High expectations for TSA

“FIRST of all, you have got liquidity surplus in the banking industry; … there is over N1.3trn or so sitting in banks and belonging to government agencies.

Now basically, they (these funds) are at zero per cent interest and the banks are lending about N2trn to the government and charging 13 to 14 per cent!  Now, that is a very good business model, isn’t it?  (You) Give me your money for free and I lend it to you at 14 per cent; so why would I go and lend to anyone?”

The above is an excerpt from comments from Lamido Sanusi, former Governor of Central Bank, after a Monetary Policy Committee (MPC) meeting in July 2013, when he denounced the apparent folly of government’s financial strategy. Even the ubiquitous, illiterate, market woman would not willfully borrow back her own non-interest yielding deposit from the same bank. It is however surprising that despite the outstanding level of intellect in the CBN and MPC, this odious practice was sustained, with oppressive interest rates, which increasingly expanded government’s indebtedness for several decades; expectedly, the stupendous returns from this misadventure bloated profitability of banks even when they neglected the growth of the real sector of the economy.

Government revenue domiciled in commercial bank accounts also provided opportunity, for civil servants, to divert public funds into interest-yielding dummy accounts and selfishly cream off the profit, notwithstanding, that such greed led to protracted delays in the payments of staff salaries and the settlement of contractors’ bills. Similarly, banks’ appetite for government deposits became so keen, that “structurally correct” young females were engaged and promptly deployed to target the deposits of high net worth civil servants and related government agencies.

Incidentally, over 10,000 MDA bank accounts will be closed nationwide with the implementation of the TSA.

Indeed, the Federal Government’s Economic Reform and Governance Programme recognised the adverse impact of the reckless tradition of placing public funds in commercial banks and therefore recommended the implementation of a Treasury Single Account (TSA) for the federation as from 2004.

The TSA is defined as “a centralised cash position of the treasury, where the revenues of all MDAs are consolidated and all cash outflows (payments and transfers) are executed in a single account within the custody of the CBN”.

The initial attempt to commence implementation of a TSA was set aside in deference to intense pressure from the banking community in 2005. However, the TSA project, apparently, commenced partially in 2012 after other false starts during the tenures of former Presidents Yar’Adua and Jonathan respectively.

However, in order to fast-track comprehensive implementation, government established electronic platforms in 2014 for the TSA, as well as, Government’s Integrated Financial Management Information System (GIFMIS), and an Integrated Payroll and Personal Information System (IPPIS).

According to the CBN, the “Integrated Systems would unify government’s banking arrangements, assist the Federal Government in the effective utilisation of government funds for approved projects, promote transparency and accountability in government operations, and reduce the cost and amount of government borrowing by maximising the use of available government resources to deliver projects”.

Full implementation of the TSA for payments of salaries, taxes, and suppliers, in addition to the collection of independent government revenue did not commence in February 2015 as earlier scheduled by the Jonathan administration, probably because of the ‘distraction’ of election campaign, but full implementation accelerated since President Buhari’s latest directive in August 2015.

Under the TSA initiative, all government payments are routed from the GIFMIS to CBN’s Payments Gateway, to effect e-payments into the accounts of individuals or corporate beneficiaries in commercial banks, microfinance banks and primary mortgage institutions, while salaries are also electronically routed through an IPPIS platform to create a fully automated payment and collection process for the Federal Government. Indeed, former President Jonathan reported that the adoption of these systems had already saved the nation over N120 billion since 2014.

Nonetheless, some critics have cautioned that the noble objectives of TSA may not be realised if the peculiarities of some MDAs are not recognized. For example, revenue-generating agencies with multiple collection centres will encounter serious challenges if they cannot patronise commercial banks nearest to them where CBN outlets do not exist.

Also, critics also observe that if a “one size fits” all principle is employed for disbursements from the TSA to MDAs for budget implementation, we may end up, for example, inadvertently releasing huge funds for road construction in the rainy season rather than the dry season when it becomes more suitable for such undertaking.

In other words, disbursements must be finely programmed to match the peculiar requirements of each MDA. Indeed, this may not be too difficult if each MDA provides projected annual cash flow statements that are realistically in tune with the respective income and expenditure expectations captured in their annual budgets.

Clearly, with the TSA in place, late passage of budgets will inevitably delay disbursements particularly for capital projects and may strangulate operations of key revenue-generating agencies such as the NNPC, NPA etc and ultimately, inadvertently also jeopardise revenue projections from such agencies. Consequently, some analysts have recommended the retention of a certain percentage of receipts by such MDAs to ensure the unhindered operations of these government cash cows.

Similarly, forex-generating agencies like NNPC should also be allowed to retain a part of their dollar income in order to facilitate the smooth running of their businesses wherever transactions or liabilities are not denominated in naira.

The TSA is also speculated to restrain the scourge of surplus naira that fuels inflation, high interest rates and a sliding currency value, which expectedly makes the removal of fuel subsidy a challenge.

A closer examination may not however, support such expectation; for example, the high level of systemic liquidity clearly diminished minimally when CBN’s liquidity mop-up interventions remained unrestrained after 75 per cent of government deposits were sequestered from the cash reserve base of commercial banks by the apex bank.

Clearly, the chances of taming liquidity and engendering an enabling platform of monetary indices such as inflation and monetary policy rates below three per cent as well as a stronger naira will be enhanced if the CBN stops the regular and persistent suffocation of the market with surplus naira when it substitutes fresh naira allocations for the distribution of dollar-denominated revenue.

•Boyo is a public finance analyst.