Treasury Single Account (TSA): What Every Nigerian Should Know
The Government of Nigeria has decided to introduce banking procedures which are an important feature of well-organized management and control of the financial resources of the government. To this end, the need to design banking procedures that minimize the cost of “government borrowing” and maximize the opportunity cost of monetary resources has become paramount to ensure that all cash received is available for timely settlement of government expenditures and payments. Before the TSA, the Nigerian government operated a disjointed system of receipts and payments, which naturally would have made it extremely difficult to ascertain the amalgamated position of the nation’s financial resources. As a result, the government has no central financial control over its financial resources, nor the ability to implement its budget without borrowing, even as vast government financial resources sit idle in the spending accounts of Ministries, Departments and Agencies (MDAs) in various deposit banks.
The TSA is an indispensable tool for consolidating and managing the government’s cash resources to minimize borrowing costs associated with fragmented government banking procedures. The TSA institution is currently the preferred option of the PFM reform agenda worldwide.
The TSA is a consolidated structure of government bank accounts that provides a consolidated view of the government’s monetary resources through a set of principles. The principles of “money unity” and “treasury unity” are the most basic foundation that a good TSA should have. TSA is a set of linked bank accounts through which all government receipts and payment transactions are made, enabling complete and timely information on government cash resources. The Government’s Integrated Financial Management Information System (GIFMIS) is expected to facilitate daily real-time balance updating. A government that is unable to effectively control its monetary resources will face the multiple problems of its institutional deficiencies.
The benefits of TSA
The main purpose of TSA management is monetary and budgetary, and that is to ensure the efficient and effective collection, consolidation and control of government monetary resources. The consolidation of cash resources through a TSA arrangement makes it possible to manage government cash by eliminating unnecessary borrowing costs. With TSA in place, unused cash resources are easily aggregated and used for the benefit of the government’s development objectives. Besides the monetary and budgetary management benefits of the TSA, there are other purposes for establishing the TSA, which include:
1. Minimization of operating costs during budget implementation:
a. especially by controlling the delay in the remittance of all government revenue by the collection agents
b. making prompt payments of government expenditures
2. Facilitating reconciliation of government financial data and records
3. Effective control and monitoring of government funds allocated to various MDAs
4. Ensuring superior coordination and implementation of the government’s monetary policy
Since the Central Bank is the government’s banker, the custody of the TSA should be with the Central Bank. In particular with respect to revenue collection, government banking procedures may consist of several bank accounts that may be maintained in commercial banks, but cash balances in all such government accounts must be cleared daily and transferred to the TSA , which is the main treasury account in the Central Bank. Locating a TSA at the Central Bank offers benefits including:
1. With the Central Bank acting as a clearing house for government operations, the segregated duties and responsibilities of all participating banks (the Central Bank of Nigeria and various commercial banks) serve as clear policies for banking procedures
2. Limiting exposure to government credit risk and ensuring safety for government cash deposits
3. Government liquidity is effectively managed through the Central Bank’s coordination of the government’s monetary profile together with government debt obligations
4. Government banking procedures become faster and cost effective
Characteristics of a well-structured TSA
The draining of excess cash liquidity from commercial banks through open market operations to prevent reckless credit advances by commercial banks imposes costs on the central bank. To prevent this and several other problems, a good TSA should have the following characteristics:
1. A unified structure for government banking procedures that improves the government’s ability to monitor cash flows (in and out of the main TSA and sub-TSA)
2. An electronic banking platform that provides real-time interchangeability of all funds, regardless of end use, by distinguishing individual monetary transactions for control and reporting purposes, while allowing interchangeability with other funds of the same type through the accounting system, such as thereby creating a cash management system along with transaction level controls
3. The consolidation of state monetary resources becomes comprehensive and covers all state monetary resources
4. Accessing and working with TSA depends mainly on institutional structures and payment settlement systems
If there is a need to engage commercial banks in the operation of TSA in Nigeria, the Central Bank of Nigeria (CBN), which plays a leading role while supporting the TSA, should ensure that government retail banking transactions are carried out effectively and efficiently by commercial banks which in turn ensures that all Federal Government Authorities (MDAs) and their transactions are well covered. Autonomous government bodies, social security funds, trust funds, extrabudgetary funds, loans from donor agencies and multilateral organizations should also be covered by TSA. It is important to extend the operations of TSA to the other levels of government (state and local) through the use of sub-TSA and where this is not possible, each state or local government should be forced to introduce TSA at its own level of government.
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