TREASURY PERFORMANCE MANAGEMENTMANAGING CASH MANAGEMENTS PERFORMANCE TURKISH TREASURY

TREASURY PERFORMANCE MANAGEMENT&MANAGING CASH MANAGEMENT’S PERFORMANCE TURKISH TREASURY

Contents 1 Performance Management as part of the Public Financial Management System 2 Treasury Strategic Plan & Performance Management 3 Managing Cash Management Performance 4 The Way Forward

PERFORMANCE MANAGEMENT 1 AS PART OF THE PFM SYSTEM

Legal Background Public Financial Management and Control Law Enacted in 2003 Came into Force in 2005 Law No. 5018 Strategic Planning Article No. 9 Public administrations shall prepare strategic plans in order to form missions and visions and determine strategic goals and measurable objectives. Performance Programs Article No. 9 • Public administrations shall prepare their performance programs which include their performance targets and KPIs. • Public administrations shall prepare their budgets on performance basis and in accordance with theır strategic plans. Accountability Reports Article No. 41 • The heads of public administrations and authorizing officers to whom appropriations are allocated in the budget shall issue accountability reports each year. • These reports include information on activities and performance information performed as per strategic plans and performance program.

Content of the Reports Prepared for each 5 -year period Strategic Plans • General info about the institution • Vision and mission statements • Core values and principles • Strategic targets and objectives • Strategies • Performance indicators • Envisaged cost for activities • Submitted to Ministry of Development until preceding April • Published until preceding October Prepared annually Performance Programs Accountability Reports • Performance targets and indicators • General info about the institution • Performance results for the preceding two years • Planned activities to reach performance targets • Envisaged cost for each activity Published in January • Core policies and priorities • Financial results&budget realizations • Performance results and evaluation • Explanations for deviations Published in April

TREASURY STRATEGIC PLAN & 2 PERFORMANCE MANAGEMENT

Roles&Functions of Treasury A wide spectrum of functions Public Finance Mng. Cash&Debt Management • Risk Management • Receivables Management • Treasury Accounting • 1 Shareholder Executive Foreign Economic Relations • Shareholder of • Foreign borrowing SOEs • Execution of • Preparation of relationships annual general with IMF, investment and World Bank etc. financing programs of SOEs 2 3 Regulation of FX Regime • Supervising legislation regarding the protection of the value of Turkish lira • Monitoring developments related to financial sectors 4 Regulation and Audit of Insurance Sector • Implementing and monitoring regulations for the insurance market • Auditing insurance sector 5 Economy Advisor of the Government Power. Point • Economic and • financial Diagrams analyses and designed by forecasts, and Theme. Gallery preparing evaluation reports 56 Monitoring State Aid Preparing legislation for state aid and implementation of support measures 7

Strategic Plan of Treasury «An institution accepted as a pioneer in ensuring economic development and a model in institutional governance» Vision Mission “To manage public financial assets and liabilities, to regulate, implement and supervise economic, financial and sectoral policies, and to ensure the coordination of international economic relations in cooperation with all economic actors in a transparent, accountable and efficient way in order to contribute to the development of our country. ” Strategic Pillar Strategic Goals MANAGEMENT OF PUBLIC FINANCIAL ASSETS AND LIABILITIES Increasing effectiveness of public financial asset and liability management INTERNATIONAL ECONOMIC RELATIONS Increasing effectiveness of Turkey in international economic relations INSURANCE SECTOR AND PRIVATE PENSION SYSTEM Stimulating the growth potential of the insurance and private pension system FINANCIAL SECTORS Strengthening financial system and stability by increasing the variability in the financial products and services, financial depth and inclusion STATE AID Monitoring the state aid implementations in an holistic manner in order to provide measurability, predictability, transparency and effectiveness INSTITUTIONAL MANAGEMENT Institutional and managerial excellence

Management of Public Financial Assets and Liabilities Improving the forecasting capabilities of cash management Improving the borrowing process and debt stock structure Diversifying the financial instruments and investor base Strategic Objectives Reducing credit risks arising from treasury-guaranteed credits, on-lent external credits and other transactions Implementing corporate governance principles in public enterprises Ensuring that the Turkish State Mint performs its functions in a cost-efficient, timely, continuous and reliable manner Enabling the effective utilization of the funds provided under EU IPA

Public Finance Management Performance

Strategic Benchmarks and Indicators • Liquidity Risk • Currency Risk • Borrowing mainly in TL • Keeping certain level of cash reserve • A minimum nominal figure • Interest Rate Risk 1 2 4 3 • Using fixed rate TL instruments as the major source of domestic cash borrowing • A nominal ceiling for FX borrowing and FX cash reserves • Refinancing Risk • Increasing the average maturity of domestic cash borrowing taking market conditions into consideration • Decreasing the share of debt which has interest • Decreasing the share of debt maturing within 12 rate refixing period less than 12 months

3 MANAGING CASH MANAGEMENT PERFORMANCE

Monitoring Treasury Cash Management Performance-I Deviations from daily cash program are reported daily to the top management and deviations from monthly program are examined at the regular meetings with DG and Undersecretary. Cash management KPIs are part of 5 -year Strategic Plan and annual performance programs of Treasury since 2009/2010. Initially set as a single KPI based on deviations from the projected cash surpluses/deficits on a monthly basis. Since 2014, two separate indicators defined as the average monthly deviation in the total revenues (cash inflows) and expenses (cash outflows) of which the results are reported monthly. CMD is subject to Turkish Court of Acccounts’s audits and accountable for these KPIs

Monitoring Treasury Cash Management Performance-II Due to relatively less controllability issue the benchmark for the revenue side ise higher. Benchmark values (the minimum acceptable performance) have been set more stringent year by year. A continous improvement in the performance outcome apart from the second half of the 2017. Poor performance in terms of revenue forecasting was mainly due to unexpected overperformance in the tax revenue in this period.

Monitoring Institutions’ Forecasting Performance-I Forecasting performance of the agencies are measured an objective parameter that includes three criteria. Objective to Measure Criteria Formula Weight in Total Score Deviation in Monthly Forecasts Weighted Average Absolute Monthly Deviations Weighted Average(ABS(Monthly Realization-Monthly Forecast)/Monthly Forecast)) 50% Continuous Overforecasting Total Forecasted Amount over Total Annual Realizations (Total Annual Forecast-Total Annual Realization)/Total Annual Realization 40% Extreme Unforecasted Realizations Average rate of realizations when the realization surpasses the forecast by 150% IF(Realization. Forecast)/Forecast>150% => 10% Weighted Average(Montly Realization. Monthly Forecast)/Montly Forecast)) Forecasting performance of the agencies is an important input while determining monthly cash program for each agency.

Monitoring Institutions’ Forecasting Performance-II A subjective score is added based on the evaluation of Treasury personnel based on the level of responsiveness and professionalism of the agencies. High performers Average performers Bad performers An annual performance report is prepared internally and presented to the top management and the agencies are informed about their performance results in an unofficial context.

Strategies to Achieve Performance Targets Empowering the IT infrastructure for cash management as part of the new TSA Project. Organizing informative programs for spending agencies in order to improve their forecasting capabilities. Improving the communication between Treasury and spending agencies in terms of information sharing related to cash programs and financial assets. Conducting regular meetings with Mo. F in order to maintain coordination between cash and budget management.

4 THE WAY FORWARD

Additional Cash Management KPIs Additional KPIs are proposed for measuring the performance in different aspects of the cash management for the new strategic plan for year 2019 -2023. Objective to Measure Criteria Formula Daily Forecasting Average daily deviation in the day-end reserve level Average((Realization-Forecast)/Forecast)) for the day-end Treasury reserves Coverage of the TSA Number of the institutions taken under the coverage of the new TSA system Total number of the new institutions introduced to the new TSA system for each year Remuneration of the Treasury Reserves Return on Treasury reserves normalized by the average Treasury borrowing rate Remuneration Income/Average Reserve Level Average Borrowing Cost of Treasury 2 out of 3 proposed KPIs are planned to made part of the new strategic plan.

Automotized Continous Performance Reporting A new IT system is being developed for the new TSA system consists of various submodules. Reporting module of the new TSA IT System is configured in order to generate performance reports. The system will enable to track Treasury cash management performance results online on a continous basis. Agencies will be able to monitor their own forecasting performance dynamically via this system.

Thank You! TURKISH TREASURY