Kenya Initiates TSA to Consolidate Government Bank Deposits

Kenya’s National Treasury is set to consolidate government funds from commercial banks this month, marking the start of the Treasury Single Account (TSA) project.

This move comes after nearly a decade of planning and is anticipated to significantly impact the banking sector’s liquidity. As of the end of 2022, government deposits in commercial banks were approximately Ksh435.87 billion ($3 billion), which represents around 8.69% of the total bank deposits.

The current plan mandates that government entities such as ministries, departments, and agencies (MDAs) must settle their bills within 24 hours of receiving funds to prevent idle cash in their accounts. While MDAs aren’t explicitly told to close their multiple bank accounts, the absence of funds may lead them to do so voluntarily.

The drive behind this initiative is to streamline operations by automating the Exchequer process. By linking the National Treasury, MDAs, Office of the Controller of Budget (OCoB), and Central Bank electronically, the system is optimized to facilitate real-time payments. This eliminates the need to maintain balances in MDA bank accounts.

The TSA project’s first phase starts this month, with the second phase, which includes county governments, scheduled for January 2024. The law allows specific semi-autonomous government agencies (Sagas) to retain their budgeting and payment autonomy. The TSA does not apply to fully independent government enterprises.

While the TSA aims to improve oversight and reduce unnecessary costs associated with keeping funds in bank accounts, financial experts anticipate it might negatively affect the banking sector, especially those heavily dependent on state banking.

The TSA initiative aligns with a broader effort by East African Community member states to improve public funds’ oversight. The International Monetary Fund backs this approach, promoting it as a measure against misappropriation of public assets.

Kenya first announced the TSA in 2015 to improve transparency and accountability after several corruption scandals. However, full adoption was delayed. The TSA’s primary goal is to prevent idle public funds, enhance accountability, and reduce wasteful spending. Unlike traditional models, Kenya’s TSA doesn’t merge all government accounts but enforces a 24-hour limit on holding public funds.

While the Integrated Financial Management Information System (IFMIS) was seen as a solution to financial scandals when introduced in 2014, it hasn’t fully curbed revenue loss.