In a move towards enhancing the efficiency and transparency of monetary and fiscal policies in Nigeria, Senator Mukhail Adetokunbo Abiru recently introduced a bill seeking to amend the Central Bank of Nigeria Act No. 7 of 2007.
The bill, which has garnered strong support from all 41 members of the Senate Committee on Banking, Insurance, and Other Financial Institutions, aims to introduce key changes to the existing framework governing the operations of the Central Bank of Nigeria (CBN).
However, the proposed amendments to the Central Bank of Nigeria Act No 7 of 2007 have ignited a debate over the autonomy and operational independence of the apex monetary authority. Key sections of the bill, particularly those concerning budget approval, the establishment of a Monetary Policy and Coordinating Committee, and changes to monetary policy operations, have drawn sharp criticism from stakeholders.
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One contentious aspect of the proposed amendments revolves around Section 6, which suggests that the Central Bank’s budget must be approved by relevant committees of the National Assembly in accordance with the Fiscal Responsibility Act of 2007. Critics argue that subjecting the bank’s budget to parliamentary approval could jeopardize its independence and lead to delays in monetary policy implementation, potentially destabilising macroeconomic conditions.
Another focal point of contention is the establishment of a Coordinating Committee for Monetary and Fiscal Policies, with the Minister of Finance slated to chair the committee. Critics contend that this move would undermine the Central Bank’s independence and introduce political interference into monetary policy decisions, contrary to international best practices.
Furthermore, proposed changes to the publication of the Monetary Policy Report and the involvement of the Coordinating Committee in determining interest rates on temporary advances to the Federal Government have raised concerns about the erosion of the Central Bank’s operational autonomy and the potential for fiscal dominance in monetary policy.
The Senate has dismissed claims that it intends to take over the CBN’s authority on interest rate decisions. Contrary to reports, the National Assembly is not planning to transfer this power to a committee chaired by the minister of finance.
Uche Uwaleke, special adviser to the Chairman of the Senate Committee on Banking, Insurance, and other Financial Institutions, clarified the situation.
He stated that the misleading report currently circulating is entirely false. The proposed amendment bill aims to establish a Coordinating Committee to align fiscal and monetary policies, not to undermine the CBN’s Monetary Policy Committee (MPC).
“The amendment bill proposes a Coordinating Committee as an institutional framework for the alignment of fiscal and monetary policies. Its aim is neither to usurp the roles of the Monetary Policy Committee of the Bank nor weaken the instrument independence of the CBN,” Uwaleke explained.
Section 12 of the existing CBN Act, which establishes the MPC and defines its functions and composition, remains unchanged in the amendment bill. To address the controversy generated by the misleading report, the Senate Committee on Banking, Insurance, and other Financial Institutions has postponed the planned public hearing. This delay is intended to allow for further consultations and input from key stakeholders.
In light of this clarification, Uwaleke urged media organizations to publish the correct information to avoid further misinformation.
For further information, stakeholders and the public are encouraged to refer to official communications from the Senate Committee on Banking, Insurance, and other Financial Institutions.
While some commend the proposed amendments for aiming to strengthen compliance culture and corporate governance within the Central Bank, others argue that certain provisions risk weakening the bank’s autonomy and independence, which are crucial for effective monetary policy management.
“While, there is recognition of the need for reforms to enhance the Central Bank’s effectiveness, the proposed amendments have sparked a contentious debate over the balance between institutional autonomy and external oversight, with implications for Nigeria’s monetary policy framework and economic stability,” the analyst said.
Key aspects of the Bill include, establishment of a coordinating committee for monetary and fiscal policies: One of the central proposals of the bill is the creation of a seven-member coordinating committee to be chaired by the minister of finance. This committee would be tasked with setting consistent targets for monetary and fiscal policies, with the overarching goal of controlling inflation and fostering sustainable economic growth.
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Tenure of CBN Governor and Deputy Governors: The bill seeks to establish a single non-renewable term of 6 years for the Governor and Deputy Governors of the CBN, ensuring greater stability and continuity in leadership.
Appointment of career staff in the committee of governors: A minimum of one career staff member of the CBN would be appointed to the committee of governors, bringing valuable expertise and institutional knowledge to the decision-making process.
Enhanced board membership: The bill advocates for the appointment of at least one female external director to the CBN’s board, promoting gender diversity and inclusivity in governance.
Tenure of external directors: external directors would serve a non-renewable term of five years, aligning their tenure with the proposed term limits for the Governor and Deputy Governors.
Creation of Chief Compliance Officer Position: A new position of Chief Compliance Officer, with the rank of Deputy Governor, would be established to ensure robust oversight and adherence to regulatory requirements.
Limit on Temporary Advances to the Federal Government: The bill includes provisions to restrict temporary advances to the Federal Government, promoting prudent financial management and accountability.
Issuance of New Legal Tender: Plans for the phased withdrawal and replacement of existing legal tender are outlined, emphasizing the need for careful implementation to minimize disruptions to economic activities.
Board Governance Restructuring: To enhance governance effectiveness, the bill suggests that Board Committees should be led by Non-Executive Directors rather than Deputy Governors.
Recapitalization of the Bank: The proposed amendment sets the paid-up capital of the CBN at N1 trillion, with provisions for periodic increases subject to government approval.
“Having an independent Central Bank is the accepted practice across all major world economies. Eroding the powers of the Central Bank of Nigeria will put the Government (and legislature) in bad light and not in tune with global economic trends, said an analyst who preferred anonymity.
“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 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.
“Subjecting the CBN’s budget to National Assembly approval undermines its institutional autonomy and introduces the potential for political interference in monetary policy. This could lead to significant delays in monetary policy implementation and hinder swift monetary policy responses with potential negative implications for macroeconomic stability.
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“Some of the proposed amendments threaten the independence and operational autonomy of the Bank as the country’s Monetary Authority.
“The inclusion of the Coordinating Committee for Monetary and Fiscal Policies in determining the rates of interest on the Bank’s temporary advances to the Federal Government 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 analyst said.
The CBN Act was promulgated in 1991 as Decree No. 24. The enactment of this law and Banks and Other Financial Institutions Act 1991 which largely regulate the banking sub-sector of the financial services industry was considered a landmark development as they conferred on the Central Bank of Nigeria a measure of instrument autonomy for the effective discharge of its core mandate.
The bill is spearheaded by Senator Mukhail Adetokunbo Abiru (Lagos East), with extensive co-sponsorship from a bipartisan group of senators including Usman Lawal Adamu, Hussaini Babangida Uba, and Nwebonyi Onyeka Peter, among others.
According to some analysts, if enacted, these amendments will position the CBN to better navigate the complex economic landscape, ensuring more robust financial management and strategic oversight. The legislative effort reflects a broader commitment to strengthening Nigeria’s financial institutions and promoting economic stability.
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