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Treasury Single AccountsSailendra Pattanayak, Senior Economist, Fiscal Affairs Department, The International Monetary Fund,Recent trends affecting Treasury Single Accounts and an overview of current thinking on this important PFM component will be the focus of this session.
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Establishing a Treasury Single Account (TSA) – Concept, Issues and
Challenges
Sailendra PattanayakFiscal Affairs Department
International Monetary Fund
May 2010 Sailendra Pattanayak, IMF
Overview of presentation
1. Typical banking arrangements 2. TSA principles and benefits3. Different TSA structures4. TSA coverage and interface with
transaction processing systems5. Banking Arrangement for Donor
Flows6. Issues/Preconditions for establishing
a TSA
May 2010 Sailendra Pattanayak, IMF
Typical Payment System with Many Bank Accounts
SpendingMinistry
Ban
k A
ccou
nts
SU
SU
SU
SU
SU
SU
SU
SU
Ministryof
Finance
SpendingMinistry
SpendingMinistry
SU = Spending Units
SU
May 2010 Sailendra Pattanayak, IMF
Banking Arrangements under TSA Regime
Debt administration
Subsidies
Local governments
Suppliers
Wage earners
Daily settlement with TSA
Current / deposit bank account(s) of the treasury (TSA)
Transit / zero-balance bank accounts of the
treasury
Tax payersGovernment Borrowings
2. TSA Principles and Benefits
May 2010 Sailendra Pattanayak, IMF
TSA Principles A TSA is a unified structure of government bank
accounts that gives a consolidated view of government cash resources
It could be just one account or a set of linked accounts (main and subsidiary)
All public monies are seen as fungible to prevent inefficient use of cash resources
The consolidation of government cash resources through a TSA is comprehensive
It covers all budgetary and extrabudgetary funds The TSA should be legally recognized, institutionally
robust and stable The TSA can contain ledger sub-accounts for control
and monitoring purposes, but these should not contain over-night balances
May 2010 Sailendra Pattanayak, IMF
TSA Principles – contd. Options for accessing the TSA is mainly
dependent upon institutional structures and payment settlement systems
The cash balance in the TSA is maintained at a level sufficient to meet daily operational requirements of the government
Treasury-related revenue and disbursement floats in the banking sector are kept at the minimum realizable level
Significant revenue and disbursement floats in the banking sector benefit the banks at the expense of the government
May 2010 Sailendra Pattanayak, IMF
TSA and Consolidated Fund Concept All government revenues should accrue to a
common pool (such as the Consolidated Fund) and no source of revenue be earmarked for specific expenditure
In general, there is no need for revenue-specific or expenditure-specific bank accounts
Revenue and expenditure transactions should be classified through a well-developed chart of accounts and not by maintaining distinctive bank accounts for them
The TSA should be maintained in domestic currency, as this parallels the currency in which most budget transactions are executed
May 2010 Sailendra Pattanayak, IMF
TSA Benefits Ensures complete, real-time information on government
cash resources Helps preparation of accurate and reliable cash flow
forecasts Optimizes the cost of government operations
including minimizing the volume and cost of government borrowing and lowering liquidity reserve needs
Facilitates efficient payment mechanisms Improves operational and appropriation control during
budget execution Enhances efficiency and timeliness of bank reconciliation Facilitates timely and more complete accounting
statements/reports E.g. preparation of full statements of sources and uses of cash
3. TSA Structure and Operation
May 2010 Sailendra Pattanayak, IMF
TSA Structure – Option 1
State Treasury Head Office
State Treasury Regional office
State Treasury Local office
Central Bank
Central Bank Regional branch
Budget unit
Payment order
Payment order
Reconc.
Settlement
Settlement
Limited Treasury communication and information systems
May 2010 Sailendra Pattanayak, IMF
TSA Structure – Option 2
State Treasury Head Office
State Treasury Regional office
State Treasury Local office
Central Bank
Payment order
Reconc.
