Njuguna Ndung’u has been replaced as the chairman of the Central Bank of Kenya (CBK) following the passage of a controversial law seeking to trim the powers of the governor and foster good governance.
Economist Mbui Wagacha has been elected as the interim chairman awaiting a formal appointment by the President as per the rules passed last year. This is the first time this has happened since Independence in 1963.
The governor, however will continue chairing the Monetary Policy Committee (MPC), meaning the board’s role will be administrative.
“The appointment is not gazetted. He was elected by non-executive directors as an interim case,” said Prof Ndung’u in an email response to the Business Daily. “I will chair the MPC.”
The separation of powers makes the chairperson answerable over the management of Central Bank as an institution while leaving the governor with the role of making policies to ensure macro-economic stability of the country.
“They changed the law to have the CBK board chaired by a different person who oversees the performance of the governor and the bank,” said Dr Wagacha while confirming the interim position.
Last year, Parliament reviewed the Central Bank Act separating the chairperson and the governor while expanding the membership of the board.
As per the act the chairperson shall be appointed by the President through a competitive process and approved by Parliament. The chairperson will occupy the seat for a four-year term renewable only once as is the case with the governor. The appointment of the board is to be staggered to ensure continuity.
Currently, the board is also not fully constituted as per the new Act as it has four directors against the requirement to have eight non-executive directors besides the chairperson, governor and principal secretary.
“That will happen as per the terms which call for competitive sourcing; so I believe they will have to advertise,” said Dr Wagacha.
However, the Act is silent on how the directors are appointed only stating they must be Kenyan citizens, knowledgeable or experienced in monetary, financial, banking and economic matters or other disciplines relevant to the functions of CBK.
Under the separated powers, governor acts as chief executive of the bank answerable to the board and is the representative of the bank in public.
The battle over whether to have a separate chairman or not has raged on since 2009 when the proposal was expunged from the draft constitution, in part following CBK protests.
The Treasury supported the move though with then PS Joseph Kinyua saying: “There is conflict of interest in having a chief executive who is also the board chairperson.”
MPs amended the CBK Act following the 2011 currency depreciation crisis claiming conflict of interest.
On top, departments that used to operate under CBK have been elevated to stand-alones leading to the governor influence in the financial sector being reduced.
The Deposit Protection Fund Board will have its own chief executive following passage of the Kenya Deposit Insurance Bill in Parliament.
The regulator has recently been under the spotlight after it was accused of failing to follow due process in giving out a security tender worth Sh1.2 billion.
Its performance was a source of debate at Parliament with some members calling for the firing of the governor when the shilling plummeted in 2011, amidst high inflation and interest rates.
Other directors currently sitting at the board are Florence Muindi, Vivienne Apopo, William Otiende and John Msafari. Dr Wagacha was appointed to the non-executive board two years ago.
He holds a PhD in Macroeconomics and Monetary Economics from the University of Geneva, masters in International Trade and Econometrics from the University of Manitoba, Canada and a Bachelor in Economics from Swarthmore College, US.
Most central banks combine the roles of governor or president with that of chairman though.