## 3. Cash Balance Targeting in the TSA ## Source details **Canonical URL:** [3. Cash Balance Targeting in the TSA](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2010/_wp10143.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2010/_wp10143.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2010/_wp10143.pdf.json) --- ### Introduction - Governments should minimize borrowing costs and opportunity costs of cash by ensuring all cash received is available for expenditure programs and timely payments. - Fragmented systems leave cash idle in numerous spending-agency bank accounts while the government continues to borrow, causing: - Idle cash failing to earn market-related remuneration. - Unnecessary borrowing costs. - Extra liquidity in the banking system that the central bank must drain. - Establishing a treasury single account (TSA) improves cash management, fiscal/monetary coordination, reconciliation of fiscal and banking data, and reduces debt servicing costs. - This section draws on FAD technical assistance experience and presents rationale, models, operations, and a sequenced strategy for establishing a TSA. ### Concept, Definition, and Key Features - Definition: A TSA is a unified structure of government bank accounts that gives a consolidated view of government cash resources; it is a bank account or set of linked accounts through which the government transacts all receipts and payments. - Principle: Unity of cash and unity of treasury—transaction-level control is achieved in the accounting system, not by separate transaction-specific bank accounts. - A full-fledged TSA shares three essential features: - Unified government banking arrangement enabling ministry of finance (Mof) or treasury oversight; permits complete fungibility of all cash resources, including real-time fungibility where electronic banking exists; can contain ledger sub-accounts and accommodate external zero-balance accounts (ZBAs). - No other government agency operates bank accounts outside treasury oversight; operation options depend on institutional structures and payment settlement systems. - Consolidation should be comprehensive and encompass all government cash resources, budgetary and extra-budgetary; main TSA balance maintained at a level sufficient for daily operational requirements (sometimes with optional contingency or buffer/reserve). - Legal basis: Establishing a TSA usually requires legal recognition to ensure robustness and overcome institutional autonomy obstacles. ### Main Objectives and Benefits - Primary objective: Ensure effective aggregate control over government cash balances and minimize borrowing costs through consolidation. - Additional objectives: - Minimize transaction costs during budget execution by controlling remittance delays and enabling rapid payments. - Facilitate reconciliation between banking and accounting data. - Efficient control and monitoring of funds allocated to government agencies. - Facilitate coordination with monetary policy implementation. - Benefits: - Complete and timely information on government cash resources; with advanced payment systems and an IFMIS with banking interfaces, information can be real time; as a minimum, updated balances should be available daily. - Strengthened appropriation control and reduced fragmented augmentation of appropriations through extrabudgetary measures. - Improved operational control during budget execution by enabling efficient, transparent, and reliable planning. - More efficient cash management and higher quality cash outturn analysis. - Reduced bank fees and transaction costs by reducing the number of bank accounts and reconciliation costs. - Elimination of float and introduction of transparent fee/penalty structures; economies of scale lower transaction costs. - Improved bank reconciliation and quality of fiscal data. - Lower liquidity reserve needs by reducing cash flow volatility and allowing a smaller cash buffer. ### Custody of the TSA - Typical custody: Central bank acts as fiscal agent and usually holds the TSA main account; main account could, in theory, be held at a commercial bank. - Practical arrangements: Accounts may exist at both central and commercial banks; commercial bank balances should be cleared daily and consolidated into TSA main account at the central bank. - Advantages of central bank custody: - Safe haven for government cash deposits; minimizes credit risk exposure. - Aids efficient government liquidity management and coordination with central bank monetary operations. - Can act as clearing house for government operations and clarify remuneration policies via negotiated service level agreements. - Role delineation: Central bank need not perform retail banking for agency-specific transactions; commercial banks can handle retail operations with nightly sweeps into the central bank TSA (example: New Zealand’s single nightly sweep). - Technological enablers: Electronic banking, RTGS, and commercial banking single-window services facilitate TSA operations. ### TSA Coverage - Boundary considerations: Coverage must account for institutional and legal frameworks; some bank accounts may remain outside the TSA for geographic/banking availability reasons. - Minimum coverage: All central government entities and their transactions, including social security funds, trust funds, extra-budgetary funds (EBFs), autonomous government entities, loans from multilateral institutions, and donor aid resources. - Extension options: TSAs can be extended to subnational governments and other public institutions via correspondent accounts; if not centralized nationally, TSAs should be established at each subnational level. - Key issues when extending coverage: - Legal right to use surplus cash in trustee-managed funds to ensure cash fungibility for short-term needs. - Risk of using trust fund reserves to finance short-term deficits and neglect long-term liabilities/statutory obligations (e.g., pensions). - Separate legal status or operational autonomy of an EBF may justify operation outside the TSA. - Good practice: Include as many government-controlled trust funds and EBFs within the TSA as legally possible, provided accounting systems can distinguish trust assets in ledger accounts. - Correspondent accounts: Use where direct integration is difficult; balance autonomy claims against costs/risks of fragmentation. - Subnational inclusion: Single TSA for central and subnational governments feasible with well-developed accounting system and checks and balances; correspondent accounts must avoid central government abuse. - Public corporations: Generally not advisable to include GFSM 2001-defined public corporations in the TSA unless they discharge a government function and are designated government units. ### Covering Donor Funds within the TSA (Box 1) - Donor practice: Donors and external loan providers often require separate commercial bank accounts, contributing to fragmentation; donors unlikely to change until fiduciary concerns are addressed. - Government action: Encourage donors to integrate resources into the TSA in line with the Paris Declaration commitment to use country PFM systems. - Three options for integrating donor funds: - Converting donors’ funds into local currency on transfer to the TSA main account (best option). Identify individual donor flows via ledger sub-accounts within the TSA main account. - Opening separate foreign currency sub-accounts within the TSA (one account per foreign currency or per main donor currency) with reporting in local currency using relevant exchange rates. - Maintaining foreign currency accounts outside the TSA but bringing flows within the accounting system (weakens TSA concept but allows full accounting/reporting). - Donor concerns to be addressed: - Assurance that donor aid is used for specific projects (no diversion). - Ring-fencing to avoid liquidity problems and ensure timely payments for donor-funded projects. - Minimizing exposure to exchange-related fluctuations/losses when exchange regimes are volatile. - Reliability of controls and information produced by national PFM systems. - Country experiences: - Mozambique: e-SISTAFE increased ability to monitor donor funds; developed separate foreign currency TSA (CUT-ME) in addition to domestic TSA (CUT-MN); some donors still finance projects outside TSA due to control concerns; full integration of CUT-MN and CUT-ME not yet achieved. - West Bank and Gaza: Donor funds maintained in separate commercial bank accounts, but payments pass through the TSA at the Palestine Bank so the treasury can account/report on donor-funded payments; most donors, except the EU, agreed. - Policy recommendation: “shadow TSA arrangement” - At minimum, donors should be encouraged to route final payments through the TSA. - Description: Government accounts for and reports on donor-funded transactions as they pass through the TSA before final payments from donor commercial bank accounts. - Implementation requirements: - Framework agreement covering donors, government, central bank (managing TSA), and commercial banks. - Agreement should specify procedures, including timing and handling of donor flows and payment transactions. ### E. TSA Structure — centralized and distributed architectures - General characterization: - TSA structures broadly grouped into centralized and distributed architectures; most countries fall between these models and involve various types of bank accounts. - Purely centralized arrangement: - All revenue and expenditure transactions pass through a single account, generally at the central bank. - Highly decentralized arrangement: - Line agencies may retain separate transaction accounts; balances in transaction accounts should be swept into the TSA main account at the end of each day. - Degree of decentralization linked to authority to access and operate government bank accounts. - Variants: - Single bank account at central bank operated by centralized authority or by budget institutions with ledger tracking in IFMIS. - Linked bank accounts outside TSA main account with automatic end-of-day sweeps into TSA (e.g., Sweden). - Special ledger and ring-fencing: - Sub-accounts and comprehensive treasury ledger system required to track and report ring-fenced donor or trust fund flows. ### Box 2 — Various Types of Bank Accounts under a TSA System - Types of bank accounts: - TSA main account: treasury’s account with the central bank consolidating government cash position; all receipts finally flow in and disbursements met from it. - TSA subsidiary accounts/sub-accounts: accounting-only sub-accounts within main TSA to provide distinct ledger identity for budget organizations. - Transaction accounts: separate government bank accounts for retail operations or specific operations (could be ZBA or imprest); may have cash disbursement limits monitored by the bank. - Zero-balance accounts (ZBAs): end-of-day balances swept back to TSA main account periodically (preferably daily); commercial bank honors agency payments and is reimbursed by TSA overnight. - Imprest accounts: hold cash up to an authorized amount and are recouped periodically; necessary where limited interbank settlement exists; should be minimized and transformed into ZBAs. - Transit accounts: serve as transit for eventual flow into TSA main account; useful for monitoring major revenue streams and revenue sharing. - Correspondent accounts: ledger account opened for each correspondent (e.g., subnational government) with safeguards to ensure funds for timely budget implementation. - Operational and