When President Muhammadu Buhari on August 9 ordered every federal government ministries, departments and agencies to start paying into a Treasury Single Account (TSA) for all government revenues, incomes and other receipts, little did he know that the policy would have some unintended consequences.
But what really is a treasury single account?
A Treasury Single Account 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.
A TSA therefore is considered a prerequisite for modern cash management and is an effective tool for the ministry of finance/treasury to establish oversight and centralised control over government’s cash resources.
The TSA provides a number of other benefits and thereby enhances the overall effectiveness of a public financial management (PFM) system. The establishment of a TSA should, therefore, receive priority in any PFM reform agenda.
History of TSA in Nigeria
Judging by the provisions of the Financial Regulations (FR) and the 1999 Constitution of the Federal Republic of Nigeria, some Ministries/Extra-Ministerial Offices, Agencies and other arms of Government collect revenue such as Value Added Tax (VAT), Withholding Tax (WHT), fees, fines and interest) are expected to remit same into the Consolidated Revenue Fund (CRF).
According to Section 16 of the Finance (Control and Management) Act, LFN, 1990 and the Financial Regulation N0. 413 (i), all unexpended recurrent votes for a financial year shall lapse at the expiration of the year. Consequently, all unspent balances in the Recurrent Expenditure Cash Books at the end of 2012 financial year must be paid back to the Consolidated Revenue Fund Account N0. 0020054141107 with CBN by issuing mandates in favour of “Sub-Treasure of the Federation”, Federal Sub-Treasury, Ladoke Akintola Boulevard, Garki II, Abuja latest by the close of work on the last Friday of every December. It should be noted that all MDAs, including universities, polytechnics, federal medical centres, teaching hospitals, research institutes and River Basin Development Authorities and FPO’s were ordered to adhere strictly to this law.
All Accounting Officers are required to make a return of unspent balances on the recurrent expenditure cash books, along with copies of treasury receipts, to reach the Office of the Accountant-General of the Federation latest by close of business on Monday, 31st December, 2012. It is obligatory to comply with this regulation in order to avoid the imposition of stiff penalties against defaulters.
The irony, however, is that some parastatals did not remit their operating surpluses into the CRF as provided by the FRA 2007 (S. 22 and 23) while most MDAs engaged in acts that result into loss of government revenue.
Downside of policy
Laudable as the TSA policy seems, not a few believe that it has its downsides. To operators in the banking sector, it is feared that the sector would be losing about N2 trillion deposits to the CBN, with the implementation of the TSA.
The report on accounts of banks with CBN shows that as at beginning of this current quarter, banks’ total public sector deposits was N1.3 trillion but additional net flows from Federation Accounts Allocation Committee, FACC, as at end of last month (about N240 billion) as well as expected inflows by end of this month may push the figure close to N2.2 trillion by the time the pullout begins next month.
Bankers had pressurised the former government of Goodluck Jonathan, which had initiated the policy in December 2014, to soft pedal on the implementation which was originally scheduled for February 2015, on the reasons of a likely negative impact on the economy.
Bank treasurers had confided in The Nation at the weekend that the implementation would adversely affect liquidity in the banking system and end up putting pressure on interest rates and availability of credit to the economy.
In a statement issued at the weekend, Afrinvest Group, a Lagos-based financial investment house, said: “Whilst the directive issued came as the first official statement by the Presidency on the TSA, the Nigerian National Petroleum Corporation, NNPC, had earlier began withdrawing its funds from banks for retirement into CBN.
“This had an impact on liquidity level in the banking system, resulting in a surge in money market rates during the period as banks scrambled for funds to cover their liquidity positions.
“With the TSA implementation now extended to all federal MDAs, the Nigerian banking industry, on an aggregate basis, would be affected in terms of deposits and funding cost structure.”
With the benefit of hindsight, the adverse implication of the TSA is already unfolding.
Investigation by The Nation revealed that already there has been a gale of sack in some banks, especially majority of those banks where public funds are being warehoused.
The Nation gathered that commercial banks in Nigeria have commenced laying off some of their staff, following the federal government directive to ministries and agencies for a Treasury Single Account.
Some of the banks, it was learnt, can no longer afford to keep their staff, as ministries and agencies of government have commenced withdrawal of their deposits in commercial banks, in compliance with the federal government directive.
A highly placed source who is a top management staff of one of the first generation banks confided in The Nation that his bank has since sacked over 1, 000 of its staff nationwide adding that the mostly affected in the downsizing exercise are desk officers.
Pressed further, the source said, this sad development was due in part to closure of government accounts with commercial banks.
The source expressed concerns, that the TSA policy, although designed to ensure accountability and transparency, it is equally going to ground a lot of the commercial banks.
He said, “As I speak with you now, about one thousand of our staff are already on their way out, because we can no longer accommodate them, but what we have done is to lay off more of the desk officers.”
Justifying the retrenchment of the desk officers, the source said, “If you lay off those who go out to look for deposits you will worsen the situation, so we have to look at the survival of the bank first, the consequence of allowing desk officers to stay and sacking those who bring deposits will be higher, so we took the safer option of letting desk officers go.”
“The truth of the matter is that some of these deposits, especially fixed deposits help the banks a lot, now, there is directive that government funds be withdrawn, on one hand it will ensure accountability, but on the other hand the banks will also have to reduce their staff strength or be ready to recapitalise,” he stressed.
Another source told our correspondent that about 1,500 staff of a new generation bank were also laid off about a fortnight ago for the same reasons.
