Jide Akintunde, Managing Editor/CEO, Financial Nigeria International Limited
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- Fiscal Policy
The leadership collapse at Central Bank of Nigeria 09 Mar 2018
CBN Governor Godwin Emefiele
From $28.97 billion a year earlier, the Nigerian foreign reserves had grown to $41.62 billion on February 16th, 2018. The current threshold of the reserves is approximately 65 percent of the ten-year peak of $63 billion recorded in 2008. Nevertheless, the current leadership of the Central Bank of Nigeria (CBN) has been celebrating the recent unhistoric reserves levels.
CBN's chest-thumping on the rise in the external reserves has been misleading. It has created the impression that the apex bank was doing a great job of delivering its mandate to “grow” the reserves. But, like other central banks, the mandate of the CBN is to “manage” the public sector foreign reserves, prioritising safety and liquidity of the reserve assets.
The reserves have been growing for three reasons: oil prices have increased by 20.7 percent since January 2017; Nigerian external borrowing has increased by 17.4 percent between December 31, 2016 and September 30, 2017; and the capital market has been attracting speculative foreign portfolio inflows. None of these should really give comfort to a central bank. Besides, the CBN is not worthier of praise for the rise in the reserves when oil prices significantly rise than it is not blameworthy for the decline in the external reserves when oil prices fall sharply.
In spite of its song and dance over recent accretion to the reserves, however, the CBN is at the brink of a total leadership collapse. Its position of Deputy Governor in charge of the Economic Policy Directorate has been unoccupied since March 2017. Since the beginning of this year, the office of Deputy Governor for the Corporate Services Directorate has also been vacant.
Since November 2015, the CBN has been without any non-executive director. Most of the non-executive directors had left four months earlier. Whereas, the CBN Act 2007 mandates a 12-member Board for the monetary authority, only three members are currently functioning: the CBN Governor and the deputy governors in charge of the directorates of Financial System Stability and Operations.
With the leadership vacuum at the level of the Board of Governors, serious performance gaps have opened at the CBN. The Economic Policy Directorate, which has been without deputy governor, the statutory head, for 12 months, is responsible for the implementation of CBN-mandated financial market operations and effective transmission of monetary policy.
On its own part, the Corporate Services Directorate, also without deputy governor since January, encompasses the Finance department, which is responsible for the implementation of the Bank's accounting policy. The Finance department is also responsible for sound financial and budgetary controls to ensure integrity of the bank's financial records and statements.
Beyond this, the absence of a full board means effective oversight of the internal operations of the Bank has all but collapsed. The Board of the CBN is responsible for critical oversight functions, including the consideration and approval of the annual budget of the Bank; the approval of the audited and management accounts and the formulation and implementation of exchange rate policy. Without the non-executive directors, a critical constituent for making exchange rate policy has been absent. For a spell of over a year from Q3 2015, the Nigerian forex policy was in a crisis, contributing to the loss of confidence of foreign investors at a time the country was reeling from fallen oil prices.
But the situation is direr at the CBN now. The Bank was unable to hold its bi-monthly Monetary Policy Committee (MPC) meeting for January 2018. In the absence of effective replacements for MPC members who served out their term last year, the January meeting could not form a quorum. Out of the 12 statutory members of the MPC, as many as eight members have not been able to assume duty.
Whereas President Muhammadu Buhari, belatedly as in most cases, has appointed both the remaining members of the Board of the CBN and the MPC, the appointments have been pending the confirmation of the Senate. The Senate has been withholding confirmation for Buhari's appointees, following the standstill on the confirmation of Ibrahim Magu as Chairman of the Economic and Financial Crimes Commission (EFCC).
The Senate has twice denied Mr. Magu confirmation since his appointment in November 2015, on the allegation that he was unsuitable for the position. However, President Buhari has refused to replace the embattled EFCC Chairman. When Vice President Yemi Osinbajo, a professor of law, weighed in on the matter, he argued that the Chairman of the EFCC does not require Senate confirmation once appointed by the president. He argued that, the 1999 Constitution (as amended), which is entirely silent on the EFCC, supersedes the stipulation of the requirement of Senate confirmation for the head of the anti-graft agency as clearly stated in the EFCC Act.
Osinbajo's view, therefore, made the Senate to insist on legal resolution of the seeming conflict between the Constitution and the specific enabling laws of federal agencies in respect to the requirement for Senate confirmation for the leaders of the concerned agencies. The CBN Act stipulates that the nominees to the MPC and the Board of the CBN must secure the confirmation of the Senate, although the Constitution does not address the subject.
Without the confirmation of the Senate, Ibrahim Magu has continued to lead the EFCC in “Acting” capacity. Even so has the crisis between the Senate and the President remained unresolved. It is now apparent that the damage to the federal governance system by the intransigence of both the Presidency and the Senate has wider ramifications. It has created what should be viewed as a serious leadership vacuum and, in effect, performance gap at the CBN. Initial questioning of the seeming irreplaceability of Magu should now extend to queries on why his lack of Senate confirmation should deny a critical institution like the Central Bank the full complement of its leadership.
When the January 2018 MPC meeting couldn't hold, the CBN announced that it would uphold the decisions of the previous MPC meeting. With the March 2018 meeting at the risk of not holding, again because of lack of quorum, the CBN has said it would recourse to forward guidance on interest rate.
But instead of muddling along, securing Senate confirmation for the appointees to the organs of the CBN should now become an urgent matter of state. It is either the presidency withdraws the appointment of Ibrahim Magu, or the Senate overrides itself and confirms the appointees for the CBN. The legal clarification the Senate is seeking, important as it may be, is a legal solution to a political problem, which may not even come soon enough.