TREASURY SINGLE ACCOUNT - A WELCOME POLICY.

Last week the Presidency issued a directive to all Federal Government Ministries, Departments and Agencies (MDAs) to begin retirement of their revenues into a unified account, a Treasury Single Account (TSA) maintained by the Central Bank of Nigeria (CBN). Several state governments have also commenced similar measures.

The regime of former President Goodluck Jonathan had initiated a similar measure in December 2014 with February 2015 as the deadline, though implementation suffered due to the campaigns and general elections.

TSA, as defined by the IMF, is a unified structure of government bank accounts through which the government transacts all its receipts and payments.

The nation’s banks would be losing about N2 trillion in deposits to CBN with the implementation of the TSA. This would obviously affect liquidity in the banking system and end up putting pressure on interest rates and availability of credit to the economy.

Even before the Presidency’s directive, the Nigerian National Petroleum Corporation (NNPC) had begun withdrawing its funds from banks for remittance into CBN last month leading to adverse liquidity levels in the banking system and resulting in a surge in money market rates during the period as banks scrambled for funds to cover their liquidity positions.

The structure of deposits in the commercial banks indicates that the impact of full implementation of TSA may not be too negative. Data from the CBN as at the end of June 2015 put total deposits in the financial system at N13.5 trillion. Analysis of this shows that the private sector accounts for 90.7 per cent (N12.2trillion) while public sector funds accounts for 9.3 per cent (N1.3trillion) which will be lost to TSA.

While we do not think the 9.3 per cent deposit loss is likely to throw the banking industry into adversity, we call on the CBN to put some shock absorbers against unforeseen consequences.

Beyond this, the public finance policy benefits of TSA would compensate for the negative impacts on the money market.

TSA will bring about a consolidated view of government accounts and aid efficient management of government cash flow. This will enable increased transparency of government finances as relevant fiscal and monetary agencies will have more oversight of MDA accounts and cash positions.

Furthermore, the implementation will save the CBN the burden of mopping excessive liquidity (at expensive rate) caused by government revenue allocation and distribution to her MDAs.  More importantly, the TSA will check round tripping of government deposits by banks due to the arbitrage between government deposits (bearing close to zero per cent interest rate) and government borrowing (at over 13.0 per cent interest rate cost to the government).

We commend the federal government for introducing the TSA and urge Nigerians to support it in full.

Vanguard.