The Target Cash Buffer
Government Bond Market Peer Group Survey Analysis
August 2014
Capital Markets and Corporate Governance Service Line
Finance & Markets Global Practice
The Government Bond Market Peer Group Survey Analysis – “The Target Cash Buffer” – was produced
under the Government Bond Market Peer Group Dialogue program of the World Bank. The views
published should not be attributed to the World Bank or any affiliated organizations. Nor do any of the
conclusions represent the official policy of the World Bank or of its Executive Directors or the countries
they represent.
The survey was prepared by Mike Williams ([email protected]) and Indhu Raghavan
([email protected]) and responses were consolidated and analyzed by Zauresh Kezheneva
([email protected]), with technical supervision provided by Indhu Raghavan. Please refer to
the Annex 2 for the list of contributors to the survey and their contact information.
I.
Introduction
The issue of the Target Cash Buffer and its management is an important policy question for debt
management offices. As countries move to manage their cash more actively, smoothing the net
flows across the Treasury Single Account (the ‘TSA’), they have to consider what cash buffer
they need. A buffer is required to meet late unanticipated outflows and manage debt servicing
and other priority commitments during times of market stress. One of the lessons of the 20082009 financial crisis was the importance of being able to access cash in the very short term.
However, too large a buffer carries a cost since the interest earned on the cash balance is almost
always less than the cost of the additional borrowing.
The Target Cash Buffer was chosen as a topic for discussion in the Government Bond Market
Peer Group Dialogue meetings, organized by the World Bank Group on May 6 and 7, 2014.1 The
discussion addressed how this policy issue can be approached and how in practice cost and risk
are traded-off.
The Target Cash Buffer country survey (the ‘Survey’) was conducted in preparation for the
meetings2 to analyze and compare country practices with regards to the use of cash buffers by
government debt management offices. The objective of the Survey is to serve as a reference
guide and a learning tool for debt managers.
The responses to the Survey were collected from 11 countries: Brazil, Chile, Colombia,
Hungary, Kenya, Morocco, Nigeria, Peru, Poland, Turkey and Uruguay.
The Survey results are organized in tables 1-5 below along the following four broad categories:
adoption of a target cash buffer; composition of a target cash buffer; investing the cash buffer;
and signaling to the market. The Annex 1 provides detailed country-by-country Survey
responses.
II.
Survey Findings and Analysis
1. Adoption of a Target Cash Buffer (Table 1 and Table 2)
 The benefits of a cash buffer are generally recognized among the respondents to the
Survey. Half of the Survey respondents have target cash buffer policies (Brazil, Turkey,
Morocco, Uruguay and Hungary) and Peru is in the process of adopting one.
 The motives for adopting a target cash buffer vary. Predominantly, a cash buffer is
maintained to manage cash flow volatility (which may be referred to as a ‘transaction
buffer’) and to cushion market stress events, including disruptions in the capital market
1
Government Bond Market Peer Group Dialogue (PGD) is an initiative within the Government Bond Market
Advisory Services program, which brings together and facilitates technical discussions among emerging market
countries on critical issues in development of local currency government debt markets. PGD activities include (i)
periodic meetings via teleconference and web-meeting guided by World Bank Group experts and consultants; and
(ii) production of background materials, presentations, and surveys on key topics, all of which are disseminated via
the PGD website. Participants include representatives from different combinations of approximately 33 emerging
market countries, depending on the topic being discussed.
2
Two of the country responses were received as a follow-up to the meetings.
for a certain period when no bond issuances would be possible (which may be referred to
as a ‘safety buffer’). In addition, it is also retained to support liability management
operations (buy-backs) and to reduce refinancing risk.
 Some respondents have no target cash buffer policy: Poland, Chile, Kenya, Nigeria
and Colombia. The reasons are quite varied: either ample cash balances (Chile and
Colombia) or, on the contrary, cash shortfalls that preclude the country from maintaining
a buffer (Kenya). In some cases, debt managers may be less concerned with adopting a
target cash buffer if there is a negligible cost of carry; in this case, market conditions and
the issuance policy determine the actual cash buffer (Poland).
 All countries in the Survey have some safety nets, regardless of the availability of a
target cash buffer. The popular safety nets include deposits with the Central Banks
(Peru, Hungary), overnight borrowing from commercial banks (Morocco, Hungary,
Poland, Chile), contingent credit lines (Uruguay, Hungary, Poland, Colombia) and
borrowing from the Central Banks (Kenya, Nigeria).
For countries with target cash buffer policies (Brazil, Turkey, Morocco, Uruguay and Hungary)
2. Composition of a Target Cash Buffer (Table 3)
 Defining the target: The target is often expressed as the number of months of financing
needed to provide a cushion, particularly for debt servicing (from 1.5 to 12 months). In
Brazil, for instance, a minimum cash balance of 3-months of debt servicing serves as a
prudential reference. In practice, the cash buffer is way above this reference point.
Similar to Brazil, in Uruguay and Hungary a cash buffer is targeted to cover a certain
timeframe of financing needs. In Morocco, a target buffer is a nominal amount equal to a
certain percentage of revenues. Turkey has two targets: a nominal amount for daily
purposes and a monthly reserve covering a specific percentage of debt redemption for the
month.
 Calculation methodology: Each of the respondents has a different methodology. Turkey
uses a statistical model based on historical volatility of data, accounting for shrinking
demand duration, Treasury financing options, surplus and privatization revenues, debt
redemption, and non-interest expenditure projections. Morocco uses a cash flow
forecasting methodology to calculate allowance for a forecast error (a transaction buffer).
Brazil maintains an allowance for a period of extreme market stress (a safety buffer).
Hungary includes allowance both for a cash flow forecast error and for a period of
extreme market stress.
 Effect of the financial crisis of 2008-2009: Except for Hungary, the responding
countries have not raised the target level of cash buffers in response to the financial crisis
of 2008-2009. Hungary increased the target to promote investor confidence and mitigate
international market risk.
3. Investing the Cash Buffer (Table 4)
 All responding DMOs, except for Uruguay, invest the buffers at the central banks
and receive an interest: at market-related rates for public debt (Brazil, Morocco), at the
central bank’s repo rate (Turkey) or at the central bank’s base rate (Hungary). In
Uruguay, the central bank manages the buffer under the same guidelines as the
international reserves and the interest is owned by the central bank.
4. Signaling to the Market (Table 5)
 Publishing the target: Most responding countries with a target cash buffer publish
information on the availability of the cash buffer, without disclosing the actual nominal
level of the buffer.
 Effect of the buffer: The countries acknowledge that, in addition to the primary function
of countering rollover and liquidity risks, the maintenance of the cash buffer has a