organizational considerations: - Delegation of budget authority independent of TSA structure. - Central units of ministries advised to replace separate bank accounts with a single account (with or without sub-accounts). - For regional units, payment system organization must account for country context/infrastructure. - Imprest accounts with non-zero balances violate TSA principle and should be discouraged (example: Indonesia transformed about 32,000 line ministry imprest accounts into TSA with zero-balancing). ### Transaction Processing Models under a TSA - Feasibility depends on banking and government technological development (including IFMIS) and reliable communications. - Two primary transaction processing models (can be associated with centralized or distributed architectures): - Centralized transaction processing model - Treasury concentrates authority to process transactions and operate TSA. - Budget institutions submit payment requests to treasury before payments. - Advantages: synergy between cash management and expenditure control; immediate reporting in manual environments. - Risks: potential inefficiencies, high transaction costs, potential for corruption if controls inadequate. - Treasury maintains individual spending-agency ledger accounts internally; reconciliations needed when agencies retain accounting. - Decentralized payment and accounting model - Each budget institution processes its own transactions and operates its bank account under TSA. - Treasury sets cash limits (monthly/quarterly) but does not control individual transactions. - Authority to make commitments granted periodically (generally each quarter); cash limits often set monthly. - Requires efficient communications and interbank settlement for netting balances; ZBAs with automatic end-of-day sweeps are a common variant. - Challenges: sweeping large numbers of accounts across banks may be difficult; requires fast electronic clearing and ideally an RTGS. - Centralized model specifics: - Agencies prepare payment requests sent to a central treasury payment unit for control and execution; central unit manages float and processes inflows/outflows to ledger accounts. - Decentralized model specifics: - Agencies make payments directly to suppliers; treasury enforces centralized cash control via cash limits on agency accounts; requires electronic links among spending agencies, central bank, commercial banks, and treasury. ### Receipts, Payments, and Accounting Processes under a TSA - Revenue collection: - Commercial banks commonly used for revenue collection on fee-for-service basis. - International best practice: banks transfer revenues collected to the TSA main account on the same day. - Fees usually established through competitive bidding; RTGS presence can reduce fees. - Some countries remunerate banks by allowing a float (example: Colombia allows collectors to retain revenues for 15 days). - Revenue circuit: taxpayer → transit account in commercial bank → automatic remittance to TSA at intervals → bank submits daily account statement to tax authority and treasury for reconciliation. - Payment disbursement: - Objectives: timely, cost-effective payments and reduced fraud/theft opportunities. - Computerized treasury systems (IFMIS) and advanced communications allow electronic fund transfers from TSA directly to beneficiaries, reducing delays and idle balances. - Direct deposits (salaries, pensions) are efficient and less prone to fraud. - Checks provide paper trail but cause delays, float, fraud risk, and higher costs; electronic payments require strong internal controls. - Practices: - Large payments via direct bank transfer; smaller payments via checks issued on ZBAs settled against TSA. - Centralized procedure: spending units submit payment orders (POs) to treasury; treasury checks and processes payments via interbank systems. - ZBA models: treasury authorizes cash limits on ZBAs at commercial banks; bank makes payments within limits and is reimbursed from TSA. - Decentralized payments via ZBAs: agencies verify POs and submit to commercial banks; treasury enforces cash disbursement limits notified to banks and agency payment controllers. - When taxpayers may remit at any bank, recommend unit price per electronic transaction and penalties for delays in transfer to TSA. - Accounting through a treasury ledger system (TGL/IFMIS): - Government accounting should record all transactions independently of bank account structures. - IFMIS typically includes a TGL with layers of sub-accounts for receipts, payments, financing, and surplus cash placement. - Implementation issues: - Loss of financial information if agency bank accounts closed; chart of accounts coding should be reviewed and expanded. - Changes to accounting processes and redistribution of roles may be required; bank reconciliation responsibilities depend on TSA structure. - TGL module capabilities should include recording all cash transactions, continuous tracking of cash in bank accounts, transfers to outside accounts, reconciliation of daily postings with TSA cash movements, and preparing summary statements. - IFMIS enhances TSA efficiency; conceptual interface between TSA and transaction/accounting systems should be addressed at IFMIS design stage. - Electronic fund transfer (EFT) enables movement toward direct payments from TSA for large-value or regular transactions (wages). - Bank reconciliation: - TSA facilitates full reconciliation between government accounting systems and central/commercial bank cash flow statements, usually through automated mechanisms. - Banks should submit daily account statements to tax administration and treasury for reconciliation. - Electronic linkage recommended to enable automatic reconciliation. ### Cash and Liquidity Management - TSA regime should be supplemented by proactive cash management including forward cash planning and strategies for remunerating temporary surpluses and financing temporary needs. - Objective: reduce average government cash balances to a minimum consistent with unexpected variations, avoid unnecessary borrowing, and maintain stable liquidity. - Instruments for surplus placement or short-notice access to funds are needed; many developing countries and LICs lack developed short-term government securities markets or arrangements with commercial banks for short-notice lending. - Development of active cash balance targeting policy is a long-term objective. - Once TSA and target balance set, strategy should cover options for short-term and longer-term investments. - Options for longer-term idle cash investments include: - interest-bearing fixed deposits of specific duration at the central bank; - interest on the treasury operational account; - deposits at commercial banks; - sovereign wealth funds. - Choice depends mainly on how long assets need to be retained. ### Box 3 — Cash Balance Targeting in the TSA - Overview: - Many advanced countries target cash balances through the TSA; instruments and methods vary. - Rough tuning vs. fine tuning: - Rough tuning uses T-bills or other short-term borrowing to offset government cash flows’ impact on central bank balance sheet. - Fine tuning uses a greater number of instruments to accurately target daily cash balances. - Examples of fine tuning: - Euro zone: member countries manage balances at national central banks to offset government cash flows’ impact on ECB operations. - Sweden and the U.K. have adopted similar fine tuning approaches. - Instruments used: - T-bills; Commercial bills; Special “cash management” bills (e.g., U.S. practice); Repos; Collateralized deposits; Committed loan facilities at commercial banks. - Examples of target balances: - France: Daily target balance of €100 million, compared with average gross intraday cash flows of over €22 billion (2006). - Sweden: Zero target adopted as a matter of policy. - United Kingdom: Moved from a daily target of £200 million to a weekly target agreed between the U.K. Debt Management Office and the Bank of England (change following 2006 monetary policy operations change). - Operational and institutional arrangements: - Money market operations for managing TSA balances can be handled by a specialized unit within the MoF or by a fiscal agency agreement with the central bank. - In developing countries, MoFs/treasuries often lack money market expertise and let the central bank handle operations. - Market transactions performed by central bank as fiscal agent must be transparently distinguished from monetary policy operations. ### Selected country operational examples (highlights from APPENDIX I) - France: Fully centralized TSA at Banque de France; AFT actively manages TSA and invests/borrows in money markets to maintain a low stable end-of-day balance; daily target example noted in Box 3 (France: €100 million target; €22 billion gross intraday flows (2006)). - United Kingdom: Fully centralized architecture; Government Banking Service (GBS) contracts to commercial banks; end-of-day sweeps into a single DMA account; historic target shift from £200 million to weekly target. - New Zealand: Fully centralized architecture; Crown Settlement Account (CSA) at RBNZ operates as TSA; commercial banks provide retail services with net daily sweeps. - India: TSAs at federal and state levels; TSA main account at Reserve Bank of India supplemented by subsidiary ledger accounts; transaction banking by commercial banks with ZBAs offset end-of-day. - Indonesia: 2007 regulations rationalized accounts; census revealed 39,500 government bank accounts; some 6,000 accounts closed by mid-2009; zero-balancing implemented for revenue accounts in 2009; IFMIS (SPAN) under development. - Peru: TSA managed by main public commercial bank (Banco de la Nación); an estimated 80% of total subnational government budget allocated through the TSA in 2009. - Colombia: Treasury manages more than 200 central bank accounts; collectors retain public funds for 14 days as remuneration; SIIF II IFMIS implementation challenges remain. - Other country notes illustrate variation in centralization, role of commercial banks, and IFMIS availability. *Source: _wp10143 - 3. Cash Balance Targeting in the TSA (IMF)._* ### Introduction ........................................................................................................... ### _wp10143 - Introduction ........................................................................................................... ### I. Concept, Coverage, and Design - A. Definition and Key Features .....................................................................................5 - B. Main Objectives and Benefits ...................................................................................6 - C. Custody of the TSA ...................................................................................................7 - D. TSA Coverage ...........................................................................................................9 - E. TSA Structure ..........................................................................................................12 - F. Transaction Processing under a TSA System ..........................................................15 ### II. Receipts, Payments, and Accounting Processes under a TSA System - A. Revenue Collection .................................................................................................19 - B. Payment Disbursement ............................................................................................20 - C. Accounting Through a Treasury Ledger System ....................................................24 - D. Cash and Liquidity Management ............................................................................26 ### III. Establishing the TSA - A. Design .....................................................................................................................28 - B. Preconditions ...........................................................................................................29 - C. Implementation Issues .............................................................................................31 ### IV. Conclusions - Conclusions ..................................................................................................................32 ### V. References - References ....................................................................................................................45 ### Boxes - 1. Integrating Donor Funds Within the TSA ...................................................................12 - 2. Various Types of Bank Accounts under a TSA System ..............................................14 *Source: _wp10143 - Introduction ...........................................................................................................