Economists Warn Against Erosion of Central Bank Independence in Proposed CBN Act Amendments

Some economists and policy analysts have expressed concern over the move by members of the National Assembly to amend the Central Bank of Nigeria (CBN) Act 2007, saying it may end up eroding the powers of the apex banking sector regulator.

They warned that the exercise would not only put the country in bad light, but would also send negative signals to investors.

In addition, they stressed that having an independent central bank remains the accepted practice across all major world economies.

The Senate Committee on Banking, Insurance and Other Financial Institutions during the week invited members of the public to a one-day public hearing expected to hold in Abuja, next Thursday.

Some of the stakeholders invited to make presentations at the public hearing include the Minister of Finance and Coordinating Minister of the Economy; the Attorney General of the Federation; the CBN; President, Chartered Institute of Bankers of Nigeria (CIBN); among several other organisations.

The bill was sponsored by Senator Tokunbo Abiru and co-sponsored by all 41 members of the Senate Committee on Banking, Insurance and Other Financial Institutions.

Key aspects of the legislation the lawmakers are seeking to amend include the establishment of a 7-member Coordinating Committee for Monetary and Fiscal Policies to be chaired by the Minister of Finance; tenure of CBN Governor and Deputy Governors to be set at a single non-renewal term of six years for the Governor and the Deputy Governors; appointment of a minimum of one career staff of the Bank in the Committee of Governors and appointment of at least one female among the External Directors.

In addition, the bill is seeking to establish the position of Chief Compliance Officer in 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; Limit to Temporary Advances to the federal government; Issuance of New Legal tender to replace existing ones and in view of the fact that the Governor of the Bank also serves as the Chairman of the Board, the bill proposes that the Board Committees should be headed by Non-Executive Directors instead of the Deputy Governors.

Furthermore, the bill proposes that the CBN Governor appears on a semi-annual basis whilst the National Assembly in the exercise of its constitutional duties should reserve the power to invite the Governor to make presentations from time to time as the need arises; proposes publishing a monetary policy report and an interim financial report every six months; proposes that where the Governor fails to make a report to the President and the National Assembly as required by Law, he should be served with a warning letter by the National Assembly and if the failure persists, by a recommendation from the National Assembly for the Governor’s suspension from office by the President, among others.

However, analysts have warned that while some of the proposed amendments to the CBN Act are commendable as they were designed to entrench the culture of compliance, strengthen corporate governance, and reposition the Bank for improved performance in attaining its mandate, some others could erode the Bank’s autonomy and weaken the independence of monetary policy, at variance with international best practices.

“The proposed Coordinating Committee for Monetary and Fiscal Policies concerning monetary policy will undermine the Bank’s independence in achieving its price stability mandate. Including Fiscal and Monetary Policy Coordination in the CBN Act could undermine the CBN’s operational independence and weaken the Bank’s flexibility in deploying appropriate policy frameworks in a dynamic economic environment to achieve its mandate.

“The proposed amendment will promote undue political interference in purely economic matters, as the fiscal authority would dominate the proposed committee’s membership and chairmanship,” a source who pleaded to remain anonymous said.

Lead Consultant, ECOWAS Commission (Industry & Private Sector Development), Prof. Ken Ife,  in a recent study showed that central bank’s independence was crucial to ensure that the regulatory institution continues to meet its objectives.

The respondents strongly agreed that it was desirable to maintain central banks’ independence.

“Nevertheless, an overwhelming majority still favours central bank independence,” he said, stressing the need for central bank’s independence, combined with a high level of transparency and accountability.

According to the research findings, central bank independence must be accompanied by sufficient “central bank accountability to achieve the democratically determined objectives of monetary policy.”

He added: “Monetary policy independence should be maintained to avoid concerns that that government is trying to regain control of monetary policy for such manipulation.”

The International Monetary Fund (IMF) recently called for caution regarding the ongoing amendment to the CBN Act and had warned that it might weaken the bank’s autonomy.

In its recent Article IV consultation with Nigeria released recently, the IMF had recommended caution regarding amendments to the CBN Act, stating that, “it might weaken the central bank’s autonomy.”

Nume Ekeghe

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