The Governance Brief: Government Cash and Treasury Management Reform (Issue 7-2003)

Abstract

Governments in developing countries need to reform the public sector to overcome banking and cash management inefficiencies and adopt international best practices. Inefficient cash management presents to governments a significant opportunity cost, often overlooked as it is not appropriated. Government cash and treasury management in most developing countries uses manual processes with check- and cash-based payments, multiple bank accounts, large cash floats, and idle balances earning little or no interest; and focuses on budget expenditure control rather than efficient banking and cash management. In large developing countries, the float commonly exceeds $1 billion. If the average cost of borrowing is 4%–6% and the average interest earned is zero or close to zero, this float could cost up to $50 million yearly. Cash management is having the right amount of money in the right place and time to meet the government’s obligations in the most cost-effective way.