* ### 3. Cash Balance Targeting in the TSA .............................................................................27 ### 3. Cash Balance Targeting in the TSA ### Introduction - Government banking arrangements should minimize the cost of government borrowing and maximize the opportunity cost of cash resources by ensuring all cash received is available for expenditure programs and timely payments. - Many emerging market and low-income countries have fragmented systems that leave cash idle in numerous bank accounts held by spending agencies while the government continues to borrow. - Costs of fragmented cash holdings include: idle cash failing to earn market-related remuneration; unnecessary borrowing costs; and extra liquidity in the banking system that the central bank must drain. - Establishing a treasury single account (TSA) addresses these problems, improving cash management, fiscal/monetary coordination, reconciliation of fiscal and banking data, and reducing debt servicing costs. - This section draws on FAD’s technical assistance experience and presents rationale, models, operations, and a sequenced strategy for establishing a TSA. ### Concept, Definition, and Key Features - Definition: A TSA is a unified structure of government bank accounts that gives a consolidated view of government cash resources; it is a bank account or set of linked accounts through which the government transacts all receipts and payments. - Principle: Unity of cash and unity of treasury—transaction-level control is achieved in the accounting system, not by separate transaction-specific bank accounts. - A full-fledged TSA shares three essential features: - First, unified government banking arrangement enabling ministry of finance (Mof) or treasury oversight of government cash flows, permitting complete fungibility of all cash resources, including real-time fungibility where electronic banking exists; a TSA can contain ledger sub-accounts in a single banking institution and accommodate external zero-balance accounts (ZBAs). - Second, no other government agency operates bank accounts outside treasury oversight; access/operation options depend on institutional structures and payment settlement systems. - Third, consolidation should be comprehensive and encompass all government cash resources, both budgetary and extra-budgetary; all public monies should be brought under TSA control. The TSA main account balance is maintained at a level sufficient to meet daily operational requirements (sometimes with an optional contingency or buffer/reserve). - Legal basis: Establishing a TSA usually requires legal recognition to ensure robustness and to overcome institutional autonomy obstacles. ### Main Objectives and Benefits - Primary objective: Ensure effective aggregate control over government cash balances and minimize borrowing costs through consolidation. - Additional objectives: - Minimize transaction costs during budget execution by controlling remittance delays and enabling rapid payments. - Facilitate reconciliation between banking and accounting data. - Efficient control and monitoring of funds allocated to government agencies. - Facilitate coordination with monetary policy implementation. - Benefits (enumerated): - Allows complete and timely information on government cash resources; with advanced payment systems and an IFMIS with banking interfaces, information can be real time; as a minimum, updated balances should be available daily. - Improves appropriation control by strengthening MoF authority over budget allocations and reducing fragmented augmentation of appropriations through extrabudgetary measures. - Improves operational control during budget execution by enabling efficient, transparent, and reliable planning when treasury has full information on cash resources. - Enables efficient cash management and higher quality cash outturn analysis (identifying causal factors of variances). - Reduces bank fees and transaction costs by reducing the number of bank accounts and reconciliation costs. - Facilitates efficient payment mechanisms, elimination of float, and introduction of transparent fee/penalty structures; economies of scale can substantially lower transaction costs. - Improves bank reconciliation and quality of fiscal data by enabling effective reconciliation between accounting systems and banking cash flow statements. - Lowers liquidity reserve needs by reducing cash flow volatility through the treasury and allowing a smaller cash buffer. ### Custody of the TSA - Typical custody: The central bank acts as fiscal agent and usually holds the TSA main account, though in theory the main account could be held at a commercial bank. - Practical arrangements: Government banking arrangements may include accounts at both the central bank and commercial banks; balances in commercial banks should be cleared daily and consolidated into one TSA main account at the central bank. - Advantages of central bank custody: - Provides a safe haven for government cash deposits and minimizes credit risk exposure. - Aids efficient government liquidity management and coordination with central bank monetary operations. - Can facilitate cost-effective banking arrangements and speedy settlements (central bank may act as clearing house for government operations). - Clarifies banking arrangements and remuneration policies via a negotiated service level agreement when the central bank acts as clearing house. - Role delineation: The central bank need not perform retail banking for agency-specific transactions; commercial banks can handle retail operations with nightly sweeps into the central bank TSA (example: New Zealand’s single nightly sweep). - Technological enablers: Electronic banking, payment clearing systems, interbank settlement systems such as Real Time Gross Settlement System (RTGS), and commercial banking single-window services facilitate TSA operations. ### TSA Coverage - Boundary considerations: TSA coverage must consider institutional and legal frameworks; some bank accounts may remain outside the TSA for geographic or banking availability reasons. - Minimum coverage: All central government entities and their transactions, including social security funds, trust funds, extra-budgetary funds (EBFs), autonomous government entities, loans from multilateral institutions, and donor aid resources. - Extension options: TSAs can be extended to subnational governments and other public institutions via correspondent accounts; if not centralized at the national level, TSAs should be established at each subnational level. - Key issues when extending coverage: - Legal right to use surplus cash in trustee-managed funds (social security, pension, trust funds) to ensure cash fungibility for short-term needs. - Risk that government could use trust fund reserves to finance short-term deficits and neglect long-term liabilities/statutory obligations (e.g., pensions). - Separate legal status or operational autonomy of an EBF may justify operation outside the TSA. - Good practice: Include as many government-controlled trust funds and EBFs within the TSA as legally possible, provided accounting systems can accurately distinguish trust assets in ledger accounts. - Correspondent accounts: May be used where direct integration is difficult; balance autonomy claims against costs/risks of fragmented public fund management. - Subnational inclusion: A single TSA for central and subnational governments is feasible if supported by a well-developed accounting system and checks and balances; correspondent accounts can consolidate surpluses/deficits but must avoid central government abuse. - Public corporations: Generally not advisable to include public corporations (as defined in GFSM 2001) in the TSA because it may limit operational independence and blur government/broader public sector boundaries. Exceptions: if a public corporation discharges a government function, it should be designated a government unit and integrated with the budget and TSA. ### Covering Donor Funds within the TSA - Donor practice: Donors and external loan providers often require separate commercial bank accounts, contributing to fragmentation; donors are unlikely to change until fiduciary concerns are addressed. - Government action: Encourage official donors to integrate resources into the TSA in line with the Paris Declaration commitment to use country PFM systems. - Three options for integrating donor funds: - Converting donors’ funds into local currency on transfer to the TSA main account (best option). TSA can identify individual donor flows via ledger sub-accounts within the TSA main account. - Opening separate foreign currency sub-accounts within the TSA (one account per foreign currency or per main donor currency) with reporting in local currency using relevant exchange rates. - Maintaining foreign currency accounts outside the TSA but bringing flows within the accounting system (weakens the TSA concept and increases administrative processes but allows full accounting/reporting of donor flows). - Donor concerns to be addressed to facilitate integration: - Assurance that donor aid is used for specific projects (no diversion). - Ring-fencing to avoid liquidity problems and ensure timely payments for donor-funded projects. - Minimizing exposure to exchange-related fluctuations/losses when exchange regimes are volatile. - Reliability of controls and information produced by national PFM systems. *Source: 3. Cash Balance Targeting in the TSA* ### Box 1. Integrating Donor Funds Within the TSA ### Box 1. Integrating Donor Funds Within the TSA ### Mozambique: integration experience and limitations - Following the implementation of an integrated financial management system (called e-SISTAFE), the government has a more effective tool to monitor the use of donor funds. - The emergence of this new tool has increased the willingness of Mozambique’s development partners to provide funding in the form of general budget support instead of using exclusively sector-specific or project-specific financing. - The e-SISTAFE has enabled the government to link donor funding to specific projects and track and report on project-specific disbursements. - The government recently developed a separate foreign currency TSA (CUT-ME) in addition to the domestic currency TSA (CUT-MN). This