Why the Iranian government must modernize its cash management system
The Rouhani administration ought to modernize its cash management with a Treasury Single Account to combat corrupt practices, eliminate a lack of discipline in public finance and ensure adequate fund flow to critical sectors of the economy.
Managing and controlling the government’s cash resources has long been a major challenge to the implementation of budget laws and oversight of the government’s receipts and payments from and to a diverse number of state and nonstate agencies and entities in Iran. Fragmented government banking arrangements, coupled with various loopholes in the relevant laws, have prevented the Ministry of Economic Affairs and Finance of Iran’s Treasury Unit from improving budget control and the quality of fiscal information.
The International Monetary Fund has advised a Treasury Single Account (TSA) as a prerequisite for modern cash management. The TSA is a process and tool that unifies all government accounts for the effective management of its finances, bank and cash position. It is an objective that the Treasury Unit has sought to fulfill for years, without much success.
Despite President Hassan Rouhani’s unequivocal decree to all state-owned enterprises to block their accounts in financial institutions and transfer them to the Central Bank of Iran, reports indicate that they are still evading the law. Although the violation of the law is regarded as unlawful seizure of public property, many of them are unwilling to shift their accounts, particularly their earnings accounts, into Treasury accounts with the central bank. Of note, there were about 220,000 government accounts before Rouhani’s first term in office (2013-2017). Currently the number has dropped to 70,000, meaning there is a long way to go for the government to fully manage its cash resources and execute fiscal policies properly.
In the fourth Five-Year Development Plan Law (2005-2009), the state agencies, institutions, para-governmental organizations and municipalities were authorized to select which banks would operate their banking transactions. The purpose behind this erroneous decision at the time was to provide a healthy, competitive environment in the banking system of the country to undermine monopoly and help economize the activities of newly established banks. This authorization was a major breakpoint in the maintenance of government accounts, as it made the Treasury's job quite difficult. The Treasury needed to pool together the positions of different state agencies to help it gain an overall picture of the government’s cash flow. Interestingly, this law was approved in the two years since the establishment of the country's first private bank.
