Cash management can be defined succinctly as “having the right amount of money in the right place and time to meet the government’s obligations in the most cost-effective way”. This is a static definition and does not emphasize active cash management that advanced countries practice (see below).
The paper identifies eleven features of good cash management practices. Several of these are fundamental, including
- Centralization of government cash balances and establishment of a treasury single account structure.
- Ability of make accurate projections of short-term cash inflows and outflows, for all central government transactions and, depending on country circumstances, the cash inflows and outflows of lower levels of government and/or other government entities.
- An adequate transaction processing and accounting framework, with timely information sharing between the Treasury and various government agencies.
- Appropriate institutional arrangements for cash management.
The paper indicates that modern cash management is facilitated when the government’s cash managers use modern banking, payment, and settlement systems, as well as short-term financial market instruments such as repos.
Many middle income countries, as well as low-income countries, only have fairly rudimentary cash management arrangements compared those of some advanced countries. The Guidance Note therefore provides a strategy for improving government cash management.
The first steps are to address fundamentals, including establishing treasury control over all government bank accounts and, at the same time, prepare rolling cash flow forecasts. Refinements in cash management include (but are not limited to) shortening the delays in revenue transmittals and making payments through the banking system, and ensuring that there are no idle unremunerated cash balances. To complete some of the basic and intermediate steps for improving cash management, the Guidance Note emphasizes that considerable time—perhaps a decade—is needed.
Eventually, however, the aim is to manage daily cash balances, ensuring that any temporary surpluses receive the maximum return in safe investments and any short-term borrowing for cash management purposes is minimized. In the most advanced countries, the balance of the main treasury account at the central bank is managed within-the-day. For example, in Sweden, which has some 240 autonomous government agencies, the balances in each agency’s transaction accounts is transferred to the government’s main account at the central bank three times per day. For many countries, it will take a long time to reach such a high degree of active management of cash balances. However, the Guidance Note provides a basis for any country to prepare its own cash management reform strategy.
Do you manage your own cash well? Can you always pay your bills on time? Do you borrow unnecessarily? Do you have balances in bank accounts that are not receiving the best interest rate? Just as individuals are concerned about managing their cash well, so are governments. In practice, however, not all governments manage cash well. Some countries have unremunerated balances in thousands of bank accounts, yet at the same, they are borrowing from domestic or external creditors at market interest rates. Commercial banks and other purchasers of government bonds are very happy with such arrangements.