is a first step to full integration of donor-funded operations into e-SISTAFE. - Constraints: - Some donors have concerns about the internal controls and safeguards provided by e-SISTAFE and the reliability of the reports generated by the system, and have chosen to continue financing their projects outside the TSA. - A full integration of both CUT-MN (in domestic currency) and CUT-ME (in foreign currency) is yet to be achieved. ### West Bank and Gaza: a “third option” approach - The arrangement in West Bank and Gaza conforms more or less to the third option discussed above. - Donor funds are maintained in separate bank accounts at the Arab Bank, but payments out of these accounts pass through the TSA at the Palestine Bank so that the treasury is in a position to account for and report on all such payment transactions made out of donor funds. - Most of the donors, except the EU, have agreed to this arrangement. ### Policy recommendation: “shadow TSA arrangement” - At a minimum, donors should be encouraged to route final payments through the TSA. - Description: - This could be called a “shadow TSA arrangement,” since the government is able to account for and report on all donor-funded transactions as they pass through the TSA and before final payments are made to suppliers, beneficiaries, etc., from the respective donor bank accounts with commercial banks. - Implementation requirements: - Need for a framework agreement covering the respective donors, government, central bank (which manages the TSA), and the respective commercial banks (managing donors’ bank accounts). - The agreement should specify the procedure, including how the donor flows and payment transactions are to be handled, including their timing. ### E. TSA Structure — centralized and distributed architectures - General characterization: - Although there are several variants of the TSA structure that conform to the objectives discussed above, they can be broadly grouped into two categories: centralized and distributed TSA architectures. - The TSA systems established in most countries fall somewhere in between these two models and involve various types of bank accounts as detailed in Box 2 below. - Purely centralized arrangement: - A purely centralized arrangement is one in which all revenue and expenditure transactions of the government pass through a single account generally maintained with the central bank. - Highly decentralized arrangement: - A TSA could be virtually operational even though line agencies—down to the lowest level in the organizational hierarchy—are allowed to retain separate transaction accounts in the banking system. - In this case, balances in all transaction accounts should be swept into the TSA main account at the end of each day. - Degree of decentralization linked to authority: - The degree of decentralization of a TSA structure is linked to the authority of various entities to access and operate the government bank accounts. - Variants in account operation: - In some countries, the TSA is composed of a single bank account (sometimes with subsidiary ledger accounts) at the central bank, which is operated either by a centralized authority (such as the treasury and its regional units) or by a number of budget institutions. In the latter case, each budget institution’s transactions are tracked, accounted for, and managed through a well developed general ledger system. - Other countries (e.g., Sweden) have several linked bank accounts outside the TSA main account—with their balances automatically swept off at the end of each day. Features described: - (i) Accounts for individual spending agencies are opened either at the central bank, or with commercial banks; in both cases, the accounts must be authorized by the minister of finance. - (ii) These accounts are zero-balance accounts, with money being transferred to the accounts as specific approved payments are made. - (iii) The balances in the accounts are automatically swept at the end of each day (where the banking infrastructure allows daily clearing) to the TSA main account. - (iv) The central bank consolidates the balances in all the government accounts at the end of each day. - Special ledger and ring-fencing considerations: - Special ledger arrangements may be required where authority to operate government bank accounts is centralized, particularly if some entities have legal authority to retain self-generated funds, or if there are legal requirements that the funds of social security institutions be maintained separately from other funds. - Sometimes, multilateral and/or bilateral donors, even if they agree to manage their aid resources through the TSA, may request that such arrangements be set up in order to ring-fence the loans or grants they provide. - This would require sub-accounts within the TSA and/or the development of a comprehensive treasury ledger system to track, account for, and report on specific flows through the bank accounts. *Source: _wp10143 - Box 1. Integrating Donor Funds Within the TSA (IMF PDF).* ### Box 2. Various Types of Bank Accounts under a TSA System ### _wp10143 - Box 2. Various Types of Bank Accounts under a TSA System ### Types of bank accounts under a TSA - TSA main account - The treasury’s account with the central bank which consolidates the government’s cash position. - All government receipts finally flow into, and all disbursements are met from, the central TSA account. - Cash balances in all other linked accounts are swept into this account. - TSA subsidiary accounts or sub-accounts - Special sub-accounts within the main TSA account (an accounting arrangement, not separate cash-holding bank accounts). - Allow distinct accounting identity/ledger for budget organizations (line ministries/agencies). - Cash disbursement ceilings for each entity can be enforced against these ledgers; balances are netted off with the TSA main account. - Transaction accounts - Separate government bank accounts justified for retail transaction banking operations for entities without direct access to the TSA main account or subsidiary account, and/or for specific categories of operations (e.g., special funds). - Could take the form of a zero-balance account or an imprest account. - Possible to impose a cash disbursement limit for the concerned agency; monitored by the bank. - Zero-balance accounts (ZBAs) - End-of-the-day cash balances are swept back into the TSA main account periodically (preferably daily). - Used in commercial banks for disbursements or revenue collection (particularly nontax revenues). - Commercial bank honors agency payments and is reimbursed by the TSA overnight. - Bypass the normal interbank settlement process for each transaction, ensuring same-day settlement on a net basis. - Similar to special credit line arrangements; provide spending credits to agencies to be reimbursed by the TSA. - Imprest accounts - Transaction accounts that can hold cash up to a maximum authorized amount and are recouped from time to time. - Necessary in some contexts with limited interbank settlement facilities. - Number should be kept to a minimum; strategy is to progressively transform these accounts into zero-balance accounts. - Cash-holding imprest accounts should not be opened to bypass normal budget execution procedures (including required ex ante control for authorizing payments). - Transit accounts - Serve as transit for eventual flow of cash into the TSA main account. - Useful for major revenue streams to monitor collection and remittance by the banking system. - Facilitate revenue sharing between tiers of government in a federal system in line with constitutional/legal requirements. - Objective could also be met by developing a treasury ledger for the purpose. - Correspondent accounts - A separate ledger account opened for each correspondent; correspondent has real-time information on balances it maintains in the TSA. - Safeguards should ensure each correspondent government is provided funds needed for timely budget implementation. - The central bank has the obligation to make payments to the extent of the balances available in a correspondent’s account. ### Operational and organizational considerations - Delegation of budget authority to line ministries and spending units is independent of the TSA structure. - TSA works across very different country circumstances; in many developed countries, spending agency autonomy coexists with end-of-day electronic sweeps into the TSA. - Government banking arrangements should consider impact on financial management within spending agencies and cost-effectiveness. - Central units of line ministries/departments are generally advised to replace separate bank accounts with a single account (with or without sub-accounts). - For regional deconcentrated units, payment system organization must account for country context and infrastructure. - Imprest accounts with non-zero balances violate the TSA principle and their use should be actively discouraged (example: Indonesia’s integration of about 32,000 line ministry imprest accounts into the TSA with zero-balancing at end of the day). ### Transaction processing models under a TSA - Feasibility depends on banking and government technological development (including IFMIS) and reliable communications network. - Two primary transaction processing models (each can be associated with centralized or distributed TSA architecture): - Centralized transaction processing model - Concentration of authority at the treasury to process transactions and operate the TSA. - Treasury (possibly with regional treasuries) provides payment services for spending agencies and exclusively operates the TSA main account and transaction accounts. - Budget institutions submit payment requests to the treasury before making payments. - Examples: centralized TSA structure (Brazil and France) and distributed TSA structure (United Kingdom) using centralized transaction processing. - Advantages: synergy between cash management and expenditure control; capability for immediate reporting in manual environments. - Risks: potential inefficiencies, high transaction costs, and potential for corruption if control systems are inadequate. - Treasury maintains individual spending-agency ledger accounts internally (not visible to banking system); reconciliations needed when some accounting remains at agencies. - Decentralized payment and accounting model - Each budget institution processes its own transactions and operates its respective bank account under the TSA system. - Treasury sets cash limits—monthly or quarterly—but does not control individual transactions. - Authority to make commitments granted periodically (generally each quarter) by the budget office; cash limits often set monthly by the treasury. - Example: centralized TSA + decentralized processing (India: single Reserve Bank of India account supplemented by subsidiary ledger accounts); distributed TSA + decentralized processing (Sweden: decentralized institutions have transaction accounts at one or more banks). - Combining distributed TSA structure with decentralized processing requires efficient communications and interbank settlement for netting balances. - Variant: TSA sub-accounts for line ministries and ZBAs for individual spending agencies; ZBAs swept automatically at end of each day where banking sector allows. - Challenges: sweeping large numbers of accounts across banks may be difficult; requires fast electronic clearing and ideally an RTGS system. - Centralized model specifics - Individual agencies prepare payment requests sent to a