The Senate on Tuesday passed for second reading, a bill for an Act to limit the tenure of the Central Bank of Nigeria (CBN) Governor and deputies to a single, non-renewable term of six years.
The decision was taken after members of the red chamber contributed to the lead debate on the amendment proposed by the Chairman, Senate Committee on Banking, Insurance and Other Financial Institutions, Senator Tokunbo Abiru.
The proposed legislation was titled, “An Act to amend the Central Bank of Nigeria Act No 7 of 2007.”
This bill was co-sponsored by all the 41 members of the Senate Committee on Banking, Insurance and other financial institutions, and it was read for the first time, on Tuesday 30th January 2024.
Abiru, noted that the mandate of the CBN was derived from the 1958 Act of Parliament as amended in 1991,1993, 1997, 1998 and 2007.
He said the current Act of 2007, charges the Bank with the overall control and administration of the monetary and financial sector policies of the federal government.
He noted with concern that the bill had not been amended for over 16 years despite growing changes to the Bank’s balance sheet as well as challenges in monetary policy implementation occasioned by fiscal dominance and the rapidly changing financial landscape.
The proposed amendments, he said, were aimed at strengthening the Bank to discharge its primary mandate of maintaining monetary and price stability in support of the government’s economic growth objectives as well as align its governance mechanisms with global best practices.
He said Section 8 (2) of the CBN Act currently grants the Governor and Deputy Governor’s tenure of five years and they are eligible for re-appointment for another term not exceeding five years.
He, however, said the proposed bill provides for amendment to now provide a single non-renewal term of six years for the Governor and the Deputy Governors.
He added, “This is the practice adopted by many independent Banks such as the US Federal Reserve and the European Central Bank where their Chief Executive Officers serve only one non-renewable term.
“Empirical evidence shows that a single term for the members of the Executive and Board members of central banks helps to reduce political influence on monetary policy decisions and the time inconsistency problem associated with non-independent central banks.
“In addition, the Bill proposes that where a vacancy is created by the death or resignation of a CBN Governor or Deputy Governor, the President can appoint an acting Governor in the interim pending the appointment of a substantive Governor or Deputy Governor.
“Where a substantive appointment is made, such appointment will be for a fresh term rather than serving the tenure of the previous Governor or Deputy Governor.”
Abiru further explained that the current Act made no provision for coordination of monetary and fiscal policies which he said was the reason monetary policies of the Bank often diverge from fiscal policies to the detriment of the economy.
He explained, “To this end, the bill introduces for the purpose of coordination of the monetary, fiscal and trade policies, a Coordinating Committee for Monetary and Fiscal Policies.”
The functions of the Committee he said, shall include: “Setting internally consistent targets of monetary and fiscal policies that are conducive to controlling inflation and promoting financial conditions for sustainable economic growth.”
He said it would apply ‘caps’ to any fiscal deficit at a level that can be financed without having recourse to direct monetary financing from the Bank, that is Ways and Means.
Abiru added that the amendments placed on the CBN, any other function deemed necessary to ensure that monetary and fiscal policies were synchronised.
Membership of the proposed Committee, he said, shall consist of the Minister of Finance who shall be the Chairman; Minister of Budget and Economic Planning; Minister of Industry Trade and Investment; and Minister of Agriculture.
Others are Governor of the Central Bank of Nigeria; Chief Economic Adviser to the President; and the Director General of the Securities and Exchange Commission.
Abiru added, “The Bill proposed that among the four Deputy Governors provided under section 6 (2) of the current Act, at least one career staff should be elevated to the position of Deputy Governor from within the Bank.
“This promotes a smooth transition process as well as minimises the risk of loss of institutional memory in implementing the Bank’s mandate.
“It goes without saying that while external candidates may bring fresh perspectives, internal candidates have the advantage of familiarity with the bank’s structure, culture, and unique challenges.”
The Bill, according to the Senator, also provided for appointments of external directors, their qualifications and tenure.
