Section 80 (1) 1999 Constitution of the Federal Republic of Nigeria (as amended) provides “all revenues or other moneys raised or received by the Federation (not being revenues or other moneys payable under this Constitution or any Act of the National Assembly into any other public fund of the Federation established for a specific purpose) shall be paid into and form one Consolidated Revenue Fund of the Federation.” However successive governments have operated numerous accounts used to collect and spend public funds in flagrant disregard to this provision of the constitution, the grundnorm of all Nigerian laws.
In 2012 the government ran a pilot scheme for Treasury Single Account using 217 Ministries, Departments and Agencies to test the scheme. Over N450 billion was saved by the scheme and the government was motivated to implement TSA. The Remitta e-collection platform was developed for the implementation of the TSA scheme and banks were directed to integrate the software into their core banking systems and train their staff on how to use it. But like everything Nigerian, this was not the case.
An excerpt from Communiqué No. 92 issued at the Monetary Policy Committee meeting held on the 18th and 19th of November 2013 reads; “The Federal Government debt has also risen phenomenally along with its deposits at the deposit money banks, showing the Government as a net creditor to the system. This underscores the urgent need for the immediate implementation of the Treasury Single Account. The continued delay in returning government accounts to the Central Bank is adding to the huge cost of government debt due to poor cash flow management.”
In January 2015, ex President Goodluck Jonathan directed through the then Accountant-General of the Federation that on or before the 28th of February 2015 all revenue generated by Ministries, Departments and Agencies in deposit money banks should be transferred to the Consolidated Revenue Fund account and revenue generated subsequently was to be deposited directly into the Consolidated Revenue Fund account at the Central Bank of Nigeria. This was to be made possible by the Remita e-Collection technology platform deployed by the FG and installed across bank branches nationwide to consolidate all federal government revenue into one account. However at the end of his administration of the 29th of May 2015, majority of MDAs had not complied with the directive. As at June 2015 there were over 20,000 bank accounts operated by MDA’s in all deposit money banks in Nigeria.
On the 7th of August 2015 President Muhammadu Buhari gave the same directive through a circular issued by Mr. Danladi Kifasi, the Head of the Civil Service of the Federation and a September 15 2015 deadline was set. The implementation of TSA according to the circular,” is expected to aid transparency and facilitate compliance with Sections 80 and 162 of the Constitution of the Federal Republic of Nigeria 1999 (as amended).” The directive was promptly complied with by the MDA’s. With the commencement of the operation of a Treasury Single Account on the 17th of September, an estimated N1.2 trillion naira was moved from money deposit banks to the Central Bank of Nigeria. This is approximately 6.5% of the Total Money Supply in the economy and 10% of Total Banking System liquidity.
What really is a Treasury Single Account?
A Treasury Single Account is a unified banking accounting system by which all government income, receipts and revenue are paid into a single account and all government expenditure are paid for from that single account which is maintained by the Central Bank. “All Ministries, Departments and Agencies are expected to remit their revenue collections to this account through the individual commercial banks who act as collection agents. This means that the money deposit banks will continue to maintain revenue collection accounts for MDA’s but all monies collected by these banks will have to be remitted to the Consolidated Revenue Accounts with the CBN at the end of each banking day. In other words, MDA’s accounts with money deposit banks must be zerorized at the end of every banking day by a complete remittance to the TSA of all revenues collected. The implication is that banks will no longer have access to the float provided by the accounts they maintained for the MDA’s. Different types of accounts could be maintained under a TSA arrangement and these may include the TSA main account, subsidiary or sub-accounts, transaction accounts and zero balance account. Other types of accounts that could be operated include imprest accounts, transit accounts and correspondence accounts. These accounts are maintained for transaction purposes for funds flowing in and out of the TSA.”
What effect will the implementation of the TSA have on the economy?
In 2010 in a paper written by the International Monetary Fund titled Treasury Single Account: Concept, Design and Implementation Issues, they outlined benefits of a government operation a TSA. They are
- Allows complete and timely information on government cash resources
- Improves appropriation control
- Improves operational control during budget execution
- Enables efficient cash management
- Reduces bank fees and transaction costs
- Facilitates efficient payment mechanisms
- Improves bank reconciliation and quality of fiscal data
- Lowers liquidity reserve needs
Other benefits include the blocking of leakages that have stunted the growth of the economy, ensuring of accountability of government receipts and expenditure, promotion of transparency, reduction of corruption and diversion of public funds, elimination of idle funds left in numerous accounts in commercial banks usually used to bear interest for corrupt entities and easier reconciliation of revenue collection and payments.
In the short run the rate of exchange of the Naira to the world’s major currencies will appreciate as excess liquidity will be mopped up from the system, thereby stimulating various sectors of the economy. The Nigerian Stock Exchange will be negatively impacted as a hike in deposit rates would reduce returns from the equities market thereby leading to investors shifting their investments to the money market. There would be a spike in the inflation rate even as the returns on real estate investments will fall and the manufacturing sector will also be affected negatively. The rate of unemployment will increase even as short term interest rates will rise thereby threatening the existence of SME’s who already find it difficult to borrow money from financial institutions at ‘crazy’ rates.
The worst hit by the TSA scheme in the short term would be the banking sector. The week the policy was announced interbank lending rates shot up by 70%. A large chunk of bank funds over the years have been ‘hot funds’ provided by government agencies. With the implementation of this scheme the earning power of banks will be greatly reduced, even as they have not yet recovered from the effects of the loss of revenue due to reduction in the price of crude oil on the international market.
On the long run however the effects of the implementation of TSA are more encouraging. Due to the blockage of leakages, public funds would be utilized efficiently. The government would have enough funds to invest in capital projects, thereby stimulating various sectors of the economy. The stock market will react to this positively as companies will provide better returns for investors. Due to the diversification of the economy inflation rates should drop, even as unemployment rates should drop too buoyed by the stimulation of the real sectors of the economy. Interest rates should also drop even as real estate investment returns should increase and the output of the manufacturing industry should increase.
A reduction in revenue would force the banks to carry out the true business of banking as banks would need to focus more on retail customers and the private sector. They would have to increase deposit interest rates and reduce lending rates. Their profitability would decrease in the short run, but on the long run the banking sector would be the better for it, as Nigerian banks would have developed into strong institutions built on the basic fundamentals of banking and developed by sustainable customer focused models.
Brace yourselves for a bumpy but short ride Nigeria, at the end of the tunnel the rainbow awaits us!
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