Cash management in Lesotho - CABRI | Connect

Cash management in Lesotho

The importance of effective cash planning during budget

formulation and execution

Contents

Acronyms and abbreviations 3

1. Introduction 5

2. Legal and regulatory framework 7

3. Institutionalsetup 8

4. Lesotho’sbudgetaryprocess 10

5. Lesotho’scashmanagementprocess 12

5.1Preparationofcash-flowplans 125.2Co-ordinationmechanisms 135.3 ITplatformsasenablersofdataexchangeandco-ordination 14

6. Lesotho’s cash management challenges 16

6.1Poorcashforecasting 166.2Proliferationofbankaccounts 166.3Poorreconciliationofbankaccounts 176.4Non-functioningco-ordinationcommittees 17

7. Conclusion 18

References 19

Annex1:Lesotho–Technicalassistanceforcashmanagement 20

Tables and figuresTables

Table1: TheLTC’stermsofreference 13

Figures

Figure1: Lesotho’sbudgetaryprocess 11 Figure2: Guidelinesforpreparationofcash-flowplans 12 Figure3: CurrentstructureofLesotho’sTreasurysingleaccount 14 FigureA1:Fishbonediagramshowingtheproblemanalysis 22

2 Cash management in Lesotho

Acronyms and abbreviations

AG AccountantGeneral

BFP BudgetFrameworkPaper

BPFMC BuildingPFMCapabilities

BSP BudgetStrategyPaper

CABRI CollaborativeAfricaBudgetReformInitiative

CBL CentralBankofLesotho

CBMS CentralBudgetManagementSystem

CM CashManagement

CMU CashManagementUnit

DeMPA DebtManagementPerformanceAssessment

GOL GovernmentofLesotho

IFMIS IntegratedFinancialManagementandInformationSystem

IMF InternationalMonetaryFund

INTOSAI InternationalOrganisationofSupremeAuditInstitutions

IT InformationTechnology

LMC LiquidityManagementCommittee

LTC LiquidityTechnicalCommittee

MDAs Ministries,DepartmentsandAgencies

MOF MinistryofFinance

MTFF Medium-TermFiscalFramework

PEFA PublicExpenditureandFinancialAccountability(Framework)

PFM PublicFinancialManagement

PFMA PublicFinancialManagementandAccountability(Act)

PFMRP PublicFinancialManagementReformProgramme

PPAD ProcurementPolicyandAdviceDivision

SA SouthAfrica

SACU SouthAfricanCustomsUnion

TOR TermsofReference

TSA TreasurySingleAccount

The importance of effective cash planning during budget formulation and execution 3

Overthepastfewyears,Lesotho’smacroeconomicsituationhas come under considerable strain. Given the country’seconomicdependencyonSouthAfrica(SA)andonreceiptsfrom the Southern African Customs Union (SACU), slowergrowth and the recession experienced by SA in 2017 and2018ledtoacontractionoftheeconomyin2017,althoughmodestgrowthwasachievedin2018(seeBox1).

Consequently, government revenue has been negativelyaffected, resulting in the depletion of fiscal and reservebuffers over time. Towards the end of 2017/2018, thegovernmentstartedtorunoutoffiscalspaceintermsofitsabilitytodrawondepositsandfiscal reserves.Soasnottojeopardise the currency peg to the rand, and given theshallownessofthelocaldebtmarkets,thegovernmentcouldnotavoidtheaccumulationofpaymentarrears.Thissituationhasputservicedelivery,aswellasthewelfareofthewholenation,atrisk.Forexample,acommercialsupplierdecidestowithholdfuturefueldeliveriesuntilbackpaymentshavebeencleared,therebycreatingthepossibilityofafuelshortage.

Suchascenariocouldhavebeenmitigated,althoughprobablynot completely resolved,bymoreactivecashmanagement(CM),asthereisevidenceofalargenumberofaccountswithidlefundsavailabletothegovernment.

Overthepastfewyears,thegovernmentofLesotho(GoL)hasbeenimplementingacomprehensivesetofreformsaimedatstrengthening public financial management (PFM)arrangementsinthekingdom.Thesehaveaimedtointroducea modern legal and regulatory framework, to ensuretransparency and effectiveness in budget policyimplementation, to improve cash-flow forecasts andmanagement, to strengthen internal controls and externalaudit,tomaketheaccountingandfiscalreportingcompliantwithaccountingstandards,andtostrengthenprocurement.

1 This case study was written byMr JoséMaurel, Public DebtManagement Consultant (Mauritius) for the Collaborative Africa Budget ReformInitiative(CABRI).TheconsultantwouldliketothankMsDanielleSerebro(CABRI)andaswellasallofficialsfromthegovernmentofLesothofortheirinputsandcomments.Responsibilityfortheviewsexpressedinthecasestudyandforanyerrorsrestswiththeconsultant.

WithregardtoCM,itisgenerallyrecognisedthatthisfunctionneeds to be further strengthened and, as discussedbelow,the situation is evolving and progress is being made onvariousfronts,albeitslowly.Inthepast,andintheabsenceofgood systems and sound practices, CM has been theequivalentofcashrationingasawaytomanageexpenditure.This has impacted not only budget execution but debtmanagementandmonetarypolicyimplementationaswellasco-ordination. However, more recently the situation haseased, and cash has been disbursed in line with requestsratherthanavailability.

This casestudydiscussesCMarrangements inLesothoandtriestogobeyondthesymptomsbyaskingsomepertinentquestionsconcerningchallengesthatarebeingencounteredinachievingefficientCMoperations.1Areascoveredinclude:

• Cashforecastingandthesubmissionofcashplans

• The creation and management of bank accounts,includingreconciliationissues

• Co-ordinationissues,includingthecloselinkthatmustexistbetweencashanddebtmanagement

• Effortsunderwaytoremedythesituation.

Westartbydescribingthelegal,regulatoryandinstitutionalsetup,andproceedtoanalysehowCMoccursintheoryandpractice.

1. Introduction


Box 1: The Lesotho economy

SurroundedbySouthAfrica,theKingdomofLesothoobtaineditsindependencefromBritainin1966.Itspopulationisestimatedat2.2million(2016)withthelargemajoritylivinginorinthevicinityofurbanareas.Theeconomyisdependentontheextractionofdiamonds,theexportofwatertoSouthAfrica,workers’remittances,andcustomandexcisereceiptsfromtheSACU.

CustomsandexciserevenuewithintheSACUiscollectedandsharedamongmembersaccordingtoarevenue-sharingformula.RevenuesfromtheSACUarehighlydependentonglobalandregionaleconomicdevelopmentsintermsofexportcommodityprices.Overtheten-yearperiodending2015/16,theaverageSACUrevenueamountedto26percentofgrossdomesticproduct(GDP)and47percentoftotalrevenueofLesotho,anillustrationoftheimportanceofthiscomponent.However,SACUrevenueisalsoveryvolatileandcanresultinabrupt‘changesofmorethan10percentagepointsofGDP’(IMF,2017).ThedeclineinLesotho’sshareofSACUrevenuehasputenormouspressureonthegovernment’sbudget.

Aftergrowingat2.1percentand2.7percent in2015/16and2016/17respectively, theeconomy isestimatedtohavesloweddownto0.5percentin2017/18.However,ledbyrecoveryinthediamondandtextilesectorsandconstruction,itisprojectedtogrowby2.9percentin2018/19.

Theagriculturalsectoristhemainsourceofincomeformostoftheruralpopulation.Inrecentyears,foreigninvestmentinthetextileindustryandcommercehavecreatedmorejobsandstrengthenedtheeconomy.

Insuchavolatilepublicfinanceenvironment,soundCMisadefinitepriority.WhileCMdoesnotincreasetheamountofgovernment revenue, it ensures that available cash is used efficiently, and that the government does not resort tounnecessaryborrowing.

It is generally recognised that cash management needs to be further strengthened and that the situation is evolving and progress is being made on various fronts


Lesotho’s legal framework for the management of publicfinance is evolving. Currently, the Public FinancialManagementandAccountability (PFMA)Actof2011 is themain piece of legislation that addresses transparency andaccountability issues, aswell as the soundmanagementofreceipts, payments, and assets and liabilities of thegovernment.TheAct iswide-rangingandcoversareassuchas:

• Powersof theminister andof the chief accountingofficer

• Budget(content,review,approval,appropriation)

• Financialmanagement

• Operationsoftheconsolidatedfund

• Borrowingandguarantees

• Reporting

• Audit

• Publicenterprises

• Procurement

AnewPublicFinancialManagement (PFM)BillaswellasanewPublicDebtManagementBillhavebeenpreparedwiththeaimtomodernisethelegalframeworkandarecurrentlyfollowingtheapprovalandenactmentprocess.

2 However, the circulars for both the budget framework papers and budget estimates do provide some limited guidelines regarding these twoactivities.

NewTreasuryregulationswereadoptedbythegovernmentin2014.Theregulationsrecognise the importanceofcash-flow planning in Section 13(1), which states that ‘theAccountantGeneral, in consultationwith theCentral Bank,the Budget Department, the Macro-fiscal Unit and otherdepartmentsshallensuretheexistenceofafunctionalcashflowmanagementframeworkincludingcash-flowmonitoringforefficientandeffectiveuseofgovernmentcashresources’.PartIVoftheregulations,dedicatedtocashforecastingandCM,makesprovisionfortheoperationofaCashManagementUnit (CMU) within the Accountant General’s Office (seeSection3).

Besidestheprovisionsinprimaryandsecondarylegislation,CMneedstobesupportedbyasetofmanualsandguidelinestoinformday-to-dayoperations.Thesedocumentsshouldbewidely available and periodically revised in the light ofexperience.Documents reviewedaspartof thiscasestudymention the existence of a CM manual, but this is notavailable on the Ministry of Finance (MOF) website. Nobudgetguidelinesormanualsseemtohavebeenproduceddespite cash-plan templates having beendevised in 2018.2 One of the findings of CABRI’s Building PFM Capabilitiesprojectisthatsomebudgetdocumentsrequireconsiderableimprovement(e.g.thebudgetmanualdoesnotpresentthebudgetintermsofprogrammes).

2. Legal and regulatory framework


The MOF is responsible for all aspects of fiscal and debt-managementpolicies,includingmedium-termfiscalplanningand the planning of investment. Key departments/unitsinvolvedinCMwithintheministryinclude:

• The Budget Department, responsible for budgetplanning, including the preparation of budgetframeworkpapersthatextendfiscalplanning(includingtheplanningofinvestment)intothemediumterm

• The Treasury, responsible for the execution ofpayments,themanagementofthegovernment’scashandforfinancialreporting

• The CMU, whichispartoftheAccountantGeneral’sOffice

• The Public Debt and Aid Management Department, whichmanagesthecentralgovernment’sdebtportfolioandiscomprisedofafront,amiddleandabackoffice

• The Macro-Economic Unit of the Department of Economic Policy,whichisresponsibleforundertakingmacroeconomicprojectionsandadvisingonthestanceoffiscalpolicy.

The CMU, which was established in 2014, falls under theresponsibilityof theDeputyAccountantGeneral.Accordingto the 2018 Debt Management Performance Assessment(DeMPA)report,itsoperationwasimpairedinitiallybyalackof staff.However, the situationhas improvedandcurrentlythe unit is headed by the Director-CM and three assignedofficers.Thereisaview,however,thatthecapacityoftheunitneedstobestrengthenedfurtherinordertobeabletofulfilitsmandate.

ThefunctionsoftheCMUareasfollows:

• Toprepareanannualconsolidatedcash-flowplanbasedon inputs provided by spending units and agenciesmadeupofmonthlycashinflowsandoutflowsincludingcontingencymeasures

• To generate consolidated revenue and expenditureforecaststoinformTreasurydecision-makingprocesses

• Toproduceamonthlyrevisionoftheconsolidatedcash-flowplanbasedon inputs fromspendingunitsandagencies

• Topreparequarterlyrollingcash-flowprojectionswithweeklyforecastsforthemonthahead

• Toupdatethequarterlycashplanonaweeklybasisinthelightofactualrevenuesandexpenditures

• Toproduceanddistributeinadvancearevised3-monthcashplaneverymonth

• Toreviewfinancingimplicationsontheconsolidatedannualcashplanandquarterlycash-flowforecastandtoadvisetheAccountantGeneral(AG)accordingly

• Tomonitorbankbalancesandmajorcashmovementstoensurethattheyaremanagedinanefficientmanner

• Toreviewandmonitorthedailycashposition,receipts,paymentsandbankaccountbalancesandreporttotheAG.

3. Institutional setup


TheCMUisalsointendedtoserveasthesecretariatoftheLiquidity Technical Committee (LTC) and the LiquidityManagementCommittee(LMC)setupin2018.

Additional institutions are involved in government CM,including:

• Line ministries and other revenue-collecting agencies. Thereare26ministriesinLesotho,includingthePrimeMinister’sOffice.Asdiscussedinthispaper,theyarekey stakeholders because beyond their revenuecollectionandprojectimplementationrole,theyarerequired to provide inputs to the Treasury forsubsequentdiscussioninthecommitteesinvolvedinCM.OnesuchagencyistheLesothoRevenueAuthority,whichisresponsibleforthecollectionoftaxes.

• The Central Bank of Lesotho (CBL).TheCBL’sprimaryobjectiveistoachieveandmaintainpricestability.Toattainthisgoal, itperformsanumberoffunctionsinaccordancewithmoderncentralbankingpractices.Animportantfunctionofthecentralbankistoformulateand execute monetary policy for Lesotho. Otherfunctions include issuing of currency, serving as abankerfortheGoLandthecommercialbanks,actingasa custodian of the country’s foreign reserves andensuringsupervisionoffinancialinstitutions.TheCBLalsoactsasanadvisortothegovernmentonfinancialissues specifically, and more generally onmacroeconomicissues.

The Cash Management Unit’s operation was initially impaired by a lack of staff. However, the situation has improved and currently the unit is headed by the Director-CM and three assigned officers


Lesotho’sbudgetaryprocess is basedon themedium-termexpenditureframework(MTEF)introducedinthemid-2000s.Theframeworkisoftendescribedasa‘topdown,bottomup’approach in view of the consultation process that occursbetweentheMOFandlineministries.MTEFstypicallyhaveathree-yeartimehorizononarollingbasis.

GiventhatLesotho’sfiscalyearrunsfrom1Aprilto31March,the budgetary process starts in April/May with Cabinet’sapprovalof thebudgetcalendar for thenextbudgetandareview of theMTEF. This is followed by theMOF and theMinistry of Development Planning preparing the BudgetStrategyPaper(BSP).TheBSPisakeydocumentwhichsetsoutthecountry’spolicygoalsandstrategicprioritiesfortheforthcomingfiscalyear.Itincludesanup-to-dateassessmentofrecentmacroeconomicandfiscalperformancesaswellasthemacroeconomicoutlook for thecomingyears.TheBSPrequiresCabinetapproval,whichisusuallyobtainedaroundJune/July.3

OncetheBSPhasbeenapproved,aroundAugust,theMOFsendsoutacallcircularforBudgetFrameworkPapers(BFPs).4 The2019/2020circulardescribestheBFPas‘aninstrumentthatfacilitatesthealignmentofidentifiednationalprioritiesto resource allocations’. Theministries are given indicativeceilingswithinwhich they need to indicate their priorities.Theceilingsarethenrevisedinaniterativefashion.Priorto

3 TheBudgetStrategyPaperfor2018/2019–2020/2021isavailableontheMOFwebsiteat:http://www.finance.gov.ls/documents/budget%20book/BSP%20_%202018-19.pdf[accessed12December2019].

4 ThecallcircularforBFPsfor2019/2020–2021/2022isavailableontheMOFwebsiteat:http://www.finance.gov.ls/documents/circulars/BFP%20Call%202019-2022.pdf[accessed12December2019].

5 The budget estimates call circular for 2018/2019–2020/2021 is available on the MOF website at: http://www.finance.gov.ls/documents/circulars/2018-19%20Budget%20Estimates%20Call%20Circular.pdf[accessed12December2019].

2018/2019,BFPswerecompiledusingspreadsheets,butnowtheywillbedesignedwithintheCentralBudgetManagementSystem(CBMS).UsingtheBFPsthathavebeenpreparedbyministries,departmentsandagencies(MDAs),theMOFthenproceeds to update the medium-term fiscal framework(MTFF).

AroundSeptember/October,theMOFissuesacallcircularforbudgetestimateswhichalsorequiresCabinetapprovalpriortodisseminationtoMDAs.Thelatterarerequiredtosubmitto theMOF estimates of revenue and expenditure brokendown by programmes and sub-programmes for the nextthree years.5 The estimates are discussed with MDAs,adjusted and submitted to the Budget Committee of theCabinetandtotheCabinetforapprovalinJanuary/February.

BudgetestimatesarepresentedtoParliamentfordebatebyFebruary/March.Oncetheestimatesareapproved,theMOFpreparestheAppropriationBilland,whenthisispassed,theLawOfficepublishestheAppropriationAct.

Figure1summarisesthebudgetaryprocess.

Theupstreamactivitiesarekeytoensuringthatthebudgetfiguresarecredible.One indicationof thecredibilityof thebudget is the variance between budget forecasts andoutturns. CM can be meaningful only when there are noextremediscrepanciesbetweenthetwo.

4. Lesotho’s budgetary

process


http://www.finance.gov.ls/documents/budget%20book/BSP%20_%202018-19.pdf

http://www.finance.gov.ls/documents/budget%20book/BSP%20_%202018-19.pdf

http://www.finance.gov.ls/documents/circulars/BFP%20Call%202019-2022.pdf

http://www.finance.gov.ls/documents/circulars/BFP%20Call%202019-2022.pdf

http://www.finance.gov.ls/documents/circulars/2018-19%20Budget%20Estimates%20Call%20Circular.pdf

http://www.finance.gov.ls/documents/circulars/2018-19%20Budget%20Estimates%20Call%20Circular.pdf

Figure 1: Lesotho’s budgetary process

STEP

1

STEP

1

Cabi

net

appr

oves

Bu

dget

Ca

lend

ar

STEP

3

Cabi

net

appr

oves

BSP

(r

etre

at)

STEP

7Ca

bine

t ap

prov

es

natio

nal

budg

et

STEP

10

Cabi

net

appr

oves

Cal

l Ci

rcul

ar

STEP

16

MoF

pre

sent

s Bu

dget

Es

timat

es to

Pa

rliam

ent f

or

deba

te

MoF

revi

ews

MTE

F w

ith

MDA

s

STEP

2

MO

F an

d M

oDP

prep

are

BSP

STEP

8

MO

F –

Mac

ro

upda

tes M

TFF

STEP

9

MO

F –

Budg

et

subm

its C

all

Circ

ular

STEP

11

MO

F iss

ues

Call

Circ

ular

to

MDA

s

STEP

17

MO

F pr

epar

es

Appr

opria

tion

Bill

STEP

18

MO

F pr

epar

es

Appr

opria

tion

Bill

STEP

4M

OF

issue

s BF

P Ca

ll Ci

rcul

ar

STEP

5

BUDG

ETLA

W

MDA

sSu

bmit

BFP

– re

view

obj

ectiv

es,

prog

ram

mes

, out

puts

and

ac

tiviti

es. C

ostin

g an

d pr

ioriti

satio

n of

acti

vitie

s

STEP

12

MDA

sSu

bmit

Budg

et E

stim

ates

of t

hree

ye

ars w

ith a

gree

d pr

ogra

mm

es

and

sub-

prog

ram

mes

and

subm

it to

MO

F

MDA

sM

DAs p

repa

re p

rocu

rem

ent a

nd

cash

pla

ns fo

r bud

get

impl

emen

tatio

n

Apr

il/M

ay

Ju

ne/J

uly

A

ugus

t

S

epte

mbe

r

Oct

ober

N

ovem

ber

D

ecem

ber

Ja

nuar

y

F

ebru

ary/

Mar

ch

STEP

15

Cabi

net

appr

oves

Bu

dget

Es

timat

es

STEP

14

Cabi

net B

udge

t Co

mm

ittee

ap

prov

es B

udge

t Es

timat

es

STEP

13

MO

F –

Budg

et

agre

es w

ith

MDA

s abo

ut

Budg

et C

uts

TOP

DOW

NM

OF,

MoO

F, CA

BIN

ET a

nd P

ARLI

AMEN

T

BOTT

OM

UP

MoA

s

Apr

il/M

ay

Ju

ne/J

uly

A

ugus

t

S

epte

mbe

r

Oct

ober

N

ovem

ber

D

ecem

ber

Ja

nuar

y

F

ebru

ary/

Mar

ch

CABI

NET

DE

CISI

ON

FLO

WFL

OW

PRO

CESS

STEP

6M

OF

– Bu

dget

ag

rees

with

M

DAs a

bout

BF

P Cu

ts

Source:https://www.gov.ls/documents/lesotho-budget-calendar/


https://www.gov.ls/documents/lesotho-budget-calendar/

This section discusses three important aspects of CM: thepreparationofcash-flowplans;theco-ordinationthatoughttobeinplaceinordertodeterminethegovernment’sshort-term borrowing requirements with accuracy; and theinformation technology (IT) platforms that support budgetimplementation,includingCM.

