Public Sector Governance and Accountability Series: Budgeting and ...

310 Daniel Tommasi
Centralization of Cash Balances and the Treasury Single Account
So that borrowing costs can be minimized or interest-bearing deposits
maximized, operating cash balances should be kept to a minimum and
centralized daily where possible, and the payment system should be properly
designed. Some key features of the payment system are reviewed below,
including the treasury single account (TSA) systems, through which cash
balances are centralized efficiently.
Treasury single account principles
A TSA is an account or set of linked accounts through which the government
transacts all payments. The TSA can address weaknesses met in a number of
developing countries, where spending units maintain their own bank
accounts and the government may have hundreds or thousands of bank
accounts, which are credited with self-raised revenues or transfers from the
“consolidated fund”managed by the ministry of finance. Such arrangements
can result in idle cash balances, which are inaccessible to the ministry of
finance for cash management purposes. These idle balances increase the
borrowing needs of the government, which must borrow to finance the
payments of some agencies, while other agencies have excess cash in their
bank accounts. Operating cash balances should be kept to a minimum in
order to minimize borrowing costs or maximize interest-bearing deposits.
Also, if the accounts of spending agencies are held at a commercial bank, the
idle balances can help loosen constraints on credit, by giving the banking
sector additional resources for credit.
Within the broad concept of a TSA, there are various methods of
centralizing transactions and cash flows. The choice of method will depend
on several factors, such as the quality of the country’s technological and
banking infrastructure, as well as the nature of the control functions that are
assigned to the treasury department responsible for managing the TSA.
TSAs can be grouped very broadly into the following categories:
Centralization of payment transactions. The TSA consists of only one
central account. This type of TSA is illustrated by case 1 in figure 9.2. All
payment transactions are made through this central account. Exceptions
to this principle are limited to special cases (such as transactions of
remote agencies or through letters of credit). Within this category of TSA,
two methods of transactions control can be considered:
—Centralization of payment transactions and “active” treasury controls of
individual transactions. Requests for payment and documents justifying