central treasury payment unit for control and execution. - Central payment unit manages float of outstanding invoices and processes all inflows/outflows to appropriate ledger accounts. - Clear procedures needed to harmonize and reconcile accounts maintained by spending agencies and central payment unit. - Decentralized model specifics - Agencies process and make payments directly to suppliers; treasury enforces centralized cash control through cash limits on agency accounts. - Model makes agencies responsible for internal control and management while treasury retains central cash control. - Requires electronic links between spending agencies, central bank, commercial banks, and treasury for efficiency. ### Receipts, payments, and accounting processes under a TSA - Revenue collection - Commercial banks commonly used for revenue collection on a remuneration (fee-for-service) basis. - International best practice: banks transfer revenues collected to the TSA main account on the same day. - Fees usually established through competitive bidding; where RTGS exists, fees can be negotiated and reduced. - Some countries remunerate banks by allowing a float for a few days (example: Colombia allows collectors to retain revenues for 15 days). - Revenue circuit: taxpayer → transit account in commercial bank → automatic remittance to TSA at intervals (end of business day or more frequently with RTGS) → bank submits account statement daily to tax authority and treasury for reconciliation. - Payment disbursement - Objectives: timely, cost-effective payments and reduced opportunities for fraud and theft. - Manual or semi-automated treasuries imply slow payment processes with regional/local office involvement. - Computerized treasury systems (IFMIS) and advanced communications allow electronic fund transfers from the TSA directly to beneficiaries, reducing delays and idle balances. - Direct deposits (salaries, pensions) are efficient and less prone to fraud. - Checks provide a paper trail but cause delays, float, fraud risk, and higher costs; electronic payments require strong internal controls (passwords, restricted access/authorization). - Practice: large payments via direct bank transfer; smaller payments via checks issued on ZBAs which are settled against the TSA and reconciled. - Centralized payments procedure: spending units submit payment orders (POs) to treasury; treasury checks and processes payments from TSA through interbank systems to recipient commercial bank accounts. - Centralized payments via ZBAs: treasury authorizes cash limits on ZBAs at commercial banks; bank makes payments within limits and is reimbursed from the TSA. - Decentralized payments via ZBAs: spending agencies verify POs and submit to commercial banks; treasury enforces total cash disbursement limits on each ZBA; limits notified to banks and agency payment controllers. - When taxpayers may remit at any bank, remuneration strategies differ (unit price per electronic transaction recommended); penalties should be charged for delays in transfer of government funds to the TSA. - Accounting through a treasury ledger system (TGL/IFMIS) - Government accounting system should record all transactions and capture relevant information independently of specific bank account cash flows. - In manual environments, absence of a comprehensive treasury ledger often means information is derived from bank account structures. - IFMIS typically includes a TGL with layers of sub-accounts for receipts, payments, financing, and surplus cash placement. - Two issues when implementing a TSA: - Important financial information may be lost if agency bank accounts are closed; chart of accounts coding should be reviewed and expanded where necessary to capture geographical/organizational information. - Implementation may require changes to accounting processes and redistribution of accounting roles/responsibilities between treasury, ministries, and agencies; bank reconciliation responsibilities depend on TSA structure. - TGL module capabilities (IFMIS) should include: - Recording all payments and cash transactions (transfers among accounts, transfers to deposit accounts and other investment actions, transfers to the TSA main account, etc.). - Continuous tracking of cash in bank accounts. - Transferring cash to bank accounts outside the TSA system (e.g., petty cash, salaries, pensions). - Reconciliation of daily postings in the TGL and subsidiary ledgers with TSA cash movements, including daily and monthly reconciliation of bank accounts (such as ZBAs) of line agencies. - Preparing summary statements of transactions for reporting and monitoring. - An IFMIS enhances TSA efficiency but feasibility (especially for decentralized arrangements) depends on banking system and government technological development, communications, capacity building, and maintenance planning. - Conceptual interface design between TSA and transaction processing/accounting systems should be addressed at IFMIS design stage. - Electronic fund transfer (EFT) enables movement toward direct payments from the TSA main account for large-value payments or regular large-quantity transactions (wages). - Bank reconciliation - TSA facilitates full reconciliation between government accounting systems and central/commercial bank cash flow statements, usually through automated mechanisms. - Each bank involved should submit daily account statements to tax administration and treasury for reconciliation with taxpayer records and the TGL. - Parallel reconciliation streams: agency-level checks issued vs. checks paid by banks; treasury receipts from banks vs. checks paid by taxpayers; cash balances in banks netted against spending-agency transactions. - Electronic linkage among treasury, central bank, and commercial banks is recommended to enable electronic receipt of bank statements and automatic reconciliation. - Cash and liquidity management - TSA regime should be supplemented by proactive cash management, including forward cash planning and strategies for remunerating temporary surpluses and financing temporary needs. - Objective: reduce average government cash balances to a minimum consistent with unexpected variations, avoid unnecessary borrowing, and maintain stable liquidity. - Many advanced countries target a minimum TSA balance (see Box 3 in source); successful targeting neutralizes fiscal transactions for money market/monetary policy purposes. - Instruments for surplus placement or short-notice access to funds are needed; many developing countries and LICs lack developed short-term government securities markets or arrangements with commercial banks for short-notice lending. - Development of active cash balance targeting policy is a long-term objective. - Once TSA and target balance set, strategy should cover options for short-term and longer-term investments. - Options for longer-term idle cash investments include: (i) interest-bearing fixed deposits of specific duration at the central bank; (ii) interest on the treasury operational account; (iii) deposits at commercial banks; and (iv) sovereign wealth funds. Choice depends mainly on how long assets need to be retained. *Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2010/_wp10143.pdf* ### Box 3. Cash Balance Targeting in the TSA ### Box 3. Cash Balance Targeting in the TSA ### Overview - Many advanced countries have introduced a system of targeting cash balances through the TSA. - Instruments and methods used to achieve cash balance targeting vary considerably. ### Rough tuning vs. fine tuning - Rough tuning: - Uses treasury bills (T-bills) or other short-term borrowing instruments. - Aims at offsetting the impact of government cash flows (in and out of the market) on the balance sheet of the central bank. - Fine tuning: - Relies on more active policies using a greater number of instruments to accurately target daily cash balances on the TSA. ### Where fine tuning has been applied - Euro zone: - Operation of monetary policy by the European Central Bank (ECB) requires member countries to manage their balances at the national central bank to a target figure so that the potential impact of government cash flows on monetary conditions is offset within the banking sector and does not have to be taken into account in the ECB’s monetary policy operations. - Other examples: - Sweden and the U.K. have adopted similar approaches to fine tuning. ### Instruments used for cash balance targeting - Examples of instruments used: - T-bills - Commercial bills - Special “cash management” bills (e.g., U.S. practice — issued for debt financing purposes and can be issued at short notice if a significant cash outflow is expected) - Repos - Collateralized deposits - Committed loan facilities at commercial banks ### Examples of target balances - France: - Daily target balance of €100 million, compared with average gross intraday cash flows of over €22 billion (2006). - Sweden: - Zero target adopted as a matter of policy. - United Kingdom: - Following a change in monetary policy operations in 2006, moved from a daily target of £200 million to a weekly target agreed between the U.K. Debt Management Office and the Bank of England. ### Operational and institutional arrangements - Money market operations for managing TSA cash balances can: - Be handled by a specialized unit within the MoF, or - Be handled by a fiscal agency agreement with the central bank. - In developing countries: - MoFs/treasuries often lack the expertise for money market operations and tend to let the central bank handle this task on their behalf (money market operations are a usual central bank activity, performed as part of its monetary operations). - Important operational principle: - Market transactions performed by the central bank as fiscal agency must be transparently distinguished from any monetary policy operations. *Source: Box 3. Cash Balance Targeting in the TSA* ### APPENDIX I. ### APPENDIX I. ### OECD COUNTRIES — Country examples and arrangements - France - Description: France has a well developed TSA at the central bank (Banque de France). The TSA includes the balances of local authorities, municipalities, and quasi-governmental bodies as well as of central government revenue and spending departments (including overseas authorities). Social security funds are managed by public accountants (under the Direction Generale des Finances Publiques, DGFIP), but not by the treasury. They are not held in the TSA, but in a state-owned savings bank. Cash (and debt) management is the responsibility of Agence France Trésor (AFT), which is an agency of the French Treasury, which in turn is part of the Ministry of Economy, Finance and Industry. AFT actively manages the TSA, and has developed a cash flow forecasting capability accordingly. It invests (and if necessary borrows) surplus funds in the money markets, with a view to maintaining a low and stable end of day balance in the TSA and ensuring the best return on the investment of surplus cash. AFT operates a centralized payment system. The spending agencies make expenditure commitments and forward payment requests to one of the nearly 4500 regional treasuries. Payments are made from the regional sub-accounts of the TSA. Closing balances in the sub-accounts are swept into the TSA in real time. The government does not use accounts with commercial banks. Historically, the coverage of the French Treasury (Trésor) has been very broad compared to treasuries in other OECD countries. It extended beyond the general government and covered other public entities including