In the second quarter of 2012, the Legislature considered a bill for amending the existing 2007 CBN Act; the bill attracted a lot of media attention in response to the exuberant controversy surrounding it.
On the one hand, the Central Bank mobilized retired Governors of the bank, amongst other movers and shakers of public opinion, to stoutly defend the existing Act and prevent any changes in its content. The CBN alleges 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 Legislature has remained resolute that, as it currently stands, the 2007 CBN Act does not promote transparency and accountability.
In fact, the proposed amendment relates to four major areas: these are 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 evaluate the validity of CBN’s objections, by taking a closer look at the substance of the amendments, and judge whether or not the apex bank is the victim of legislative vendetta, and if, indeed, CBN’s independence would be compromised with dire consequences for economic price stability.
Actually, the current Act provides for a 12-man Board with the preponderance of 10 members from CBN’s establishment, with the Governor as Chairman.
In order to address this lopsided membership and avoid autocratic management, the bill proposes 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 Finance Ministry, the Accountant General of the Federation, the Permanent Secretary of the National Planning Commission and a representative of Federal Inland Service, as well as a representative of the Nigerian Insurance Corporation”.
In reality, contrary to wide media speculation, there is, in fact, no political appointee proposed for the Board. However, since it is considered best practice corporate management to separate the positions of Board Chairman from that of Managing Director, it may also be expedient for the proposed bill to accommodate any incumbent Finance Minister as Chairman, so that fiscal and monetary strategies will be in constant harmony. Instructively, the positions of Chairman and Board Members of the Bank of England are not restricted to professional bankers!
Furthermore, 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, an estimate of its income and expenditure during the next succeeding year. This amendment, replaces Section 6(3)a, which vests responsibility for budget preparation and approval on the current presumed ‘puppet’ Board controlled by the Governor.
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 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 Mobilization Allocation and Fiscal Commission, subject to the approval of the President. This amendment would replace Section 8(3) of the existing Act, which provides that the Board will determine its own salaries and allowances, as well as those of CBN’s establishment!
It is difficult to see how above amendments would circumscribe CBN’s effective performance or independence. Indeed, a careful evaluation of the content of the legislative bill may suggest to an unbiased arbiter that the obvious overriding objective is the need for transparency and accountability.
Nonetheless, if a reconstituted Board, as proposed, continues to endorse the apex bank’s unilateral substitution of hundreds of billions of naira allocations for numerically modest sums of distributable dollar revenue, CBN would regrettably still fail to deliver its core mandate of price stability, even with these amendments. The undeniable product of such 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!
Thus, for the sake of posterity, the proposed bill must be strengthened with provisions that would define standards and parameters for evaluating 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 Members would be adjudged to have failed and should resign, if monetary policy 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. Similarly, the evolution of an inflation rate above five per cent would also be adjudged as failure, with ultimate truncation of the tenure of the Governor and Chairman of the CBN Board, as appropriate consequences.
The consideration of the above factors in the Amendment Bill would ensure that the Nigerian economy would never again, like a ‘Banana Republic’, witness Monetary Policy (Control) Rates 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 rate of inflation also as an abiding factor!