CBK to get powerful chair raising risk of turf wars

The looming appointment of a substantive Central Bank of Kenya (CBK) chairman with powers over the governor could usher in a period of unprecedented turbulence in the key economic policy organ, analysts have warned. 

The position, which was advertised in the local Press alongside that of the governor and deputy governor, brings to fruition long running efforts to have the CBK board take over some of the governor’s wide influence on the economy.

President Uhuru Kenyatta appears to have set the stage for a clash of egos at the top of the key policy organ by choosing to competitively recruit the board chairman although the law does not require him to do so.

Competitively recruiting a chairman, who does not have security of tenure, has the effect of raising his stature at the central bank by placing him nearly at par with the governor.

But there are genuine fears that holding the influential chairman’s position without security of tenure exposes the occupant to political pressure whose impact on the bank is hard to predict.

The governor’s office, which enjoys security of tenure, is expected to have some wall that shields the occupant from political pressure allowing the occupant to exercise his or her duties with greater autonomy.

The introduction of a relatively powerful office of chairman that is separate from that of the governor is being seen in policy circles as a potential source of ambiguity that could harm the economy in case of a crisis requiring swift action.

State House economic advisor Mbui Wagacha has been holding the post of CBK chairman in an acting capacity for the past two years.

Outgoing governor Njuguna Ndung’u has also voiced concern over the decision to have a chairman separate from the governor, saying it goes against the best practice around the world.

“Central banks should not have separate chairmen. That office undermines the unanimously accepted principle of Central Bank independence. The governor should be the chairman. That is the practice in Uganda, Tanzania — even South Africa,” Prof Ndungu told the Daily Nation in a February interview.

READ: Uhuru to pick new Central Bank governor from list of three

Even developed economies such as England, Italy, France, and Germany and emerging ones such as Brazil and India also allow their central bank governors to act as board chairmen.

The CBK law under which the appointments are being made tasks the board with setting the money markets regulator’s policies, except in the formulation of monetary policy.

The board also reviews the performance of the governor and has oversight over the CBK’s strategy and financial management.

The law requires the governor to be appointed through a transparent and competitive process, which means that the government would either use the Public Service Commission (PSC) or a private recruitment agency to spearhead the recruitment process.

Prof Ndungu left office last week, leaving Mr Kenyatta to choose which path to take in picking his replacement without breaching the ‘‘transparent and competitive’’ requirement in law.

The government has in the end chosen to fill the three positions of CBK board chairman, governor and a deputy governor at once by advertising for applications through PSC.

The CBK is, however, also recruiting through a private recruitment agency eight directors in the executive management wing.

The proposed new CBK Act, which is yet to be tabled in Parliament, will leave the responsibility of recruiting and shortlisting the candidates for governor in the hands of the CBK board.

“As the law stipulates, there will be a competitive process, after which the post (of governor), as well as that of second deputy governor and chairman of the board, will be filled,” the President’s spokesman, Manoah Esipisu, said in a statement on Tuesday.

“A recruitment panel will forward a list of three for each position. In due course, the President will then choose his nominee for each position and let Parliament consider confirmation.” Amendments of the CBK Act in 2012 through the Finance Bill 2011 were largely drawn from the recommendations made by the Select Committee that investigated the depreciation of the shilling to a historic low of 107 units against the dollar in November 2011.

CBK and Treasury were also under scrutiny at the time over the sale of the Grand Regency Hotel, a failed move by Parliament to cap interest rates, and the De La Rue currency printing contract saga.

Before the amendment, the governor chaired the board besides being chief executive of the bank, Critics had faulted the former arrangement arguing that it allowed the governor to chair a board assessing his own performance, thereby limiting the objectivity of any review.

Economic commentators have argued that this is the global best practice in more than 70 jurisdictions, adding that investors put a premium on transparency and credibility of independent the policy-making body.