Installation of Treasury Functions in
The Kyrgyz Republic
A Retrospective
Kyrgyz Ministry of Finance:
Budget execution arrangements prior to 1994
Systems inherited from the Former Soviet Union
• Limited treasury services delivered by the Budget, Sectors,and
Accounts Departments, and the Central Bank.
• Government payment functions discharged using thousands of bank
accounts.
• No in-year fiscal reports except from the central bank which reported
on revenues, and aggregate transfers to line ministries bank accounts.
• Unreliable and much delayed annual financial accounts.
• Non-transparent process governing use of public funds.
• The systems did not promote tracking of expenditure arrears, cash
planning, and reconciliation of accounts with bank balances
Kyrgyz Treasury
2
Establishing Kyrgyz Treasury in 1994:
Retrospective (1)
Following factors contributed to successful installation of the
Kyrgyz Treasury:
• Exceptional level of political commitment to reform initiatives.
• Effective leadership at the MOF and willingness to effect fundamental
systemic changes to install the treasury.
• Focused technical assistance, and its unquestioned acceptance.
• Mobilization of skilled staff from wherever available and intensive
hands-on training of field treasury staff.
• High level of coordination and cooperation between the budget and
treasury directorates.
• Staying focussed on basic treasury operations, leaving ambitious IT
plans for a later phase.
Kyrgyz Treasury
3
Kyrgyz Treasury: Retrospective (2)
The Kyrgyz Treasury model has been successfully adopted in Azerbaijan,
Armenia, Turkmenistan (partly), and Tajikistan (partly) Key elements of
the model are presently being implemented in Georgia.
Essential approach adopted in the Kyrgyz Republic was:
• Overhaul the inherited legal, institutional, and systemic framework
before embarking upon full scale treasury functions.
• Resist the temptation to computerize legacy systems.
• Give priority to establishing core treasury services of consolidation of
cash resources into TSA, payment system, classification structures, a
simple reporting system, and government accounts based on TGL.
• Generate annual government accounts from TGL, and reconcile these
with parallel records built from the accounts rendered by the line
ministries .
Kyrgyz Treasury
4
Kyrgyz Treasury Overview: Strengths (1)
Efficient operation in manual mode despite limited IT
resources
Fastest off the track among EITs: Basic functionality realized
within one year during 1994 comprising:
• Robust legal framework—Treasury Law
• Central Treasury with 62 regional treasury offices (RTO) established
within 6 months.
• Modestly staffed with 435 staff
• Unification of (most) of cash resources—budgetary, extrabudgetary,
and foreign currency— of central and local governments into a shared
TSA
• GFSM1986 compliant classification system installed by January 1995.
Kyrgyz Treasury
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Kyrgyz Treasury Overview: Strengths (2)
• Centralized payment service for all central and local
government budget instituions (BI)
• All central and subnational revenues pass through the
treasury
• Shared taxes distributed daily at the RTOs
• Budgetary and extrabudgetary expenditures of BI pass
through the treasury
• Centralized Treasury General Ledger (TGL) with subledgers at RTOs
The treasury, as installed, remained operational
without further outside help.
Kyrgyz Treasury
6
Kyrgyz Treasury Overview: Weaknesses (1)
A review conducted in 2002 found that lack of
contemporary IT resources and frequent turnover of
skilled treasury staff have stunted advanced treasury
functions:
• Timely fiscal reports of acceptable data quality
• Effective control over expenditure commtiments and
payment arrears
• Effective control over TSA balances and cash management
in real time
• Short- and Medium-term cash flow forecasts—cash plans
• GFSM2001 based classification structures and chart of
accounts to enable accrual-based reports on fiscal
operations
Kyrgyz Treasury
7
Kyrgyz Treasury Overview: Weaknesses (2)
Some operational weaknesses in basic treasury
functions have surfaced:
• Absence of cash planning has led to day to day budget
allocations and cash provisioning.
• Some dergadations have surfaced:
 Some BIs keep extrabudgetary resources outside
treasury purview
 Undesirable offset operations—akin to barter deals—
have been allowed
 Some government bank accounts continue to be
operational outside the TSA
Kyrgyz Treasury
8
Kyrgyz Treasury: Next Steps (1)
Objectives of Computerized Treasury Information
Management System (TIMS) Project.
• Automation of bank and payment operations.
 Central Treasury (CT) will have direct access to TSA, membership
of RTGS, and SWIFT access codeThe RTOs will participate in
NACH through CT.
