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How to Set Up A Cash Buffer: A Practical Guide to Developing and Implementing a Cash Buffer Policy
Author:
Yasemin Hurcan
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,
Mr. Emre Balibek
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Fatoş Koç
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Series:
IMF How To Notes
Volume/Issue:
Volume 2020: Issue 004
Language:
English
Publication Date:
21 Dec 2020
DOI:
https://doi.org/10.5089/9781513563848.061
ISBN:
9781513563848
ISSN:
2522-7912
Pages:
31
Keywords:
FADHTN; HTN; cash balance; opportunity cost; annual debt service; cash balance management; cash flow volatility; financing option; market volatility
Legal-disclaimer:
Fiscal Affairs Department (FAD) How to Notes offer practical advice from IMF staff members to policymakers on important fiscal issues. The views expressed in FAD How to Notes are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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.
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Cover IMF How To Notes
IMF How To Notes
ISSN:
2522-7912
Publisher:
International Monetary Fund