The loss comes from the COVID-19 pandemic and the subsequent closing of several council facilities.

It's in addition to the $2.4 million decrease in water income as a result of water restrictions.

In the quarterly budget review, council chief executive officer Michael McMahon said in response to the pandemic, a COVID-19 reserve was established to help council meet shortfalls in revenue.

"All NSW councils are being financially impacted by the COVID-19 pandemic; rates revenue will be impacted by a likely increase in rates arrears and revenue sources other than rates will also be impacted or cease all together," Mr McMahon said in the report.

"Overall, the financial impacts to council will be significant."

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The main areas impacted are: Dubbo City Regional Airport, Dubbo Regional Livestock Markets, Dubbo City Holiday Park, Old Dubbo Gaol, Dubbo Regional Theatre and Convention Centre, Wellington Caves, Family Day Care and Rainbow Cottage.

Mr McMahon said due to the pandemic he expected "revenue will fall in excess of $5 million" to the end of the financial year.

"To help offset the reduction in revenue, each function of council performed a detailed review and identified savings in expenditure in excess of $3 million," he said.

"As part of the March 2020 quarterly financial review, a COVID-19 reserve has been set up to help meet shortfalls in council's revenues that cannot be offset by reductions in expenditure."

So far, 2.5 million has been transferred from the COVID-19 reserve to allow council to achieve a balanced budget.

Mr McMahon said constant monitoring of the cash flow projections would be "critical" to ensure council remained financially sound as possible. He said council would potentially have to look at deferring some expenditures, taking on borrowings and depleting reserves.

The full financial impacts of COVID-19 on the financial year won't be known until the end of September.

"While council has absorbed a significant financial losses as a result of the current COVID-19 environment, there is a strong commitment to maintain delivery of services to the community," Mr McMahon said.