positive signaling effect on market participants and provides flexibility to the debt
management offices to execute debt financing strategies, especially in times of high
volatility in government bond markets.
III.
Survey Results Tables
Table 1: Adoption of the target cash buffer
BRAZIL
TURKEY
MOROCCO
URUGUAY
HUNGARY
PERU
Y
Y
Y
Y
Y
In the process
Purpose of
the target
cash buffer
• Cushion for market
stress
• Part of the strategy to
smooth public debt
issuance
• Cushion for market
stress
• Managing cash flow
volatility
• Managing cash
flow volatility
• Cushion for
market stress
• Supporting
strategic
transactions such as
debt buybacks
• Cushion for market stress
• Managing cash flow
volatility
• Supporting strategic
transactions such as debt
buybacks
Other
significant
short-term
safety nets
• Budget resources
deposited in the
Treasury Single
Account
• Borrowing on money
market (with
maximum 30 day
maturity)
• Borrowing from
commercial banks
• Contingent credit
lines
• Borrowing from commercial
banks via repos
• Contingent credit lines
• FX deposits in the central
bank
Adopted
the target
cash buffer
-
• Term
deposits in
the central
bank
Notes:
1.
2.
3.
Brazil: The cash buffer enables the Treasury to raise resources in advance of concentrated debt repayment. The buffer is part of the strategy to reduce
rollover risk and to smooth the issuance, thus improving the liquidity of government bonds. The Treasury Single Account contains other additional resources
that are not exclusively allocated to pay debt, but that can be temporarily used for that purpose.
Hungary: FX deposits serve as an additional safety net that can be used for temporary financing, if needed (their original purpose is to finance future FX
maturities).
Peru: The adoption of a target cash buffer is part of the Assets and Liabilities Management Strategy established for the country in 2013.
Table 2: Countries without the target cash buffer
Adopted the target
cash buffer
POLAND
CHILE
KENYA
NIGERIA
COLOMBIA
N
N
N
N
N
Reasons for not
adopting the target
cash buffer
• Negligible cost of
carry
• Ample cash balances
• Chronic cash shortfalls
make it unviable to
build/maintain a buffer
• Approved purposes of
borrowing do not allow
the build-up of a buffer
• Ample cash balances
Other significant
short-term safety
nets
• Borrowing from
commercial banks
• Contingent credit
lines
• Seasonal amounts
derived from local
placements
• Assets in the sovereign
wealth fund
• Repos with commercial
banks
• Borrowing from the
central bank
• Borrowing from the
central bank
• The FGN Cash flow
Adjustment Note
• Contingent credit lines
• Borrowing from Funds
under management of
the Treasury
Notes:
1.
2.
3.
Poland: The level of the cash buffer is determined by the issuance policy. The aim of this policy is to borrow in stable/favorable market conditions,
according to debt management objective, which is the minimization of the long-term debt servicing costs subject to constraints of some risks connected with
debt. It is economically efficient because direct cost (cost of carry) is not significant and the higher level of funding has positive impact on the debt pricing
and yields in other auctions (indirect effect).
Chile: At the moment, the Treasury does not see the need in the target cash buffer policy, given large amounts of assets in the sovereign wealth fund, the
budget surplus and low indebtedness of the country.
Nigeria: The FGN Cash flow Adjustment Note is a new short-term borrowing instrument, designed to meet short–term funding gaps.
Table 3: Composition of the target cash buffer
BRAZIL
TURKEY
MOROCCO
The target
• For domestic debt: minimum
of 3 months of debt servicing
(principal and interest);
• For external debt: no target.
In practice: a FX cushion
covering 12 months of maturing
debt and interest is maintained.
• Daily target: a specific
daily cash reserve in
Turkish Liras;
• Monthly target:
specific percent of debt
redemption for the
month
• A nominal amount
= 1% of revenue
• 12 months of debt
servicing
• 1.5 months of
financing needs
What is included
in calculation of
the target
• An allowance for a period of
extreme market stress
• A statistical calculation
based on data of past
volatility and the implied
risk of exhausting the
cash balance
• An explicit
allowance for cash
flow forecast error
• An allowance for a
period of extreme market
stress
• A statistical calculation
based on data of past
volatility and the implied
risk of exhausting the
cash balance
• An explicit
allowance for cash
flow forecast error
• An allowance for a
period of extreme
market stress
Increase in the
target in response
to the financial
crisis of 2008-2009
N
N
N
URUGUAY
N
HUNGARY
Y
Notes:
1.
2.
3.
4.
Brazil: In practice, the cushion has often been maintained above the prudential reference of 3-month debt servicing.
Turkey: The statistical calculation of the target accounts for: (i) average duration of demand shrinking in the markets for previous years; (ii) at times of
demand shrinking, the ratio of financing via borrowing among overall Treasury financing; (iii) monthly average expected primary surplus and privatization
revenues for relevant year; (iv) monthly decomposition of debt redemption for relevant year; and (v) non-interest expenditure projections for relevant year.
Hungary: Increase in the target cash buffer had a positive signaling effect to the market: market participants, analysis and credit rating agencies have been
reassured by showing that the Debt Management Office (DMO) had large liquidity reserves in the time of volatility in the Hungarian market. The DMO in
its Debt Management Outlook publication indicated that the increase in the buffer was “due to increased international market risks”.
Uruguay: The calculation of the buffer is based on a statistical model estimating, under a certain probability, the amount of working days that the Treasury
might not be able to tap financial markets, either because markets are literally closed for the asset class or because the particular issuance conditions are not
acceptable for the country (Access-at-Risk approach).
Table 4: Investing the target cash buffer
BRAZIL
TURKEY
MOROCCO
URUGUAY
HUNGARY
Where invested
• At the central bank
• At the central bank
• At the central bank
• Invested by the central
bank under the same policy
as international reserves
• At the central bank
Interest received
• At market-related rate
• At central bank’s repo
rate
• At market-related rate
• At market-related rate
• Interest is owned by the
central bank, not the
government.
• At the central bank’s
base (policy) rate
Notes:
1.
2.
Brazil: The buffer is remunerated according to the average interest rate on the public debt held by the Central Bank. Such public debt is issued at market
rates (specifically, yields of public debt securities are defined on primary market auctions). Thus, the remuneration of the buffer is equivalent to the
financing cost of the federal government public debt in the market.
Turkey: The buffer is remunerated at one-week repo interest rate of the central bank. This rate is almost below the market-related interest rates.
Table 5: Signaling to the market
Publish
availability of a
cash buffer
BRAZIL
TURKEY
MOROCCO
URUGUAY
HUNGARY
Y
N
N
Y
Y
• Published is the
information on
Treasury’s adherence to
maintaining a cushion of
at least 3 months of debt
servicing
• The actual nominal
level is not published.
• Published is the
information on
availability of a cash
balance above 1.5-month
of possible financing
needs.
• The actual nominal
level is not published.
IV.
Annex 1 - Complete Survey Results by Country
Brazil
1. Has your country adopted a target cash buffer, whether formally or in practice?
Answer: Yes
2. If yes, what is the purpose of this buffer? (Indicate all that apply)
Answer:


To provide a cushion for times of market stress
Other: The Federal Public Debt in Brasil has bonds maturities concentrated in specific dates of the year (so that
the bonds dates of maturities as standardized), as part a policy of increasing liquidity of government bonds in
the Brazilian secondary market of fixed rate bonds. In this context, the cushion is part of a strategy to reduce
rollover risk of debt, once it allows the Treasury to raise resources in advance (through issuances or fiscal
budget) to pay big amounts of debt maturing in only one day. In this context, the cushion helps smoothing along
weeks the volume of issuances of the annual borrowing plan, even though bonds dates of maturities are
standardized. Indirectly, the cushion contributes to implement a strategy that seeks to improve liquidity of
government bonds and develop the bond markets in Brazil.
2.1. Are the target and the purpose published?
Answer: Yes
Usually, the National Treasury has mentioned in the Annual Borrowing Plans, which are published on a yearly
basis, its internal policy of maintaining at least 3 months of debt servicing (principal plus interest) as a cushion
for domestic debt. However, there is not a formal target to be pursued.
Besides the cushion policy for domestic debt (which represents about 95% of total debt), there is another
cushion in foreign convertible currency maintained exclusively to pay the federal government external debt
(which represents about 5% of total debt). For this second cushion we do not have a target or floor. However, it
has been equivalent to the amount required to pay at least 12 months of external debt maturities (principal plus
interest) in advance.
2.2. What is the target and how is it expressed? (For example, a nominal amount, a percentage of revenue or other
aggregate, or equivalent to “x” months of debt servicing or similar. If a nominal amount, please indicate what that
is as a percentage of revenue.)
Answer:
We consider at least 3 months of debt servicing (principal plus interest) as a prudential liquidity cushion. Note
that this minimum cash balance is a prudential reference instead of a target properly speaking. In practice, our
cushion have been consistently above our prudential limit.
2.3. Has the target increased since the financial crisis of 2008-09?
Answer: No
4. What is the basis of the target and what does it include? (Indicate all that apply.)
Answer:

An allowance for a period of extreme market stress
The Treasury has maintained a cushion equivalent to at least three months of service of the debt on the market,
a position considered comfortable when viewed in the context of the current maturity structure. As a result, in
adverse conditions, the government is capable of maintaining its operations for a corresponding period without
the need for seeking funding to refinance the FPD.
This prudential limit is consistent with the current debt profile. Focusing on the Federal Public Debt, the
percentage maturing in 12 months has registered consistent reductions since 2004, when it accounted for almost
40% of the outstanding debt or the equivalent of 20% of GDP. This indicator registered 24.8% of FPD or
approximately 11% of GDP in 2013 and has closed below 25% of FPD since 2009. This picture combined with
the liquidity cushion of at least three months of maturities is considered historically comfortable from the
viewpoint of refinancing risk management.
It is important to mention that payment of debt maturities with the liquidity cushion would impact banking
liquidity, forcing the Central Bank to carry out repo operations. In other words, there would be a reduction in
the Treasury debt, but the impact would be nil on the gross general government debt (*). Consequently,
utilization of these resources is reserved to adverse market situations, in a context in which seeking of
refinancing of debt maturities would introduce additional volatility into the domestic market.
(*) The Brazilian statistics for gross general government debt includes Central Bank –CB - repo operations
(once those repo operations have Treasury bonds as collateral).
5. Where is the cash buffer/balance invested? Indicate all that apply.
Answer: At the central bank
5.1. Does the cash balance earn interest at a market related rate?
Answer: Yes
The Treasury Single Account is deposited at the Central Bank of Brazil. It is remunerated according to the
average interest rate of the portfolio of public debt securities held by the Central Bank. Those securities are
issued by the Treasury at market rates (to be more specific, yields of those securities are defined on primary
auctions to sell bonds to the market). Therefore, the remuneration of the Single Account is equivalent to the
financing cost of the federal government public debt in the market.
6. Are there other significant short-term safety nets? Indicate all that apply.
Answer: Yes

