Sunday April 14, 2024

Economic reforms-Part-XLX

By Waqar Masood Khan
May 07, 2019

What would be the contours of a framework that would enable the establishment of a Treasury Single Account (TSA). To begin with, let us point out that those entities which depend on their funds from the federal consolidated fund (FCF) or public account (PA) are mandated by the constitution to abide by the TSA. All their revenues and expenditures have to be deposited and debited from the TSA at the SBP. For the federal government, it means all ministries, divisions and attached departments. Similar arrangements exist for the provincial and local governments.

Where does the leakage take place? In the case of the FCF, there are no issues with the bulk of revenues, such as tax receipts, which are deposited in the FCF, and also with the bulk of expenditures, especially on the current side, which are mostly debited for the purpose of actual payments – like for salaries – from the FCF. However, there are a number of bulk payments that pose challenge. First, in the case of development expenditure, particularly those having foreign funding, bank accounts with commercial banks are allowed, where balances accumulated as expenditures are not incurred immediately. Second, even on the current side, there are one-line grant allocations which are disbursed in bulk and those too are expended over time. Third, there are allocations in the nature of loans, which are also disbursed in bulk and find their way into bank accounts. Fourth, a significant amount of government revenue is appropriated at the origin and doesn’t find its way into the TSA.

We now discuss the ways to plug these leakages. First, for the development expenditure, a way was crafted through the notion of 'assignment account' maintained in the National Bank of Pakistan (NBP), a bank designated as sub-treasury. An assignment account was an authority to incur expenditures over time within the specified limit. The account would be debited only at the time of expenditure. This system remains in use and the method has addressed the problem to the extent of such funds. The problem here is that of foreign funding. Since these are disbursed by foreign lenders directly into bank accounts, outstanding balances inevitably emerge. In reality, as soon as such funds are disbursed, they become the liability of the borrower (federal government) and accordingly their coverage under the TSA is mandatory. A cooperative arrangement with the lenders has to be evolved to solve this problem.

Second, the large disbursements under one-line budgets were also subjected to assignment accounts but some compliance issues have been reported. Strict enforcement is required to ensure that breaches of this type are eliminated. Third, the funds released as loans such as those to the National Highway Authority (NHA) pose a challenge. For any foreseeable future, the NHA would not be returning these loans. A high balance continues to exit in NHA accounts. It is important that we require the NHA to adhere to the TSA discipline. Exemptions can be considered for organizations that are commercially oriented, as we discuss shortly.

Finally, with respect to revenues the scope of bringing public funds within the TSA framework is very high. There are government departments that are in receipt of public revenues (post office, customs (other than duties), defense establishments, passport etc) and part of those receipts are allowed for their own use. The portion for self-use is normally deposited in a bank account. More significantly, there is a very large group of autonomous bodies that mobilize sizable revenues based on the powers vested in them to impose fees and other charges, which are derived from constitutional provisions for taxation and fees. In most of the cases these are not budgetary revenues. But still these are public moneys and keeping them in bank accounts runs counter to constitutional provisions. There is one exception that should be allowed. This relates to public-sector enterprises engaged in commercial activities. Imposing a TSA discipline would not be consistent with the objectives for which these were set up.

We now explain the TSA framework that would enable consolidation of public moneys. The TSA exists in the SBP but not all public moneys are kept in the TSA. The framework proposed here would enable consolidation of all scattered accounts. The framework is based on four elements. First, the SBP would be advised to instruct the banks not to open any account of a public-sector entity except under the TSA framework. Second, a TSA account would be a real-time gross settlement (RTGS) account linked with the SBP so that its movements are in sync with the TSA. Third, no interest would accrue on the balances in the account, and the balances would be credited to TSA in SBP in real time. Withdrawal from the account would be allowed within the limit of the balance credited to TSA. Fourth, the banks would be paid a fee to be determined by SBP for providing the account facility.

Notice that all public moneys would be consolidated in a single account in real time and no balances would lie idle with commercial banks. Huge savings in cost of funds would be realized once this system is fully operational. The technological advances made by the banking system has made it possible to implement the system. Furthermore, all scheduled banks would be eligible to provide sub-TSA accounts to government departments. This integration could open other opportunities for banks to collect public funds. Note also that the new framework will be applied to provincial and local governments as well.

A concern has been expressed that withdrawal of huge balances (Rs2.2 trillion) from the banking system would disrupt their working. To smoothen the implementation of the system it may be required for all future transactions to follow the new framework while the existing balances may be adjusted over a three-year period.

The proposed system removes the problem of misapplication of public funds with regard to their drift out of public treasury. The problem of bringing economy in the use of public resources is another subject and should be addressed in its own right.

Note: This was the last part in the series on economic reforms. A new series on the history of Pakistan's economy will be presented next.


The writer is a former finance secretary. Email: