By Babajide Komolafe
The dynamic nature of monetary policy especially sale of government securities to mop up excess liquidity makes it difficult to subject the budget of the Central Bank to legislative process for approval, says Dr. Okwu Joseph Nnanna, former Director-General at the West Africa Monetary Institute, Accra.
Nnanna made this point in a paper titled: The Imperative of the Central Bank Independence: An analytical Framework- A case Study of the CBN, presented at the 17th annual seminar for financial journalists in Akure.
He said that 80 per cent of the budget of the CBN goes into the sale of government securities through open market opetarions (OMO). He said the amount spent on OMO, to pay for interest rate on government securities, is determined by the fiscal operations of the Federal Government.
He said if the spending of the fFederal Government causes excess liquidity or it wants to borrow to fund its budget, the apex bank would have to mop up the excess liquidty by selling treasury bills or borrow for the government by selling bills.
He said the challenge, however, is that the apex bank cannot determine in advance how many times it would sell treasury bills rather, this is determined as required by the spending acitivities of the Federal Government.
He said the implication is that if the CBN submits a budget to the National Assembly and the budget is approved, it will have to go back to the lawmakers everytime the need arises for it to spend money to conduct OMO beyond what is contained in the approved budget.
This, he said, will lead to delay in conduct of monetary policy with severe implication for the economy.
Corroborating Nnanna, Prof. Sam Olofin, an independent director on the Board of the CBN said: “The apex bank cannot possibly know its budget sum ex-ante because it could not possibly know how many banks it might need to bail out and how much mopping up it would need to do after each ‘inappropriate spending’ by the government.
Olofin added: “For this reason, the CBN can only and does only present its budget to the National Assembly post-ante (after spending) and only for the purpose of information and not for approval.”
According to him, Section 3 of the CBN Act 2007 gives the apex bank goal independence (to set monetary policy goals); management independence (to hire and fire) and operational independence (to determine what policy instruments to employ), and that this should not be altered.
He however advocated that provisions of the section should be enshrined in the Nigerian constitution to avoid a case whereby it would be amended arbitrarily.
He explained that the CBN autonomy had never been absolute, as the Bank is accountable to the Presidency, as it gives regular reports on what it is doing; to the National Assembly, as it gives a report to the lawmakers at least twice every year, and to the general public through the press.