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July 12, 2010

A Treasury Single Account is an Essential Tool for Consolidating and Managing Governments’ Cash Resources – A New IMF Working Paper

Posted by Sailendra Pattanayak and Israel Fainboim

WP10143
It is not uncommon to find fragmented government banking arrangements, with multiple bank accounts in commercial banks belonging to different government ministries/agencies, with idle cash sitting there. Such arrangements hinder effective cash management and control over cash balances.

A government that lacks effective control over its cash resources can pay for its institutional deficiencies in multiple ways. First, idle cash balances in bank accounts often fail to earn market-related remuneration. Second, the government, being unaware of these resources (or being unable to use them), incurs unnecessary borrowing costs on raising funds to cover a perceived cash shortage. Third, idle government cash balances in the commercial banking sector are not idle for the banks themselves, and can be used to extend credit. Draining this extra liquidity through open market operations also imposes costs on the central bank.

In a recent IMF Working Paper, we suggest that establishing a unified structure of government bank accounts via a treasury single account (TSA) will solve these problems, facilitating effective aggregate control over government cash balances. A TSA also facilitates better fiscal and monetary policy coordination as well as better reconciliation of fiscal and banking data, which in turn improves the quality of fiscal information. Finally, the establishment of an effective TSA significantly reduces the debt servicing costs. We argue that while it is necessary to distinguish individual cash transactions for control and reporting purposes, this objective is achieved through the accounting system and not by holding/depositing cash in transaction-specific bank accounts. This enables the treasury to delink management of cash from control at a transaction level.

We discuss the rationale and strategy for establishing a TSA in countries with fragmented government banking arrangements. The paper first discusses the concept of a TSA, its objectives and benefits, followed by a description of alternative TSA models and operations depending on institutional structures. The paper then stresses some of the key preconditions for establishing a TSA. Unless these are in place, the implementation of the TSA is unlikely to be successful, as the experience of many countries demonstrates. A TSA regime should also be supplemented by proactive cash management. Finally, the paper includes country examples from different regions (in an Annex) analyzing whether a proper TSA has been adopted in these countries.

Note: The posts on the IMF PFM Blog should not be reported as representing the views of the IMF. The views expressed are those of the authors and do not necessarily represent those of the IMF or IMF policy.

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Comments

The TSA is the way forward in the Rationalisation of the Government Accounts, especially Sub accounts operated in support of the Main accounts have been subjected to poor cash mangement procedures by decentralised government departments and ministries. It makes the consolidation of government accounts very difficult and African governments, for that matter Ghana has been under taking a yearly qualitative easing to clean its Cash balances over the years with the current audit approach by the Audit Service. Hence it is our hope that the current GIFMIS would pave the way in this regards.

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