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EDITORIAL: Earlier this week, a Business Recorder exclusive news report said that the ministry of finance has barred Public Sector Entities (PSEs) and local and autonomous bodies working under the federal government from depositing working balances and surplus funds in private banks. This implies that authorities had agreed on the implementation of Treasury Single Account (TSA) in their recently-concluded negotiations with the International Monetary Fund (IMF) in Doha.

Implementing TSA has been one of IMF’s conditions in the past three programmes (2008, 2013 and 2019). The concept of implementing TSA is a step in the right direction. There are advantages of knowing the daily cash flows of the government; and by having all the money in a single account, the government’s short-term borrowing needs can be reduced and a better cash management aimed at saving the domestic debt servicing cost, which is reaching alarming levels, can be successfully achieved.

TSA is not something unique to Pakistan; it is a well-known and recognised tool in public financial management to reduce costs and enhance efficiencies in the government treasury. The IMF has made this to work in different countries; and it’s been trying to get it implemented in Pakistan as well. However, the government hasn’t been able to get it done because of teething problems and banks’ reluctance to have it implemented.

In 2008, it was agreed to be implemented by June 2009; but later it was communicated to the Fund that more time is required to avert repercussions of deposit outflows from the banking system. Then by June 2010 some of the cash was transferred; but the transfer of rest of it was not possible due to restrictions from lenders and in other cases, some accounts were deemed to be strictly classified for certain purposes such as national security.

In the programme signed by the then Pakistan Muslim League-Nawaz (PML-N) government’s finance minister, Ishaq Dar, the issue was raised again. However, there was no meaningful development. Now in 2019, under the ongoing IMF programme, there were talks about implementing TSA and again it was delayed for one reason or the other.

The banks that are beneficiaries of these deposits are obviously not in favour of losing use of these funds that are there in the accounts of various government entities banking with them. The bigger loss would be to the banks that have a major chunk of public sector deposits. Apart from these, the impact would be virtually on every bank as they all compete to mobilise deposits.

It is well-known that banks pay returns to government entities on their deposits and use these funds to lend back to the government by buying government papers. In other words, banks are making spreads by using government money to lend back to the government with the result that the latter is bearing the cost of its own funds that it had released to its various entities. If the balances in all these accounts of government entities in various banks are consolidated in TSA it would obviate the need for the government to borrow its own money and incur any cost.

Needless to say that as far as the government entities (depositors) are concerned, they would continue to operate accounts with the banks in which they have their accounts without any hitch or difficulty. It is important to note that only those banks that are holding these accounts would be required to surrender these funds at the end of each working day to TSA.

This would allow the exchequer to manage funds in a manner that would significantly reduce their financial cost and also reduce their need to borrow in abundance or very large amounts. However, there is reluctance on the part of public sector entities or departments to give away the right to keep money in their respective accounts. These entities enjoy profits on these funds. Not only will they be deprived of these profits, the use of personal gratification tactics to secure deposits will also be weeded out.

There are also issues pertaining to concerns of security agencies on the secrecy of funds they possess if these are moved to TSA. They fear that the information of the quantum and use of their funds can be leaked. Such fears are unfounded as the transfer of funds to the TSA by the banks will only happen at the so-called ‘back end’; and as far as the account holders are concerned, it would not make an iota of change in the mode and ease of dealing with banks where they have these accounts. Yes there would, however, be one major difference: there will be no charm for the commercial banks to have and maintain these accounts as they would not be able to employ the funds available through these accounts gainfully.

The implementation of TSA will surely be a shocking development for traditional banking practitioners. In the ultimate analysis, there is no doubt that TSA is beneficial for the government in terms of better debt and cash flow management. It has to be carried out with care as banks would be losing big chunks of deposits that could create temporary liquidity shortages for them.

Copyright Business Recorder, 2022

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K Fareed Khan May 29, 2022 04:48am
A windfall profits tax must be levied on banks making huge free spreads risk free Parliament must wake up. Febt service is out of control and budget deficit is through the roof.
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K Fareed Khan May 29, 2022 04:51am
Syrongly suggest Business Recorder should inform writer of comments if accepted for publication. Most foreign.papers do it, even Indian.
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