5.1 Preparation of cash-flow plans

TheprocedurestobefollowedbyMinistriestodevelopcash-flowplansaredescribedinPartIVoftheTreasuryRegulations(2014).Thedocumentprovidesboththerequirementsandbroadguidelinesas tohow lineministries shouldgoaboutpreparingcash-flowplans.

Budgetimplementationandcashplanspreparedbyministriesarebasedonestimatesofwhenfundswillberequired,usingbothprocurementplansandpastpatternsofexpenditureasguidelines. The CMU then combines this datawith centralrequirementssuchaspensions,debtrepayments(submittedby thePublicDebt andAidManagementDepartment) andotherstatutoryexpenses.RevenuefiguresfromtheLesothoRevenueAuthorityandotherrevenue-collectingagenciesareimportantinputs.

Duringtheyear,thequarterlycash-flowplanis intendedtobeupdatedonaweeklybasisandsubmittedtotheLiquidityManagement Committee (see Section 5.2) on a monthlybasis.

Thepreparationofthecash-flowplanisillustratedinFigure2.

Lesothofacesseveralchallengesthatpreventitfromfulfillingtheaboverequirements.ThesearediscussedinSection6.

Figure 2: Guidelines for preparation of cash-flow plans

Expenditure based on Procurement Plan

(recurrent & capital expenditure)

Line ministries

Revenue based on ministry’s budget

Lesotho Revenue Authority (and other revenue

agencies

Public Debt and Aid Management

Department

Donor inflows (loans/grants)

Monthly revenue forecasts based on past patterns and forthcoming changes in economic performace, tax rates etc.

Forecast expenditure (quarterly & monthly)

Forecast expenditure (quarterly & monthly)

Ministry of Finance

(Cash Management

Unit)

Central requirements (pensions; debt repaymets; serviceing costs)

Overall cash flow forecasts submitted to LMC (monthly)

5. Lesotho’s cash management

process


5.2 Co-ordination mechanisms

Twocommitteeswereestablishedin2018toco-ordinateCManddebt-managementactivities.Theseare:

• TheLiquidityManagementCommittee(LMC)

• TheLiquidityTechnicalCommittee(LTC).

TheLMCisahigh-levelforumdealingwithpolicyissues.ItischairedbythePrincipalSecretaryofFinanceandismeanttomeetmonthly.OthermembersofthecommitteeincludetheAccountantGeneral,theDeputyAccountant(CM)theDeputyAccountant General (Expenditure) and heads of the PublicDebt and Aid Management, Macro and Fiscal Policy andBudget Departments. The Finance Director (CM) is thesecretarytothecommittee.

TheLMC’sresponsibilitiesareasfollows:

• Approvaloftheannualcashplan,theborrowingplan,debtsustainabilityanalysis,medium-termdebtstrategyandtheoveralllimitsforquarterlyreleaseofwarrants

• Overseeingcashplanninganditsalignmenttointernalandexternalborrowingplans

• Advisingthefinanceministeronmattersrelatingtoexternalanddomesticborrowingandacceptanceof

grantsonbehalfofthegovernment,on-lendingandguarantees

• Definingprioritypaymentsandmonitoringofarrears(ifany),andagreeingonanarrears-managementstrategy

• Monitoring,co-ordinatinganddirectingcashanddebtmanagement activities to ensure annual budgetexpenditurescanbeimplementedontime.

TheLTCisatechnicalcommitteereportingtotheLMC,whichismeanttositweeklyunderthechairmanshipoftheDeputyAccountantGeneral(CM).TheCMUactsasthecommittee’ssecretary.Othermembersinclude:

• TheFinanceDirector(CM)

• Financeofficersforrevenue,salaries,expenditureandfinancialperformancemonitoring

• Seniorofficialsfrompublicdebtandaidmanagement,macro and fiscal policy, budget and pensionsdepartments

TheLTC’stermsofreference(TOR)coverthreeareas–cashmanagement,debtmanagementandliquiditymanagement(seeTable1).

Table 1: The LTC’s terms of reference

Cash management Debt management Liquidity management

Reviewofcash-flowoutturnsforpreviousperiodsandcomparingthemwithforecasts

Preparationofborrowingplananddebt-issuancecalendar

AnalysisofgovernmentcashforecastsinthecontextofCentralBankofLesothoreservemanagementandmonetaryactivities

Analysisofforecasterrorsandagreeingonanynecessaryactiontolimittheirrepetition

MonitoringimplementationofannualborrowingplanandreportingtoLMConmonthly/quarterlybasis

AdvisingtheLMConmattersrelatingtoliquidityandmonetarypolicyrisksandhowtomitigatetheserisks

Reviewofcash-flowforecastsfortheperiodaheadandpreparationofriskscenarios

Preparingdebtsustainabilityanalysisandthemedium-termpublicdebtstrategy

AdvisingtheLMConactiontoimprovethequalityofcashforecastsandensuringcashadequacyovertheperiodahead

AdvisingtheLMConmattersrelatingtoexternalanddomesticborrowingandacceptanceofgrantsonbehalfofthegovernment


It is still too early to evaluate the effectiveness of the co-ordination mechanisms since they were revived in 2018.However,itisnotedthatthereisnoinstitutionalarrangementorlegislativestructure/frameworkgoverningtheoperationsof the LMC. This could hinder the efficient delivery of itsfunctions.6Also,theeffectivenessofthecommitteewillalsodepend on the quality of data submitted by the CMU toinformitsdecisions.

5.3 IT platforms as enablers of data exchange and co-ordination

To achieve a reasonable degree of effectiveness in PFMoperations,includingthoserelatedtoCM,countriesneedto

6 WeunderstandthattheLMChasnotbeenmeetingoflate.

put in place an IT infrastructure and systems to supportgovernmentbudgeting,accounting,debtmanagement,andsoon.Thesesystemsneedtobeintegratedtoallowforthesharingofdataandinformationamongstakeholders.

Lesothohasbeenengaged in strengthening its IT structureforPFMforsometime.Ithasrecentlyupgradeditsintegratedfinancialmanagementandinformationsystem(IFMIS),whichisbasedontheEPICORplatform,toanewerversion(version10.2)andintroducedtheCBMS.

Lesothoalso introducedaTreasurySingleAccount(TSA)on 1April2019.Thesystem,whichismaintainedbytheCBL,iscurrently in its initial phase of implementation and itsstructure is, therefore, likely to evolve in the future. ItscurrentdesignisdepictedinFigure3.

Figure 3: Current structure of Lesotho’s Treasury Single Account

Recurrentexpenditure account

Main revenue account Sub accountancy revenue bank accountWeekly

sweeping

Weekly sweeping

Developmentexpenditure account

Consolidated fund account

Source: Minister of Finance, Lesotho


MostofthebudgetaryrevenueandexpendituregothroughoneoftheaccountsthatmakeuptheTSA.Theseincludetheconsolidated fund account, the recurrent expenditureaccount,thedevelopmentexpenditureaccountandseveralsub-accountancyrevenuebankaccounts.Sweepsaremadefromtherevenuebankaccountstothemainrevenueaccountand from the latter to the consolidated fund account on aweekly basis. An agreement exists between the MOF andcommercial bankswhereby the latter report on funds andbalancesonaccountsheldwiththemonaquarterlybasis.

TheabovearrangementallowstheMOFtodeterminehowmuchcashisheldbyMDAsandtolimittheamountof idlefunds.

7 Forexample,theintroductionofthenewversionofIFMISledtoanincompatibilityissuewiththeformatofCBLbankstatements.Also,thelinkbetween thedebt recording andmanagement systemhad tobeupdated so that debt transactions couldbe electronically uploaded into theIFMIS.

TherearestillseveralaccountswhicharenotincludedintheTSA. These include T-bills and T-bond accounts, projectaccounts,revenuecollectionaccountsincommercialbanks,trustfundsandspecialaccounts.

The upgrading to newer versions of such systems and theintroduction of new systems offer definite benefits andpotential.However,thisisnotwithoutchallenges.Usersmustbe trained in the new versions, links among systems mayneedtobeupgraded7andthereareusuallyteethingproblemsencountered.Thus,benefitstendtobecometangibleinthemediumandlongtermonly.

The Treasury Single Account, which is maintained by the Central Bank of Lesotho, is currently in its initial phase of implementation and is likely to evolve in the future


Althoughithassomeobviousgaps(asmentionedinSection5.2),thelegalandinstitutionalframeworkforCMinLesothocouldsupportbasicCMpractices.However,severalchallengeshinderLesotho’sCM.

6.1 Poor cash forecasting

Poorcashforecastingistheresultoftwodistinctfactors:non-complianceandinaccuracy.

Non-compliance TheTreasuryregulationsclearlyspellouttheimportanceofcash-flowplanning.Forinstance,Section13(1)statesthattheAccountantGeneral, incollaborationwiththecentralbank,the Budget Department, the Macro-fiscal Unit and otherdepartmentsshallensuretheexistenceofafunctionalcash-flowmanagementframework,includingcash-flowmonitoringforefficientandeffectiveuseofgovernmentcashresources.

Once the annual budget has been approvedby Parliamentand the Appropriations Act passed, line ministries arerequired, as prescribed under Section 13 of the Treasuryregulations 2014, to prepare and submit annual cash-flowplanstotheMOFforconsolidationbytheCMU.However,inpracticethis isnotdoneconsistently.Aninitialsensitisationhas been undertaken as part of a project implemented byCABRI(seeAnnex1),butmoreworkneedstobedoneinthisarea. Views differ as to whether offending line ministriesshouldbesanctionedand,ifso,how.

InaccuracyThe other problem that affects cash forecasting is theinaccuracyofcashplans–boththoseprovidedbyMDAsandtheaggregatedfigurescompiledbytheCMU.Thisismoreofacapacityissue.

8 ProjectdocumentationofCABRI’sBPMFCprogramme.

9 However,thistechniquerequiresthatonce-offexpendituresorrevenues(e.g.therepaymentofbondissueorproceedsfromprivatisation)arefactoredin.

WithregardtoMDAs,casesmayarisewherecashplansdonotmatchthebudget.8Inothercases,quarterlybreakdownsmightbeforecastedmerelybydividingthetotalbyfour.

Inaccuratecashplanscanbetracedto:

• Lineministriesnotbeing familiarwithprocurementplans

• Lackofco-ordinationbetweenprocurementmanagers,financeandhumanresources,leadingtounreconciledcashplans

• Cashplansnotcapturingextra-budgetaryrequests

• There are also problems specific to revenues. Forinstance, some revenue collection is performedmanuallyand,consequently,thereisalagbeforethesearereflectedintheaccounts.PoorInternetconnectioninsomeareascanalsodelaydatacaptureofrevenues.Inaddition,therecanbelagsbetweenremittanceanddatacapture.

In general, twomethods areused in cash-flow forecasting.Thefirstconsistsofestimatingeachcomponentmakinguprevenue and expenditure. The main disadvantage of thisapproachisthatthereisageneraltendencytobeoptimisticwithregardtorevenueforecasts,whilethereisadownwardbiaswhenprojectingrevenue.Thismeansthatrevenuesarenormallyoverstatedduringthebudgetprocess,andneedtobeadjusteddownwardswhenrevenueisprojectedforcash-flowpurposes.TheothermethodistouseTreasurydatatoproduce time series, which can then be projected aftercorrectionforseasonality.9

This requires thebuildingupofdatabasesof forecastsandactualrevenueandpayments,whichLesothoiscurrentlyintheprocessofimplementing.

6. Lesotho’s cash management

challenges


6.2 Proliferation of bank accounts

According to the 2018 DeMPA Report, the government’srecurring expenses are managed through a centraliseddisbursement system held in an account at the CBL. ThePublicExpenditureandFinancialAccountability(PEFA)2016assessment identifies five main Treasury bank accounts,namely:

• Themainrevenueaccount

• Therecurrentexpenditureaccount

• Thetrustaccount

• Themainconsolidatedfundaccount

• Thecapitalaccount.

Inaddition,theTreasurysystemincludesabout20‘ministry-own’revenuecollectionaccounts(whichareregularlysweptintothemainconsolidatedfundaccount),9sub-accountancyrevenue accounts (also swept weekly) and 18 sub-accountancybankaccountsforpaymentsandtrusts.

Paymentsforcapitalprojectsaremanagedbyindividuallineministries intheirroleas implementingagencies.Fundsforinvestment projects are released by the Treasury inaccordance with project implementation plans. Thisarrangementhas resulted in lineministriescreatinga largenumberofbankaccountswithcommercialbanks.10

Most of these bank accounts are donor-financed projectaccounts and own revenue (internally generated fund)accounts.

Itisnotclearhowmanysuchbankaccountscurrentlyexist:

• Accordingtothe2016PEFAreport,therewereabout254governmentbankaccountsoutsidetheTreasurysystem,maintainedandoperatedbylineministrieswithauthorityfromtheTreasury.

• The2018DeMPAreportindicatesthat,afterclosing100accounts, therewere400accounts among thecommercialbanksoperatinginLesotho.

• AspartofCABRI’sBuildingPFMCapabilities(BPFMC)project,adatabaseofactivegovernmentbankaccountswassetupand,accordingtotheprojectdocumentation,

10 TherearefourcommercialbanksinLesotho:FirstNationalBank,LesothoPostBank,NedbankandStandardBankofLesotho.

178accountswereclosed(duringtheperiodMay–December2018).However,thenumberofremainingbankaccountscouldnotbeascertained.

