In the second quarter of 2012, the National Assembly considered a bill for amending the existing 2007 CBN Act. The bill attracted a lot of media attention because of the exuberant controversy that surrounded it.
On the one hand, the Central Bank of Nigeria mobilised its retired Governors, amongst other moulders of public opinion, to stoutly defend the existing Act and maintain status quo. The CBN alleged that the proposed amendments to the 2007 Act would cripple its independence and consequently obstruct its ability to deliver on its core mandate of effectively managing inflation, and creating an enabling environment for national economic growth.
On the other hand, the lawmakers remained resolute that the 2007 CBN Act, as it is currently, does not promote transparency and accountability.
In fact, the proposed amendment relates to four major areas, which include, board composition; budget preparation and approval; board leadership in the absence of the substantive Governor; and lastly, the determination of salaries and allowances. We will assess the validity of the CBN’s objections, by taking a closer look at the substance of the amendments, and decide whether the CBN Governor is the victim of legislative vendetta, as claimed, and if, indeed, the apex bank’s independence to establish monetary stability and regulate the banks will be compromised by the enactment of the bill.
In reality, the existing Act provides for a 12-man Board with the incumbent Governor as Chairman, four Deputy Governors of the CBN, five Directors of the CBN, Permanent Secretary of Finance Ministry and the Accountant General of the Federation as members. Obviously, the preponderance of the CBN establishment in the 12-Board membership places excessive discretionary powers in the hands of one man, to whom the majority of the Board are directly responsible. Such absolute powers over our treasury would create moral hazards for even the most righteous person, and cannot truly be supportive of accountability or transparency. For example, while President Goodluck Jonathan cannot spend a single kobo or borrow any sum of money on behalf of Nigeria without prior legislative approval, the CBN Governor and the “puppet’ Board presides over tens of billions of dollars, self-styled own funds, for which it requires no legislative approval before disbursement. Meanwhile, our government paradoxically seeks and borrows externally at cut-throat interest rates.
Consequently, the National Assembly recommended that Section 6(2) of the current Act be amended such that the CBN Board shall consist of a Chairman, who shall be either a former CBN Governor, a former Chairman or Managing Director of a bank, who will preside over a proposed seven-man Board, which will consist of the Governor, the Permanent Secretary of the Ministry of Finance, the Accountant General of the Federation, the Permanent Secretary of the National Planning Commission and a representative of Federal Inland Revenue Service, as well as a representative of the Nigerian Deposit Insurance Corporation.
Surprisingly, contrary to media speculation, there is, in fact, no political appointee proposed for the Board! However, since it is considered corporate management best practice to separate the positions of the Board Chairman from that of Managing Director, it may also be expedient for the proposed amendments to accommodate any incumbent Minister of Finance as Chairman, so that fiscal and monetary strategies will be in constant harmony. Instructively, the positions of the Chairman and Board Members of the Bank of England are not restricted to professional bankers.
The second amendment provides that the Board shall prepare and submit to the National Assembly, through the President, not later than September 30 each year, estimated income and expenditure for the next succeeding year. This amendment, replaces Section 6(3)a, which presently vests responsibility for budget preparation and approval on the current presumed “puppet” Board under the Governor’s control in the 2007 Act.
Furthermore, the proposed bill also seeks to replace the provision, which stipulates that the CBN Governor would personally choose the candidate to act on his behalf in case of an unavoidable absence, with a fresh provision that “the Governor, or in his absence, the most senior deputy Governor, shall be in charge of the day to day management of the bank, and shall be answerable to the Board for his acts and decisions”.
Finally, the amendment bill proposes that salaries or allowances, including pension and other allowances payable to the Governor and the Deputy Governors, shall be as stipulated from time to time by the Revenue Mobilisation Allocation and Fiscal Commission, subject to the President’s approval. This amendment would replace Section 8(3) of the existing Act, which provides that the Board will determine its own salaries and allowances, including those of CBN’s establishment!
It is difficult to see how the above amendments, when enacted, would circumscribe the CBN’s effective performance or independence. Indeed, a careful evaluation of the content of the bill may suggest to an unbiased arbiter that the obvious overriding objective is the need for transparency and accountability in the CBN’s operations.
Nonetheless, if a reconstituted Board, as proposed, also ultimately sustains the apex bank’s traditional unilateral substitution of hundreds of billions of naira allocations for numerically modest sums of distributable dollar revenue, the CBN would regrettably still fail to deliver on its core mandate of price stability, despite these amendments. The undeniable product of such a monetary rascality, as evidenced over the years, will be unbridled inflationary spiral, while cost of funds will also never be conducive to drive industrial growth or employment opportunities!
Thus, for the sake of posterity, the proposed bill must be strengthened with provisions that would define standards and parameters for assessing the quality of performance of the apex bank, particularly, in the areas of interest rate and inflation. To this end, it must be mandatory that the Chairman and Board would be adjudged to have failed and should resign, if the CBN’s Monetary Policy (Control) Rate ever exceeds two to three per cent above the London Inter-Bank Offer Rate, which, over the years, has remained the benchmark for international cost of funds. Besides, if the Board should have a broadbased outlook, it is recommended that a representative of the Nigeria Labour Congress and civil society should be members to represent the interest of common Nigerians. Similarly, the evolution of an inflation rate above five per cent would also be adjudged as failure, with inevitable truncation of the tenure of the Governor and Chairman of the CBN Board, as appropriate consequences.
The recognition of the above factors in the amendment bill would ensure that the Nigerian economy would never again, like a Banana Republic, witness an MPR as high as the current destabilising 12 per cent rate, with cost of funds to the real sector above 20 per cent, and double-digit inflation rate also as an abiding factor!