1. John Zohrab Fiscal Affairs Department, IMF
Consolidating Government Banking Arrangements
John Zohrab Fiscal Affairs Department, IMF
FAD Mission to Iran
Tehran, July 2015

2. Outline of Presentation
Legacy Banking Arrangements
TSA system Introduction
Challenges of Introducing TSA system
TSA Structure Illustrative Options
Conclusion

3. I. Legacy Banking Arrangements Typical StructureSU
Spending
Ministry
Accounts
Bank SU SU
Ministry of
Finance SU
Spending
Ministry SU SU SU
Spending
Ministry SU SU
SU = Spending Units

4. I. Legacy Banking Arrangements Typical disadvantages
Fragmented banking structure
Multiple government bank accounts exist making treasury oversight difficult
Daily balances in bank accounts essentially unknown to Treasury
No timely aggregation of information on balances
No rigorous bank reconciliation
At spending unit level
Unnecessary disbursement of cash to these accounts even when there is unspent balance
Cash not allocated to highest priorities or unnecessary debt
Cannot make aggregate cash flow forecasts
Forecasts can only be of disbursements from Treasury to spending units

5. II. TSA System Introduction Key features of TSA system
TSA system is a unified structure of bank accounts
Can be single bank account or set of linked bank accounts
Only one account - the main or top account - has a positive or negative balance at the end of each day’s operations
Other linked accounts are zero-balance accounts - their balances are eliminated by replenishment, sweeping or set-off at the end of each day’s operations
All accounts are in national currency
Foreign currency accounts usually not considered part of the TSA system
The MoF/Treasury has full control over all accounts
Opening, closing, access to transaction data, ability to intervene
But regular day-to-day operations by spending units and revenue agencies

6. II. TSA System Introduction Typical structure  
Daily Settlement with TSA
TSA
Transit zero-balance bank accounts
Taxpayers
Borrowings 
Debt servicing  
Subsidies
Local governments  
Suppliers 
Wage earners

7. II. TSA System Introduction International trend
Strong international trend to consolidate banking arrangements
OECD, middle income, transition and developing countries
Nearby countries with TSAs include Russia, Ukraine, Turkey, Kazakhstan, Uzbekistan, Armenia, Azerbaijian, Georgia and Tajikistan
Process of establishing and expanding TSAs still continuing, e.g.
Azerbaijan and Uzbekistan have nearly finished TSA establishment
Tajikistan is committed to expand TSA to cover pension fund
Georgia is committed to expand TSA to cover all extra-budgetary central government entities
Kyrgyz Republic is committed to establish TSA in near term
TSA proved its value again in global financial crisis
Some countries believe that they would not have coped without the TSA
It enabled them to maintain control of cash even under great stress

8. II. TSA System Introduction Advantages
No idle cash
Available cash can be allocated to highest priority use
Borrowing minimized and surplus cash invested to best effect
Up-to-date information and reporting on all cash flows and balances
Ability for Treasury to execute cash management decisions quickly
Reduced operational risk
Facilitating daily reconciliation between bank accounts and ledger accounts
Allowing Treasury intervention to prevent suspicious transactions
Strengthening control over transactions by providing the Treasury with more direct, timely and comprehensive information
Control of credit risk
Controlling counterparty risk in investment of surplus cash
Maintaining the government’s creditworthiness by timely payment

9. III. Challenges of Introducing TSA System Institutional
Coverage
Extra-budgetary entities, special funds, local government, public corporations
Political economy
Benefits of not ceding control of cash to the center
Efficiency and improved accountability claims
Monetary policy
Transparency and predictability in the government’s cash flows
Daily interbank settlement wash-up
Implications of membership of interbank payments system
Correspondent account at the central bank
Increased internal control responsibilities for the Treasury

10. III. Challenges of Introducing TSA System Technical
Accounting system
Required for reconciliation with bank accounts
Needs an adequate chart of accounts with ledger accounts reflecting bank accounts
Reconciliation requires independence between accounting and banking procedures
Coding structure
Need to compensate for loss of information associated with separate bank accounts
For example: type of tax, regional and local tax office, source of funding (budget, earmarked fund, loan, transfer), administrative unit responsible for expenditure
Requires expanded coding structure

11. IV. TSA Structure Illustrative Options Summary
Centralized
The Treasury’s regional and local offices are able to send payment orders securely to its head office, and via it settle transactions with the central bank’s head office
Decentralized
The commercial bank sector systems are reliable and advanced, and so spending units may settle via the commercial banks without regional and local Treasury offices
Hybrid
The Treasury’s regional and local offices cannot send payment orders securely to its head office, and so they have to settle transactions via the central bank’s regional branches
Main factor determining choice of TSA system structure
Quality of available ICT systems

12. IV. TSA Structure Illustrative Options Centralized TSA structure
Spending Unit
Advanced Treasury Information and Communication Systems
Central Bank
Payment order
Reconc.
Settlement
Treasury Head Office
Treasury Regional Office
Treasury Local Office
(2a)

13. IV. TSA Structure Illustrative Options Centralized transactional banking

14. IV. TSA Structure Illustrative Options Decentralized TSA structure
Spending Unit
Commercial Bank
Regional Branch
Head Office
Payment
Order
Very Reliable and
Advanced
Systems
Central Bank
Recon.
Settlement
Treasury

15. IV. TSA Structure Illustrative Options Decentralized transactional banking

16. IV. TSA Structure Illustrative Options Hybrid TSA structure
Treasury Head Office
Treasury Regional office
Treasury Local office
Central Bank
Central Bank Regional branch
Spending Unit
Payment order
Reconc.
Settlement
Limited Treasury Information and Communication Systems

17. IV. TSA Structure Illustrative Options Hybrid transactional banking

18. V. Conclusion Implementation challenges
Timetable
Minimum time seems to have been three years
Delays caused by being linked with other reforms, FMIS, political economy
Connectivity
Making payments from the center requires reliable and secure electronic communications
Zero-balance arrangements
Clear agreements with commercial banks
Procedures
Numerous changes that should be reflected in regulatory framework
Accounting
Changes to chart of accounts