Theproliferationofbankaccountsraisesquestionsastotheproceduresforopeningandclosingsuchaccounts.TheCABRIBPFMChasshownthatcommercialbankssometimesdonotcomply with the PFMA and open accounts without theapprovaloftheMOF.Also,despiteMOFinstructionstoclosesomebankaccounts,commercialbanksmightnotdosoattherequestofMDAs.

6.3 Poor reconciliation of bank accounts

Another issue, which is related to the large number ofaccounts, is that reconciliation of bank accounts has beenlagging. Regular reconciliation is important not only toprovideasoundbasisforCMbutalsotopreventthemisuseof funds. This should not only involve reconciling bankstatementswith cashbooksbut alsowith expenditure andrevenuefiguresintheIFMIS.

According to the PEFA (2016), the consolidation of thetreasury accounts is done monthly. However, the 254accounts mentioned above remain outside the systemwithoutanyreconciliation.Theproblemisparticularlyacuteinthecaseofprojectfundswherereconciliationisdevolvedto MDAs. The lack of co-ordination between differentdepartmentswithinMDAsalsocontributestotheproblem.

6.4 Non-functioning co-ordination committees

The two committees that exist for co-ordinating cash anddebt management and advising on cash planning and theimplementation of the government’s borrowing plan havebeendormantforsometime.Itisonlyfollowingtherecentcashcrisisthatstepsweretakentore-establishthem.Thoughtheirrolesareimportant,thereislittlethecommitteescandofromatechnicalpointofviewiftheyarenotprovidedwithreasonablyaccuratedatatobasetheirdecisionson.Theydo,however,haveasupervisoryroletoplayandcouldaddresssomeofthebottlenecksidentifiedabove.


CMinLesothocanbedescribedas‘workinprogress’.Annex1providessomeinformationontworecentinitiatives–onefundedby a consortiumof donors,which has addressed awide rangeofPFMareas,andone implementedbyCABRI,whichhasfocusedonCM.

ThiscasestudyprovidessomeinterestinginsightsonfactorsthatcanimpacteffectiveCM.Thesecannotonlybeusefultoother countries implementing CM reforms but can alsoprovide ideasonwhichdevelopmentpartnersmaywish toreflectwhendesigningreformprogrammes.

• One of the main challenges with regard to CM inLesothoisthatofnon-compliance.Despitefairlyrobustlaws and regulations, non-compliance (MDAs notsubmittingcashplans,commercialbanksnotclosingdormant accounts, co-ordination committees notmeetingregularly,etc.)impingesontheCMfunction.

• ThereisahighlevelofinterdependenceamongtheconstituentareasofPFM.Consequently,weaknessesinoneareaadverselyaffectotherareas.Thesameapplies

11 TheupgradeoftheIFMIShasnotbeenwithoutteethingproblemandthesoftwarecurrentlyprovidesawrongpictureofactualexpenditure.Untilsuchissuesarefinallyresolved,thesystemwillbeunabletosupporteffectiveCM.

to CM. In the context of Lesotho, weak budgetpreparation(capacityconstraintswithinMDAsandthelackofadequatecommunicationbetweenMDAsandthe central authorities) is leading to inaccurateprocurementplans.This, inturn,isaffectingcashflowforecastsandCManalysisdowntheline,irrespectiveofhowsophisticatedthesemightbe.Therefore,remedialactionmustbetakenthroughoutthe‘PFMchain’.

• WhiletheuseofITplatforms(IFMIS,TSA,etc.) isveryimportantinpromotingmodernCMpractices,itisnotapanaceaforresolvingthetypesofproblemsdescribedinthiscasestudy.Insomecases,theybringabouttheirown challenges.11 Buy-in from top management,adequatedataflow,acceptancebyusersandthoroughtrainingaresomekeyrequirementsforthesuccessfulimplementationofsuchITplatforms.

7. Conclusion

Cash management in Lesotho can be described as ‘work in progress’


References

Cangiano,A.,Curristine,T.&Lazare,M.(2013).Public Financial Management and Its Emerging Architecture.InternationalMonetaryFund.

Honda,J.etal.(2007).Fiscal Rules: Coping with Revenue Volatility in Lesotho and Swaziland.InternationalMonetaryFund.

Miller,M.&Hadley,S.(2007).Cash Management in Cash-Constrained Environments.OverseasDevelopmentInstitute.

Shah,A.(ed.)(2007).Budgeting and Budgetary Institutions.WashingtonDC:TheWorldBank.

Storkey&Co.Limited(2001).International Government Cash Management Practices.Wellington:Storkey&Co.

Williams,M.(2010).Government Cash Management: Its Interaction with Other Financial Policies.InternationalMonetaryFund, FiscalAffairsDepartment.

WorldBank(2018).DebtManagementPerformanceAssessmentReport2018.


Over the years, Lesotho has benefitted from technicalassistance programmes in the area of PFM from variousorganisations including from the International MonetaryFund,includingtheRegionalTechnicalAssistanceCentreforSouthernAfrica(AFRITAC)South,theUnitedStatesTreasury,the European Union and the Collaborative Africa BudgetReformInitiative(CABRI).Twoofthemostrecentinterventionsarediscussedbelow.

1. Public Financial Management Reform Programme, Kingdom of Lesotho (2015–2019)

To address perceived weaknesses in the PFM system, thegovernmentembarkedonanambitiousreformprojectaimedattransformingLesotho’sPFMsystemsfortheattainmentoflong-termsustainabledevelopment.

Theprojectwasfundedbyaconsortiumofdonorsincludingthe African Development Bank, the European Union, theInternationalMonetaryFundandtheWorldBank.Theprojectofficially began in 2013 (although it did not reach fullimplementationuntil2015)andendedinJune2019.

Thecontributionof themaindevelopmentpartnerswasasfollows:

• TheEuropeanUnion:EUR4.2Million

• TheWorldBank:USD5.5Million

• TheAfricanDevelopmentBank:UA2.6Million

The Public Financial Management Reform Programme(PFMRP)wasadirectresponsetotheneedforstrengtheningand restoring the public’s confidence in the government’sfinancial management system. The purpose of this reformagenda is to transform Lesotho’s PFM systems for theattainmentoflong-termsustainabledevelopment.

Theprogrammeismadeupofthefollowingcomponents:

• PFMregulatoryframeworkupdatedtounderpinPFMreforms

• Transparency and effectiveness of policy measuresreflectedintheannualbudget

• Cash-flowforecastasamajordeterminantofinternaldebtandfinancialinvestment

• The internal control framework is strengthened toensureoperationalefficiencyandeffectiveness

• Accounting and fiscal reporting framework fullycompliantwiththeregulatoryframeworkandacceptedinternationalaccountingreportingstandards

• Public procurement aligns with international bestpracticeinefficiencyandtransparency

• ExternalauditandparliamentaryoversightandscrutinyactivitiesarecompliantwithInternationalOrganisationofSupremeAuditInstitutions(INTOSAI)standardsandbestinternationalpracticesforparliamentaryoversightandscrutinycommittees

• Governance and institutional management of PFMreforms improved to facilitate ownership andmonitoringandevaluationofprogress.

