Implementation of TSA May Reduce Interbank Liquidity

FSDH Merchant Bank Limited

Nume Horsfall

The planned implementation of the Treasury Single Account(TSA) will significantly reduce liquidity in the interbank market, a report has stated.

However, the report maintained that the TSA would improve fiscal effectiveness of the government.
A report by FSDH Merchant Bank Limited, which reviewed the implication of the International Monetary Fund (IMF) 2013 Article IV report on Nigeria stated this Monday.

The IMF had affirmed the strong macro-economic fundamentals of the Nigerian economy and had highlighted some pressure points in the economy that require appropriate actions.

It also noted that the key public financial management reforms were underway in Nigeria, including the implementation of a TSA and integrated information management systems.

The IMF also stated that the strong economic growth rate and projected a growth rate of about seven per cent in 2014 and also that Inflation rate would remain subdued in the single digits. In addition, it had among other things noted that fiscal consolidation was progressing well, and should be preserved.

But the FSDH report stated: "The implementation of the TSA will significantly reduce liquidity in the inter-bank market, as well as improve fiscal effectiveness of the government

"We expect a more aggressive management of the interbank liquidity, which may cause interest rate in the interbank market to remain volatile and trend upwards."

It also anticipated the short-to-medium-term yields on the fixed income securities to trail the expected single digit inflation rate provided the monetary policy in the advanced economies remains accommodative.