Other: The cushion is composed of budget resources deposited in the Government Current Account in the
Central Bank (Single Account) and available exclusively for FPD payments. However, the Single Account
encompasses other additional resources that are not exclusively allocated to pay debt, but that can be
temporarily used for that purpose. The Brazilian fiscal policy has long been characterized by surpluses. As a
consequence, the Single Account balance has been bigger than the debt cushion.
Borrowing from central bank to the Treasury is not allowed by the Constitution.
7. Other comments regarding adopting or not adopting a target cash buffer:
Answer:
In Brazil, maintenance of a cash buffer has provided flexibility to execute debt financing strategies, especially
during times of higher volatility in government bonds market. The cushion not only allows the Treasury
managing the rollover risk of debt, but also constitutes an instrument that allows actions to provide liquidity and
price reference to domestic market in moments of stress.
Turkey
1. Has your country adopted a target cash buffer, whether formally or in practice?
Answer: Yes
2. If yes, what is the purpose of this buffer? (Indicate all that apply)
Answer:


To manage cash flow volatility
To provide a cushion for times of market stress
2.1. Are the target and the purpose published?
Answer: No
2.2. What is the target and how is it expressed? (For example, a nominal amount, a percentage of revenue or other
aggregate, or equivalent to “x” months of debt servicing or similar. If a nominal amount, please indicate what that
is as a percentage of revenue.)
Answer: There are two main targets.
First is for daily purposes: minimum daily cash reserve should be at least a specific amount of Turkish Liras.
Second is for monthly purposes: the monthly minimum cash reserve should be at least a specific percent of debt
redemption of relevant month.
2.3. Has the target increased since the financial crisis of 2008-09?
Answer: No
4. What is the basis of the target and what does it include? (Indicate all that apply.)
Answer:

A statistical calculation based on data of past volatility and the implied risk of exhausting the cash
balance. A brief description:
Benchmarks are determined by considering:





Average duration of demand shrinking in the markets for previous years.
At times of demand shrinking, the ratio of financing via borrowing among overall Treasury financing.
Monthly average expected primary surplus and privatization revenues for relevant year.
Monthly decomposition of debt redemption for relevant year.
Non-interest expenditure projections for relevant year.
5. Where is the cash buffer/balance invested? Indicate all that apply.
Answer: At the central bank
5.1. Does the cash balance earn interest at a market related rate?
Answer: Yes
One week repo interest rate of Central Bank of Turkey is used as return rate. This rate is almost below the
market related interest rates.
6. Are there other significant short-term safety nets? Indicate all that apply.
Answer: Yes