Thethirdcomponentoncash-flowplanningandforecastingsynchronises revenue estimates and spending plans. Thebudget is built in law, but it differs from the authority tospend,hencetheneedforaco-ordinatedefforttomakesurethat resources are available when required to properlyexecutethebudgetandmeettheneedsofavarietyofbudgetstakeholders. Component three of the PFMRP lays furtherclaimthatifasystemisinplacetocontrolspendingratesandis informedbycash-flow forecasting, thenexecutionof thebudgetasformulatedislikelytomeetthebudgetstakeholders’needs. Under this reform component, a wide range ofactivities from theestablishmentof theCashManagementUnit (CMU) are documented. Component three comprisesthefollowingprojectoutputs:

• RecruitmentofkeypersonnelandoperatingstafftoensurefunctionalityoftheCMU

• Refinementofgovernmentbankingarrangementsandprocesses to provide a platform for the stock ofgovernmentcashmeans

• Capacity-buildingforliquiditymanagementtoequipCMUtechnicalpersonnelwithforecastingknow-how

• Assistance in forecasting the government’s cashposition to manage maturities and issuance ofinvestmentsanddebt

• Census-takingofallgovernmentbankaccountswithafewoffulfillingallnecessaryPFMrequirementsfortheestablishmentofaTSA

• Undertakingcapacity-buildingprogrammesinordertoeducate all relevant Treasury personnel on theoperationsoftheTSA

Annex 1: Lesotho – Technical assistance for cash management


• Continuousadvocacyandtrainingonproperandtimelybankreconciliationandforecastingtechniques

• Assessment and inclusion of TSA framework in theTreasuryregulations.

(Source: MOF website)

2. Building capabilities for functional PFM in Africa – CABRI

TheBuildingPFMCapabilities(BPFMC)programme(seeBoxA1 for additional information)places teamsof governmentpractitionerscentrestageandequipsthemwithanapproachthatdrivesincrementalchange.TheseteamsidentifypressingPFMproblemsandtacklethesethroughastructuredeight-monthaction-orientedprogramme.

BoxA1:CABRI’sBuildingPFMCapabilitiesProgramme

The Building PFM Capabilities (BPFMC) programmewasdeveloped by CABRI in collaboration with the BuildingState Capability (BSC) Program at Harvard’s Centre forInternational Development. 28 teams from 14 Africancountrieshaveparticipatedintheprogrammesince2017.

TheBPFMCprogramme stands in contrast to traditionalapproaches to PFM reform, which primarily focus ontechnical fixes and have had mixed results. CABRI’sprogrammetakestheviewthatPFMreformdoesnotlenditself to a one-size-fits-all approach and requires thecareful management of political and administrativeconstraints together with a deep understanding of thelocalcontext. It isbasedontheProblem-DrivenIterativeAdaptation (PDIA) approach. This learning-by-doingmethodology facilitates rapid experiential learning andleadstotheemergenceofnewcapabilities.

InMay 2018, a six-person team comprising staff from thebudget office, debt management office and treasurydepartmentoftheMOFofLesothonominatedthefollowingproblemfortheBPFMCprogramme:

The Ministry of Finance does not know how much cash ministries, departments and agencies (MDAs) require or when it is required.

This problem statement is a recognition of severe liquidityconstraintsinLesothofollowingtheglobalfinancialcrisisof2007–2008. SACU receipts, the government’s biggestrevenue source, have declined significantly. Themacroeconomic situation has deteriorated, resources areseverelyconstrainedandhighdeficitspersist.Thegovernment

is facingcashshortages,and in theabsenceofproperCM,theMOFisstrugglingtoexecutethebudget.

Following problem construction, the team analysed anddeconstructed theproblem into its causes and sub-causes.Figure A1 shows the process of problem deconstructionthroughtheteam’sfishbonediagram.Circledinred aretheteam’sentrypoints– causesand sub-causes forwhich theteam felt theyhad theauthorityof senior technocratsandbureaucrats, the technical ability and acceptance of thosedirectlyaffectedbypotentialchange.

Entry point 1: Non-reconciliation

Toshowtheconsequencesof infrequentreconciliation,theteam collated data on MDAs’ unretired balances incommercialbankaccounts.Thedatashowedthatattheendof FY2017/18, significant amounts of previously allocatedfundsremained idle.This impliedthatthegovernmentwasprovidingquarterlyallotmentstoMDAswithoutknowingtheamountofcashtheyalreadyhadavailable.Thisalsoreflectedtheimportanceofincreasingthefrequencyofreconciliation,whichwashappeningannually,ifatall.

Entry point 2: Too many bank accounts

TheinfrequencyofreconciliationisrelatedtotheenormousnumberofbankaccountsinoperationinLesotho.Thejobofthe Accountant General’s Office becomes far morecumbersomeifitmustreconcileover300bankaccounts.

Theteamworkedtodevelopadatabaseofthegovernment’sbankaccounts.TheteamlearntthatmanyMDAsarereluctanttodiscloseinformationontheircommercialbankaccountstothe MOF, despite this being a statutory requirement.Operating from these bank accounts allows the MDAs acertaindegreeofautonomyin-yearandallowsthemtoavoidpotentialdelaysassociatedwithobtainingwarrantsfromtheMOF.

Atthesametime,theteamwasinvolvedwithclosingdormantbankaccounts,therebysavingthegovernmenttheassociatedbank charges and easing some of the pressure associatedwithreconciliationefforts.

Entry point 3: Some MDAs do not submit procurement and cash plans

TobetterunderstandwhyMDAsfailtosubmitaccuratecashplans each quarter, the team surveyed seven MDAs withwhom they had established connections. They learnt thatthere are no functional planning committees inMDAs andprocurement,implementationandcashplansarepreparedinisolation, implying that cash plans are often developedwithoutknowledgeofwhenexpenseswillbeincurred.MDAsalsonotedthatlackoffeedbackfromtheMOFfollowingthesubmissionofcashplans ledthemtobelievethattheMOFdidnotutilisetheirplans.TheteaminterpretedthistomeanthatMDAsdonotseevalueindevelopingaccurateplans.