The source stated further that most of the staff laid off were those on temporary appointments.
He said, “The problem is that, if you lay off permanent staff at once, you also have to pay them all their entitlements otherwise they will take you to court. Yes, majority of the people we truly do not need are unfortunately the permanent staff, but because of the confusion and litigation that will follow, we decided to relief those with temporary appointments. It is a painful decision, but we have to do it in order to save the banks.
“We have prepared their disengagement letters and most of them will be communicated next week. I tell you, not only here, all the banks will follow this line. That is the situation.”
Confirming the sack, a staff of one of the highly rated new generation banks with branches in each state capital and reputable for excellent services, who simply gave his name as Eunice said, “I got my letter of disengagement last week. Naturally, I was devastated, but at the same time I knew it will get to this point, because most of the commercial banks in Nigeria have very fat accounts of government agencies and ministries that runs into billions of naira.
“Some of these funds are not withdrawn for six months or even more and banks trade with them and make profits. So once you shut that angle of business certainly the banks will bleed, so if, other people did not expect sacks, then they must be day dreaming.”
How CBN reinforced need for TSA
It would be recalled that the Central Bank of Nigeria (CBN) had in November 2013 called for an urgent implementation of the Treasury Single Account (TSA) in order to properly manage the country’s revenue.
The CBN stated this in a communiqué at the end of its 235th Monetary Policy Committee (MPC) meeting where it noted that “a TSA is an essential tool for consolidating and managing governments’ cash resources. In countries with fragmented government banking arrangement, the establishment of a TSA receives priority in the public financial management reform agenda.”
The CBN lamented that the “erosion of the fiscal buffers through the depletion of the Excess Crude Account (ECA) has further exposed the economy to vulnerabilities while the fall in oil revenue has left capital inflows as the only source of external reserves accretion.”
It also expressed concern that the federal government’s debt had also risen phenomenally along with its deposits at the deposit money banks. This, it said, showed the federal government as a net creditor to the system. “This underscores the urgent need for the immediate implementation of the Treasury Single Account. The continued delay in returning government accounts to the Central Bank is adding to the huge cost of government debt due to poor cash flow management,” the MPC statement added.
Recently, 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 28th February, 2015.
By implication, the MDAs were directed to close all the revenue accounts they maintain in different banks in the country and transfer the proceeds to the TSA.
This was however reinforced by President Buhari’s directive that all MDAs should key into the TSA arrangement on or before September 15th.
But what really, if anything, does the TSA aims to achieve?
According to the directive, this measure is specifically to promote transparency and facilitate compliance with sections 80 and 162 of the 1999 Constitution.
In a statement issued by Laolu Akande, the Senior Special Assistant to the Vice President oný Media and Publicity, 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 presidential directive, in the view of analysts, 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.
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 lodgement 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, etc.
Agencies like the Central Bank of Nigeria, Securities and Exchange Commission, Corporate Affairs Commission, Nigeria Ports Authority, Nigeria Communications Commission, Federal Airports Authority of Nigeria, Nigeria Civil Aviation Authority, Nigerian Maritime Administration and Safety Agency, Nigeria Deposit Insurance Corporation, Nigeria Shippers Council, Nigeria National Petroleum Corporation, Federal Inland Revenue Service, Nigeria Customs Service, Mining, Minerals and Sustainable Development, Department of Petroleum Resources are also affected.
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.
Is the TSA to blame for the parlous state of the economy?
Opinions are still divided as to whether the introduction of the TSA by the government may have led to a chain of reactions as it is being witnessed in key economic sectors
In an opinion article titled: ‘Fears about Treasury Single Account’ and published in The Nation, Nwachukwu Ugo acknowledged that the implementation of the TSA by the current administration has generated a lot of worries and anxiety, including the spectre of job losses and squeezing of the credit markets as some of the worries anticipated by this implementation.
While noting that the downside of the TSA is its effects on the financial sector, Ugo however recalled that: “The former CBN governor, now Emir of Kano Muhammadu Sanusi II once complained bitterly of a situation in which banks receive government funds at zero percent and lend same to government at 14%, an obvious moral hazard which leads to higher liquidity, higher inflation and interest rate, with negative effects for the economy. The TSA solves the first part of that complaint.”
Expatiating, he said: “The worry about liquidity freeze by banks is overblown and might be withdrawal symptoms of free money. Total bank assets are estimated at N14 trillion with government funds at 10-15 % of that and a credit reserve ratio of 31 percent. The banks thus have N9.6 trillion to lend. If an estimated N2 trillion is transferred to TSA , usable assets not total N7.6 trillion, the gap is an obvious cause of liquidity crunch and difficulties, yet if the CBN reduces the reserve ratio to 10% from 31 percent, an extra N2 trillion is made available for lending, negating the effects of the TSA. Thus worries of job losses, profit evaporation are overblown and can be solved at the next Monetary Policy Committee (MPC) meeting.”
“But if such anxiety emanates from the absence of free money, then we need to return our banks to real banking, not the feeding bottle rent system currently being operated. Such profiteering is dangerous to our growth. Nigerian banks claim to be the best on the continent, have received numerous awards and some rank among the top 1000 banks globally. Yet our bankers are worried by the absence of free government funds, which makes them look suspect and overhyped.
“If the banks are complaining of liquidity crunch and a high probability of job losses, is there any need to continue selling treasury bills, which are said to be for excess liquidity management, unless of course the CBN is susceptible to the banks and benefits from the corruption and evils such policies create?”