I have read with great interest the calls by various stakeholders for the National Assembly to STOP its plan to amend the Central Bank Act of 2007. The National Assembly had in the last few weeks seek public opinion as to its plan bill to amend the CBN law which in effect intends to ensure the Bank’s budget is brought before the National Assembly. They claim this will finally bring the Act in line with the requirements of the Fiscal Responsibility Act, which mandates all agencies of government to submit for approval their budgetary expenditure and revenue projection for the fiscal year. Hitherto revenue generating agencies of Government such as NNPC hid under the guise of autonomy and never rendered accounts of their revenue and expenditure to the legislature. Most of them spent billions of Naira annually without any legislative approval often putting their financial excesses at odds with the governments fiscal policy measures aimed at fighting inflation etc. Based on this, the Fiscal Responsibility Act was set up in June 2007 to address this anomaly.
One of such Agencies of Government which was thought to fall under this umbrella also was the Central Bank of Nigeria. However, section 6 sub section 3 of the CBN Act gave the Board of the CBN powers to approve its budget bringing it at odds with the provision of the Fiscal Responsibility Act. To address this the National Assembly then decided to amend the bill bringing the budget of the CBN amongst others under its purview. This off course was met with harsh rebuttals with most clamining that this will affect the autonomy of the CBN, compromise its monetary policy formulations, erode its powers in crisis situations, scare away investors, the IMF will not respect it amongst others. But is this all true? Does Budgetary oversight mean that the autonomy of the CBN is gone? Lets get started;
(The bill intends to amend not only the Budgetary oversight of the CBN as this article explains but in this blog we will stick to the Budget Aspect of this)
Chinese Example: The Chinese run a highly institutionalized economy with the government controlling almost every aspect of its monetary and fiscal framework. Yet it is one of the fastest growing economies the world has ever seen and currently ranks as the second largest economy in the world. Their Central Bank is far from autonomous as rather than being run by independent bank staffs it is run by state officials. However, the bank has been able to control monetary stability over the last decade. They have been able to ensure (even if by fiat) that their exchange rate is undervalued to ensure that their exports remain competitive and also maintain inflations at levels that ensure credit is cheap and affordable to finance development. As a former PBC (People’s Bank of China) monetary policy member (who was an economics teacher for 20 years in the US and Hong kong) Put it “First, central bank independence is an unhelpful superstition. In theory, independence is a good defense against pressures from politicians facing re-election”. That makes independence sound less effective in shaping monetary policy but more of a tool to avoiding political interference. So for economies where politics is very divisive, the independence of the CBN becomes expedient. And for countries like China with just one main political party, as is Nigeria (albeit quasi) it is of no consequence.
The US Example – The Unites States which represents the highest example of Central Bank Autonomy from a Free Market perspective also brings an interesting dimension to this argument. Does the Federal Reserve (CBN as it is called in the US) have full autonomy such that its accounts and budgetary provisions are not approved or put to oversight regulations by Congress or as may have been appointed by any one within the law? Quite on the contrary you may wish to know. The Federal Reserve periodically sends a report of the previous years income and expenditure and well as present its budgetary provisions detailing expenses to be made in the current year. Off course this can be found in the banks website in a twinkle of an eye. A search for a similar report on the website of the Central Bank of Nigeria will most surely yield a negative as the CBN like its counterpart the NNPC has never made public its income and expenditure for as long as I can remember. In fact, the Federal Reserve under the US Federal Banking Agency Act of 1978 provides that the Federal Reserve may be audited by the Government Accountability Office. This puts it firmly in line within the purview of oversight institutions thus ensuring that they do not have excessive powers far beyond its primary objective of maintaining exchange rate stability, managing the countries reserve, monetary policy and being a banker of last resort. They are alas, accountable to the American People.
The IMF Economist– Those against the oversight of the CBN also warn that the IMF, World Banks and any major financial institution of reckon will not approve of the plan by the National Assembly to ensure that the CBN budget is brought before it. This assertion with due respect is hollow, misleading and smacks of political rhetoric. Makes you wonder who is actually politicizing the CBN? According to the Tonny Lybek “Autonomy is sometimes preferred to the frequently used term independence, as autonomy entails operational freedom, while independence indicates a lack of institutional constraints”. Incidentally, pundits refer to the move by the National Assembly as a threat to autonomy and not independence. He continues that ” a central bank must have clearly defined and prioritized objectives, sufficient authority to achieve these objectives and be autonomous to remain credible. At the same time, it must be accountable for the authority delegated to it to ensure checks and balances”. Ah ha…that in the current scheme of things is what the current Central Bank is lacking. The CBN is so unchecked it even makes donations to bomb victimes as it so pleases.
Myth Busted – The core issue which has expectedly has been overblown out of proportion in all of this is the threat to the Central Bank’s autonomy. The CBN as with its counterparts around the world can and should remain autonomous despite a toughening or introduction of Accountability as is proposed by the NASS. This should be embraced in a country where institutional power is abused without recourse by people entrusted to safeguard the assets of the country. With the introduction of Financial Accountability with includes Budgetary oversight, the core fabric of the CBN Autonomy which include, Autonomy to set Monetary Policy Goals, Intervene in Financial Markets, Operate Independently of the Executive branch, Take drastic decisions in terms of Financial Meltdowns, set interest rates in times of boom and bust, control inflation with policies that are independent of government intervention, regulate, supervise and set rules and regulations upon which commercial banks operate amongst others is protected and in fact strengthened. Budgetary oversight simply ensures that the people of Nigeria, to which they simply are a shareholder to the CBN and every agency of Government, must have a right know the details of the budgetary expenditure and actual expenditure of the CBN periodically. I for one will like to know how much they spend on travel, human resources, entertainment, executive compensation amongst others. The CBN cannot at its sole discretion have the powers to decide to increase the rate at which I pay my consumer loans when it does not in tandem cut spending on items that do not bear any direct effect on its core monetary policy objectives. The amendment cannot in this frame thought to be bad for the common man. A sudden peruse into the accounts of the CBN now and in the past will surely reveal interesting facts which in the scheme of things can only be bad for one side of the argument. Which side? Your guess is as good as mine.