Senator Mukhail Adetokunbo Abiru, representing Lagos East in the present Senate is advocating for amendments to the Central Bank of Nigeria (CBN) Act of 2007 alongside 41 members of the Senate Committee on Banking, Insurance and Other Financial Institutions. For them, it is time to amend the CBN Act. The amendment aims to dilute the CBN’s powers, making it more “accountable” by reducing its autonomy and aligning it with fiscal authorities, effectively transforming it into the status of a regular department within the fiscal framework.
The lawmakers appear to overlook that monetary policy, one of the two main pillars of macroeconomic policy alongside fiscal policy, plays a crucial role in achieving economic growth and stability. Most financial experts warn that amending the CBN Act to place it under the supervision of the finance minister will compromise its autonomy and expose it to political interference.
In a research and policy brief titled “Why Central Bank Independence Matters,” Mahama Samir Bandaogo of the World Bank highlighted that monetary policy often faces a built-in political-economy bias towards inflation. Governments, due to various economic distortions, may have incentives to raise inflation to boost output and lower unemployment. This “time inconsistency problem” underscores the need for an independent central bank free from political pressure. This tendency has highlighted the importance of putting an independent central bank free from political pressure and interference in charge of the conduct of monetary policy.
Among other changes, the lawmakers propose establishing a coordinating committee for monetary and fiscal policies, chaired by the finance minister, to set monetary policy rates and interest rates on the bank’s advances to the federal government. If passed, this committee would include the finance minister, trade and investment minister, budget and economic planning minister, auditor-general, and a presidential representative.
If passed into law, committee membership will include the minister of trade & investment, minister of budget and economic planning, auditor-general of the federation and a representative of the President.
Section 38, subsection 1 of the bill to amend the Act also proposes that notwithstanding the provisions of section 34 (d) of this Act, the Bank would grant temporary advances to the federal government in respect of temporary deficiency of budget revenue at such rates of interest as the bank may determine; provided such rate is determined with the coordinating committee for monetary and fiscal policies chaired by the minister of finance and will not in any case be below the average MPR for the preceding 12 months.
Economic experts who spoke on the issue say that singular move will not only erode the bank’s operational autonomy but also breed conflict of interest since the committee is chaired by the minister and dominated by fiscal actors. The popular opinion is that independence insulates central banks, making them less susceptible to political interference. They are, therefore, able to behave more predictably in their day-to-day decision-making process. This enhances economic stability and stimulates growth. The experts believe that amending the CBN Act along that line could cause economic turmoil.
The amendment of the CBN Act, also states that the central bank budget can only be implemented upon the consideration and approval by the relevant committees of the National Assembly in line with the provisions of the Fiscal Responsibility Act, 2007.
For economic policy analyst and investment banker, Stephen Momoh said that position is a threat to the independence and operational autonomy of the bank as the apex monetary authority. “Subjecting the CBN’s budget to National Assembly approval undermines its institutional autonomy and introduces the potential for political interference in monetary policy,” he stated, adding that this could lead to significant delays in monetary policy implementation and hinder swift monetary policy responses with potential negative implications for macroeconomic stability.
Central banks have been accorded more independence for decades, which has helped bring down and keep inflation low and reduced the risk of fiscal crises. However, Bandaogo noted that as their interventions in the economy with unconventional policies expand further beyond their original mandate, especially those pertaining to financial stability, critics have called for more oversight of their activities.
That is because some of the central banks’ newfound responsibilities such as financial stability do not have a precise and unambiguous target or measure, making accountability difficult. “The evidence in support of central bank independence remains strong,” he quipped.
Economic analyst Paul Alaje said the central bank must not be brought under the manipulation of political office holders no matter the perceived ills of the apex bank. He said the independence of the bank is not negotiable. “The independence of the Central Banks of Nigeria should not be touched or changed. For no reason should the national assembly subject the central bank to the authority of the Minister of Finance. That will be a big error. We must condemn the recent decision to revise the CBN act for this purpose,” Alaje tweeted on X in reaction to the proceeding.
Some of the proposed amendments to the CBN Act are commendable as they are designed to entrench the culture of compliance, strengthen corporate governance, and reposition the Bank for improved performance in attaining its mandate. However, some of the major proposed amendments to the Act appear to erode the Bank’s autonomy and weaken the independence of monetary policy, at variance with international best practices.
The experts and industry stakeholders said the lawmakers can only work for a synergy between the fiscal and monetary policies to achieve the desired economic growth. “What we need is a joint committee between the fiscal and monetary authorities for policy review and convergence. It is not to subject the @cenbank under the finance ministry. Who says you cannot have over-ambitious MoF in future? Check and balance is important but not at the expense of the @cenbank. But legs (fiscal and Monetary) MUST be separate and interdependent,” he stated.
Industry stakeholders and policy analysts have also expressed concerns over the proposed amendments to the Central Bank of Nigeria (CBN) Act 2007 by the National Assembly. They warn that the amendments could undermine the operational independence and flexibility of the central bank, which is crucial for achieving its price stability mandate. Analysts argue that this would promote undue political interference in economic matters, as the fiscal authority would dominate the committee’s membership and leadership.
The Chartered Institute of Stockbrokers (CIS) and the Association of Securities Dealing Houses of Nigeria (ASHON) have raised concerns that the bill could undermine the independence of the Central Bank of Nigeria (CBN).
President and chairman of the Council of CIS, Oluropo Dada, emphasized the essential role of the Central Bank of Nigeria in upholding economic stability and international credibility. Oluropo said protecting the independence of the CBN is key for aligning with global economic best practices and ensuring that decisions are made based on sound financial principles, free from undue influence,” Dada stated.
Also, chairman of ASHON, Sam Onukwue said ensuring the independence of the central bank is crucial for maintaining the country’s reputation in the global financial community. This directly impacts investor confidence, credit ratings, and the overall economic outlook.
While both organizations recognised the value of some proposed amendments aimed at improving corporate governance and compliance, they stressed the need to consider the broader consequences.
“It is crucial to ensure that fiscal authorities do not interfere with the central bank’s operational independence, as this is essential for effective and timely monetary policy responses,” Dada stressed. Financial market participants, economists, and analysts are set to closely monitor the proceedings and the subsequent legislative actions. The outcome will have significant implications for Nigeria’s economic policy framework and its standing in the global economic arena.
The Conference of Civil Societies in Abuja also joined their voice against the planned amendment when its leader, Adams Otakwu said the amendment would negatively affect the bank’s ability to effectively manage the economy and Nigeria’s monetary policy.
In agreement with the International Monetary Fund (IMF), the Conference of Civil Societies warned that the proposed amendments to the CBN Act would undermine the bank’s strength and autonomy. The group sought to alert concerned Nigerians about the “dangers of removing the bank’s autonomy.”