Public Sector Governance and Accountability Series: Budgeting and ...

316 Daniel Tommasi
In-Year Financial Planning and Cash-Flow Forecasts
In-year financial planning and cash-flow forecasts are needed both to ensure
that cash outflows are compatible with cash inflows and to prepare borrowing
plans. Except in an emergency situation or if the budget has been badly
prepared, in-year financial planning should be driven by the budget.
In-year financial plans
An annual financial plan including cash inflows and cash outflows month
by month should be prepared for the entire fiscal year before the start of
the fiscal year. Borrowing plans are derived from the monthly forecasts
of cash inflows and outflows. They should be regularly updated. In addition
to the monthly cash-flows projection, the forecast should include quarterly
commitment projections.
The financial plan must take into account the timing of payment
obligations arising from commitments over the fiscal year. In particular, it
must consider the schedule of disbursement for investment projects, which
are not equally distributed by month. It should also take into account the
seasonal distribution of revenues and the expected disbursement planning
of external aid. Many countries merely slice the budget into quarterly parts
or release one-twelfth of the budgeted amount every month. Of course, this
method is not satisfactory. For example, the monthly schedule of disbursements
for investment projects can be highly variable depending on various
factors, such as contractual payment schedules or the physical advancement
of works.
The procedure to update the financial plan could be the following:
Each quarter at least, both the commitment plan (if it is prepared) and
the cash plan should be updated for the entire year, which requires that
the larger investment projects update the payment obligations planning
for the entire year.
Each month the cash plan for the quarter should be updated, taking into
account revised revenue forecasts and expected outflows (derived from
the commitment plan). The domestic borrowing program for the month
is derived from this cash plan. If the cash plan indicates that cash inflows
available over the quarter may be insufficient, action should be taken
immediately, which may include identifying measures for increased
tax collection, revising the borrowing policy, and delaying expenditure
commitment. Therefore, the commitment and cash plans should be
revised for the entire year.