Single account a game-changer

The National Treasury building in Nairobi in this picture taken on March 15, 2023. PHOTO | DENNIS ONSONGO | NMG

On January 15, 2024, the Cabinet approved the introduction of the Treasury Single Account (TSA), per Sections 28(2) and 119(2) of the Public Financial Management (PFM) Act, 2012, for national and county governments, respectively.

Following this approval, there has been a notable interest from various stakeholders in comprehending the TSA concept and its implementation framework. The Treasury aims to provide clarity on the objectives and mechanisms governing the TSA, emphasising its role in enhancing cash management efficiency, transparency, reduced borrowing costs, and improved coordination of fiscal and monetary policies.

A TSA is a unified structure of government bank accounts that enables the consolidation of government cash resources into a single account or a set of linked accounts, usually domiciled at the Central Bank of Kenya (CBK).

Within the main TSA is a subsidiary account (sub-account) structure that forms part of the overall TSA system, which may be domiciled at the Central Bank or in commercial banks, but connected to the main TSA account, enabling some level of flexibility for government entities to manage their financial activities within allowable limits overseen by the Treasury.

By unifying all banking arrangements, the government can view the totality of its cash position on a real-time basis, or at the end of each day, resulting in cash management efficiency, improved transparency and potentially, reduced borrowing costs. The implementation of TSA aligns with the Treasury’s reform efforts envisaged in the Mid-Term Plan (MTP) III development goals to optimise government resources, promote transparency and achieve efficiency in public financial management.

The existing government banking environment faces challenges such as fragmented banking arrangements, limited transparency, ineffective cash utilisation, reconciliation issues, and weak liquidity management.

Read: How will the Treasury single account work?

A preliminary report from January 31, 2023, reveals that public entities hold more than 33,000 bank accounts scattered across the banking sector.

The TSA aims to address these challenges by consolidating public monies into a unified banking arrangement, fostering better cash visibility, financial accountability, and overall fiscal management.

In terms of the TSA model, it should be understood that models vary significantly across different jurisdictions, informed by the characteristics and complexities of each country’s financial system.

Kenya boasts a relatively sophisticated financial ecosystem, thanks to the implementation of the Integrated Financial Management Information System (IFMIS), a robust payment and settlement framework, and the CBK’s upgraded core banking systems further strengthened by the modernisation of its large-value payment infrastructure.

In this regard, Kenya will be adopting a hybrid model that integrates the strengths of both centralised and decentralised TSA systems.

Consequently, the government is actively evaluating various hybrid models to identify the most efficient yet minimally disruptive option that will support the primary objectives of implementing a TSA banking arrangement, while allowing the banking sector to undertake its intermediation role more effectively.

At the core of the TSA concept is a main TSA account domiciled at the Central Bank, but with sub-accounts held both at the Central Bank and in commercial banks as the case may be, to ensure the objective of cash visibility is maintained.

The hybrid model supported by available technology satisfies the TSA criteria envisaged by the policy. To entrench the TSA concept, and ensure coordination across the main and the sub-accounts, the Treasury will establish a management function to oversee daily cash and liquidity operations across its overall structure.

The TSA will be implemented in three phases, over three years and in close consultation with all stakeholders. Phase one entails migrating ministries, departments and agencies to the TSA environment.

Phase two comprises the migration of county governments to the TSA system in collaboration with the Intergovernmental Budget and Economic Council (IBEC), as required by law. Phase three entails the migration of State-owned agencies semi-autonomous government agencies, and all other national government entities that depend on the Exchequer for funding.

Read: Don’t rush Treasury Single Account

This transition is facilitated by ongoing automation of the exchequer process within the IFMIS system and utilising the Internet banking infrastructure of the CBK. In addition, a successful TSA environment will involve some form of interfacing with commercial bank systems to enable a view of the totality of the government cash pool at the end of each day. The estimated timeframe for completing the TSA implementation roadmap is three years.

In conclusion, the implementation of the TSA system signifies Kenya’s commitment to fiscal reform, offering benefits beyond the financial sector. It strengthens governance, fosters transparency, and creates an environment conducive to sustained economic growth.

Prof Ndung’u is the Cabinet Secretary, of National Treasury And Economic Planning.