Tamworth Regional Council (TRC) needs to develop a cost-saving plan in case things get worse, financial services manager Sherrill Young wrote in her report.

"In much the same way that the council has a Drought Management Plan, it should formulate a range of cost-saving measures that could be implemented to deal with a worsening or protraction of the COVID-19 pandemic," she said.

"Finance staff will work with the executive team to determine suitable options that could be promptly implemented should the council's projected unrestricted cash levels at June 30 fall below $4 million."

At the start of the financial year, council predicted it would earn $3.2 million in interest income, but those forecasts have since dropped to $1.8 million as interest rates decline.

The amount invested at January 31 has decreased by $4.4 million since December, last year.

Ms Young said that like so many businesses in NSW, COVID-19 continues to have a detrimental impact on the council's ability to generate income.

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"At this stage the information supplied to finance by managers across the council for incorporation into the second quarterly budget review, forecasts a decline in unrestricted cash of $2.6 million," she said.

"Whilst finance cannot accurately predict the amount of savings that will be realised in the latter half of the financial year, it can predict that they will not amount to $2.5 million.

"Council needs to actively work to ensure that it does not have to recover too much ground financially once the COVID-19 pandemic is resolved and this is not helped by the imposts listed above."

The report shows the lack of earnings could impact the ability to spend on future projects.

Councillors will receive the budget reports at the meeting on Tuesday night.