state-owned enterprises (SOEs). The Trésor also received deposits from the public. Government cash management in France refers to the management by the AFT of all cash flows that are brought to account in the TSA at the Banque de France. All central government cash flows (including investment flows) and financing transactions are included, with only very marginal exceptions.2 It also includes the cash flows of “treasury correspondents”; these are the regional and local governments, public establishments and businesses which, by virtue of legislative obligations or convenience, keep an account within the TSA. While movements in the accounts of treasury correspondents do not directly concern the central government from a control perspective, they do have a direct impact on the TSA, and therefore they affect the AFT’s cash management task. Under recent reforms, however, the coverage of the TSA has been steadily shrinking. During 2002, the “Trésor public” stopped receiving deposits from the public, and removed the SOEs and Postal department from its purview. Apart from the main government flows, currently only major extra-budgetary funds like social security are managed by the Trésor. Social security funds are not held in the TSA, but in the Caisse des Depots et Consignations, a state-owned savings bank. However, the scope of the TSA remains very broad and avoiding its shrinking is part of the structural commitment to optimize government debt. - Coverage: National and regional/local governments and quasi-governmental bodies. Social Security Fund is managed by the treasury, but held in a state-owned savings bank - Degree of Centralization: Fully centralized architecture, with regional sub-accounts of the TSA - Role of Commercial Banks: No involvement - Availability of IFMIS: IFMIS, including an interface with the central bank for TSA operation - United Kingdom - Description: All central government cash balances are aggregated into a TSA maintained at the central bank. There are no extra-budgetary funds that are outside the system. Local authorities and SOEs are outside the central system and hold their cash balances in the commercial banking system. The two main central government funds are the Consolidated Fund (CF) and the National Loans Fund (NLF). If the CF has a surplus, this is automatically transferred to the NLF to reduce its need to borrow, and vice versa. The NLF formally borrows money for the government and funds lending to local authorities. The Debt Management Account (DMA), which is managed by the U.K. Debt Management Office (DMO), is used to balance any daily surplus or deficit in the NLF. The CF receives the proceeds of general taxation and other receipts. It pays out to spending departments and agencies the sums needed to meet commitments. Departments’ bank accounts are managed by the Government Banking Service (GBS). The GBS replaced the former Office of the Paymaster General on April 1, 2008, although its functions are broadly similar. Most of the functions of the GBS are, however, contracted out to a “service integrator.” This agency in turn contracts out cash handling and transaction banking services to one of the commercial banks, and the balances in the respective transaction accounts are swept overnight into the TSA. GBS also directly manages some contracts with banks on behalf of some of the largest government users of the banking system. GBS has a single main account at the Bank of England and provides payments facilities for most central government departments and related bodies. Once the provision to meet spending commitments is transferred from the CF to the respective GBS sub-account, it is under control of the respective spending unit, and that unit controls all disbursements. For the most part, GBS accounts are temporary resting places for money drawn from or coming to the CF. It is expenditure out of the GBS accounts or receipts into them that score as government expenditure and revenue. Transfers between the GBS and Consolidated Fund, and between the Consolidated Fund, NLF, and DMA, are internal to government. The linkage between the government accounts (known as the “Exchequer Pyramid”) means that all balances held at the Bank of England are swept into a single account, i.e., the DMA, the DMO’s account, at the end of the business day. In this way the net surplus or deficit on all the lower accounts passes to the DMA. All the accounts below the DMA have zero balances overnight. - Coverage: National government - Degree of Centralization: Fully centralized architecture - Role of Commercial Banks: Yes, significant involvement - Availability of IFMIS: Yes - Australia - Description: The Department of Finance and Administration (DFA) is responsible for banking and payment arrangements within government. The DFA holds the main government bank accounts at the central bank, the Reserve Bank of Australia (RBA). The main account at the RBA is the Official Public Account (OPA). This account provides funding for all spending accounts of departments. Funding is provided to the departments one day in advance based on the cash flow projections of expenditure received from the departments. Balances of departmental and agency expenditure accounts are swept overnight into the OPA, but are returned the next day. There is also an Official Consolidated Receipts account where all government receipts from departmental receipt accounts are consolidated overnight. Departmental payments are to some extent executed through the commercial banking system. Under the devolved banking arrangements all departments are required to contract banking services, and they can choose to do this with commercial banks or rely on the RBA. - Coverage: National government - Degree of Centralization: A mixed architecture (with elements of both centralized and decentralized models of TSA) - Role of Commercial Banks: The central Bank is the manager of the TSA, but departmental payments are executed through the commercial banking system. - Availability of IFMIS: Yes - United States - Description: The U.S. Treasury maintains a consolidated funds pool, in a single account, for all funds of the federal government. The Federal Reserve Banks (FRBs) act as the main government banks. As such, the FRBs, and specifically the Federal Reserve Bank of New York (FRBNY), maintain the treasury's general account (TGA), accept deposits of federal taxes and other federal agency receipts, and process checks and electronic payments drawn on the TGA. The treasury holds all funds, with very few exceptions, under the management of its fiscal agent, the FRBNY. Actual disbursements are administered through the intermediation of the FRBs and are reflected in the TGA in real time. While all treasury disbursements are made from the TGA, a network of several thousand financial institutions collects the major part of all tax revenues. Under the single account system, each agency and bureau is given accounting control and responsibility for the timing and use of its funds. However, the agency/bureau does not actually hold those funds in separate bank accounts outside the treasury. The treasury operations cover a complete range of public funds at the federal level, including budget funds, trust funds, revolving funds, and other funds. State and local governments have full independence in managing their own funds and they make use of depository institutions outside the central bank system. - Coverage: State and Federal government - Degree of Centralization: Decentralized architecture, with FRBs acting as the main government banks for agencies, who are given responsibility for accounting control and use of funds - Role of Commercial Banks: Some involvement, with Central Bank being the manager of TSA - Availability of IFMIS: Yes - Sweden - Description: There are around 270 central government “authorities” in Sweden. They make, or receive, a large number of payments. Authority payments (including the Swedish Social Insurance Administration) are collected in a central account (SCR) that the Debt Office (DO) has at the central bank (Riksbank). Cash flows are netted there and, depending on whether there is a surplus or deficit in the account, deposits are made or funds are provided centrally by the DO in order to make the final balance zero every day. Every authority has one or more transaction accounts at one or more banks. The balances in the authorities’ transaction accounts are transferred to and collected in a top account at the respective bank and then onward to the SCR. This takes place three times a day. The authorities’ accounts at the DO are interest-bearing. The DO procures payment services by framework agreements with the banks. The agreements regulate various types of payment services that the authorities can use. They can choose the bank they wish to use to make payments. The authorities sign sub-agreements with the banks based on the framework agreement. Each public authority must pay for the banking services it uses. A ranking system is used so that the authorities can “cherry pick” banks to provide specific services. The DO finances its temporary cash needs by borrowing on the interbank market. - Coverage: Central/national government - Degree of Centralization: Decentralized architecture. Central government agencies sign agreements with banks and pay for the banking services used by them - Role of Commercial Banks: Commercial banks provide transaction banking services. Central government agencies have transaction accounts at one or more commercial banks - Availability of IFMIS: Yes - New Zealand - Description: The government holds its main bank account at the central bank, the Reserve Bank of New Zealand (RBNZ). This account, known as the Crown Settlement Account (CSA), effectively operates as a TSA. All wholesale financial markets flows between government departments and the private sector, as well as between government departments and the RBNZ, pass through this account directly. All retail flows between government departments and the private sector are transacted through a commercial bank, the net value of which are swept daily between the commercial bank and the CSA. Transactions for government entities other than departments (e.g., Crown entities, state-owned enterprises) are transacted outside of the CSA. The RBNZ provides settlement accounts for banks which are used to settle interbank clearings. To facilitate the exchange settlement account service, the RBNZ operates a system which provides real-time, final, irrevocable payments between account holders. Transactions by government departments create cash flows between the CSA and the other settlement accounts maintained by the commercial banks. - Coverage: National - Degree of Centralization: Fully centralized architecture - Role of Commercial Banks: Commercial banks provide retail/transaction banking services - Availability of IFMIS: Yes ### LATIN AMERICAN COUNTRIES — Country examples - Brazil - Description: The TSA is located at the central bank (BACEN) and its management is assigned to the National Treasury Secretariat (STN) of the MoF which also has to prepare the cash plan, administer the public debt, produce the federal accounts and manage the financial administration information system (SIAFI). The TSA covers only the federal government entities (each state has its own TSA). It also includes the transactions of the Social Security fund (INSS), and special accounts in foreign currencies (including external loans). The collection of revenues and payments transactions are handled