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Treasury Single Account: What Kenyans should know about GoK's new banking system

Banks which hold government cash are expecting disruption after Cabinet approved implementation of the Treasury Single Account system

President William Ruto

The Cabinet, chaired by President William Ruto on January 15, gave the green light for the implementation of the Treasury Single Account (TSA) system, a new banking system for both National and county governments.

This decision, supported by the International Monetary Fund (IMF), marks a pivotal step in modernizing the country's financial management practices.

Understanding the Treasury Single Account System

The TSA system is an integrated accounting approach that eliminates the necessity for individual bank accounts for government agencies.

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Instead, it consolidates all government funds into a single Treasury account, facilitating centralized cash management while maintaining control at a transaction level.

This centralized system aims to streamline financial operations, enhance accountability, and reduce the risk of mismanagement and corruption.

The government will have a consolidated view of the total available cash balances at any given time across all ministries, state organs, state departments, state agencies/corporations, and other government entities.

Idle government cash balances in commercial bank accounts often fail to earn market-related remuneration. Also, the government, being unaware of these resources, incurs unnecessary borrowing costs on raising funds to cover a perceived cash shortage.

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Idle government cash balances in the commercial banking sector are not idle for the banks themselves, and can be used to extend credit. Draining this extra liquidity through open market operations also imposes costs on the central bank.

As of December 31, 2022, government deposits in commercial banks amounted to Sh435.87 billion, constituting 8.69% of the total bank deposits in the country, which stood at Sh5.01 trillion.

The Central Bank Statistical Bulletin (December 2022) revealed that these deposits, covering both central government and other public sector entities, were comprised of Sh323.26 billion in demand deposits and Sh112.6 billion in time savings.

The implementation of the TSA is expected to disrupt banks who hold government cash.

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“Government funds are banked in commercial bank accounts and individuals keep earning interest. This must stop. All the benefits of public funds must only accrue to the people of Kenya and no one else," Ruto said during the Monday Cabinet meeting.

The implementation of the TSA system is expected to bring about several positive changes for government agencies. By consolidating funds into a single account, the government aims to:

  1. Enhance Financial Accountability: With a centralized system, tracking and monitoring financial transactions become more transparent, reducing the likelihood of financial discrepancies or mismanagement.
  2. Improve Cash Management: Delinking cash management from transaction-level control allows for more efficient oversight and allocation of funds, enabling the government to optimize its financial resources.
  3. Minimize Risks of Fraud and Corruption: The streamlined approach reduces the number of access points for financial transactions, mitigating the risks associated with fraud and corruption.
  4. Facilitate Budgetary Control: The TSA system allows for better control over budgetary allocations, ensuring that funds are utilized in accordance with government priorities and policies.
  5. Align with International Best Practices: The adoption of a single treasury account aligns Kenya with international best practices, fostering a positive image for foreign investors and international financial institutions.

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