Other: In case there are tools that can be used for short term cash needs called money market cash operations.
By using these tools, Treasury may borrow to compensate short term cash requirements with maximum 30 day
maturity.
7. Other comments regarding adopting or not adopting a target cash buffer:
Answer:
Cash buffer is used to eliminate market related risks and liquidity risks regarding government payments. The
level of buffer can be changed according to tools that Treasury have to be used to compensate the urgent short
term cash needs, financial deepening, volatility in market rates and government revenues, forecast errors
regarding to cash inflows and outflows and other things. The capacity of convenience and fastness regarding
short term borrowing operations are the key elements of determining cash buffer level.
Morocco
1. Has your country adopted a target cash buffer, whether formally or in practice?
Answer: Yes
2. If yes, what is the purpose of this buffer? (Indicate all that apply)
Answer:

To manage cash flow volatility
2.1. Are the target and the purpose published?
Answer: No
2.2. What is the target and how is it expressed? (For example, a nominal amount, a percentage of revenue or other
aggregate, or equivalent to “x” months of debt servicing or similar. If a nominal amount, please indicate what that
is as a percentage of revenue.)
Answer: A nominal amount = 1% of revenue
2.3. Has the target increased since the financial crisis of 2008-09?
Answer: No
4. What is the basis of the target and what does it include? (Indicate all that apply.)
Answer:

An explicit allowance for cash flow forecast error
5. Where is the cash buffer/balance invested? Indicate all that apply.
Answer: At the central bank
5.1. Does the cash balance earn interest at a market related rate?
Answer: Yes
6. Are there other significant short-term safety nets? Indicate all that apply.
Answer: Yes

Borrowing (e.g. overnight) from commercial banks
7. Other comments regarding adopting or not adopting a target cash buffer:
Answer: N/A
Uruguay
1. Has your country adopted a target cash buffer, whether formally or in practice?
Answer: Yes
2. If yes, what is the purpose of this buffer? (Indicate all that apply)
Answer:


To carry out strategic transactions such as debt buybacks
To provide a cushion for times of market stress
2.1. Are the target and the purpose published?
Answer: Yes
2.2. What is the target and how is it expressed? (For example, a nominal amount, a percentage of revenue or other
aggregate, or equivalent to “x” months of debt servicing or similar. If a nominal amount, please indicate what that
is as a percentage of revenue.)
Answer: 12 months of debt servicing
2.3. Has the target increased since the financial crisis of 2008-09?
Answer: No
4. What is the basis of the target and what does it include? (Indicate all that apply.)
Answer:
Government ample liquidity buffers allow withstanding stress scenarios, including events that could restrict
market access. In 2007, the DMU developed a methodology to determine the optimal precautionary cash
balance for the Uruguayan treasury. As a result, the main source of uncertainty is derived from occurrences of
periods when market is close. Consequently, the Central Government should have enough liquidity to meet
market debt amortizations (plus an estimated maximum fiscal gap) taking into account: i) 5% of probability
markets will be closed 9 months, ii) 1% of probability markets will be closed 14 months. 3
5. Where is the cash buffer/balance invested? Indicate all that apply.
Answer:

Other: The Central bank manages the liquid assets of the government investing under the same guidelines of
the international reserves.
5.1. Does the cash balance earn interest at a market related rate?
Answer: Yes
Yes, but the government does not earn that interests, they are owed by the Central Bank.
3
This information and the related details were provided as a follow-up to the meetings.
6. Are there other significant short-term safety nets? Indicate all that apply.
Answer: Yes

Contingent credit lines
7. Other comments regarding adopting or not adopting a target cash buffer:
Answer: N/A
Hungary
1. Has your country adopted a target cash buffer, whether formally or in practice?
Answer: Yes
2. If yes, what is the purpose of this buffer? (Indicate all that apply)
Answer:



To manage cash flow volatility
To carry out strategic transactions such as debt buybacks
To provide a cushion for times of market stress
2.1. Are the target and the purpose published?
Answer: Yes
2.2. What is the target and how is it expressed? (For example, a nominal amount, a percentage of revenue or other
aggregate, or equivalent to “x” months of debt servicing or similar. If a nominal amount, please indicate what that
is as a percentage of revenue.)
Answer:
The target is not disclosed to a full extent. The published information states only that there is a defined optimal
level of cash buffer on the TSA based on 1.5 month’s possible financing needs and that the DMO intends to
keep the end-of-day TSA balance above the optimal level. The actual nominal level is not public information.
(It is also published that the DMO’s safety net is further strengthened by FX deposits and stand-by credit
facilities, but no exact figures are disclosed.)
2.3. Has the target increased since the financial crisis of 2008-09?
Answer: Yes
2.4. If yes, please explain the reasoning behind the increase.
Answer:
Liquidity risk increased significantly in these years. Hungary experienced serious distress in its local
government bond market (though T-bill and retail securities sales were not affected), bond auctions were
temporarily suspended and there was massive secondary market sell-off by non-resident investors. Market
consolidation was helped by an IMF/EU loan package, ÁKK resumed bond auctions after a few months’ time.
Since then it became evident that market participants, analysts and credit rating agencies could be reassured by
showing that the DMO has large liquidity reserves. Another factor is that Hungary has substantial FX debt and
the DMO prefinances the FX maturities, sometimes several months before the maturities. By showing large FX
deposits as well, investors can be sure that the FX redemptions will be fulfilled without any problems.
2.5. If yes, is the reason also published?
Answer: Yes
The reasons are given as “due to increased international market risks” in the DMO’s Debt Management Outlook
publication, but in press interviews, road shows etc. the DMO gives a broader picture, mainly to reassure
investors (without stating the exact figures).
4. What is the basis of the target and what does it include? (Indicate all that apply.)
Answer:


An explicit allowance for cash flow forecast error
An allowance for a period of extreme market stress
5. Where is the cash buffer/balance invested? Indicate all that apply.
Answer: At the central bank
5.1. Does the cash balance earn interest at a market related rate?
Answer: Yes
The government receives the central bank’s base rate (main policy rate) on the TSA cash balance held in the
CB.
6. Are there other significant short-term safety nets? Indicate all that apply.
Answer: Yes



Borrowing (e.g. overnight) from commercial banks
Contingent credit lines
Other: Besides the TSA in the CB, FX deposits (also in the CB) serve as safety nets. Although the original
purpose of these is to finance FX maturities in the future, they can be used for temporary financing as well, if
needed.
Note that borrowing from commercial banks is done via repos, i.e. the borrowing is collateralized.
7. Other comments regarding adopting or not adopting a target cash buffer:
Answer:
A target cash buffer is one of the most important benchmarks used in ÁKK’s debt management and cash
management activities. It is clearly defined, which makes cash management decisions simple (e.g. the amount
of repos to be made). Even without publicly disclosing the target level, the high level of reserves (which the
public monitors through the CB’s balance sheet) has a positive signaling effect to market participants.
Peru
1. Has your country adopted a target cash buffer, whether formally or in practice?
Answer: No
3. If no target has been adopted, why is this so? Indicate all that apply.
Answer:

Other: We prepared an estimation of the amount we will need for the cash buffer, it is not part of the law yet,
but it will be.
6. Are there other significant short-term safety nets? Indicate all that apply.
Answer: Yes

Other: term deposits in the central bank
7. Other comments regarding adopting or not adopting a target cash buffer:
Answer:
The adoption of a target cash buffer is part of the Assets and Liabilities Management Strategy established for
the Republic the last year.
Poland
1. Has your country adopted a target cash buffer, whether formally or in practice?
Answer: No
3. If no target has been adopted, why is this so? Indicate all that apply.
Answer:

In practice, the cost of carry is small or negligible
The main factor which is taken into consideration is market situation (current level of yields, demand) and its
volatility and uncertainty. The broader explanation is in item no 7.
6. Are there other significant short-term safety nets? Indicate all that apply.
Answer: Yes


