Treasury explains need for CBK chairman

• Draft constitution proposes appointment of a chairperson to board of directors.
• Officials at Treasury say move allows for oversight on decisions and actions taken by the banking sector regulator.
• But those at CBK say it could be a window for politicians to control Kenya’s monetary policy.

Opinion is divided on whether or not a provision in the draft constitution for the appointment of a Central Bank of Kenya chairman is likely to compromise the governor’s independence in his role of creating and executing the country’s monetary policy.

While officials at Treasury think the provision could allow for oversight on decisions and actions taken by the regulator, those at the Central Bank feel it could be a window for politicians to remotely control Kenya’s monetary policy.

The draft constitution proposes the appointment of a chairperson to CBK’s board of directors, a departure from the current dispensation where the bank’s Governor is both the chief executive and chair to the board.

The draft further provides that the board of not more than seven members shall be appointed by the president with the approval of parliament.

Economic experts have previously argued that posting a political appointee to CBK could compromise the independence of the institution, which is central to achieving price stability and formulating macro-economic policies that support growth.

But according to the permanent secretary at Treasury Joseph Kinyua, appointment of a chair to CBK’s board “is a positive step that is in line with ongoing evolution of central banking.”

Though some equivalents of Kenya’s Central Bank such as the US Federal Reserve Bank and the European Central Bank operate without any oversight authority, Mr Kinyua says countries such as New Zealand and Singapore already have chairpersons to their boards.

“There is conflict of interest in having a chief executive who is also the board chairperson,” says Mr Kinyua. “There should be an independent board to oversee the implementation of monetary policy.”

Mr Kinyua is a long serving treasury official who has also worked at CBK.

He says fears that CBK’s independence will be compromised can be addressed by putting in place a vetting and appointment procedure that ensures only the most qualified individuals with high integrity are appointed to the board.

“The Central Bank of Kenya shall not be under the direction or control of any person or authority in the exercise of its powers or in the performance of its functions,” states the new draft constitution that is currently the subject of public debate with a view to collecting amendment proposals.

The Governor shall also enjoy security of tenure for a term of six years but shall not be eligible for re-appointment.

Mr Kinyua added that the Governor should also be solely responsible for formulating monetary policy, with the board only overseeing its implementation.

Consultant economist

In a response to our queries, the CBK governor Prof Njuguna Ndung’u said he could not comment publicly on the new proposal but will write and submit the bank’s views directly to the constitution review commission.

Consultant economist at Treasury and a member of the CBK board Terry Ryan opposed the new proposal.

“Technical work should be left to technocrats,” said the veteran economist who has worked at Kenya’s Treasury for over four decades adding: “The debate on CBK’s independence in Kenya and other jurisdictions however remains unresolved.”

Prof Ryan pointed out that while the current constitution for example allows the Governor to run CBK and at the same time chair the board, he still remains ultimately answerable to the minister for finance.