Is TSA Panacea to Nigeria’s Fiscal Policy Woes?

Is TSA Panacea to Nigeria’s Fiscal Policy Woes?

Author ~ Bekeme Masade-Olowola

When the Federal Government of Nigeria embarked on the Economic Reforms and Governance Project (ERGP) in conjunction with the World Bank in 2004, one of its objectives was: Effective Management of Cash Assets through the Implementation of Treasury Single Account (TSA). This is a crucial element of monetary and budget management. The World Bank had recommended this TSA approach to Nigeria when it analysed the country’s spending and lending behavior. It was clear that government could avoidthe onerous burden of its foreign debts if only it could effectively manage its national revenue.

The TSA has been described as a public accounting system under which all government revenue, receipts, income, and payments are collected into one single account, usually maintained by the country’s central bank. In practice, the government banking arrangements may consist of several bank accounts which can be at both the central bank and commercial banks. However, the balances in commercial banks should be cleared every day and all government cash balances should be consolidated in one central account—the TSA main account—of the treasury at the central bank.

The Financial Trend Prior to TSA Implementation

Beforehand, the Federal Government (FG) had fragmented banking arrangements for revenue and payment transactions, and government agencies reportedly operated about 17,000 bank accounts in multiple banks which were poorly monitored, and which made it impossible to establish government’s consolidated cash position at any specific point in time. It led to a rise in corruption and pockets of idle cash balances held in Ministries, Departments and Agencies (MDAs) accounts, as well as compromised revenue remittances and deposit dormancy.

Remita: The Technology Behind TSA

Prior to the deployment of the TSA policy by the Federal Government in September, 2015, Nigeria’s FG had tried to adopt TSA but failed due to Central Bank of Nigeria’s (CBN) inability to locate the appropriate technological infrastructure to manage the policy. The RTGS (Real Time Gross Settlement) System – a Swedish software, was initially tried to drive Nigeria’s TSA policy, but it unfortunately failed to achieve satisfaction. These challenges were addressed by the introduction of Remita – a software developed in Nigeria by SystemSpecs, an indigenous software company. Remita became the CBN licensed e-payment channel and provides a platform that facilitates transparent financial receipt and payments between government MDAs and all types of organisations – big or small, private or public, profit-oriented or non-profit – and used by all 22 commercial banks and over 400 micro finance banks, in order to provide the Federal Government with a bird’s eye view of revenue at all times.

TSA and its Attendant Economic Benefits

In September, 2015, all accounts of the MDAs with commercial banks were transferred to the TSA pool account domiciled with the CBN. This effectively moved about N1.2 trillion from Nigerian banks to the apex bank.

The Accountant-General of the Federation, Mr. Ahmed Idris, maintains that TSA has “successfully eliminated multiple banking arrangements, resulting into [the] consolidation of over 20,000 bank accounts; which were spread over Deposit Money Banks across the country.” Although, critics lamented over the presumed consequences of such policy including the fear of mass job losses in banks that manage public sector funds, bottlenecks in government’s financial management, and financial exclusion, according to Idris, the implementation of the TSA has brought about considerable gains to the Federal Government and to the Nigerian economy.

Eliminated Private Mismanagement of Public Funds

Before the TSA, government funds deposited in commercial banks did not yield any return on investment. With the introduction of TSA, about 17,000 government bank accounts which operated at 0% interest rate were discovered within commercial banks. This meant that the government earned no return on investment on public funds deposited in commercial banks, as a result of unsavoury relationships cultivated between some banker and civil servants. These accounts were summarily closed and the balances moved to the CBN for effective control and management by the government.

This move eliminates the use of public funds inappropriately by commercial banks, and has reduced bank fees such as administrative and transaction costs for the government for maintaining these accounts, including costs associated with bank reconciliations.

Reduction in Federal Government Cost of Borrowing

TSA has eliminated the amount that government loses in interest rates on borrowing from commercial or multilateral development banks. The former system where individual MDAs deposited their budget allocations in different commercial banks, led to government acquiring its own funds back as loan. This happened when an MDA in urgent need of fund borrowed from the money deposited in the bank by another MDA, and then pays back an interest to the commercial bank – usually at exorbitant rate of 20%.

According to Idris, “The TSA has taken us out of the era of indiscriminate borrowings by MDAs and saved Government charges associated with those borrowings which amounted to an average of N4.7 Billion monthly prior to full implementation of TSA”.

Ensures Realistic National Budgeting and Fiscal Sustainability

Where lack of ideal accounting practices had resulted in frequently unrealistic annual budgeting that led to budget deficits and need for supplementary budgeting, with the introduction of the TSA, the Federal Government has access to the actual national financial balance when budgeting, and makes realistic revenue projections that align with funds available and planned expenditure. With such realistic budgeting, the needs of the people are better met.

This has fostered fiscal and public finance sustainability and has strengthened the monetary policy management.

Accountability and Safety of Public Funds

With the CBN now providing direct supervisory oversight, there is improved transparency and accountability in cash flow, through source of approval to destination of payments. Idris disclosed that in a particular incident, over 100 bank accounts were discovered for one university: meanwhile the university management did not even have knowledge of the accounts. According to him, “They said they didn’t know about some of the accounts. If you lose track of what you have it means it has gone”.

Vice President – Professor Yemi Osinbajo, acknowledged that “Before TSA implementation, it was difficult for institutions to determine FG cash positions in a timely manner. Now [it] is clear that an average of N13 billion is accruing to all government agencies, every single working day”. With the public money lodged in the CBN, Nigerians are assured that their common wealth is secure.

Increased Revenue Generation and Benefits to the Nigerian Citizen

The ability of the Federal Government to generate revenue round the clock, has increased the channels through which payments can be made into the FG account and helped to the government to generate more income as a result of less payment defaults.

More and more people can now make payments, thanks to the TSA and its technology, primarily because of the ease of access and secondarily because government auditors can easily  identify defaulters. Whereas in times past, payees may have been required to go to diverse locations to make payments for government services, with the automation of the TSA, multiple payments to diverse parastatals can be paid in one bank or via the Remita online payment platform.

Reference
  1. 15 months after benefits of Treasury Single Account (TSA), Vanguard Newspaper, August 16, 2016
  2. Jubril Gawat: ​16 benefits of TSA – 16 months after, Daily Post, July 1, 2016
  3. These Are The Eight Advantages of Treasury Single Account (TSA), Nairametrics September 17, 2015
  4. TSA implementation: The gains, the challenges, Daily Trust, Apr 9 2017, Chris Agabi https://www.dailytrust.com.ng/news/business/tsa-implementation-the-gains-the-challenges/192731.html
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