business day resources instead of next business day availability at present. 2. Improves Achieved. The ST has implemented appropriation controls, appropriation control while processing spending unit payments. No state budget operations are executed outside the ST. 3. Improves operational Achieved. The ST fully controls the budget execution control during operations. budget execution 4. Enables efficient cash Partially achieved. Sizable balances are held at commercial management bank branches servicing ST district offices. Cash pooling is being achieved at commercial bank HQ as the bilateral payment systems are introduced. TSA covers the majority of the general government funds, while active cash management arrangements and the delegation of authority to ST for cash management and financial investment are still pending. 5. Reduces bank fees Achieved. The ST has the authority to negotiate and enforce and transaction costs most beneficial terms of banking services for the government. 6. Facilitates Partially Achieved. Electronic payment facilities have been efficient payment implemented according to the TSA Roadmap. Agreements mechanisms with commercial banks have been reached and roll out of electronic payment to all four SOCBs has been completed by end of June 2014. Electronic payment arrangement for ST is yet to be fully rolled out to all branches of SBV. 7. Improves bank Achieved. Bank reconciliation has been enabled to be reconciliation and completed same day (under bilateral payment systems) or quality of fiscal data next business day (currently manually), enabling reliable government financial data on real-time basis. 50 Appendix No. International Vietnam status perspective 8. Lowers liquidity Achieved. The liquidity requirements for the execution of the reserve needs State Budget have been substantially reduced as the result of implementing TSA and TABMIS, while further improvements are expected from cash management reforms. 9. Facilitates better Substantial improvement in availability of information. coordination with The necessary information is compiled daily at SBV and four the monetary policy commercial banks report on monthly basis as part of the implementation compilation of the monetary survey. 51 Implementation of Treasury Single Account and Strengthening of Cash Management in Vietnam Appendix IV: Placing the TSA in the central bank – Vietnam context No. Benefits of TSA with the Vietnam context central bank 1. Provides a safe haven for The risks for budget funds at four state-owned government cash deposits, commercial banks substantially depend on the financial which minimizes credit risk performance of these banks. exposure. The Government has either full ownership or controlling share in these banks and consequently – increased responsibility for the performance and stability of state-owned commercial banks. The government risk exposure to state owned commercial banks includes both – the cash balances as well as the liabilities for ensuring the banks meeting their obligations against their depositors. The degree of Government’s full or partial control for any of the state-owned banks would be outside control of the ST. 2. Aids the efficient Extensive use of commercial banks and having management of government sizable government deposits with commercial banks liquidity, and facilitates the reduces the effectiveness of the SBV monetary policy central bank’s coordination of vs. the option of effective TSA in the central bank. its monetary policy operations Meanwhile, this does not have impact on the ST and in managing liquidity in the MOF operations. economy with government’s cash and debt management functions 3. Can facilitate cost effective Clearing arrangements have been set up with the banking arrangements and SBV, while bilateral clearing arrangements are speedy settlements (it might effective with four state-owned banks. be possible to negotiate ST currently gains from engaging multiple banks to with the central bank to act satisfy the immediate (short-term) service needs, as the clearing house for while reduced use of the SBV interbank clearing government operations, system would keep single transaction cost at the which may speed settlement) current high level. 52 Appendix No. Benefits of TSA with the Vietnam context central bank 4. Allows for clarity of The conditions offered for the ST by the SBV are banking arrangements not satisfactory for the ST, especially regarding and remuneration policies the required level of cash holdings and the cost between the treasury of transaction. Meanwhile, the cost- benefit of and the central bank (a maintaining five different clearing systems and five service level agreement treasury bank accounts should be updated in the is normally negotiated future. Multiple service arrangements option remains to clarify obligations and most feasible until the banking system improves their responsibilities when operations substantially and the government adopts the central bank acts as new business processes for receipts and payments. the clearing house for government operations) 53