EXPLAINER: Treasury Single Account, what you need to know

The Cabinet on Monday, gave a green light for the implementation of the Treasury’s Single Account (TSA) for the national and county governments.

According to the Cabinet, this huge milestone is expected to enhance public finance management.

Underscoring its importance, the Cabinet noted that this will help to simplify government banking, creating visibility of government cash resources and increasing transparency in government cash management.

Its establishment comes at a time the government has introduced a single pay bill number-222222- to be used for the collection of payments for government services.

What is a TSA?

According to the International Monetary Fund (IMF), it is a unified structure of government bank accounts that gives a consolidated view of government cash resources.

It eliminates the necessity for individual bank accounts for government agencies.

Based on the principle of unity of cash and the unity of treasury, a TSA is a bank account or a set of linked accounts through which the government transacts all its receipts and payments.

It is an essential tool for consolidating and managing governments’ cash resources, thus minimising borrowing costs.

TSA is designed to ensure full visibility of cash flow and address leakages.

In a working paper published in 2010, the IMF states that TSA is important for countries with fragmented government banking arrangements.

While it is necessary to distinguish individual cash transactions for control and reporting purposes, this purpose is achieved through the accounting system and not by holding or depositing cash in transaction-specific bank accounts.

This enables the treasury to delink management of cash from control at a transaction level.

The new system is also set to help control expenditure and minimise the fragmentation of government accounts in commercial banks.

The structure of the TSA will include the National Exchequer Account, the TSA Sub-Account and the County Revenue Fund.

“Government funds are banked in commercial bank accounts and individuals keep earning interest. This must stop. All the benefits of public funds must only accrue to the people of Kenya and no one else,” President William Ruto said during the meeting.

TSA is set to mop up surplus cash from Ministries, Departments and Agencies held at various commercial banks in the country something likely to affect the liquidity ratios of major banks.

Government deposits in commercial banks as of December 31, 2022, stood at Sh435.87 billion, constituting 8.69 per cent of the total bank deposits in the country, which amounted to Sh5.01 trillion.

These deposits covering both the national government and other public sector entities were comprised of Sh323.2 billion in demand deposits and Sh112.6 billion in time savings.

Parliament had set March 31st, 2024 as the deadline for the set up of the account.

Section 28(2) of the PFM Act 2012, provides the establishment of the TSA in which all revenues received by the national government will be deposited and from which all payments on behalf of the government shall be made.

In operating the account, the Act states that an accounting officer for a national government entity shall not cause a bank account of the entity to be overdrawn beyond the limit authorized by the Treasury or a board of a national entity, if any.

Any officer who authorises the bank account to be overdrawn is liable for the full cost of the overdrawn amount, in addition to any other disciplinary measures.

As the Central Bank acts as the fiscal agent of the government, the custody of the TSA in most countries is with the central bank.