Settlement
Budget unit
Advanced Treasury communication and information systems(2a)
May 2010 Sailendra Pattanayak, IMF
TSA Structure – Option 3
Budget Unit
Commercial BankRegional Branch
Commercial BankHead Office
PaymentOrder
Very Reliable and Advanced Commercial Bank Sector
Central BankReconc.
Settlement
State Treasury Head Office
Requirements for an efficient TSA Co-operation of the line ministries Development of an Interbank
settlement/clearing system Real Time Gross Settlement System (RTGS)
at the central bank for high value transactions
Major commercial banks and treasury connected to the RTGS
Development of a small payments clearing system
May 2010 Sailendra Pattanayak, IMF
Different Models for transactional banking under TSA
Use commercial bank branch networks to channel funds to/from regional treasury offices to the TSA at central bank (CB)
Use regional branches of the CB where a reliable commercial branch network is not available
Regional treasury offices act as banks (only recommended where the commercial banking sector is regarded as too unstable)
Use commercial banks branch network to clear funds directly between TSA and taxpayers/suppliers
May 2010 Sailendra Pattanayak, IMF
TSA using Commercial Banking system network and RTOs
May 2010 Sailendra Pattanayak, IMF
TSA at CB
Bank A Bank B
Branch 1 Branch 2 Branch 1 Branch 2
RTO and BIs RTO and BIs RTO and BIs RTO and BIs
Taxpayer/supplier Taxpayer/supplierTaxpayer/supplier
Use of regional CB offices
May 2010 Sailendra Pattanayak, IMF
TSA at CB
Regional CB office Regional CB Office
Bank Branch 1 Bank Branch 2 Bank Branch 3 Bank Branch 4
RTO and BIs RTO and BIs RTO and BIs RTO and BIs
Taxpayer/supplierTaxpayer/supplierTaxpayer/supplier
TSA using Commercial Banking network (no RTOs)
May 2010 Sailendra Pattanayak, IMF
TSA at CB
Bank A Bank B
Branch 1 Branch 2 Branch 1 Branch 2
Taxpayer/supplier Taxpayer/supplier Taxpayer/supplier Taxpayer/supplier
Treasury and BIs
May 2010 Sailendra Pattanayak, IMF
Management of Receipts Collection through commercial banks
Alternatively through treasury system Impose penalties on late remittances Framework agreements between
Ministry of Finance (MoF)/Treasury and agency banks Standardized services and transparent fees Penalties for delays and under-performance Monitoring
Detailed information available to MoF and agencies
May 2010 Sailendra Pattanayak, IMF
Management of Payments Agencies submit payment requests Covered from TSA after control and verification Clarify roles and responsibilities between
ministries, agencies, banks, central bank and MoF
Maximize use of direct bank transfers Use checks, credit and debit cards when
efficient Minimize imprest accounts and cash payments Ensure that payments are made on due date Eliminate layered cash flows
May 2010 Sailendra Pattanayak, IMF
Management of Balances Define separate pools of funds within TSA
system, for instance: Liquidity Deposit Investment
Differentiation based on liquidity needs, level of uncertainty, costs of alternative sources, etc
Select instruments that match expected cash needs
Integrated management of assets and liabilities Transparent and efficient pricing of assets,
liabilities and services
4. TSA Coverage and Interface with Transaction
Processing Systems
May 2010 Sailendra Pattanayak, IMF
TSA Coverage Only central government
Should include extrabudgetary funds, if any Could include autonomous government entities Could be extended to social-security funds and
other trust funds Central and sub-national governments
Either under a single TSA or separate TSAs Public corporations are generally not
included
May 2010 Sailendra Pattanayak, IMF
Bringing social security and other trust funds under TSA Each Trust Fund could be distinctly
identified and controlled through the Treasury Ledger and/or TSA sub-account
The key issues are: Whether Government has the legal right to use,
even temporarily, the surplus cash available The risk of perverse incentive to use the cash
reserves of these funds to finance budget deficits This risk is quite high in low-income countries,
particularly those with underdeveloped PFM systems
May 2010 Sailendra Pattanayak, IMF
One TSA for both central and sub-national governments Could be done through the use of
correspondent accounts The key issues are:
Has the advantage of consolidating the surpluses and deficits of all correspondent governments participating in the TSA system
Minimizes the cost of general government borrowing Requires well-developed Treasury Ledger System to
monitor the balances of each correspondent Need to consider the risk of abuse by the central
government to finance its deficits at the cost of sub-national governments
Need for safeguards to ensure timely availability of funds to each correspondent government
May 2010 Sailendra Pattanayak, IMF
TSA interface with transaction processing and accounting systems TSA with centralized payment and accounting
controls Payment requests are prepared by individual budget
agencies and sent to a centralized Treasury for payment Treasury manages the float of outstanding invoices Might lead to inefficiencies and high transaction costs
(particularly with manual processing) TSA with deconcentrated payment and
accounting controls Individual budget agencies process and make payments
directly to suppliers (and account for these transactions) MoF sets the cash disbursement limits (monthly or
quarterly)
5. Banking Arrangement for Donor Flows
Covering donor funds within TSA What are donor concerns?
