The Intriguing Effect of Treasury Single Account Implementation on Public Financial Management in Ghana

The transformation agent to strengthen the judicious use of public funds has given wave for the introduction of Public Financial Management Reforms in Ghana. These reforms are expected to strengthen the fiscal space of the economy by giving free drive to budget implementation and economic development through the macro and micro indicators i.e. inflation, interest rate, exchange rate, debt to GDP, servicing of loans and growth rate.

The major Public Financial Management Reform introduced by Government in 2010 is the Public Financial Management System: Ghana Integrated Financial Management Information Systems (GIFMIS), to integrate Public Expenditure and Revenue mobilization on a common platform with much focus on Budget implementation.  

The Government in 2007 introduced the Treasury Single Account (TSA). The system was however not successful as a result of the absence of a legal framework to back the policy and wrong approach to implementation direction. With the passage of the Public Financial Management Act, 2016 (Act 921) which replaced the Financial Administration Act, 2003 (Act 654), the implementation of the Treasury Single Account has been given adequate momentum but still lacks its taste of relevancy.

Section 46 of the Public Financial Management Act, 2016 established the Treasury Single Account as a unified structure of government bank accounts that enables the consolidation of government cash resources, and into which all government cash including amounts of money received by covered entities shall be deposited and from which all expenditure of government and covered entities shall be made to ensure optimum utilisation of government cash resources.

The covered entities as stated in the Act include the Executive, Legislature and Judiciary; constitutional bodies; ministries, departments, agencies, and local government authorities; the public service; autonomous agencies and statutory bodies.

Working on the principle of unity of cash and unity of the treasury where the government notwithstanding its various sub-units could operate a single treasury and account, the successful implementation of the Treasury Single Account system in various countries across the world including but not limited to the United Kingdom, United States of America, Australia, India, Uganda, and Nigeria has contributed to effective cash management in these countries.

The primary objective for the adoption of the TSA is to ensure the effective consolidation of all government cash resources with the aim of improving control over public funds towards the improvement of efficient financial management while using the access to the cash resources to enhance monitoring.

In addition to the above, the government has to use this system to reduce the tendency of the government from borrowing at high-interest rates, while funds are sitting idle in the various accounts of the covered entities under consideration.

This is expected to reduce to total finance cost incurred by the government from borrowing from the commercial bank or through the issue of Treasury Bills and Bonds.

The TSA is also expected to lower the actual government borrowings and reduce pressure on short-term yield with the objectives of driving down Treasury Bill rates over the medium-term. This forms a critical component of helping to reduce the cost of borrowing and reducing borrowing in the medium to long-term.

This will help the government meet various funding obligations of government entities in a timely manner as there is a greater pool of funds available to the government for their operations, as well as a reduction in various transaction times required to raise the required revenue to meet particular commitments. Also, the maintenance of the Treasury Single Account is to reduce the risk of the government resorting to the Central Bank for overdrafts to finance its expenditure. It is also expected to reduce the cost of building buffers for cash management purposes.

With the reduction in the tendency of government from borrowing from the financial sector, it is expected to strengthen the government’s fiscal space. The lower level of government activity is also expected to create room for the private sector to access funds within the financial sector to facilitate growth and development.

Implementation of Treasury Single Account

Although there are several variants of the TSA structure that conform to the objectives discussed above, most policy implementers of the subject broadly group it into two categories: Centralized and Distributed TSA structures. The TSA systems established in most countries fall somewhere in between these two models and involve various types of bank accounts.

A purely centralised arrangement is one in which all revenue and expenditure transactions of the government pass through a single account generally maintained with the Central Bank. With this typical centralised system, the TSA is composed of a single bank account (sometimes with subsidiary ledger accounts) at the Central Bank which is operated either by a centralised authority (such as the treasury and its regional units) or by a number of budget institutions.

At the other extreme, a TSA could be virtually operational even though line agencies down to the lowest level in the organisational hierarchy are allowed to retain separate transaction accounts in the banking system. However, in the latter case, balances in all transaction accounts should be transferred into the TSA main account at the end of each day. Countries, such as Uganda have several linked bank accounts outside the TSA’s main account with their balances automatically remitted at the end of each day to the Central Bank.

With the implementation of the TSA in Ghana, the operating structure is tilted towards the decentralised operation of TSA and as such, will see the Government of Ghana closing over 15,172 bank accounts with the Bank of Ghana and commercial banks in Ghana.

The implementation of this system is also in line with the requirement of the International Monetary Fund (IMF) in the Extended Credit Facility Agreement and is expected that the TSA will be well integrated into the Ghana Integrated Financial Management Information Systems.

However, one major question is how the consolidation of cash balances through a TSA will interface with transaction processing and accounting systems, the latter being either centralised or decentralised.

Architecture and Institutional Scope

1. The Government of Ghana shall implement a Distributed TSA for both central and sub-national government entities. Under the Distributed architecture, line agencies down to the lowest level in the hierarchy are allowed to retain separate transaction accounts in the banking system. However, balances in all transaction accounts should be swept into the TSA main account at the end of each day.

• All MDAs, MMDAs, Public Institutions, Public Corporations, and State Owned Enterprises shall participate in the TSA.           

• The Paris Declaration of 2005 on aid effectiveness encourages the integration of donor funds into the countries’ PFM systems, which include the TSA.

• Such integration contributes to effective public financial management and helps in the economic growth of countries.

• To this end, Government is transferring donor funds from the commercial banks to the Central Bank.

• Locating the TSA at the Central Bank offers several advantages as stipulated by the IMF Working Paper:

1. Provides a safe haven for government cash deposits which minimizes credit risk exposure.

• Aids the efficient management of government liquidity, and facilitates the Central Bank’s coordination of its monetary policy operations in managing liquidity in the economy with government’s cash and debt management functions.

• Can facilitate cost-effective banking arrangements and speedy settlements (it might be possible to negotiate with the Central Bank to act as the clearinghouse for government operations, which may speed settlement).

• Allows for clarity of banking arrangements and remuneration policies between the Treasury and the Central Bank (a service level agreement is normally negotiated to clarify obligations and responsibilities when the Central Bank acts as the clearing house for government operations).

• In view of this, Government is transferring all donor funds to the Central Bank to facilitate better fiscal and monetary policy coordination as well as better reconciliation of fiscal and banking data, which in turn will improve the quality of fiscal information.
• The successful implementation of the TSA would result in a major revamping of Ghana’s Public Financial Management.
• Ghana’s dream of achieving strong economic growth, therefore, requires the unflinching support of all Development Partners.

Benefits of TSA from the foregoing, it is obvious that the primary benefit of a TSA is the mechanism it provides for proper monitoring of government receipts and expenditure. In the Ghanaian case, it will help to block most if not all the leakages that have been the bane of the growth of the economy. We have a situation where some MDA’s manage their finances like independent empire and remit limited revenue to government treasuries. Under a properly run TSA, this is not possible as agencies of government are meant to spend in line with duly approved budget provisions. The maintenance of a single account for the government will enable the Ministry of Finance to monitor fund flow as no agency of government is allowed to maintain any operational bank account outside the oversight of the Ministry of Finance. Below are some listed benefits of TSA:

1. Allows complete and timely information on government cash resources: In countries with advanced payment and settlement systems and an Integrated Financial Management Information System (IFMIS) with adequate interfaces with the banking system, this information will be available in real-time. As a minimum, complete updated balances should be available daily.
2. Improves appropriation control: The TSA ensures that the Ministry of Finance has full control over budget allocations, and strengthens the authority of the budget appropriation. When separate bank accounts are maintained, the result is often a fragmented system, where funds provided for budgetary appropriations are augmented by additional cash resources that become available through various creative, often extra-budgetary, measures.
3. Improves operational control during budget execution: When the treasury has full information about cash resources, it can plan and implement budget execution in an efficient, transparent, and reliable manner. The existence of uncertainty regarding whether the treasury will have sufficient funds to finance programmed expenditures may lead to sub-optimal behavior by budget entities, such as exaggerating their estimates for cash needs or channeling expenditures through off-budget arrangements.
4. Enables efficient cash management: A TSA facilitates regular monitoring of government cash balances. It also enables higher quality cash outturn analysis to be undertaken (e.g., identifying causal factors of variances and distinguishing causal factors from random variations in cash balances).
5. Reduces bank fees and transaction costs: Reducing the number of bank accounts results in a lower administrative cost for the government for maintaining these accounts, including the cost associated with bank reconciliation, and reduced banking fees.
6. Facilitates efficient payment mechanisms. A TSA ensures that there is no ambiguity regarding the volume or the location of the government funds, and makes it possible to monitor payment mechanisms precisely. It can result in substantially lower transaction costs because of economies of scale in processing payments. The establishment of a TSA is usually combined with elimination of the “float” in the banking and the payment systems, and the introduction of transparent fee and penalty structures for payment services. Many governments have achieved substantial reductions in their real cost of banking services by introducing a TSA.
7. Improves bank reconciliation and quality of fiscal data: A TSA allows for effective reconciliation between the government accounting systems and cash flow statements from the banking system. This reduces the risk of errors in reconciliation processes, and improves the timeliness and quality of the fiscal accounts.
8. Lowers liquidity reserve needs: A TSA reduces the volatility of cash flows through the treasury, thus allowing it to maintain a lower cash reserve/ buffer to meet unexpected fiscal volatility.

Disadvantages

It is not all rosy though since there may be some legal barriers to full implementation of TSA. Some MDAs have financial autonomy granted to them by legislation including powers to maintain a fund from which to pay expenses and even to invest surplus funds and maintain a reserve.

Some MDAs generate revenue in various foreign currencies and TSA should also cater for them especially dealing with exchange difference accounting in their respective annual reports given that the means of establishing exchange differences at the end of the period by translating closing foreign currency balances may no longer be applicable.

States and local governments should also be encouraged to adopt TSA so that monthly Government account allocations can be paid directly into their TSAs held at the Bank of Ghana thereby making it easier for the government to manage liquidity in the system.

Banks and Challenge of Treasury Single Account Policy

There have been mixed feelings about the effects and consequences of the newly introduced Treasury Single Account by the Ministry of Finance, ministries, departments, and agencies as well as government business operators.

While some financial operators believe that the policy will give the government an opportunity to have one-hand information about its accounts, others feel that withdrawing the funds from commercial banks will further deplete the account of such banks as well as not offering the MDAs the privilege, the opportunity to monitor their own accounts where it is domiciled.

Others also believe that the single account policy will create problems especially where it will be difficult for the Government to be able to know at a glance the revenue accruing to each ministry or amount debited, as all accounts would have been lumped together.

Some analysts have said that in the event of Ministries, Departments and Agencies, (MDAs) fully complying with the directive to pay all their monies into a Treasury Single Account, TSA, banks may lose major projected sum saved with them by the MDAs. According to findings, banks may lose not less than 6 billion Ghana cedis as a result of the transparency move.

Also, it is expected that the returns of lenders in the economy driven substantially by net interest margins would further be crippled by the TSA implementation because the single account which is supposed to unify and monitor incoming and outgoing government transactions for transparency and accountability will deny the banks funds belonging to MDAs currently in the vaults of banks.

The implementation of the policy has not been effective due to inadequate impact on the target outcome to be achieved. The success story cannot be celebrated since the expectant result cannot be felt in the management of public funds. Purposefully mush has to do with the implementation of the policy. The policy is to make available idle funds in the commercial banks and the Central Bank useful by discouraging domestic borrowing and the need to fall on overdraft at needed time. 

The policy is to vent the decentralization of Bank Accounts span through the district and municipal into a centralized account at the Bank of Ghana. This practice will give meaning to Government laying hands on all Government funds available at the moment for quick decision to managing of funds. Government at a point of payment of salary with dwindling funds of the Consolidated Account, it is always necessary to fall on the inactive funds of the MDAs and MMDAs.

To strategically implement the policy effectively and efficiently, there is the need for Ministry of Finance to embark on strict adherence to Cash Position, Cash Ceiling and Action Plan.

Cash positioning is a planning tool that helps you view your daily cash position by currency or bank account. It allows you to project your cash needs, and evaluate your company’s liquidity position. The daily cash positions are based on actual cash flows from various Oracle Applications (GIFMIS).

The overriding objective of cash positioning is to ensure that the government is able to fund its expenditure in a timely manner and meet its obligations as they fall due. Cost-effectiveness, risk reduction, and operational efficiency are also important. Cash positioning is a critical, albeit not so visible, dimension of effective public financial management, with important linkages to monetary policy implementation. More precisely, cash positioning encompasses two distinct but related activities: cash flow forecasting and cash balance management. The positioning is to answer questions: (i) Over a given time period (daily, weekly, monthly, and so on), what is the volume of the government’s aggregate cash inflows and outflows? (ii) At the end of each time period, what is the balance of cash at hand? The latter is concerned with this question: (iii) What actions do the government take to ensure that it has the “correct” amount of cash at hand at any point? This posting highlights some of the issues related to managing cash balances, which is not very well covered in the public financial management literatures.

Changes in the daily cash balance of the TSA are domiciled at the Central Bank, and are mirrored by changes in banking sector liquidity. Indeed, they may be the most significant autonomous influence on liquidity. The Central Bank takes these changes into account in its monetary policy operations. Effective cash positioning is characterized by agreement between the ministry of finance and the Central Bank on the flow of information from the ministry of finance to the Central Bank on the likely future size of the TSA. Ideally, this should be provided in real-time, or at least before the start of each day. In as much as the Ministry of Finance can manage its cash flows reasonably tightly around a target balance for the TSA, the government’s cash balance becomes largely neutral for monetary policy purposes.

Action Plans: As part of the strategy to get a meaningful implementation of the TSA the Ministry of finance should be concerned and focus on institution’s action plans to determine the cash needed to undertake activities at a particular time within the budget circle in an institution. With effective monitoring of Action Plans,  one could tell the amount of cash needed within a quarter and annually. The accrued amount sitting idle in institutions accounts with commercial banks can be utilized accordingly for profitable ventures before the lapse of budget.

Cash Positioning: Cash positioning is a planning tool that helps you view your daily cash position by currency or bank account. Cash positioning allows you to project your cash needs, and evaluate your liquidity position. The daily cash positions are based on actual cash flows.

Cash Disbursement Ceiling (CDC): The CDC accounting is another control mechanism of the government accounting system. The cash operations of the government under the CDC accounting are limited within the boundaries of the appropriations released to government agencies in the form of allotments. The Ministry of Finance must instruct institutions to adhere to cash ceiling principles. The budget is broken down into ceilings and monitored sector by sector.

Emphasis on Budget: Another important characteristic of government accounting is its emphasis on budget. Expenditures cannot be incurred without the prior approval of a budget by the legislative body of government. An item of expenditure may be legal but the absence of a budget or funding makes the transaction impossible.

The government needs a serious implementation strategy to achieve the stated objective of the Treasury Single Account. The above guidelines will make much impact and also put to use idle monies sitting at commercial banks. The Central Accounts should be highly considered if success needs to be choked.