In recent times, the administration of the Federation Account Allocation Committee (FAAC) has highlighted the need for more collaboration between fiscal and monetary policies. It may be necessary for Nigeria to consider the establishment of a Treasury Single Account (TSA) mechanism independent of the banking system for the exclusive use and control of the state governments.
Currently, FAAC allocations to the Federal Government are deposited into the Treasury Single Account (TSA), which centralizes federal funds and enhances fiscal discipline. Allocations to state and local governments, however, are deposited into various commercial bank accounts and this trend leads to a consistent distortion in monetary policy efforts. Whenever FAAC is posted, liquidity in the banking system is boosted and consequently, money supply. The mass influx of funds could stimulate inflation, where not properly managed, as increased money supply can drive up prices without a corresponding increase in goods and services.
Extending TSA implementation to include state and local governments could address these challenges more effectively. By requiring all levels of government to deposit their FAAC allocations into a centralized TSA, Nigeria could achieve stricter controls over public funds, reduce excess liquidity in the banking system, and mitigate inflationary pressures. We believe that such actions will enhance efficiency and transparency, potentially leading to better economic outcomes.
