Implementation of the Treasury Single Account (TSA) – the end of policy inconsistency?

The September 15 deadline for the implementation of a single treasury account by all Ministries, Departments and Agencies (MDAs) of the federal government has come and gone, with about 2 trillion reported to have left the coffers of commercial banks into the Central Bank of Nigeria’s (CBN) purse. Prior to this date, information has it that about 1,300 workers were laid off by Zenith bank, while many thousands already have the axe on their head, with more economic upsetting events imminent.  In preparation for the deadline, the CBN issued a circular, directing all deposit money banks (DMBs) to implement the remita e-collection platform, a technology solution for supporting the collection and remittance of all government revenue to a consolidated account in the CBN. This explains the involvement of the previous administration in the policy implementation. However, the policy direction of the immediate past administration contradicted its resolve to implement the TSA when the Monetary Policy Committee, in a meeting in May 19 – 20, prior to the inauguration of the incumbent President, announced the harmonization of CRR on public and private sector deposit to 31 per cent, which before then stood at 12 per cent and 75 per cent respectively.

The CRR harmonization policy in consequence allowed improved liquidity as monies worth N2.7 trillion was unfrozen. Substantiating this direction, the apex bank through its communiqué mentioned credit squeeze and the need to reflate the repressing economy. It will be recalled also that the price of crude oil, which sold for less than $55 during the period had constrained government revenue, thereby reducing the amount of deposits from government MDAs. In a way, the argument sounded convincing and reasonable but an extensive analysis reveals that the policy direction appears to reward lazy banks who have mastered the art and act of running after public deposits. A future-looking and policy-discipline regulatory bank would have seized that opportunity to advance the implementation of the TSA by leaving the CRRs untouched. Obviously, the MPC decision amounts to a policy summersault, and appears to have provided incentives and rewards for banks to hunt more for public deposit, which should have been discouraged at that time.

With this example of inconsistency, how do we trust the integrity of the apex bank and the federal government as far as policy formulation and implementation are concerned? In a country where investors are not protected against policy inconsistencies, how do we intend to mobilize investment from serious investors? If you ever wonder why investors are wary of coming into the country despite the emergence of our “upright president”, that is the answer for you.

Now, let us look into the TSA proper –a policy most analysts have applauded and have seen as the next big idea reawakened to help curb corruption in public finance, reduce government’s borrowing cost and borrowing, and most importantly, provide a mechanism for proper monitoring of government receipts and expenditure, all of which in a way helps with an at-a-glance view of the Federal Government’s financial status. Aside this, the TSA implementation is expected to punish lazy banks and help chart a new course towards deepening the country’s financial sector. Most banks have hitherto been profitable despite being less efficient in rendering real and impactful banking services. Indeed, the TSA is a laudable direction and in my opinion should be effective.

However, a lot has not been said about the timing of the policy, as wrong timing can impact on the effectiveness of any policy irrespective of how good the policy is.  Most banks until last month were yet unprepared for the full implementation of the TSA. In fact the harmonisation of CRR in May earlier this year qualifies as one reason banks might believe the policy take-off will not be imminent. A policy that seeks to drain available credit in an already credit-limited financial sector where interest rate is as high as 22 per cent to 23 per cent, in my opinion, should have been implemented with extreme caution and without hastiness. The asymmetric distribution of private sector funds amongst commercial banks underscores the importance of this call for caution. Some banks are hugely depended on public deposit. For such banks, this could pose liquidity risk, which can translate to crises in the banking sector. Analysing this policy from a welfarist perspective, it does not look sustainable going by the potential victims – workers and the masses with savings in the exposed banks.

I would expect the Federal Government to have explored the MPC platform (scheduled to hold later in the month of September) to address this issue, since a possible policy failure could result in huge liquidity and banking crises. The MPC platform can be engaged to carefully analyse the impact of the TSA implementation and to design a procedural implementation guide, which will suggest and incorporate both short and long-term palliatives. Addressing TSA from a governance and public finance perspective alone reveals incapacities in systemic approach to policy designs in the country.

As a result of the implementation of this policy, banks are preparing to lay off workers, which, sadly, will add to the already worse unemployment figures in the face of a contracting economy. Have we asked how quick and soon commercial banks will respond to this policy through product redesigning and service reengineering? To my mind, most commercial banks have to revisit their business model to keep themselves in business. The timing of response of the commercial banks, and the shock neutralising time range is equally important. How much of this information does the CBN have?  One would also wonder what strategy is already in place to augment the shortfall in liquidity arising from this policy.

Growth in the manufacturing sector has declined in the last two (2) quarters. What interventions are in the offing to uplift credit access to SMEs, entrepreneurs and manufacturers in serious need of funds? My concerns border around the thoroughness of the policy formulation process, a factor I believe could lead to another policy summersault, which in turn impacts on the policy integrity of the apex bank. Bearing this in mind and many other questions yet unanswered, I am not certain this policy portends well for the economy.

Seyingbo Adedotun