Yanking Off CBN’s Freedom

The House of Representatives appears set to pass the proposed Amendment Bill on the 2007 Central Bank of Nigeria Act into law. Mixed reactions trail the exercise

Five years after the Central Bank of Nigeria, CBN, gained full autonomy, the independence may soon be reversed following proposed amendments to some sections of the 2007 Banking Act by the House of Representatives. The Amendment Bill, which was sponsored by Mr. Jagaba Adams Jagaba (PDP, Kaduna), has already passed through second reading.

The House of Representatives began the move to tinker with the landmark Act on 22 October 2012 at a public hearing its committees on Banking & Currency and Justice organised. The proposed amendments relate to board composition, budget preparation, budget approval, salary and appointment of a deputy in case of the absence of the Governor. The House has recommended that section 6(2) of the Act be amended by providing that “the CBN Board shall consist of a chairman, who shall be either a former CBN governor or a former chairman or managing director of a bank. The other members of the proposed new seven-man Board would consist of the serving CBN governor, the permanent secretary of the Federal Ministry of Finance, the Accountant General of the Federation, the Permanent Secretary of National Planning Commission, a representative of the Federal Inland Revenue Service (not below the rank of a director) and a representative of the Nigeria Deposit Insurance Corporation (not below the rank of a director).

Currently, the CBN Board has 12 members. It comprises the CBN governor who serves as the chairman, four deputy governors of the CBN, Permanent Secretary of the  Federal Ministry of Finance, five directors of the same ministry and the Accountant-General of the Federation. The House is introducing a new section 48 which provides that “the Board shall prepare and submit to the National Assembly through the president not later than 30 September of each year, an estimate of its income and expenditure during the next succeeding year”. Mr. Henry Boyo, economist and Chief Executive Officer, Allied Technol System Limited believes that the amendment would make CBN’s operations more transparent and effect greater accountability in its management.

Another proposed amendment to the 2007 Act relates to section 6(3), which vests responsibility for budget preparation on the CBN management and approval of same budget on its Board. The new amendment seeks to cancel the existing provision for the CBN Board as the sole authority to approve the apex bank’s annual budget. Approval for the budget will now reside with the Finance Ministry.

There is also an amendment regarding the leadership of the Board in the event of the absence of the Governor. The proposed amendment states 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.” The present Act empowers the CBN Governor to personally choose the candidate to act on his behalf when he is absent. This power is considered by the legislators as too arbitrary.

The Fifth Amendment to the 2007 Banking Act pertains to section 8(3), which provides that salaries and allowances will be solely determined by the Board. By the new amendment, “the salaries or allowances, including pension and other allowances payable to the Governor and the deputies shall be as stipulated from time to time by the Revenue Mobilisation, Allocation and Fiscal Commission subject to the approval of the President”.

Many stakeholders have been giving the proposed amendments knocks. Two former governors of the apex bank made their positions known at the public hearing. Mallam Adamu Ciroma and Mr. Joseph Sanusi remarked that “the move to whittle down the independence of the CBN and weaken its leadership is unwarranted”. To Ciroma, the proposed amendments to the CBN Act would create a complex problem and portray Nigeria as a non-conformist to international best practices. “In deep conscience and honesty, I cannot find the rationale behind this plan. I urge you to leave this matter so that you don’t do anything outrageous and non-conforming,” he advised.

Sanusi said the proposed amendments were fallouts of a communication gap between the parliament and the apex bank. He argued that if the law was amended to make the Governor an ordinary executive member on the board, it would automatically reduce the confidence and esteem a CBN Governor should have among its peers from other countries. “The proposed amendment will not help the country because investors usually study polices and institutional structures before they make investments,” he noted. He added that the amendments would fuel inflation, obstruct the CBN’s ability to quickly respond to evolving market threats, and would not allow the CBN to deliver on its core mandate of ensuring monetary and price stability and promoting a sound financial system in Nigeria.

The functions of the CBN as specified under the Act of 2007 are typical of the general functions assigned to independent Central Banks globally, the former CBN Governor stated. Some analysts also argued that the Maastricht Treaty of 1992 which enshrines independent status on the European Central Bank and the European Union national central banks has in many countries become the preferred means of providing an institutional framework for monetary policy. So, Nigeria, they said, cannot afford to be an exception. They warned that the move is not investor-friendly as only a few investors would have faith in a central bank controlled by bureaucracy.

The Chartered Institute of Bankers of Nigeria, CIBN, wants the subsisting CBN Act to remain. The Institute argued that the proposed review may create more challenges than whatever issues it is aimed at resolving. It also noted that the Act was part of the independence and autonomy of the CBN to ensure effective execution of its mandate. In this era of globalisation, Nigeria cannot afford not to follow well-tested and enduring global trends and practices, it stated.

The Nigerian Economic Summit Group, NESG, the umbrella body for the organised private sector, OPS, also lent its voice. In a position paper signed by Mr. Frank Nweke, its Director-General, the group stated that curtailing the autonomy of the CBN will seriously erode its capacity to rise to the occasion whenever the need arises. “It is our belief that the National Assembly’s amendments to the CBN Act, if passed into law, would critically endanger the effective role of the CBN in overall economic policy management and this would have adverse implications on Nigeria’s macroeconomic dynamics.