Unre

alist

ic bu

dget

as th

e bud

get i

s bas

ed

on th

e pre

vious

year

’s bud

get

Min

istry

of Fi

nanc

e doe

s not

kn

ow h

ow m

uch

cash

the

MDA

s nee

d or

whe

n it

is ne

eded

Gove

rnm

ent i

s not

able

to m

onito

r and

au

dit t

he CB

L

Min

istry

of Fi

nanc

e is u

nabl

e to k

now

how

muc

h cas

h the

gove

rnm

ent h

as (t

oo m

any

bank

acco

unts)

Over

estim

atio

n of t

he ta

x rev

enue

by th

e LR

A

Unre

alist

ic re

venu

e est

imat

es

MDA

s are

unab

le to

give

their

tota

l ex

pend

iture

Reve

nue d

eclin

es w

hile

expe

nditu

re

incre

ases

Mar

ch Fi

nal A

rrear

s

Expe

nditu

re of

MDA

s exc

eed t

heir

budg

et

Unex

pect

ed / e

xtra

budg

et

expe

nditu

re

MDA

s do n

ot ad

here

to th

e bud

get

Lack

of re

venu

e col

lect

ion

MDA

s do n

ot in

clude

all it

ems i

n the

or

igin

al bu

dget

MDA

s do n

ot su

bmit

spen

ding

plan

s

Som

e of t

he M

DAs d

o not

subm

it pr

ocur

emen

t and

cash

plan

s

Unre

alist

ic pr

ocur

emen

t and

ca

sh pl

ans

Som

e of t

he sp

endi

ng is

exec

uted

outsi

de

the s

yste

m

Unre

alist

ic re

venu

e esti

mat

es

Non-

reco

ncili

atio

n

MOF

is un

able

to kn

ow th

e tot

al ca

sh th

at

the g

over

nmen

t has

Poor

non

-tax r

even

ue co

llect

ion s

yste

m

(Dom

estic

reve

nue i

s not

take

n se

rious

ly)

Mon

itorin

g and

Eval

uatio

n

Budg

et is

sues

(for

mul

atio

n and

exec

utio

n)

Reve

nue c

once

rns

Expe

nditu

re pl

ans

Data

cred

ibili

ty

Com

mun

ciatio

n and

co-o

rdin

atio

n

Lack

of co

mm

unica

tion b

etwe

en th

e deb

t de

partm

ent a

nd CM

U an

d Bu

dget

debt

CBL a

nd M

OF pu

blic

relat

ions

are p

robl

emat

ic (C

BL ha

s too

muc

h pow

er)

Inad

equa

te co

mm

unica

tion b

etwe

en M

OF

and t

he M

DAs

MDA

s hav

e litt

le fa

ith in

MOF

Figure A1: Fishbone diagram showing the problem analysis


Thisinterpretationwassubstantiatedataworkshopfacilitatedby the team, where representatives from seven MDAsexpressedfrustrationatreceivinganallotmentthatborenoresemblancetotheircashplansforthatquarter.Itcametolight then that the allotment was less than the request,because, followingthereconciliationexerciseatend-March2018, it was discovered that those MDAs had unretiredbalances.TheMOFsubtractedthatbalancefromtherequestinthecashplanbutdidnotcommunicatethistotheMDAs,leavingtheMDAsbelievingtheircashplanswerenottakenintoconsideration.Thiswasanimportantlearningexperiencefortheteam,asimprovingcommunicationfromtheMOFtotheMDAscouldbea‘quickwin’,giventhatarepresentativefromthebudgetofficeisonthisteam.Theteamcontinuestowork on a communication strategy for desk officersresponsiblefortheMDAs.

To encourage the submission of cash plans, the teamdevelopeda circular notingwhichMDAshad submittedbythatquarter’sdeadline,rewardingcomplianceandimplicitlyreminding those thathad failed to submit that theMOF istracking submission. The circular was never disseminated,however, as it was felt that it might antagonise the non-complying MDAs. The team also noted that developingguidelinesforsubmissionofcashplansandtheestablishmentofbudgetandplanningcommitteeswouldbeusefulfortheMDAs, but they felt that they could not proceed withoutcloserinvolvementofMDAsandtheProcurementPolicyandAdviceDivision(PPAD).

Another important lesson from the survey was that fewMDAssubmitprocurementplanstotheBudgetOfficebutdosodirectlytothePPAD.ThereisalsoevidencethatMDAsdonotknowhowtocompletetheprocurementtemplateduetolackoftraining.

Entry point 4: Central Bank of Lesotho and Ministry of Finance relations are problematic

Duringproblemdeconstruction,theteamagreedthatpoorinformation sharing between the CBL andMOF negativelyimpacts the government’s ability to manage its cash. AchangeintheformatoftheCBL’saccountstatementsmeantthat these were no longer compatible with the MOF’sinformation system and required time-consuming andtechnically challenging manual manipulation. At the time,thiswasundertakenbyanexternalconsultant;however,theconsultantleftthecountrywithoutadequateskillstransfer.Amember of the team was instrumental in rectifying thissituationandensuringcompatibility.

Priortotheteambeginningthisprogramme,theMOFsoughttoimproveinformationsharingbetweentheCBLandMOFbyintroducing the LMC. Terms of Reference (TOR) for thecommitteeweredeveloped,but,forreasonsunknown,thesewere never formalised. Understanding the importance ofcommunicationbetweentheCBLandMOF,theteamworked

tirelesslytofinalisetheTORandobtainthesignatureofthePrincipal Secretary. Following the formalisationof theTOR,the teamensured that thecommitteemetaccording to itsschedule,andtwomembersoftheteamjoinedthetechnicalcommittee of the LMC to keep abreast of any challengesrelatedtotheirproblemandtolearnofwaystheycouldassistthe committee through the provision of information.Unfortunately, thevalueofmaintaining this committeehasnotbeenrecognisedbyseniormanagementand,therefore,ithasceasedtomeet.

BPFMC diffusion in Lesotho

Theteammadesignificantprogressduringtheeight-monthprogramme, including improving communication betweenthe MOF and MDAs, improving cash-plan submissions,increasingfrequencyofreconciliation,formalisingthetermsofreferencefortheLMCandinitiatingadatabaseonMDAs’commercialbankaccounts.However,theteamacknowledgedthat without closer involvement and acceptance bystakeholders, such as MDAs and the PPAD, their problemwouldremainunresolved.

With CABRI’s support, the team embarked on a BPFMCdiffusionprogrammeinJuly2019.Thediffusionprogrammeisdrivenbytheoriginalteamandincludesthreeteamsof18officialsfromvariousdepartmentswithintheMOF,includingthe PPAD, budget, debt and Treasury, and ministries ofeducation, water, local government affairs and agriculture.Thediffusionteamsarecurrentlyintheaction-pushperiodofthediffusionprogrammeandareworkingon the followingpreviouslyidentifiedcauses:

• Non-reconciliationofbankaccounts

• Non-submissionandinaccuracyofcashplans

• Uncommittedbudgetcommittees

• Undocumentedarrears

• End-of-yearfiscaldumping

• Nosanctionsfornon-compliancewithprocurementregulations

• Inadequatetrainingonprocurementplans

• Non-standardisationofprices

• Excessivenumberofbankaccounts

• Inefficientrevenuecollectionduetomanualprocessing

• Existenceof revolving funds,which limit theMOF’soversight of available cash and ability to controlexpenditure

• InabilityofMOFtomonitorflowsoffundsofMDAswithdonor-fundedprojects.


ForinformationonCABRI,ortoobtaincopiesofthispublication,pleasecontact:CABRISecretariat CnrJohnVorster&NellmapiusDrive, Centurion,0062 SouthAfricaTelephone:+27(0)124920022 Email:[email protected] www.cabri-sbo.org

Copy-editingbyLaurieRose-Innes ProductionbySimonChislettandLeithDavis

Cash management in Lesotho - CABRI | Connect

Documents

Transcript of Cash management in Lesotho - CABRI | Connect