By Jean-Philippe Vion[1]
For years, development partners have promoted the implementation of a treasury single account (TSA) in developing countries as the main instrument to optimize cash management. Centralizing all public monies in a single account should strengthen oversight and facilitate the mobilization of idle cash to cover essential expenditure.
The TSA reforms in sub-Saharan Africa have focused mainly so far on coverage. The TSA must be as comprehensive as possible. That means consolidating most of the public entities' bank accounts that are scattered in commercial banks into the national TSA. Consolidation can be achieved by identifying all public bank accounts opened in commercial banks, defining closure plans and transferring the balances to the TSA at the central bank. This approach was successfully implemented, with the support of the IMF, in Mali for instance.[2]
In Francophone Western Africa, the coverage of TSAs has significantly improved over the last years.[3] Now, it’s time to have a look at a second issue, which has not drawn much attention so far. This issue concerns the structure of the national TSA. In many countries, the TSA remains just a set of bank accounts, juxtaposed side by side in the central bank's accounting books, without much linkage between them.
To improve a TSA's structure, a choice must be made between several options. The first option is a centralized account with transaction sub-accounts held at the central bank.[4] This option is called a “centralized” TSA. Another option is to keep bank accounts in commercial banks and to transfer their balances daily into a central TSA. This option requires an efficient banking system and national administration. It is called a “distributed” or “decentralized” TSA. Several variants exist in-between these two models. Another distinction deals with the way operations are managed under a TSA.[5] Here again, transactions can be either centralized (managed by a single operator, the Treasury in general) or distributed (commonly by each ministerial department or public agency). Under a decentralized TSA, this second arrangement assumes that the ministry or department can manage its own financial functions efficiently and effectively.
To illustrate these issues, let’s turn to the example of the development of TSAs in the countries of the West African Economic and Monetary Union (WAEMU).
The WAEMU regional directives are quite clear and promote the centralized system for establishing a TSA. For example, the directive on public accounting regulations[6] states that the TSA must be held at the regional central bank (the Banque Centrale des Etats de l'Afrique de l'Ouest, BCEAO), that there should be only one cash management system each country, and one accounting network.
Many countries in the region face constraints in personnel capacity, and in the capabilities of their financial management information systems, that restrict the efficiency and effectiveness of the TSA. Another challenge is with the interbank clearing and settlement system. Several countries have been tempted to set up a "decentralized" TSA based on bank accounts in commercial banks, but with balances centralized through the IT system used to manage payments (namely, the STAR-UEMOA system for WAEMU countries). However, this option has not yet been rigorously tested or negotiated with the banks in these countries. Therefore, its costs and modalities remain undetermined. In addition, it seems possible that this arrangement was designed primarily to avoid harming certain influential banks. Nevertheless, this option has the advantage of avoiding any destabilization of the commercial banks, as the deposits are (generally) kept by them, and encouraging the banking sector's development.
In this respect, each option (a centralized or decentralized TSA) has its pros and cons. The centralized system appears easier to implement for countries that experience serious constraints in human resource capacity or IT systems. The decentralized system could preserve the stability of the banks involved and encourage their future development, foster citizens’ access to financial services, and permit the public sector to benefit from better quality financial services. For each country, a cost-benefit analysis of each option would determine which option could render the best service at the lowest cost. If necessary, the WAEMU directives could be amended to leave more room for future innovation in the design of TSAs.
It is important that the governments concerned engage in a debate on these matters. The status quo is not practical option looking forward, as it stalls a fully functional, modern TSA.
[1] Policy Officer, European Commission, DG DEVCO, former IMF Resident Advisor (Afritac West 1). The author thanks Xavier Rame, Luc Leruth, and Dominique Bouley (IMF) for their invaluable help in preparing this post. The views expressed are those of the author and do not necessarily represent those of the European Commission.
[2] See B. Taiclet and R. Boukezia, Implementing an Effective TSA in Mali, PFM Blog, December 2, 2014.
[3] See J-P. Nguenang, Improving Cash Management in West Africa, PFM Blog, April 5, 2017.
[4] Transaction accounts are separate sub-accounts for each treasury unit, representing one or several individual spending units. Thanks to these sub-accounts, all payments to suppliers, beneficiaries, and wage earners are processed through the TSA main account and all receipts are received in this main account.
[5] S. Pattanayak and I. Fainboim, 2011, Treasury Single Account: An Essential Tool for Government Cash Management, IMF Technical Notes and Manuals (Washington: International Monetary Fund), page 6.
[6] Article 6 states that “All public monies, including those of externally funded projects shall be deposited in a treasury single account opened at the Banque Centrale des Etats de l’Afrique de l’Ouest."
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.
