Philippines: Strengthening Treasury’s Liquidity Management

Sovereign Project | 47113-001

Summary

At the request of BTr, this proposed technical assistance (TA) has been designed as a key supplement to the ongoing TSA and pending U.S. Treasury resident advisor projects. Specifically, the proposed TA will backstop the TSA resident advisor and provide urgently needed support to BTr to concurrently strengthen its organizational structure, increase the technical capacity of BTr's staff, and enhance the BTr's asset management systems and capabilities. The TA will also deepen linkages between the TSA project and an ongoing ADB TA, Capacity Development of Financial Regulators (CDFR). CDFR is supporting capital market development through the Capital Market Development Council and the Securities and Exchange Commission as the government seeks to implement its Capital Market Development Blueprint. The TA will provide advance support to the U.S Treasury resident advisor program which is expected to begin in late 2013.

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Project Name Strengthening Treasury’s Liquidity Management
Project Number 47113-001
Country Philippines
Project Status Closed
Project Type / Modality of Assistance Technical Assistance
Source of Funding / Amount
TA 8495-PHI: Strengthening Treasury's Liquidity Management
Technical Assistance Special Fund US$ 210,000.00
Strategic Agendas Inclusive economic growth
Drivers of Change Governance and capacity development
Private sector development
Sector / Subsector

Finance - Money and capital markets

Gender Equity and Mainstreaming
Description At the request of BTr, this proposed technical assistance (TA) has been designed as a key supplement to the ongoing TSA and pending U.S. Treasury resident advisor projects. Specifically, the proposed TA will backstop the TSA resident advisor and provide urgently needed support to BTr to concurrently strengthen its organizational structure, increase the technical capacity of BTr's staff, and enhance the BTr's asset management systems and capabilities. The TA will also deepen linkages between the TSA project and an ongoing ADB TA, Capacity Development of Financial Regulators (CDFR). CDFR is supporting capital market development through the Capital Market Development Council and the Securities and Exchange Commission as the government seeks to implement its Capital Market Development Blueprint. The TA will provide advance support to the U.S Treasury resident advisor program which is expected to begin in late 2013. This advance support will develop the initial framework for the introduction of an efficient repo market and will assess the pre-conditions necessary to introduce market makers. These activities will complement ADB's ongoing regional efforts to develop a repo market in Indonesia and Vietnam. Given this comprehensive scope of the TSA and related projects, and high potential impact of the reforms on capital market development, this proposed TA has been developed as a bridge to a larger, more comprehensive technical assistance package planned for 2014.
Project Rationale and Linkage to Country/Regional Strategy

While progress has been achieved, more needs to be done to strengthen public financial management and integrate these efforts into capital market development. Budget execution has remained less than optimal with under-execution rates averaging approximately 15% over the past ten years. The Government has identified the Bureau of the Treasury's (BTr) inability to anticipate its cash flows and estimate its funding needs as a major contributor to these inefficient expenditure practices. This situation has arisen from a number of factors. First, responsibility for public financial management, including budget execution, cash management, debt and taxes, is disbursed throughout several agencies, including the Bureau of the Treasury (BTr), the Department of Management and Budget (DBM), and the Bureau of Internal Revenue (BIR) rather than being centralized in the Department of Finance (DOF). In addition, DBM utilizes an extremely complex set of disbursement procedures which provides ex ante and ex post control over all expenditures. This physical segregation of budget responsibilities and complex disbursement procedures introduce significant uncertainty into the cash flow forecasting process.

As a result, this process is overly reliant on manual intervention, is slow to respond to unanticipated expenditure requests, and has provided an incentive for individual expenditure agents to take measures to smooth expenditures. Instead of centralizing all cash collections and disbursements through a Treasury Single Account (TSA), individual expenditure agents maintain numerous unauthorized and off-budget accounts. Estimates indicate that the BTr, GOCC's, Government Agencies, special institutions and local government units have opened approximately 170,000 bank accounts and that the three largest government owned and controlled banks alone hold P500.0 billion of public entity cash deposits. Combined with the geographic dispersion of these accounts, the large number of accounts and delayed remittances to the government has exacerbated the already unreliable cash forecasting process and has weakened accountability and reduced transparency.

Costs to the Government. The cumulative effect of these ad hoc practices has produced explicit and substantial costs beyond those accruing to inefficient budget execution. Many of the high volume, high transaction cash collection accounts are maintained at commercial institutions, require extended float periods, and do not generate any remuneration for the government. Moreover, these large cash balances, which represent a significant portion of the aggregate balance sheet of government owned Philippine banks, exacerbate the already excess liquidity within the market. This diverts resources away from the economy and places a significant strain on the country's central bank, the Bangko Sentral ng Philipinas (BSP). Finally, debt levels have been artificially increased by a legally mandated bond sinking fund that approximates 8% of GDP and 20% of all outstanding government debt. Investments are limited to cash deposits in banks and re-investment in government securities. According to estimates provided by the International Monetary Fund, negative carry on this fund could approximate 2 percent, or 20 billion pesos per year. Significant reforms are required to both shrink the size of the sinking fund and to improve portfolio returns.

