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Sailendra pattanayak tsa presentation english

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Treasury Single Accounts …

Treasury Single Accounts

Sailendra 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.

Published in: Business

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  • 1. Establishing a Treasury Single Account (TSA) – Concept, Issues and Challenges Sailendra Pattanayak Fiscal Affairs Department International Monetary Fund
  • 2. Overview of presentation
    • Typical banking arrangements
    • TSA principles and benefits
    • Different TSA structures
    • TSA coverage and interface with transaction processing systems
    • Banking Arrangement for Donor Flows
    • Issues/Preconditions for establishing a TSA
    May 2010 Sailendra Pattanayak, IMF
  • 3. Typical Payment System with Many Bank Accounts May 2010 Sailendra Pattanayak, IMF Spending Ministry Bank Accounts SU SU SU SU SU SU SU SU Ministry of Finance Spending Ministry Spending Ministry SU = Spending Units SU
  • 4. Banking Arrangements under TSA Regime May 2010 Sailendra Pattanayak, IMF 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 payers Government Borrowings
  • 5. 2. TSA Principles and Benefits
  • 6. 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
  • 7. 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
  • 8. 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
  • 9. 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
    May 2010 Sailendra Pattanayak, IMF
  • 10. 3. TSA Structure and Operation
  • 11. TSA Structure – Option 1 May 2010 Sailendra Pattanayak, IMF 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
  • 12. TSA Structure – Option 2 May 2010 Sailendra Pattanayak, IMF 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)
  • 13. TSA Structure – Option 3 May 2010 Sailendra Pattanayak, IMF Budget Unit Commercial Bank Regional Branch Commercial Bank Head Office Payment Order Very Reliable and Advanced Commercial Bank Sector Central Bank Reconc . Settlement State Treasury Head Offic e
  • 14. 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
  • 15. 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
  • 16. 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/supplier Taxpayer/supplier
  • 17. 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/supplier Taxpayer/supplier Taxpayer/supplier
  • 18. 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
  • 19. 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
  • 20. 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
  • 21. 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
    May 2010 Sailendra Pattanayak, IMF
  • 22. 4. TSA Coverage and Interface with Transaction Processing Systems
  • 23. 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
  • 24. 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
  • 25. 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
  • 26. 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)
    May 2010 Sailendra Pattanayak, IMF
  • 27. 5. Banking Arrangement for Donor Flows
  • 28. 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
  • 29. 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
  • 30. 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
  • 31. 6. Issues/Preconditions for Establishing a TSA
  • 32. 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
    May 2010 Sailendra Pattanayak, IMF
  • 33. 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
  • 34. 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
    May 2010 Sailendra Pattanayak, IMF
  • 35. 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
  • 36. May 2010 Sailendra Pattanayak, IMF Thank you

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