through the largest public commercial bank (Banco de Brasil, BB), and only in some exceptional cases other commercial banks authorized by the STN are used. Given that the SIAFI technology is not web-based, some revenue and payment transactions and account reconciliations are not performed automatically. The revenues collected are transferred to the TSA the same day that they are received by the BB. To process payments, electronic documents called “banking orders” (whose characteristics vary according to the type of payment) are prepared by the public entities. These orders are consolidated in magnetic files and submitted to any of the BB offices around the country (not transmitted electronically). The BB sends them to the STN, and the latter authorizes BACEN to transfer to the BB the resources needed to make the payments. The balances maintained with the BB are remunerated at the average rate of the bond portfolio of BACEN. In 2002, a National Payments System (SPB) was introduced, which includes a large-value RTGS system operated by BACEN. Commercial banks play a central role in collecting and paying on behalf of the three levels of government. SPB has enabled monitoring of the BACEN accounts in real time, shortened tax collection lags, and allowed for faster payments to beneficiaries at less cost. The extensive use of earmarking makes the transfer of excess cash in some accounts to pay for expenditures not related to earmarked programs a cumbersome process, limiting the flexibility of budget execution. - Coverage: National government - Degree of Centralization: Fully centralized architecture - Role of Commercial Banks: Some involvement. In particular, commercial banks play a central role in collecting and paying on behalf of the government - Availability of IFMIS: IFMIS, including an interface with the Bank for TSA operation - Perú - Description: The TSA is located in, and managed by, the main public commercial bank (Banco de la Nación, BN). Thousands of public accounts exist at the BN. The own-source revenues of the central government entities are not included in the TSA. The bank charges for its services through a fee not related to the number of transactions. The BN is the only provider of revenue collection and payment services. Taxes, fines and fees may be paid at any bank and many government offices in the country, but all must be wire transferred the next day into the BN’s main account (a collections holding account). The balances in most accounts are swept at the end of the day and transferred to the central bank (BCRP) to be invested overnight or at longer terms. The treasury has no control on how these resources are invested. It only informs the BCRP on a daily basis how much of the collections are to be deposited overnight, and gives disbursement instructions for payments to be made the following day. BCRP manages the short-term investment of the cash balances. Resources earmarked to the municipalities, such as those from royalties, canon (revenue or production sharing from the oil, gas and mining sectors mainly) and participaciones (municipalities’ share of custom revenues and from a tax on gambling activities), pass through the TSA before being allocated to them. An estimated 80% of the total budget of the subnational governments was allocated through the TSA in 2009. - Coverage: National government - Degree of Centralization: A mix of both centralized and decentralized architectures - Role of Commercial Banks: Full involvement, with TSA being managed by the main public commercial bank (a specialized bank) - Availability of IFMIS: IFMIS without an interface - Colombia - Description: Although a TSA nominally exists, the treasury currently manages more than 200 accounts in the central bank (Banco de la República, BR), instead of using the treasury general ledger incorporated in the IFMIS to identify agency-specific transactions. The treasury also has a number of accounts in commercial banks (Banco Agrario, Banco Popular, Banco Ganadero, Banco de Occidente) and these appear to serve specialized purposes. The “TSA” does not include the own source revenues of the “decentralized institutions” (called “public establishments”), all resources of some key autonomous public establishments (such as the ICBF and SENA), or the Social Security Institute. Some 150 agencies have own source revenues. To expand coverage, the authorities took the step of instructing all these entities to invest their surplus cash in treasury bills. This is done through a cumbersome process. Collection of revenues and payment disbursements are done through a number of commercial banks. These banks are remunerated for their services by allowing them to retain the public funds deposited with them for 14 days. The BR manages the treasury’s liquidity. Each day, the Treasury notifies the BR of its cash needs for the following day. The BR manages all investment operations and the deposits (invested in financial instruments between 1 and 90 days) are remunerated at a reference rate. The difficulties posed by the implementation of a modern financial information system (SIIF II) are still to be overcome. - Coverage: National government, but does not include the public establishments - Degree of Centralization: Fully centralized architecture - Role of Commercial Banks: The central bank is the manager of the TSA, but the revenue collection and payment disbursements are done through a number of commercial banks - Availability of IFMIS: IFMIS is yet to stabilize and does not have an interface with the TSA bank ### EASTERN EUROPE AND CENTRAL ASIAN (ECA) COUNTRIES — Country examples - Russian Federation - Description: The TSA is located at the central bank (CBRF). There are “collection accounts” maintained by the regional treasury offices (RTOs) with the CBRF for the collection of taxes, duties, etc.; an “operational account” is maintained by the RTOs for spending federal budget funds; and separate accounts exist for recording expenditures financed from specialized sources, and for foreign currency, among others. All federal budget revenues and expenditures pass through the TSA. The federal budget is executed via the bank accounts maintained by the relevant RTOs. All federal budget revenues and expenditures are posted to the treasury general ledger (TGL) on a daily basis. The CBRF transfers funds from the TSA to the RTOs operational accounts (within the available balances at the TSA) as per the RTO’s request. The RTOs make payments to beneficiaries through the operational accounts on behalf of the spending units (SUs). The local treasury offices record and submit information on executed expenditures to the SUs concerned. If so required, the RTOs transfer funds from the operational account to the “cash disbursement” accounts opened for the federal treasury offices and the SUs withdraw cash from these accounts. - Coverage: National government - Degree of Centralization: Fully centralized architecture, with regional treasury offices - Role of Commercial Banks: Almost no involvement - Availability of IFMIS: Yes - Kyrgyz Republic - Description: The TSA has a wide coverage, including subnational government resources. It is maintained at the central bank. Cash disbursement accounts are opened with the central bank/agent banks located closest to the regional treasury offices (RTOs). These RTOs are empowered to approve cash checks. The treasury may open additional accounts in the central bank to handle payments and receipts (such as foreign currency accounts). Disbursements are made based on the spending units’ requests delivered to the treasury from the RTOs. Funds are transferred to the beneficiaries’ accounts. If so required, cash disbursements may be made using two schemes: (i) a settlement compensation arrangement between the agent banks (maintaining the cash disbursement accounts) and the central bank; and (ii) if there are insufficient bank resources, transfers of funds by the central bank from the TSA to the regional treasury offices’ agent bank account, with a lag of one day. - Coverage: National and subnational governments - Degree of Centralization: A mix of both centralized and decentralized architectures - Role of Commercial Banks: Some involvement, with cash disbursement accounts opened with agent commercial banks - Availability of IFMIS: The IFMIS is under development - Georgia - Description: The TSA is held at the central bank. It includes the Social Insurance State Fund and other funds. For processing payments, the regional treasury offices that serve the spending units enter the data on the payment request received from each spending unit in the information system and send electronic payment requests in batches to the settlement center of the central treasury. The information system generates payment orders (POs) and the settlement center sends them to the central bank electronically in batches. The central bank executes the POs through the RTGS and transfers funds to the accounts of suppliers and beneficiaries with commercial banks. The information system generates the relevant accounting entries in the TGL. Revenues are collected through commercial bank branches, which in turn are supposed to transfer the funds the same day to the TSA. - Coverage: National government and social security funds with a network of regional treasury offices - Degree of Centralization: Fully centralized architecture - Role of Commercial Banks: Some involvement (particularly for revenue collection), with the central bank managing the TSA - Availability of IFMIS: Yes - Moldova - Description: The treasury has three main accounts at the central bank (National Bank of Moldova, NBM): the state budget (SB), the Social Security Agency (SSA), and the Health Insurance Agency (HIA). Each territorial treasury office (TTO) has three local bank accounts: a state budget account (SB ZBA), a Special Means and Funds (SMF) Account, and a local budget account. All tax revenues and revenues of the SSA and HIA are collected through commercial bank branches, and are supposed to be transferred to the TSA on a daily basis. All SMF revenues are collected in the respective TTOs’ bank accounts. When a budget unit wants to make a payment, it submits a payment order (PO) to the respective TTO, which processes and records the request and submits it to the treasury. The latter sends the PO to the NBM, which transfers funds from the SB account in the TSA to the SB ZBA through the Interbank system for automatic payments. For cash payments, TTOs give a check to the budget unit, which is then presented to the respective commercial bank. For non-cash payments, TTOs send POs to their local commercial bank branches, which forward them to their head offices to be cleared and settled with the TSA. After the payment is made, the commercial bank branches send account statements to the TTOs, which process them and submit data to the treasury. Daily reconciliation takes place between the NBM and treasury for payments and receipts. - Coverage: National government and social security funds - Degree of Centralization: A mix of both centralized and decentralized architectures - Role of Commercial Banks: Some involvement, with commercial banks providing revenue collection and payment services - Availability of IFMIS: Yes - Tajikistan - Description: The TSA is yet to be established. All tax revenues are collected through transit accounts in commercial banks, who then transfer the respective share of the republican and local governments to the local bank accounts of treasury offices (TO) with the Amonat