The Bank of Uganda (BoU) has rejected the proposed amendments to Article 161 of the Constitution regarding the composition of the Central Bank’s Board of Directors.
BoU officials led by Deputy Governor, Michael Atingi-Ego Tuesday appeared before Legal and Parliamentary Affairs Committee that is scrutunising the Constitutional Amendment Bill, 2020 tabled by Igara East MP, Michael Mawanda in May 2020.
The Bill is intended to remove the Governor and Deputy Governor from being chairperson and deputy chairperson of BoU’s Board of Directors respectively.
The Bill wants the Governor to act as the Chief Executive Officer of the Central Bank.
Wawanda defended his move saying the constitutional amendment was intended to ensure that the Central Bank Board remains independent of the management so that it can carry out supervision without interference and conflict of interest.
However, BoU wants to status-quo to remain for the sake of Uganda’s financial sector stability.
Atingi-Ego told the Committee that the Governor has key targets to achieve especially in relation to monetary policy, price stability and if the current law is tampered with, it would be difficult achieve those targets in case of a conflict between Governor and Board Chairperson.
He argued that the case isn’t unique in Uganda and that 86 Central Banks around the world have the Governor as the Board Chairperson.
“The risk of conflict, especially for a board with public policy formulation roles is minimized by fusing the chairmanship of the board with Governorship and Chairmanship board held by the same person,” Atingi-Ego said.
BoU also rejected the proposal to exclude Deputy Governor from holding a seat on the Board.
However, MPs on the Committee rejected BoU’s argument, saying that the current status quo is what has created conflicts within the Central Bank.
The MPs say the proposed amendment is intended to restore sanity within the Central Bank and there is need to end this fusion.
Bugweri County MP, Abdu Katuntu rejected the protest from the Central Bank not to separate Board from Management, saying the current mode is ancient and there is need to run the Central Bank in accordance with current corporate governance structures.
“Which office in this country that supervises the Governor and the Deputy Governor? None. Because we can’t have a vacuum where you have a Governor and Deputy Governor who are unsupervised. You even don’t have performance reports or evaluation of the Governor and Deputy Governor,” said Katuntu.
He added: “They are actually a law out of themselves. Because the Board that would have carried out such functions, he is actually the boss. I still think, we need to sort this problem out. When you look at what we call corporate governance, this issue of fusion of management and the board has since been abandoned.”
Mwenge South MP, Aston Kajara said that currently, the Governor as the Chief Executive of the Bank and the Board Chairperson, acts as the accountant, audits himself and also the cashier is all intertwined.
“Even in the bible, there is what we call the trinity, the powers aren’t so fused and in case of the Bank, it is all in one. The Governor can’t be omnipotent, omnipresent and omniscient. This marriage between the Board and Management is what we think isn’t proper,” said Kajara.
Atingi-Ego also rejected the proposal to end the practice of Board to approve the budget of the Central Bank and bring it back to Parliament, saying the current practice is based on international best practices and majority of Central Banks have their budgets approved by their Boards.
He added that the approach is intended to preserve central bank financial and functionality autonomy when taking decisions especially those regarding monetary policy and financial stability.
“The proposal effectively introduces a requirement for an external body to determine which monetary policy operations are justifiable, at what cost should they be conducted. Such an approach would ultimately raise questions on exactly which entity is accountable for monetary policy since the central bank would cease to be fully in charge of the choice on what is appropriate,” Atingi-Ego said.
He added that there is no need for Parliament to poke its nose into the Central Bank’s budget because if it was the case of separation of powers, there is already an Audit and Governance Committee of the Board that checks on management and its resolutions are final and binding on the Board and management.
However, MPs led by Bugiri Municipality, Asuman Basalirwa rejected his argument saying the body was established in contravention of the constitution that places overall powers of the Central Bank in the Board.
“How is this charter constituted? What is its legal efficacy? Where is it derived either from the Act or constitution that its resolutions should be binding? Who constitutes it? How is it funded? And how do you guard against its compromise?” Basalirwa said.
Background
Mawanda drafted and tabled the constitutional amendment following the failure by Government to table amendments to restore sanity in management of Bank of Uganda as recommended by Parliament’s Committee of Commissions, Statutory Authorities and State Enterprises (COSASE) after investigations into the controversial closure of seven commercial banks.
Parliament’s report had recommended for the separation of the offices of Governor and Deputy Governor from management so as to improve efficiency in the running of the Central Bank.
– businessfocus.co.ug
