How to Build Cash Management Capacity in Fragile States and Low-Income Developing Countries

IMF How To Notes, March 1, 2022

Source details

Canonical URL: How to Build Cash Management Capacity in Fragile States and Low-Income Developing Countries

Fiscal institutional capacity in most fragile states (FS) and several low-income developing countries (LIDCs) is much lower than in other countries.
Governments in these countries face several cash management challenges because they often:
- lack credible budgets;
- have smaller and less diversified revenue bases;
- have limited access to financial markets;
- rely largely on donors to fund a large portion of their budgets.
Available public funds in these countries often remain dispersed outside the control of the ministry of finance.
In the absence of a good cash forecasting function, these countries typically resort to cash rationing to meet their priority spending needs, often in an ad hoc manner, which can adversely affect budget execution and achievement of fiscal policy targets.
The note sets out the key objectives and building blocks of a cash management function in FS and LIDCs and suggests measures to progressively build cash management capacity.

Consolidating cash resources.
Forecasting cash flows.
Managing cash balances with sound institutional setups.
Establish a credible and functional cash forecasting function to reduce ad hoc cash rationing and improve budget execution.

Consolidating cash resources:
- Reduce dispersion of public funds outside ministry of finance control.
- Move toward centralized cash management arrangements appropriate to country context.
Forecasting cash flows:
- Develop routine cash forecasting capabilities to inform payment prioritization and avoid ad hoc rationing.
- Use forecasting to align budget execution with available cash and fiscal policy targets.
Managing cash balances and institutional setup:
- Introduce sound institutional arrangements (for example, treasury committees and Treasury Single Account concepts) tailored to FS and LIDCs.
- Coordinate with donors and central banks as needed to improve liquidity management.

Subject: Central banks, Currencies, Economic sectors, Fiscal accounting and reporting, Government cash forecasting, Government cash management, Monetary policy, Money, Public financial management (PFM), Treasury Single Account
Keywords: cash inflow, cash management decision flow chart, cash management function, Currencies, factors inhibiting TSA reform, Fiscal accounting and reporting, Government cash forecasting, Government cash management, Treasury committee, Treasury Single Account, West Africa

How to Build Cash Management Capacity in Fragile States and Low-Income Developing Countries
- How to Build Cash Management Capacity in Fragile States and Low-Income Developing Countries (Markdown version)
- How to Build Cash Management Capacity in Fragile States and Low-Income Developing Countries (PDF)