Borrowing (e.g. overnight) from commercial banks
Contingent credit lines
7. Other comments regarding adopting or not adopting a target cash buffer:
Answer:
The level of cash buffer is mainly a result of the issuance policy. The aim of this policy is to borrow in
stable/favourable market conditions, according to objective of debt management objective i.e. minimisation of
the long term debt servicing costs subject to constraints of some risks connected with debt. It is economically
efficient because:
-
direct cost (cost of carry) is not significant,
the higher level of funding has positive impact on the debt pricing and yields in another auctions
(indirect effect).
As a result, in our opinion, such policy brings positive financial consequences and ensures safety and flexibility
in financing borrowing requirements as well as makes budget immune to the market volatility and uncertainty.
Chile
1. Has your country adopted a target cash buffer, whether formally or in practice?
Answer: No
3. If no target has been adopted, why is this so? Indicate all that apply.
Answer:

Cash balances have always proved more than sufficient
Cash balances have always proved more than sufficient in the Chilean case. It is because the Sovereign Wealth
funds have provided a large amount of assets in the case of a big liquidity shortfall. Additionally, because in the
recent years during the budget execution there is a significant surplus derived from local placements together
with no necessity to finance too much deficit.
6. Are there other significant short-term safety nets? Indicate all that apply.
Answer: Yes
The main short-term sources of liquidity are the seasonal amounts derived from local placements, and the assets
maintained in the sovereign wealth fund. There would be also other sources available, such as repos with
commercial banks.
7. Other comments regarding adopting or not adopting a target cash buffer:
Answer:
In our perspective for the moment the adoption of a cash buffer target is not necessary, because the country has
a big amount of assets in sovereign wealth funds and a low gross debt position (12.8% of GDP as of December
14). In addition, during the year normally it is observed a surplus derived from local placements together with
no necessity to finance too much deficit.
Kenya
1. Has your country adopted a target cash buffer, whether formally or in practice?
Answer: No
3. If no target has been adopted, why is this so? Indicate all that apply.
Answer:

Chronic cash shortfalls make it unviable to build/maintain a buffer
6. Are there other significant short-term safety nets? Indicate all that apply.
Answer: Yes

Borrowing from the central bank
7. Other comments regarding adopting or not adopting a target cash buffer:
Answer: N/A
Nigeria
1. Has your country adopted a target cash buffer, whether formally or in practice?
Answer: No
3. If no target has been adopted, why is this so? Indicate all that apply.
Answer:

Approved purposes of borrowing do not allow the build-up of a buffer
6. Are there other significant short-term safety nets? Indicate all that apply.
Answer: Yes


Borrowing from the central bank
Other: A new short-term borrowing instrument, the FGN Cashflow Adjustment Note, designed to meet short –
term funding gaps
7. Other comments regarding adopting or not adopting a target cash buffer:
Answer: N/A
Colombia
1. Has your country adopted a target cash buffer, whether formally or in practice?
Answer: No
3. If no target has been adopted, why is this so? Indicate all that apply.
Answer:


Cash balances have always proved more than sufficient.
Other: The forecast of cash balances are planned to attend debt liabilities with at least 1 month prior.
6. Are there other significant short-term safety nets? Indicate all that apply.
Answer: Yes


Contingent credit lines
Other: Borrowing from Funds under management of the Treasury
7. Other comments regarding adopting or not adopting a target cash buffer:
Answer: N/A
V.
Annex 2 - List of Survey Contributors
Country
Name
Institution
Email
Brazil
Luiz Fernando Alves
Brazilian Treasury
[email protected]
Turkey
Emrah Yasarturk
Undersecretariat of Treasury
N/A
Morocco
Soumaya Sabounji
Ministry of Economy and Finance
[email protected]
Uruguay
Victoria Buscio
Ministry of Economy and Finance
[email protected]
Hungary
András Réz
Government Debt Management
Agency (AKK)
[email protected]
Peru
Renzo Jimenez
Sotelo
Ministry of Finance
[email protected]
Poland
Marika Lach
Ministry of Finance
[email protected]
Chile
Patricio Sepúlveda
Ministry of Finance
[email protected]
Kenya
Livingstone Bumbe
Ministry of Finance
[email protected]
Nigeria
N/A
Debt Management Office, The
Presidency
N/A
Colombia
Ana Carolina Diaz
Ministry of Finance
[email protected]