He added, “Section 10 (1) of the current Act states that, ‘in appointing the five external Directors of the Bank, the President shall have due regard to a fair representation of the financial, agricultural, industrial and commercial interests and the principle of Federal Character’.
“It can be observed that there is no mention of gender as part of the factors to be considered by the President in the appointment of the five external Directors.
“In line with inclusivity in the governance of the Bank, the Bill proposes to insert the word ‘gender’ in this provision.
“Tenure of External Directors Section 10 (3) of the current Act stipulates that each Director appointed shall hold office for four years (one year less than the tenure of the Governor and Deputies) and shall be eligible for re-appointment for another term of four years.
“As earlier noted, empirical evidence shows that a single term for the members of the Executive and Board members of Central Banks helps to reduce political influence on oversight functions and monetary policy decisions.
“It is therefore proposed that the five external Directors should hold office for a non-renewable term of five years (one year less than the six-year tenure of the Governor and Deputies).
“The Bill proposes the establishment of the office of a Chief Compliance Officer for the Bank, of the rank of a Deputy Governor, who reports directly to the Board and may occasionally be summoned to appear before the relevant committee of the National Assembly.”
The proposed amendments limited temporary advances to the federal government.
It also empowers the CBN to grant temporary advances to the federal government to finance unexpected shortfall in budget revenue.
The advance, the Senator said, should not exceed five percent of the previous year’s actual revenue of the federal government and it is to be paid back at the end of the financial year in which it was granted.
In order to firm up this provision and prevent a repeat of the recent experience in which the Bank’s Ways and Means had fuelled inflation and significantly distorted economic management, the Bill proposes among others that: “Any such direct advance to the government should not exceed 10 percent of average government actual revenues during the preceding three years.
“For the purpose of determining government’s actual government revenue, proceeds from asset sales shall be excluded to avoid capturing revenues from exceptional items.
“Such temporary loans should be repaid in full within three months from the date it is made available. This is consistent with global practice. “The current provision which stipulates before the end of the fiscal year is prone to abuse as it creates a window for the government to obtain overdrafts from the Bank in January and wait until December to make repayment.
“In order to minimise default risk, any sum which becomes outstanding at the end of the expiration of the credit period should be held against and recovered from the proportion of the Federal Government’s FAAC Receipts.”
On the issuance of new legal tender to replace existing ones, the current Act, according to Abiru, gives the Bank the power to restructure the domestic currency and issue new legal tender but did not specify a timeframe within which the old currency ceases to be a legal tender.
He said, “This lacuna contributed to the confusion that characterised the last currency redesign exercise and the resultant huge economic loss to the nation until the intervention of the Supreme Court.
“In order to prevent a repeat of this experience and consistent with global practice, the bill proposes that before the Bank can replace an old legal tender with a new one under any restructuring, redesigning, redenomination or any similar arrangement.
“The Bank should give reasonable notice of at least one calendar year of its intention to replace the existing legal tender.
“The entire programme should last at least two years from the date of the announcement of its intention.
“Throughout the duration of the programme, both the old and new currency notes and coins are expected to serve as legal tender simultaneously.
The withdrawal of the old legal tender should be carried out in phases and in a manner that does not cause any distortion to economic activities.
“The Bank should be in possession of sufficient new currency (not less than 70% of the old stock of currency to be withdrawn) before embarking on such a programme.”
On the recapitalisation of the Bank, he said the current authorised capital of N100 billion (One Hundred Billion Naira) as stated in section 4 (1) had over the years been eroded by devaluation of the naira.
The Bill, he explained, proposes to amend this to provide that the paid-up capital of the Bank shall be N1 trillion and may be increased from time to time by such amount as the government may approve either by way of transfers from the General Reserve Fund or by such other means as the Government, in consultation with the Board, may approve.”
Some other provisions in the Bill are the Governor’s Appearance before the National Assembly; Publication of Monetary Policy and Interim Financial Reports, and Ratification of the Bank’s Budget in line with the FRA 2007.
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