2023-Public-Sector-Perspectives

finance or central bank (or both) to determine the optimal structure to manage payments and collections (as well as credit cards) both from an operational and financial perspective. Decision-making in relation to centralization will vary by country: some countries have formal arrangements that stipulate cooperation between MoFAs, ministries of finance and the central bank, while others may develop a more informal collaborative process. It is important to note that MoFAs do not need to change everything overnight. The US Department of State consolidated financial services incrementally in a number of stages — addressing cash management, payments and foreign exchange as separate projects — from 1991 onwards in order to generate additional administrative savings and operational efficiencies. It makes sense to focus on the easiest wins — and the biggest savings — first, both in order to deliver immediate cost gains and to build internal support and strengthen the business case for further centralization. To this end, Citi is currently working with a MoFA in Latin America that is beginning the process of centralization. However, rather than consolidating all accounts around the world to Citi, the MoFA is instead establishing a centralized structure that will fund local accounts at local banks. While this arrangement will not generate the same level of savings as a structure where all local collections and payments are managed at the center, it will reduce costs, improve oversight and lay the foundations for further change in the years to come. Choosing the right partner Given the enormous geographical footprint of MoFAs internationally, it is essential that they work with a bank that can offer coverage, consistency and a presence in as many countries as possible where that MoFA has operations. It is equally important for a bank to be a member of all major clearing systems to facilitate the most efficient ways of paying and collecting funds, including innovative methods such as mobile payments where they are locally important. Some bank’s payment solutions enable MoFAs to issue payments in dozens of currencies, right from their offices via a single window — without having to maintain local currency accounts. The availability of corporate cards, including in local currency, may also be a consideration. A bank’s global presence is not just about connectivity, though that is important. It also means that it has people on the ground who understand the practical implications of local regulatory nuances and business practices. While many treasury best practices cross over from the private to the public sector, both the challenges faced by MoFAs and their objectives are unique. Therefore, MoFAs should choose to work with a bank with experience working with governments — and in particular MoFAs — around the world, enabling the bank to share treasury best practices and introduce innovations from the corporate world to the public sector in an appropriate and valuable way. In particular, understanding the challenges MoFAs face in centralizing banking operations can be invaluable in designing an optimal structure, including controls, and ensuring buy- in at local level by clearly communicating the rationale for any changes. Ultimately, the benefits of centralizing MoFA finances are aligned with the broader direction of many governments’ policies. Consolidation and centralization deliver better value for taxpayers’ money. Fees and costs, including those relating to FX, are significantly lower at some global banks compared to working with a local bank. Moreover, there is greater certainty over costs: some global banks can provide FX at a pre- agreed spread over market rates, for example. Equally, centralization has the potential to help governments achieve their transparency and accountability objectives. It enables the implementation of consistent standards and improved controls, enhancing risk management, strengthening security and reducing opportunities for fraud. Solutions such as online banking facilitate greater use of electronic payments, providing a valuable audit trail, transparency of costs (including any lifting or correspondent banking fees) and streamlining reconciliation. Visibility of funds is also significantly improved, enabling funds to be sent as required rather than pre-emptively (to accommodate potential delays), resulting in better liquidity management. Citi Perspectives for the Public Sector 47