Assurance for use of donor aid on specific projects (or non-diversion of funds)
Some ring-fencing to avoid liquidity problems (and ensure timely payments during project execution)
Minimize exposure to exchange related fluctuations/losses in the value of donor aid (when currency exchange rate regime is volatile)
Reliability of controls (in managing donors’ funds) and information produced by the national PFM systems
May 2010 Sailendra Pattanayak, IMF
Banking arrangement for donors’ funds – possible options Converting donors’ funds into local currency on transfer
to the TSA (best option) The use of the resource-source arrangement would
still allow donor funds to be linked to specific projects
This, being a single-currency TSA, has technical and transparency benefits
Opening separate foreign currency sub-accounts within the TSA
There could be one account for each foreign currency, or one for each of the main donor currencies
The government’s accounts would still be reported in local currency, with foreign currency converted at the relevant exchange rate
May 2010 Sailendra Pattanayak, IMF
Banking arrangement for donors’ funds – possible options Maintaining foreign currency accounts
outside the TSA, but bringing the flows within the accounting regime
Weakens the concept of the TSA, and requires additional administrative processes, but at least has the benefit of tracking transactions through the accounting system
May 2010 Sailendra Pattanayak, IMF
6. Issues/Preconditions for Establishing a TSA
May 2010 Sailendra Pattanayak, IMF
Some country-specific issues for design of a TSA Associate a resource source (e.g. resource from
a donor) with specific expenditure categories Could be done through sub-accounts of a TSA
Need for transit accounts e.g. for major revenue streams to monitor
their collection and remittance or to facilitate revenue sharing
Technical feasibility of daily settlement between the zero-balance accounts of budget agencies and the TSA
Some country-specific issues for design of a TSA – contd. Appropriate interface between the TSA and
transaction processing/accounting systems This issue should be carefully examined at the
conceptual design stage in case of an IFMIS
Identification of non-bank transactions (after closure of agency-specific bank accounts)
Elimination of below-the-line transactions
Strategy for obtaining retail banking services from commercial banks, including use of e-payment/EFT options
May 2010 Sailendra Pattanayak, IMF
May 2010 Sailendra Pattanayak, IMF
Preconditions for establishing a TSA Political support is essential (such as for closure of
agency a/cs)
Legal and regulatory requirements TSA should be legally recognized Authority to open bank accounts should vest
with the MoF/Treasury
Technological requirements Reach of the banking network and reporting
architecture Transaction clearing and inter-bank settlement
systems
Preconditions for establishing a TSA – contd. Formalization of agreements between the
Treasury, TSA Bank and Banks providing retail banking services Should cover services offered by the
banking system, service charges/fees, penalties for non-performance, reporting and reconciliation arrangements, etc.
Revisiting the chart of accounts for coverage of non-bank expenditure transactions
Capacity development of TSA users
May 2010 Sailendra Pattanayak, IMF
May 2010 Sailendra Pattanayak, IMF
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