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.
In response to a request from the authorities and as part of the United Kingdom’s Department for International Development (DFID) Enhanced Data Dissemination Initiative (EDDI) 2 project, a government finance statistics (GFS) mission visited Maseru, Lesotho, during January 20–31, 2020. The mission was the last, in a series of five consecutive technical assistance (TA) missions to Lesotho, as part of the EDDI 2 project. The objective of the five-year project, that started in 2015 was to foster compilation and dissemination of GFS and public sector debt statistics (PSDS) consistent with international methodological standards. The work program under the project identified the enhancement of classification of transactions in fiscal accounts and the expansion of the institutional coverage of data to include all significant general government units as key milestones to achieve by the end of the project.
The COVID-19 pandemic is having a severe impact on Lesotho’s economy. Supply chains for major industries have been disrupted and a national shutdown to contain the virus curtailed economic activity with adverse social impacts. The economy is expected to be further hit by declining external demand for textiles and diamonds, shrinking remittances, and delays to major construction projects. The authorities are taking measures to contain the virus and are implementing plans to mitigate its health and economic consequences. The economic shock, as well as the additional required spending, have generated urgent balance-of-payments (BOP) needs. Lesotho does not have an arrangement with the Fund.