Kampala, Uganda | THE INDEPENDENT | Bank of Uganda (BoU) has disagreed with the proposed amendments to Article 161 of the Constitution regarding the composition of the Central Bank’s Board of Directors.
The Deputy Governor Bank of Uganda Michael Atingi-Ego accompanied by other Central Bank officials on Wednesday presented their position to the Legal and Parliamentary Affairs Committee.
This is in response to the proposed Constitutional Amendment Bill, 2020 tabled by Igara East MP, Michael Mawanda.
The controversial clause in the Bill is the proposal seeking to separate the fusion between the BoU management from the Board of Directors by removing the Governor and the Deputy Governor from being Chairperson and Deputy Chairperson respectively of the board of directors of the Central Bank.
Mawanda argues that the Central Bank Board needs to be independent of the management so that it can carry out supervision without interference and conflict of interest.
However, Atingi-Ego recommends that in line with international best practice, the status quo should be maintained given that the current BoU board plays a dual role in public policy formulation and oversight.
In the East African Community (EAC), the only country using the proposed amendment is Kenya, but the Deputy Governor says that this has not been tested long enough to provide a reliable benchmark to justify a departure from the current practice.
He adds that the Governor has key targets to achieve especially concerning monetary policy, price stability and financial system stability and that such targets will be very difficult to achieve if there is a conflict between the Governor and the Chair of the Board.
“The risk of conflict, especially for a board with public policy formulation roles, is minimized by fusing the chairmanship of the board with the Governorship of the Central bank. Indeed, majority of Central Bank boards (over 86%) have the Governor and Chairmanship of the board held by the same person,” says Atingi-Ego.
He further explains that countries such as Ghana which have attempted to separate the Governorship from the board chair roles have reverted to fusion for such reasons.
The proposal in Mawanda’s Bill follows a 2019 report by the Committee on Commissions, Statutory Authorities and State Enterprises (COSASE) on the closure of seven commercial banks.
The report adopted by Parliament recommended that the Bank of Uganda (BoU) Governor Emmanuel Tumusiime-Mutebile and his then-deputy Dr Louis Kasekende be sacked from the Central Bank’s Board of Directors if the institution is to run its operations efficiently in the future.
The committee then chaired by Bugweri County MP Abdu Katuntu argued that much as Article 161 (4) provides that the Governor and Deputy Governor shall be Chairperson and Vice-Chairperson respectively, good governance principles would require that the position of the Chairperson and Vice-Chairperson of the board is separated from the position of the governor and his deputy.
In response to Atingi-Ego’s submission, Katuntu maintained his earlier position saying that the Central Bank needs a board that is supervisory, oversight and not fused with the leadership of the Bank. He disagreed with the opinion of the Deputy Governor that Kenya’s practice cannot be relied upon for benchmark.
He adds that the country cannot afford to have a Governor and Deputy Governor who is not supervised.
Katuntu was supported by Mwenge County MP Aston Kajara saying that the issue of conflict of interest in the way the board and management of the Central Bank are structured needed to be changed immediately.
But Bugiri Municipality MP Asuman Basalirwa agreed with the position of the Deputy Governor regarding maintaining the status quo saying that the idea of separating their roles will be problematic.
Kaberamaido County MP Veronica Elagu Bikyetero did not have a position saying that they need to find a neutral ground but certainly improving the status quo.
Regarding the proposed amendment to provide for the functions of the Governor, BoU recommends that the functions should be better detailed in the Bank of Uganda Act with a comprehensive list of all the roles to be executed by that office.
Atingi-Ego also notes that the practice across a majority of Central Banks is that the Governor and Deputy Governor have the same tenure.
The Bill sought to limit the term of the Deputy Governor and the board members to only ten years. Currently, the Governor, his Deputy, and the board members hold office for a term of five years but are eligible for reappointment.
“We seek guidance on the rationale for the proposed differences on reappointments for the Deputy Governor via-a-vis that of the Governor and other board members. We would then be in a better position to comment,” says Atingi-Ego.