• Friday, June 14, 2024
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Lawmakers’ CBN Act review gambles with economic chaos

Lawmakers’ CBN Act review gambles with economic chaos

When will this back-and-forth end in our country? At 64 years old, Nigeria still crawls like a baby, demoted from the largest economy in Africa to fourth behind South Africa, Egypt, and Algeria, according to the International Monetary Fund’s 2024 review. It’s a painful reality we face every day.

Yet, our lawmakers see stripping the Central Bank of Nigeria of its most prized possession—its independence—as the solution, instead of addressing the failed fiscal policies of this new administration. Insecurity has disrupted food supply chains, causing hunger as farmers fear for their lives. Militia groups roam free, vandalism is rampant, oil sector revenues have plummeted, and education loans are indefinitely suspended.

Instead of focusing on these critical issues, our so-called lawmakers want to control the Central Bank, ignoring pervasive corruption and illegality. This misguided move threatens to plunge Nigeria further into economic chaos.

Our columnists have written extensively on the amendment of the CBN Act of 2007, issuing strong warnings about the economic consequences of the proposed bill that aims to establish a Coordinating Committee for Monetary and Fiscal Policies, chaired by the Minister of Finance. This committee would strip the CBN of its power to determine interest rates, thereby limiting its ability to maintain price stability—a significant problem looms.

There’s a saying that “An unanchored ship drifts aimlessly at sea.” This proverb underscores the necessity of a strong and independent central bank. Just as a ship without an anchor is at the mercy of the ocean’s whims, a central bank without independence can be swayed by political pressures, leading to economic instability—a fact well-known to lawmakers, yet they choose to overlook it.

Most developing economies that have adopted this approach have failed, and even the International Monetary Fund (IMF) warns against it. Unfortunately, those determined to fail seldom learn from the failures of others.

Sri Lanka, like Argentina, has faced unprecedented economic crises due to the lack of independence in their central banks, leading to severe financial instability and economic hardship. The economic crisis, marked by soaring inflation, severe currency devaluation, and widespread shortages of essential goods, has sparked massive public protests and political upheaval. Citizens, frustrated with the government’s handling of the crisis, have called for significant reforms to ensure economic stability and accountability.

“Instead of focusing on these critical issues, our so-called lawmakers want to control the Central Bank, ignoring pervasive corruption and illegality.”

Nandalal Weerasinghe, the governor of the Central Bank of Sri Lanka, has cited the lack of independence of the apex bank in determining monetary policy as a reason for the country’s unprecedented economic crisis.

The Sri Lankan government in May last year (2023) declared a debt default on more than $51 billion in foreign loans—a first in the country’s history. Weerasinghe made the statement on March 16 while discussing a proposed Bill aimed to provide autonomy to the Central Bank without any undue influence from fiscal authorities or the government.

The Central Bank’s lack of autonomy has been a long-standing issue, with successive governments often influencing monetary policies to align with short-term political agendas rather than long-term economic health. This has led to unsustainable fiscal practices and mounting debt levels, culminating in the current crisis, he added.

Other developing countries have experienced economic failures partly due to a lack of Central Bank independence:

Zimbabwe faced hyperinflation and economic collapse. The Reserve Bank of Zimbabwe’s excessive money printing to fund government deficits resulted in hyperinflation, peaking at an estimated 89.7 sextillion percent in November 2008, causing severe economic and social disruption.

Argentina has suffered from chronic inflation and recurrent financial crises. The Central Bank of Argentina’s susceptibility to government influence has led to inconsistent monetary policies and uncontrolled public spending, contributing to recurring defaults and high inflation rates.

Venezuela experienced hyperinflation and economic collapse. The Central Bank of Venezuela’s lack of independence, driven by government mandates to print money to cover budget deficits, resulted in severe shortages of goods and a collapse in living standards.

Greece faced a sovereign debt crisis. The lack of independent monetary policy before joining the Eurozone contributed to the accumulation of significant public debt, leading to the severe debt crisis that erupted in 2009.

Nigeria stands at a critical juncture. Lawmakers must learn from these cautionary tales and understand that compromising the independence of the Central Bank is a dangerous path that leads to economic ruin. We must demand better governance and resist moves that will only deepen our economic woes. The time for decisive action is now—our future depends on it.

A public hearing scheduled for Thursday to review the amendment has been indefinitely suspended, in what may be a sign that the lawmakers are beginning to see reasons why the move could be damaging for an economy that needs all the investor confidence it can get.