Treasury Single Account: Benefits, Pitfalls

Treasury Single Account before Buhari’s administration

Early in the year, the Office of the Accountant-General of the Federation (OAGF) directed all Ministries, Departments and Agencies (MDAs) of the Federal Government yet to comply with the Treasury Single Account (TSA) regime domiciled at the Central Bank of Nigeria (CBN) to embrace the policy not later than February 28, 2015.

By implication, the MDAs were required to close all the revenue accounts they maintain in different banks in the country and transfer the proceeds to TSA.

This no doubt is a move to actualise the promise by the federal government through the former Co-ordinating Minister of the Economy and Minister of Finance, Dr. Ngozi Okonjo-Iweala in December 20 14 to block avenues of revenue leakages to shore up government revenue in the face of dwindling earnings due to falling oil prices.

The immediate past AGF, Jonah Otunla had explained that all MDAs are henceforth to remit all internally generated revenue of the federal government directly through the federal government’s Consolidated Revenue Fund (CRF) at the CBN via electronic transfer.

According to the AGF, the deadline to MDAs became necessary because although 551 agencies have complied with the policy, some big spending MDAs including the Armed Forces and the National Assembly were reluctant to key in.

Obviously, the policy on TSA is intended to curb the financial excesses of some MDAs that have been refusing to remit their earnings deposited in commercial banks to the FG which is constrained to go a borrowing from banks on high interest. It was considered illogical that the FG’s money will be kept with banks by MDAs while the FG goes to borrow money to finance budget deficit from banks and other sources.

The TSA policy was therefore being reinforced because the policy may not serve the intended purpose which is to unify the government accounting system to ensure transparency if the remaining ‘supper’ MDAs cannot be made to comply.

Buhari orders MDAs to open treasury single account

On August 9, 2015, President Muhammadu Buhari ordered each and every Federal Government Ministry, Department or Agency to start paying into a Treasury Single Account (TSA) for all government revenues, incomes and other receipts.

According to the directive, this measure was specifically to promote transparency and facilitate compliance with sections 80 and 162 of the 1999 Constitution.

Also, Laolu Akande, the Senior Special Assistant to the Vice President on Media and Publicity,  in a statement said all receipts due to the Federal Government or any of its agencies must be paid into TSA or designated accounts maintained and operated in the CBN, except otherwise expressly approved.

The TSA is a unified structure of government bank accounts enabling consolidation and optimal utilisation of government cash resources. It is a bank account or a set of linked bank accounts through which the government transacts all its receipts and payments and gets a consolidated view of its cash position at any given time.

This presidential directive is intended to 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.

It would be recalled that President Muhammadu Buhari had earlier promised state governors at the inaugural meeting of the National Economic Council, NEC, in June, that all revenues prescribed for lodgment into the federation account will be treated as such under his watch and that he will ensure strict compliance with all relevant laws on accounting, allocation and disbursement.

Since then, the presidency has worked with relevant agencies of the federal government to evolve this policy directive.

This directive applies to fully funded organs of government like the Ministries, Departments, Agencies and Foreign Missions, as well as the partially funded ones, like Teaching Hospitals, Medical Centres, Federal Tertiary Institutions.

Agencies like the CBN, Securities and Exchange Commission (SEC), Corporate Affairs Commission (CAC), Nigerian Ports Authority (NPA), Nigerian Communications Commission (NCC), Federal Airports Authority of Nigeria (FAAN), Nigerian Civil Aviation Authority (NCAA), Nigerian Maritime Administration and Safety Agency (NIMASA), Nigeria Deposit Insurance Corporation (NDIC), Nigeria Customs Service (NCS), Nigerian National Petroleum Corporation (NNPC), Federal Inland Revenue Service (FIRS) and Department of Petroleum Resources (DPR), among others, are affected by the directive.

For any agency that is fully or partially self-funding, Sub-Accounts linked to TSA are to be maintained at CBN and the accounting system will be configured to allow them access to funds based on their approved budgetary provisions.

Accountant General on Treasury Single Account

The Accountant General of the Federation, Ahmed Idris, has clarified that the recent directive of President Buhari to establish and operate a TSA for the e-collection of Government receipts will not negatively affect the operations of some specialised agencies.

He said instead, the directive would rather improve the agencies’ efficiency and increase the rating of the nation’s economy.

The introduction of the TSA, according to Idris: “is not a punitive measure targeted at any government establishment or attempts to jeopardise the peace and stability of the university systems, but part of the reforms being introduced by this administration to institutionalise a more efficient and transparent management of public finances in the country,”

He maintained that the TSA is aimed at creating a single pool where all government’s receipts are kept in one account, thus making it possible at a glance to know the state of all the accounts for planning and execution of government policies.

In the same vein, Chief Olu Falae, a former Secretary to the Government of the Federation, said that one of the ways to enthrone fiscal regime in the country is to stop a regime where government agencies and parastatals are allowed to operate accounts with commercial banks.

