Cash-flow Policy Reforms Should Save State Over NIS 1 Billion a Year

The Office of the Accountant General of the Ministry of Finance is in the midst of quietly reforming the way state cash flow is handled, which could save about NIS 1 billion a year.

One aspect of the new policy is the issuing this week, for the first time, of two-year government bonds. Later on, deposits will be offered for even shorter period, of up to three months.

The amount of cash kept is state coffers was trimmed by NIS 5 billion in 2005, contributing to a 1-percent reduction in the country's debt compared to GDP.

The Accountant General, Yaron Zelikha, says the target is to cut an additional NIS 5 billion to NIS 7 billion from state cash repositories, and if possible to slash the state's cash surplus to zero. About NIS 1 billion in interest charges could be eliminated if this goal is reached.

Sales of the short-term government deposits eventually will be combined with an additional reform, which will permit the Postal Bank to offer to the public government deposits that earn a higher rate of interest than deposits at the commercial banks.

The state's cash flow is equal to the expected expenses of the ministries for the month, minus the revenues for the same month.

For years, the assumption has been that cash reserves of NIS 12 billion were needed to cover all government costs for each month.

Examinations carried out in the past few years, however, have revealed that this is a wasteful practice.

The ministries regularly overestimate their expenses for the coming month, apparently in order to ensure that they will not be caught short.

As a result, the state coffers contain billions of shekels in cash that it does not need and on which it pays a great deal of interest.

Zelikha took a few steps in 2005 to improve the management of cash flow. Three accounts used for government cash reserves were combined into a single one, and a directive was issued instructing the accountant of each ministry to request only the amount of cash needed each month or face a reprimand.

A policy being instituted this year will require each ministry to submit an annual cash program, any violation of which (by spending more cash than specified, or spending it too early) will result in the ministry's having to pay interest. Underspending will be rewarded with interest earned.

According to Zelikha, the amount of cash kept in state coffers could be reduced from its current NIS 7 billion (which represents an NIS 5 billion trim from the previous 12 billion) to NIS 2 billion.

His goal is to reach parity with countries such as Sweden, where accounts are zeroed out at the end of each day and cash reserves are kept at a minimum.

In Sweden, if money is needed for government spending in the course of the day, short-term securities are issued immediately.