Uttermost caution must be taken to insulate the financial system and the economy from the dire consequences of the Sanusi saga so as not to erode the economic gains of the Nigerian economy in the past four years. If Sanusi must ‘sink’, the Central Bank of Nigeria (CBN) as an institution and the financial market should not ‘sink’ along. The financial system is the lifeblood of the economy and CBN is the arrow head and guardian institution charged with the very important responsibility of ensuring financial stability.
In the past four years (2009-2013), CBN engendered macroeconomic stability through remedial and proactive policies. In 2013 Nigeria’s macroeconomic indicators rose by more than 6 per cent with a current account surplus equivalent to about 8 per cent of GDP, while debt-to-GDP ratio was less than 20 per cent. Earlier in 2012, the economy posted one of the fastest growth rates of 6.5 per cent above the global growth rate of 3.5 per cent even as IMF/World Bank projected a 7 per cent growth in 2013.
The sanctity, independence and integrity of CBN must not be sacrificed on the altar of political gyration. It may be necessary to revisit the report of the Financial Reporting Council of Nigeria (FRCN) which gave a damning report on CBN. The report should be subjected to further scrutiny to ascertain its objectivity or otherwise.
Such a report should strictly be objective and not subjected to any political consideration. But what do we have? In the second bullet point of the report it was so remarked: ‘’for political reasons’’. And one is wondering what ‘’political reasons’’ has to do with a report that should be based on cold and hard and objective facts which should encompass all necessary information material? A careful analysis reveals that the report has some blind spots which should be brought to light for necessary clarification.
One, it is pertinent to note that FRCN is under the supervision of Ministry of Trade and Investment. As such it could be subjected to a certain measure of political radiation or influence. And this is with every sense of responsibility. Two, the report failed to mention whether there was an increase or decrease in income generated by the CBN in the period under review. It failed to inform the President whether CBN was remitting more money or less into the federation account since the advent of Sanusi Lamido’s administration. Why? Available figures show that the apex bank remitted far more into the federation account under the period than in the past eras. Why should such vital material information be excluded from the report? Was that a genuine error, or was it deliberate and self serving?
Three, the report failed to indicate the scope of CBN’s expenses as it did not indicate that besides CBN’s Headquarters in Abuja, the apex bank has 37 other offices across the federation. Four, it is ironical, and curiously so that CBN which ensures that the financial reporting of banks and other financial institutions are up to scratch could not get anything right with its own financial reporting, if the FRC report is anything to go by.
These are some of the reasons it may be necessary to revisit and subject the report to further scrutiny in order to establish a proper value perception and not also misinform International investors whose confidence in the Nigerian economy has been on the rise because of their confidence on CBN’s global best practices.
The autonomy of CBN is sacrosanct and should not be violated as a result of the ongoing saga. The government is advised not to contemplate exerting pressure or micro managing CBN as doing so will spell disaster for the Nigerian economy. Central bank independence offers more credible monetary policy as there is increased transparency in the policy making policy. And ceteris paribus (all things being equal) central bank independence yields lower inflation rate. Thus, countries with independent central banks often achieve lower inflation rates because there is a negative correlation between central bank independence and lower rates of inflation. It becomes obvious why CBN achieved a single digit inflation rate of 8.5 per cent down from a band of 10- 12 per cent, better than what the government projected.
Across the world, more countries have implemented reforms to grant Central banks greater independence from direct political control. Political interference or pressure in central banks often result to economic cycle- ‘’boom and bust’’. And an established trend with pressured central banks is that monetary policies turn expansive before elections with associated short term gains but with long term inflationary consequences which hurt the economy.
International organizations such as IMF, World Bank and Bank of International Settlement (BIS) strongly support Central banks’ independence because of the intrinsic merit of increased independence. Independence of central banks is four dimensional, namely, legal independence which is enshrined in law, goal independence- whereby central bank are given free hands to set their goals, operational independence- whereby they autonomously determine and evolve strategies of achieving set goals, and management independence- whereby there is no interference in the hiring of the work force.
Without management independence, the other three types of independence will be unattainable. Management independence is therefore often a total no go area for governments. Legal independence offers government (EXECUTIVE and LEGISLATURE) but limited control to the extent that the executive (President) nominates the Central bank governor while the legislature ratifies it. Notwithstanding, this limited control by government is subject to further legal interpretation based on individual countries’ enabling Act.
CBN’s autonomy has resulted in macroeconomic stability which has engendered planning with ease. Though not a few people have criticized the prevailing tight monetary policies but the reasons are obvious. They are as proactive as they are good for now for the Nigerian economy. The high interest rate regime is because the Nigerian economy has been noted as a high growth economy which recorded the fastest growth rate of 6.5 per cent in 2012 above the global growth rate of 3.5 per cent and projected to grow at 7 per cent in 2013. High interest rate is used as a contra-cyclical strategy in a high growth economy to avoid heating up the economy and also prevent a bubble.