According to him, the ideal thing is to have a situation where all funds meant for Ministries, Department and Agencies (MDAs) are kept with the CBN from where the MDAs will withdraw to fund their operations and projects.

“I am speaking from a position of knowledge because I have been there before and I know that it is possible to operate these accounts under the CBN without any bottleneck as some people may want us to believe. What is happening now is that people will lodge huge sums belonging to government at various levels in commercial banks and after a time they will withdraw the interest accrued from these lodgements that in most cases runs into billions of naira. To me that is part of corruption”.

According to reports, while Falae’s proposition is valid, his declaration did not take into cognizance of the fact that the rules of engagements have since changed within government. One of the cardinal components of the Federal Government’s Economic Reform Programme (ERGP) that commenced in 2004 is the implementation of a TSA for the Federal Government, an initiative that is more comprehensive, and goes well beyond what Chief Falae envisioned.

Impact of Treasury Single Account on Banks

The directive by President Muhammadu Buhari that all federal ministries, departments and agencies (MDAs) must pay all government revenues, incomes and other receipts into a Treasury Single Account with the CBN is expected to significantly affect the volume of liquidity in the banking sector.

It is also anticipated that this may also affect banks’ full year results for 2015.

As the federal government said the move was aimed at promoting transparency and facilitating compliance with Sections 80 and 162 of the constitution, the banks have no option than to comply too.

“The liquidity in the banking system will definitely be affected. This is because once the banks collect government’s funds, it will be sent directly to the TSA. The free funds some banks used to enjoy will no longer be there,” Managing Director, Goldtrust Insurance Brokers, Gbenga Ajayi, said.

As pointed out earlier that the decision to fully enforce the policy would help to ensure the consolidation of government’s revenue, analysts said better days are ahead for the country considering the fact that prior to the initiative, government funds in banks were fragmented, a system that gave room for corruption.

They argued that since the TSA is to be fully implemented now, it will help to block leakages and uncover idle cash, as well as allow complete and timely information of government cash.

The CBN Director, Corporate Communications, Ibrahim Muazu, had described the TSA as a government policy, which is part of the national payment initiative aimed at modernising the country’s payment system.

“Many MDAs have complied and it is going to have positive impact on the economy.

On their part, analysts at Afrinvest West Africa Limited argued that “in light of the TSA policy, we expect the CBN to unleash the strings on public sector deposits from the current 75 per cent as we anticipate less public funds will be available to the banks.”

Various reactions have continued to trail this directive by the Federal Government that Federal Ministries, Departments and Agencies (MDAs) must now implement Treasury Single Account (TSA), with financial analysts in the country saying that the move will further weaken earnings in the banking sector, therefore leading to job loss.

However, experts are of the opinion that the policy may also constrain banks full year results for 2015, as the MDAs’ withdrawal of their accounts from the banks would lead to more than N60billion leaving their vaults at a go.

The problem may be further compounded by an earlier policy directive by the Central Bank of Nigeria (CBN) on the harmonisation of the Cash Reserve Requirements (CRR) on public and private sector deposits, they added.

Note that when the policy comes upstream, all receipts by MDAs will be made directly to the Consolidated Revenue Fund at the CBN, through an electronic channel process known as e-Collection.

TSA implementation is not going to be limited to the federal level, with the Kaduna State governor, Nasir el-Rufai already enforcing closure of accounts of the government and its ministries and agencies with commercial banks and other states may follow suit.

The development is certainly going to be unpleasant for the banks and their workers and may lead to massive job cuts in the sector in addition to cut-throat de-marketing by the competing banks.

“If there is a bank that goes into difficulty because of the TSA, it means something is wrong with it ab-initio. God help us if we are to run our country for the benefit of banks. It will offer an opportunity for banks to source funds. A banking system that over rely on government funds is not in a healthy position,” said Obadiah Mailafia, former deputy governor of CBN in a live television broadcast.

He noted that TSA will reduce cost of government borrowing  and reduce leakages and hemorrhage within the system as well as enhance the capacity of the treasury to monitor revenue collection.

However, he said, “I am not aware MDAs understand the whole thing. There should have been more orientation, seminars, inductions etc; all these would have helped.”

Ambassador Godson Echegile, a financial consultant said the TSA implementation will impact liquidity in commercial banks; their ability to lend funds to end users. But he said, “We need to look beyond the liquidity of the banks. The essence of the policy is to increase transparency of government payments, income capturing process. It is part of the anti-corruption war. For now, the focus should be how effectively we can use this to fight corruption.”

He said, “We have implemented expenditure aspect of the policy, we are now looking at how we bring in the income aspect of it. How much have we done in the aspect of expenditure, are we 100 percent compliant, are MDAs still paying in their commercial bank account? They need to build in sanctions to check abuse of the system.” 

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