TSA: The gains, the pains

Mark Twain – ‘History doesn’t repeat itself, but it does rhyme’.

The need for efficient management and control of government’s cash resources informed the introduction of the Treasury Single Account (TSA) by the federal government. “TSA is an essential tool for consolidating and managing governments’ cash resources, thus minimising borrowing costs. In countries with fragmented government banking arrangements, the establishment of a TSA should receive priority in the public financial management reform agenda”. – IMF 2010.

The fragmented nature of federal government’s cash receipts and payments was such that effective cash management and control over cash balances was difficult. Prior to the introduction of the policy, different ministries and agencies maintained multiple bank accounts in CBN and deposit money banks. While some of the accounts had idle funds, the federal government struggled to finance its budget and projects through borrowing from the CBN’s Ways and Means advances and Capital Market with associated cost. Corruption in public finance was common place. The introduction of the policy has served as a critical step towards curbing corruption as well as eliminates indiscipline in public finance.

Other objectives of the policy include the enthronement of a centralised, transparent and accountable revenue management, the facilitation of Cash Management Policy, the assurance of cash availability whenever is needed, the control of aggregate cash flow within fiscal and monetary limits, the improvement in the management of domestic borrowing, the enhancement of operational efficiency at minimal cost etc.

Opinions have so far being sharply divided on the impact of the policy on the larger economy. While it is easy to point at the obvious advantages of the policy like its potency in fighting corruption, better control of government resources and funds’ availability for government projects etc, others are quick to point that the negative implication of the policy on the economy. Indeed, economics is full of paradoxes.

Banking sector

TSA was the initiative of the administration of former President Goodluck Jonathan. It commenced with the e-payment segment in 2012. The current administration of President Buhari introduced the e-collection segment in 2015. It is the impact of the e-collection segment that has had so much impact on the economy – positively or negatively; and it is what brought the awareness of the policy to public knowledge. The Jonathan administration had delayed the implementation of the e-collection segment when bank treasurers pressured the administration to suspend its implementation in view of the liquidity squeeze it would create for the banking sector. It was feared then that its full implementation would amount to the sector losing about N2 trillion. The implication of withdrawing such an amount from the banks was that banks’ ability to create credit would be adversely affected. It was also projected that there would be pressure on interest rates and a surge in money market rates.

With the benefit of hindsight, no sooner had the policy been introduced than the adverse implication started unfolding. Banks where public funds were warehoused had embarked on a gale of sack as all projections had come to pass. In the first place, the banking sector has witnessed a serious liquidity squeeze resulting in their inability to create credit. Paucity of loanable funds had meant that interest rates had gone sky high while money market rates surged significantly. The resultant effect has been a dilution of Banks profit and their consequent inability to meet some of their obligations like payment of salaries. Deposit money banks have thus resorted to sacking of their workers in a bid to cut costs. In May last year, Ecobank laid off 1,040 of its workforce while Diamond Bank retrenched over 200. Reacting to the gale of sack, Minister of Labour and Employment, Senator Chris Ngige, threatened to withdraw the licenses of banks that breach the directive to halt further sack of workers. The statement drew the ire of Nigeria Employers’ Consultative Forum. The body lambasted the minister, as ‘not only ignorant of labour laws’.

Apart from providing the federal government with a veritable tool for fighting corruption, one other reason canvassed by proponents of the TSA was that it would prevent banks from doing business with government funds. They are however yet to explain if there was anything wrong with Nigerian banks doing business with funds belonging to the Nigerian government? What is wrong with banks making profits, paying salaries, paying taxes, creating credit for the economically active entrepreneurs to create further employment? While awaiting answers to these questions, it is pertinent to state that whatever gains the federal government aimed to achieve or has achieved with the introduction of the policy have been eroded by the negative turnout we are witnessing.

Government’s dwindling income, largely informed by the falling price of crude, had resulted in inability to meet its basic obligation of paying salaries. The recession that followed meant that the stimulatory spending was needed to ignite both production and consumption functions. The last thing an economy of this nature required was the withdrawal of over N2trl of government funds from depository institutions in the name of TSA.

The manufacturing sector has not fared better. Foreign Exchange (forex) and the TSA policies of the CBNigeria have dealt deadly blows to this sector. Beginning from 2015, the ripple effects of the global meltdown coupled with harsh monetary and trade policies have combined to erode manufacturers’ productivity and competitiveness. Available data from the National Bureau of Statistics indicates that the sector shrank by 2.9 percent in the third quarter in the wake of a devalued naira and currency controls that have curbed trade. The forex restriction by the CBN on 41 items on the restricted list has also served as a disincentive to the manufacturing sector. Any that required an item on the list as an input may have to source for forex at the prevailing market rate or close shop entirely after exhausting his existing stock. The glitches of the past one and half year may have set the stage for more trouble for manufacturers; going forward.

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