 Direct payments into supplier’s bank accounts by RTO through
NACH. The role of agency banks will be reduced to cash
disbursements.
 Direct daily settlment between RTO and TSA for transactions
routed through agency banks.
 Elimination of paper flow, except between BI and RTO.
 Direct credit of revenues from taxpayer bank into TSA with parallel
electronic information to TIMS.
 Automatic sharing of revenues between governments by TIMS.
Kyrgyz Treasury
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Kyrgyz Treasury: Next Steps (2)
• Full registration of expenditure commitments and automated reports on
payment arrears.
• Sophisticated module for forecasting short- and medium-term cash
flows—cash planning.
• Prioritizing payments due based on cash plans.
• A single TGL in the system operated in real time by the CT and RTOs,
eliminating inter-treasury settlement operations. This will, for example,
permit central treasury to directly credit budget allocations and cash
limits into the ledger account of each BI.
• The new CoA for the TGL will be GFSM2001 compliant.
• The CoA will be underpinned by relational data base and will record all
dimensions of a transaction.
• Full range of management reports
• Automation of accounts keeping in real time.
Kyrgyz Treasury
10
Kyrgyz Treasury: Payment process after modernization
Intimation of clearing through NACH
Direct settlement through Clearing House
Central Treasury
NBK
Posting of transaction
Electronic payment orders
and registration of cash limits
for payment through TSA
Direct credit to
suppliers bank
Intimation of transaction
Direct electronic access to the TGL
credits/ debits
for accounting and payment
order registeration
Treasury General Ledger
account
Electronic
clearing of
Governm ent
deposits to
TSA
Electronic settlement with agent bank
Request for payment
Paper document
Cash Disbursement through agent bank
RTO
Budgte Institution
Kyrgyz Treasury
Taxpayer
Taxpayers
Bank
11
Suppliers bank
Kyrgyz Treasury: Modernization Plan
Being funded by the World Bank
Close cooperation between Fund and the Bank
Project time span: 3-4 years
Estimates of cost: about US$8 million
Kyrgyz Treasury
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Kyrgyz Republic GTAC Treasury Project:
Overall Project Organization (2/2).
IT System
IT System
technical
technical
definition,
definition,
procurement
procurement
& Implementation.
& Implementation.
WB W
B
Activities &
Actors
Project
Phases
Part
-Wins
Part2.1.3:
2.1.3: Quick
Quick
-Wins
Development
Development
Part
Part2.1.4:
2.1.4:TOR
TOR
++RFP
RFPpreparation
preparation
Part
Part3:3:Packaged
Packagedsoftware
software++
Hardware
&
Telecoms
Procurement
Hardware & Telecoms Procurementbid
bid
IT System Preparatory Phase
Selection Process for
IT System Realization
Part
Part2.1.2:
2.1.2:Functional
Functional
&&Architectural
Architecturaldesign
design
Part 2.15:
Part
2.15:
ITStaff
StaffKernel
KernelSelection
Selection
IT
&Training
Training
&
IT System Functional
& Architectural
General Design
1.1.Blueprint,
1.1.Blueprint,
Modernization
ModernizationPlan,
Plan,
Functional
Design
Functional Design
Part
Part2.1.1:
2.1.1: Proj
Proj. .Organization
Organization &&
Blueprint,
Blueprint,Modernization
ModernizationPlan
Plan
Part2.1.6:
2.1.6:
Part
Overall IT project
Overall
IT
project
managementPart
PartII
management
IT system
Modernization
Blueprint & Planning
IT System
IT system Pilot
Experimentation
& Full Implementation
+
Training
1.1.33Impl
Impl. .Monitoring
Monitoring
1.1.44Impl
Impl. .Monitoring
Monitoring
Kyrgyz Treasury
Part4:
4:
Part
TechnicalInfrastructure
Infrastructure
Technical
Implementation
Implementation
IT System
Parameterization
& Development
Part6:
6:
Part
Overall IT project
Overall
IT
project
managementPart
PartII
management
IT System Detailed
Technical Design
Part
Part5:5:
Project
ProjectRealization.
Realization.
Packaged
Packagedsoftware
software
Parameterization
Parameterization
Application
ApplicationIntegration
Integration
++
Phased
PhasedImplementation
Implementation
&&Training.
Training.
IT System Realization Phase
1.1.2.Impl.
2.Impl.Monitoring
Monitoring
13
Kyrgyz Treasury
14