How to Set Up A Cash Buffer: A Practical Guide to Developing and Implementing a Cash Buffer Policy

By Yasemin Hurcan, Emre Balibek, Fatoş Koç

December 21, 2020

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Yasemin Hurcan, Emre Balibek, and Fatoş Koç. How to Set Up A Cash Buffer: A Practical Guide to Developing and Implementing a Cash Buffer Policy, (USA: International Monetary Fund, 2020) accessed November 21, 2024

Summary

Maintaining a cash buffer has emerged as a risk management tool for government cash and debt management. During budget execution, there is considerable cash flow volatility and timing mismatches concerning revenue collections and expenditures, debt inflows, and debt service. Cash balance management aims to address these mismatches and to ensure availability of liquidity in government bank accounts. From a debt management perspective, holding an appropriate level of cash balance serves to mitigate funding risk. Effective cash balance management is even more critical when there is heightened uncertainty about the magnitude and timing of cash flows, as seen during the coronavirus disease (COVID-19) pandemic. This note discusses the role of the cash buffer for managing cash balances and offers practical approaches to developing a policy framework, considering the risk mitigation objectives and the cost of carry.

Subject: Currencies, Government cash forecasting, Government cash management, Government debt management, Treasury Single Account

Keywords: Annual debt service, Cash balance, Cash balance management, Cash flow volatility, FADHTN, Financing option, HTN, Market volatility, Opportunity cost

Publication Details

Pages:

31
Volume:

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DOI:

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Issue:

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Series:

How-To Note No. 2020/004
Stock No:

HTNEA2020004
ISBN:

9781513563848
ISSN:

2522-7912

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