Bank (AB, a state-owned commercial bank) with several days of delay. TOs provide information on local revenues by phone weekly and by monthly reports. The extent of idle balances in the local bank accounts of TOs is not known. For expenditure payments, budget organizations send payment orders (POs) to the regional TOs, which then process the POs manually and (if found in order) authorize and submit them to a local branch of the AB for payment to the supplier/beneficiary’s bank account. TOs submit monthly expenditure reports on their budgets to the central treasury by courier or post. The Social Protection Fund (SPF) has separate accounts at the AB. The SPF makes payments through its separate bank accounts in the AB at the central and local levels and sends monthly reports on payments to the treasury by courier or post. - Coverage: National government - Degree of Centralization: Fully centralized architecture, with regional treasury offices - Role of Commercial Banks: Revenue collection and payment disbursements are mainly conducted through a state-owned commercial bank - Availability of IFMIS: No IFMIS ### SOME ASIAN COUNTRIES — Country examples - India - Description: India has TSAs established both at the federal and state government levels. Under an agreement entered into by the federal government with the Reserve Bank of India (central bank), general banking business consisting of receipts, collections, payments and remittances on behalf of Central Government is carried on by the Reserve Bank of India as its Banker. At places where the branches of Reserve Bank of India does not exist, the banking business of line Ministries is handled by the commercial banks (which include both State-owned and private banks) as agents of the Reserve Bank of India on turn over commission basis. At the federal government level, the TSA main account at the Reserve Bank of India is supplemented by subsidiary ledger accounts to record and control payments attributable to individual line ministries. The transaction banking services (for both revenue collection and payment disbursement) is mainly provided by a number of commercial banks, and the transaction accounts in these banks are operated on a zero-balance basis and set-off at the end of the business day with the respective sub-account of the TSA. - Coverage: Federal and State governments - Degree of Centralization: A mix of centralized and decentralized architecture, with sub-accounts for line ministries maintained at the central bank. - Role of Commercial Banks: Revenue collection and payment disbursements are mainly conducted through commercial banks (both State-owned and private). - Availability of IFMIS: IFMIS at federal level - Indonesia - Description: New government regulations on cash management were adopted in July 2007, which provided a strong legal basis for the rationalization of government banking arrangements. The number of bank accounts outside DG Treasury control has been reduced. A census of government bank accounts in 2007 revealed some 39,500 government bank accounts of which some 6,000 government bank accounts were closed by mid-2009. The balances of revenue and expenditure accounts under the control of DG Treasury and its regional network of 178 field offices (KPPNs) are zero-balanced at the end of each working day and swept into the TSA. The main exceptions are the accounts for salaries, where KPPNs’ bank accounts are credited one (previously three) day in advance and the accounts of some ministries. For revenue accounts, the zero-balancing principle was fully implemented in 2009. All accounts of autonomous government agencies are not yet integrated into the TSA. In early 2009, a memorandum of understanding (MoU) between the Bank of Indonesia (BI) and the MoF was signed regarding the rate of remuneration of government deposits held in the main treasury account at BI (the RKUN account) in either overnight, deposit on-call or time deposit accounts, with implementation as from January 1, 2009. A new information system is being developed (SPAN). - Coverage: National government - Degree of Centralization: Decentralized architecture - Role of Commercial Banks: [not specified in table text] - Availability of IFMIS: An IFMIS is under development. - Cambodia - Description: Significant progress has been made to reduce and consolidate government bank accounts at the National Bank of Cambodia (NBC) to establish a TSA. Only 16 of the 17 4 frozen ‘current’ bank accounts (of various line agencies) at NBC remain to be consolidated with the TSA (November 2009). ‘Current’ accounts exclude many donor project (investment), ‘earmarked’ fund, and budget support accounts, as well as salary accounts with the ANZ Royal Bank (a commercial bank), which are being operated as separate accounts outside the TSA. As of October 2009, there were reportedly 412 bank accounts at NBC and 36 bank accounts at ANZ Royal Bank, which are not yet integrated into the TSA. A pilot scheme in two provinces (out of 24) to use commercial banks for treasury banking services commenced in 2009. A TSA at national level is being established. - Coverage: [national level TSA being established] - Degree of Centralization: Decentralized architecture - Role of Commercial Banks: No - Availability of IFMIS: [not specified in table text] ### TSA MODELS IN AFRICAN COUNTRIES (adapted from the French model) - Various African countries (following the French legal framework of 1959) - Description: The African countries using the French legal framework of 1959 (l’ordonnance de 1959) organize their cash management systems according to the principle of a TSA (compte unique du Trésor), which is managed by the respective central banks. However, these countries did not have the equivalent system of “treasury correspondents” (which existed in France until 1990s), and experienced severe cash shortfalls as a result of their debt burden and also due to high petroleum prices during the 1970s. This gave rise to the practice of bypassing the TSA during the years 1980-2000, leading to a proliferation of special accounts and funds (comptes et fonds spéciaux), deposited outside the TSA. The cash shortfall problem in these countries also had the effect of freezing the deposits from correspondents and the public, rendering the deposits in Caisses d’épargne and the Postal department illiquid. Under the IMF-led PRGF programs that followed, the situation in these countries improved somewhat with the use of the TSA for payment of salaries/wages and progressively for other categories of payments. However, the payments for expenditure financed by donors were often outside the control of both the treasury and the TSA. Such difficulties remain for a number of francophone African countries, such as Guinée Bissau, the Central African Republic (RCA), Tchad and the Republic of Congo, inhibiting the progress toward an efficient cash management system based on a TSA. One should distinguish between two categories of African countries following the French model: (i) countries participating in the FCFA zone with one respective regional central bank (BCEAO or BEAC); and (ii) countries outside the FCFA zone having their own national central banks. In terms of managing a TSA, it is clear that national central banks provide a more flexible environment compared to regional central banks, which have stricter rules for the purpose (and thus the authorities tend to rely on local commercial banks to provide specific solutions to budget management problems). On the other hand, in many of these countries, the boundary between the treasury and the national central banks is not clearly defined, with the latter exercising some treasury functions, including making direct payments for government expenditures in certain cases. Such practices complicate both budget and cash management. - Coverage: The coverage, in principle, is for the whole of national government. In practice, several special accounts have been opened outside the TSA. Donor-funded operations also remain outside the TSA. - Degree of Centralization: Centralized in principle. However, special payment procedures in vogue in several countries have diluted the treasury control over payments. - Role of Commercial Banks: In the case of countries affiliated to a regional central bank (such as BCEAO and BEAC), the authorities tend to rely on local commercial banks to provide specific solutions - Availability of IFMIS: Most of these countries are yet to have fully functional IFMIS. *APPENDIX I.* ### APPENDIX II. INTERBANK PAYMENT AND SETTLEMENT SYSTEMS ### APPENDIX II. INTERBANK PAYMENT AND SETTLEMENT SYSTEMS ### Overview - Interbank payment and settlement systems are transitioning from paper checks and cash to electronic means. - The institutional environment—degree of development of the interbank money market and sophistication of participants’ treasury management—has been determinant in this trend. - Payment systems are classified as (i) wholesale (large value), and (ii) retail and small value systems. - Payment systems use different settlement systems and either settle immediately on a gross basis or after some delay on a net basis. ### Large Value (Wholesale) Payment Systems (LVPS) - Three main LVPS types: - (i) Deferred Net Settlement (DNS) systems: they create intraperiod risks, which explain why they are now used by most countries usually for low-value payments; - (ii) Real-Time Gross Settlement (RTGS) systems: they eliminate many of the intraday and participant settlement risks associated with net settlement; - (iii) Hybrids, such as Continuous Net Settlement (CNS) and queue-augmented RTGS, which redesign DNS and RTGS systems to reduce risk. - The risk and costs in DNS systems led to the adoption of RTGS in all EU and most G-20 countries. - Major LVPS examples: - TARGET; - the Fed’s Fedwire; - the Bank of England’s CHAPS Sterling. - Operational and risk features: - The three systems are operated by their central banks. - Given that the central banks guarantee payment, there is no settlement risk to the participants. - “Fedwire is also used for the settlement of U.S. government securities.” ### Retail and Small Value Payment Systems (SVPS) - Structure varies substantially across countries: in many, private entities provide clearing services; in some, central bank services coexist with private suppliers. - After multilateral clearing, settlement usually takes place at the end of the day through accounts held at the central bank. - Trends in SVPS: - Shift from cash and paper-based instruments to electronic payment methods. - Increase in straight through processing (STP) due to enhanced interoperability of payment procedures based on common data protocols. - Example: - The Automated Clearing House (ACH) network in the U.S., which handles repetitive batch transactions, such as payroll, pension, and annuity payments (credits), and collection of insurance premiums, and utility bills. ### Implications and Design Considerations - DNS systems generate intraperiod risks, motivating migration toward RTGS or hybrid designs to reduce settlement risk. - Central bank operation and guarantees can eliminate participant settlement risk in LVPS. - Enhancing interoperability and adopting common data protocols support STP and efficiency gains in SVPS. - Choice of system type should consider payment value, frequency, intraday risk tolerance, and the maturity of the interbank money market. *Source: Schmitz, Stefan W. and Geoffrey E. Wood, 2006.* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2010/_wp10143.pdf_