Impact More efficient management of BTr's cash and investments.
Project Outcome
Description of Outcome Key treasury functions strengthened.
Progress Toward Outcome
Implementation Progress
Description of Project Outputs

Capacity of the BTr is enhanced.

Impediments to improved liquidity management identified.

Status of Implementation Progress (Outputs, Activities, and Issues)
Geographical Location
Summary of Environmental and Social Aspects
Environmental Aspects
Involuntary Resettlement
Indigenous Peoples
Stakeholder Communication, Participation, and Consultation
During Project Design
During Project Implementation
Business Opportunities
Consulting Services

1. Output 1: Capacity of the BTr is enhanced.

1. National Investment and Debt Management Specialist

A. Objective of Assignment:

1. The objective of this technical assistance is to improve the Bureau of the Treasury's (BTr) organizational structure and the technical capacity of staff across the various operational units (e.g. human resources, dealing, processing, asset and risk management). The duration of this consultancy will be a total of 176 working days (eight months) on a continuous basis starting in September 2013 and finishing by August 2014.

B. Scope of Work:

2. The expert will work with the BTr's international expert (resident adviser) and will assist BTr in implementing the Treasury Single Account (TSA). As part of this effort, the expert will develop an updated organizational structure for the BTr with a clear delineation of responsibility and authority, and assist with its implementation. In addition, the expert will support the development of an enhanced human resources framework including revised job qualification standards, recommendations for increased salaries, and a recruitment and training strategy. The expert will also develop a structured training program for entry level staff to ensure the revised framework can be implemented. The expert will provide more advanced training to strengthen BTr's investment and risk management functions and will develop an Investment Management Framework.

C. Detailed Tasks:

(i) Develop a revised organization structure for the BTr with clearly delineated responsibilities, including job descriptions and qualification standards, along with hierarchical approval authorities, operating standards, policies and procedures and reporting methodologies.

(ii) Develop and deliver a basic capacity building program or training modules to support entry level staff and ensure that the revised organization structure can be implemented.

(iii) Develop an initial funds management strategy.

(iv) Develop an initial set of risk measures keyed to the initial funds management strategy.

(v) Develop and deliver an advanced capacity building program targeted at BTr's asset and risk management functions.

(vi) Provide ongoing policy advice to BTr to support the reorganization and launch of the BTr as well as ad hoc capacity development.

D. Minimum Qualifications:

3. The expert should have a minimum of 15 years' experience in treasury operations of a global bank, asset management firm or, alternatively, in a sovereign treasury department as an asset manager. The expert should also have management and/or supervisory responsibility sufficient to provide advice regarding the optimal organizational structure of the Btr as well as current knowledge of global investment conditions and trends.

E. Output/Report Requirements:

4. The consultancy will require a total of 176 working days to commence in August 2013. The assignment will be continuous. An office space in the BTr will be provided to the consultant. The consultant will report to the National Treasurer and other relevant officials as well as the ADB project officer.

F. Deliverables:

5. The consultant will deliver the following to the Treasurer, with a copy provided to the ADB project officer; revised organizational structure, draft human resources strategy, operating policies and procedures, TNA, asset management strategy and risk management framework as well as the outline of proposed capacity building programs. In addition, the consultant will prepare quarterly reports summarizing policy advice provided to BTr and the content of any training programs completed.

2. Output 2: Impediments to improved liquidity management identified.

1. International expert Market Makers

A. Objective of Assignment:

6. The Bureau of the Treasury (BTr) has initiated a program to develop a Treasury Single Account (TSA) and to improve its cash management. In conjunction with this project, BTr wil

Responsible ADB Officer Stephen Schuster
Responsible ADB Department Southeast Asia Department
Responsible ADB Division Public Management, Financial Sector and Trade Division, SERD
Executing Agencies
Asian Development Bank6 ADB Avenue, Mandaluyong
Metro Manila, Philippines
P.O. Box 789, 1099 Manila,
Philippines
Timetable
Concept Clearance -
Fact Finding 06 May 2013 to 17 May 2013
MRM -
Approval 10 Oct 2013
Last Review Mission -
Last PDS Update 13 Nov 2013

TA 8495-PHI

Milestones
Approval Signing Date Effectivity Date Closing
Original Revised Actual
10 Oct 2013 - 10 Oct 2013 01 Dec 2014 31 Dec 2014 -
Financing Plan/TA Utilization Cumulative Disbursements
ADB Cofinancing Counterpart Total Date Amount
Gov Beneficiaries Project Sponsor Others
210,000.00 0.00 0.00 0.00 0.00 0.00 210,000.00 10 Oct 2013 193,209.13

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Evaluation Documents

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