The Benefits of Treasury Single Account (TSA) Policy to Nigeria

In my last blog post, Treasury Single Account(TSA) was explained, brief history and development of Treasury Single Account(TSA) policy in Nigeria was equally discussed.

To further deepen our knowledge on the concept of Treasury Single Account (TSA) we went further to highlight the working principles or framework on which Treasury Single Account (TSA) policy as currently implemented in Nigeria is rooted.

We shall in this concluding part of the post be highlighting the benefits of Treasury Single Account (TSA) to Nigeria. We shall thereafter, proceed to conclusion.

Below are some of the many benefits of Treasury Single Account (TSA) policy to Nigeria.

Effective Cash Management Tool: A Treasury Single Account is a pre-requisite tool for modern cash management;

It is an instrument for the Ministry of Finance, Office of the Accountant General of the Federation and the Presidency to establish effective and efficient oversight, and centralized control over government’s cash resources.

Public Financial Management (PFM) related weakness caused by fragmented system of handling government receipts and payment through banking system in Nigeria can best be addressed through Treasury Single Account (TSA) system.

A country with fragmented government banking arrangements, as formerly the case with Nigeria is uneconomic because the country that does that always pays in huge loses for its institutional deficiencies resulting from accounts fragmentation in multiple ways.

First, idle cash balances in multiple government bank accounts often fail to earn market related remuneration. Secondly, the government, being unaware of the comprehensive total available financial resources often incur unnecessary borrowing costs on raising funds to cover perceived cash shortages at a cost ( in the form of interest on loan and debt servicing).

Thirdly, idle government cash balances in the commercial banking sector are not idle for the banks themselves, and can be used to extend credit during government credit expansion policies.

Budget control and monitoring: Treasury Single Account (TSA) separates transaction level control from overall cash management and thereby facilitating and ensuring effective and efficient budget control and monitoring in Nigeria.

The above benefit accruing to the country from unified banking arrangement of government transactions is based on the principle of fungibility of all cash irrespective of its end use.

While it is necessary to distinguish individual revenue and/or expenditure transaction of a government unit for control and reporting purposes, these objectives are achieved through the accounting system and not by holding and/or depositing cash in transaction-specific individual bank accounts.

The above enable the necessary authorities in charge of the Treasury Single Account (TSA) in Nigeria to delink management of cash from control at a transaction level.

A Treasury Single Account (TSA) system helps consolidate government cash balances, give the ministry of finance and other relevant authorities oversight of all government cash flowing in and out to bring improvements in budget control and monitoring in Nigeria.

A Treasury Single Account (TSA) enables regular and effective monitoring of government cash resources by providing complete and timely information;

It facilitates better fiscal (and debt management) and monetary policy coordination as well as better reconciliation of fiscal and banking data, which in turn improves the quality of fiscal information available for efficient public financial resources management in Nigeria.

Reduction in Government Borrowing: The federal and state governments sometimes make short-term borrowing as the result of financial shortage in some Ministries, Department and Agencies (MDAs) even when there are financial surpluses in some others.

Treasury Single Account (TSA) policy as embarked by Nigeria will help in minimizing the rate of government borrowing and debt servicing since the federal government responsible for public financial resources management can know at any particular time the total cash balance at the coffers of the government.

The Central Bank of Nigeria, (2014) expressed concern in last quarter of 2014 that the federal government’s debt had risen phenomenally along with its deposits at the deposit money banks.

This point to the fact that, no matter how good government budget or cash flow management system may be, if it cannot do simple things like tracking revenues and expenditures, it can’t meet the basic obligations to the citizens.

It is ideal that, before the government goes borrowing, there is need to find out why revenue is so low given that our GDP is supposed to be so high in Nigeria when oil prices were higher in the international market.

The establishment of a Treasury Single Account (TSA) in the face of the above paradox will significantly reduce government debt servicing costs, lowers liquidity reserve needs, and helps maximize the return on investments of surplus cash.

Reduction of Financial Leakages: The Treasury Single Account (TSA) provides a number of other benefits and thereby enhances the overall effectiveness of a Public Financial Management (PFM) system.

The establishment of a Treasury Single Account (TSA) as priority strategy in Nigeria Public Financial Management (PFM) reform agenda is vital and appropriate now than ever before;

This measure which specifically promotes financial transparency and accountability facilitates compliance with sections 80 and 162 of the 1999 Constitution to reduce government financial leakages.

It has so far led to mobilization of an otherwise leaked fund of about N2.6 trillion forming about 38% of the total of N6.8 trillion budgeted for 2016.

The presidential directive, in my view, would end the previous public accounting situation of several fragmented accounts for government revenues, incomes and receipts, which in the recent past has meant the loss or leakages of legitimate income meant for the federation account.

In conclusion, the Treasury Single Account (TSA) policy as currently implemented in Nigeria stands to greatly improve the management of government revenue and expenditure in Nigeria.

It will pave way for the timely payment and capturing of all revenues going into the government treasury without the intermediation of multiple banking arrangements,

The system will also reduce to a large extend the mismanagement and misappropriation of public funds by revenue generating agencies.

The policy is expected to help check excess liquidity, inflation, high interest rates, round-tripping of government deposits, and the frequent free fall of the value of naira.

In view of these benefits, the continuous implementation of TSA policy in Nigeria should not bet pious homily, but strict compliance with the directive on the implementation of Treasury Single Account (TSA) by the relevant government organisations in Nigeria must be ensured.

The fears raised about the implications of TSA policy in Nigeria are hardly necessary because the benefits of the Treasury Single Account (TSA) to good governance and Nigerian economy in the country far outweigh its seeming disadvantages.

The consolidation of federal revenues in a single account will allow easier and better tracking of funds; thereby enthroning a better regime of accountability in public financial resources management in Nigeria in line with global best practices. 

Any step thus, taken in the direction aiming at curtailing fund leakages in revenue generating agencies and ensuring efficient public financial resources management should be seen as step in the right direction.

References:

International Monetary Fund, (2011). Treasury Single Account: An Essential Tool for Government      

 Cash Management

Central Bank of Nigeria (2014), “Communiqué No. 94 of the          Monetary Policy Committee   Meeting,” March 24-25, Pp.        1-37.