Nigerian lawmakers are seeking to limit the central bank’s autonomy and curtail Governor Lamido Sanusi’s powers after he criticized them for overspending and doubled interest rates.
Bankers and central bank officials made presentations in Parliament in Abuja today against lawmakers’ bid to amend the Central Bank of Nigeria Act. The proposals aim to strip Sanusi of his position as chairman of the bank’s board, remove the deputy governors from it and give lawmakers the right to approve the bank’s budget. Sanusi, 51, didn’t appear at the public hearing.
As central bank governor of Africa’s largest oil producer, Sanusi has won plaudits from investors for cleaning up the banking industry and rescuing it from near-collapse in 2009. At the same time, lawmakers oppose his push for spending curbs on salaries and have criticized him for wielding too much power.
Sanusi “has been very decisive, and probably very aggressive in the use of his powers, in terms of making changes,” Bismarck Rewane, chief executive officer of Lagos-based Financial Derivatives Co. and a council member of the Nigerian Stock Exchange, said by phone Oct. 18. “Nigeria is not used to that kind of aggressive and very rapid change.”
Lawmakers’ bid to limit the central’s autonomy may result in higher inflation, instability in the financial services industry and lower credit ratings, Deputy Governor Tunde Lemo, told lawmakers today.
Removing the bank’s autonomy over its budget “is in effect a proposal to limit its ability to fulfill its lender-of-last resort function of providing standby loans to distressed banks,” Lemo said. It will “constrain the ability to achieve its mandate of ensuring financial system stability.”
The central bank “would be under imminent danger if it depends on government for funding or waits for government or legislative approval for its financial needs,” he said.
Godwin Emefiele, the CEO of Zenith Bank Plc, Jibril J. Aku, managing director of Ecobank Nigeria Plc, and former central bank governors, Joseph Sanusi and Adamu Ciroma, gave presentations to lawmakers today against the amendment.
Two months after he took office in 2009, Sanusi fired the chief executives of eight lenders after an audit found evidence of mismanagement and reckless lending. In December 2010, lawmakers demanded Sanusi apologize for saying their salaries, accounting for a quarter of the government’s recurrent spending, were damaging for the economy. He maintained that his estimates were correct.
The proposed changes to the legislation are aimed at “having stronger institutions and not a stronger personality or officials,” Victor Ogene, deputy chairman of the House of Representatives Media Committee, said in a phone interview from Abuja on Oct. 19. The current law gives too much power to the governor and the budget is run without scrutiny, he said.
The National Assembly comprises 109 seats in the Senate and 360 seats in the House of Representatives, with the ruling People’s Democratic Party, led by President Goodluck Jonathan, controlling a majority. Jonathan pledged on Oct. 10 to rein in recurrent spending, which includes salaries, to 69 percent of the total budget of 4.92 trillion naira ($31 billion) in 2013, from 72 percent this year.
If the proposed amendments to the Central Bank Act are passed, it will undermine the bank’s independence and send a “very bad signal, not only to international investors, but also domestically,” Samir Gadio, an emerging-markets strategist at Standard Bank Group Ltd., said in a phone interview from Lagos.
Sanusi led the Monetary Policy Committee in increasing the benchmark interest rate by six percentage points to a record 12 percent in the past two years to bolster the currency and curb inflation.
The naira has weakened 2.5 percent against the dollar in the past two years and was trading at 157.2 on the interbank market as of 5:06 p.m. in Lagos. The Bloomberg NSE Banking Index of the top 10 lenders has gained 15 percent in the same period.
Sanusi has already come under fire from lawmakers this year for his proposal to introduce a 5,000 naira note and coins for some lower-denomination notes. Parliament opposed the plan, saying it would cause hyper-inflation, reduce purchasing power, prompt a currency devaluation and a “widening gap between the rich and poor,” according to a Sept. 18 document. Jonathan on Sept. 20 ordered the central bank to halt the program.
Parliament is unlikely to approve the amendments to the law, Ugochukwu Okoroafor, a spokesman for the central bank, said in a phone interview from Abuja on Oct. 19. The bank said on May 3 its budget is audited annually by international accounting firms.
“We believe there’s overwhelming support for the retention of the CBN autonomy and that’s consistent with international best practice,” he said.