In a paper titled “The Imperative of Central Bank Independence: An Analytical Framework – A Case Study of the Central Bank of Nigeria”, presented by Dr. Okwu Joseph Nnanna, former Director-General, West African Monetary Institute and former Director of Research and Statistics at the CBN and his son, Dr. Joseph U. Nnanna, Assistant Professor of Business Administration, Northwestern Oklahoma State University, the role of the CBN chairmanship and the composition of the board were critically examined. The duo concluded that based on the survey they conducted, composition of the CBN Board conforms to best global practices and is consistent with good corporate governance. Father and son strongly supported the independence of the CBN. But they saw the need for a legislative oversight focused on ensuring that the macroeconomic targets set by the apex bank are met. But the legislative oversight, they advised, should be carried out ex-post, rather than ex ante that the Fiscal Responsibility Act of 2009 proposed. They recommended that the CBN Act of 2007 be enshrined in the Constitution of the Federal Republic of Nigeria so as to make it irreversible at short notice by politicians.

Comrade Isa Aremu, Vice President, Nigeria Labour Congress, NLC, contributed: “The truth is that the CBN is an institution and will definitely outlive all its officials. Sanusi will one day vacate the office as governor but the bank will remain. Therefore, if the National Assembly passes a law that is inimical to the growth and development of the apex bank, the citizenry will bear the burden of such error”.

But Boyo maintained his support of the proposed amendments. He argued that “Even the Commander-in-Chief, President Goodluck Jonathan, cannot spend a single kobo talk less of borrowing on behalf of Nigeria without prior approval of the legislature.” Boyo was apparently referring to donations of N100 million and N25 million that Sanusi unilaterally made to Boko Haram victims in Kano State and a church in Suleija respectively. Boyo considered it bewildering that the CBN governor and the Board have sweeping and unfettered powers as unelected civil servants under the existing 2007 Banking Act. The economist argued that such absolute powers would corrupt even the most righteous human being. To him, it is inappropriate to give the CBN too much freedom. He argued that while autonomy was good, the CBN requires control and supervision to avoid it becoming an institution with absolute powers.

Many see the legislators’ action as a ploy to get back at Sanusi. Last year, the CBN Governor lampooned the legislators as insensitive to the people’s plight when he disclosed that the N158.91 spent on their overheads amounted to 25 per cent of all federal government’s overhead expenditures in 2010. Sanusi has also been seen as taking controversial decisions on his own whims. This year, he sought to introduce the N5000 bill and coinage of N5, N10 and N20 notes, but was stopped by the National Assembly and wide criticisms. He has placed limits on cash withdrawals, restricting individuals first to N150,000 and then to N500,000, and corporate bodies first to N1mn and then to N3mn. Exceeding the amounts attracts various fines. Many still flay Sanusi for suddenly turning the CBN into a charity organisation with those donations to Boko Haram victims in Kano and Suleja. He has also been supporting the removal of oil subsidy early this year.

Since its establishment in 1959, the CBN Act has witnessed three major amendments. The first was the CBN Decree 24 of 1991 which was very explicit as regards who calls the shots on monetary and banking policy in Nigeria. Section 8(1) of Decree 24 provides that “the Governor shall keep the President informed of the monetary and banking policy pursued or intended to be pursued by the Bank. The President, after due consideration may in writing, direct the Bank as to the monetary and banking policy pursued or intended to be pursued and the directive shall be binding on the Board which shall forthwith take all necessary steps or expedient to give effect thereto.”

During this period, the economy witnessed unprecedented episode of inflationary pressure, low growth in gross domestic product, banking sector distress and bank failure.

Section 6(1) of the document gives the Governor the authority to preside over the Board’s proceedings, including the formulation of monetary and financial policy, preparation of the budgets and the general administration of the affairs and business of the bank. But section 4 (1) and (b) still requires that the “Governor shall from time to time, keep the Head of State informed of the affairs of the bank” and at the end of every period of six months make a formal report of the affairs of the bank to the Provisional Ruling Council”.

The struggle for the independence of the CBN was protracted and it required the combined influence of Nigeria’s development partners especially, the Bretton Woods Institutions and domestic progressive stakeholders like the Bankers’ Association, the Manufacturers’ Association, the labour unions and the academia represented by the Nigerian Economic Society to convince former president, Olusegun Obasanjo that it was in CBN’s enlightened self-interest to grant it autonomy. To this end, the CBN was granted full autonomy under the 2007 Act. The Act also created the MPC with the governor as the ‘chairman’ in order to facilitate the attainment of the objective of price stability and to support the economic policy of the Federal Government. The 2007 Banking Act specifies that the MPC shall have responsibility within the Bank for formulating monetary and credit policy.

The Senate, in its proposal, principally focuses on amending the Act to compel the CBN to consult the National Assembly before taking certain decisions on some critical national issues like currency restructuring.

—CLEMENT ORILOYE/TheNEWS magazine