Halt plot against CBK: It is ruinous to our economy

Central Bank of Kenya (CBK) Governor Patrick Njoroge’s remarks that the institution charged with ensuring stability in prices and promoting economic growth is under attack should not be taken lightly.

The governor’s concerns point to possible interference in the running of this critical financial institution. He has on several occasions sounded the alarm when he felt that the powers vested in him were being watered down. In an interview with CNN in March, he called for the strengthening of institutions and the need to ensure that rules were predictable if the economy was to turn the corner.

However, his latest comment paints the picture of an institution whose role in dictating the pace of the economy could be experiencing emasculation. It is because of the mischief that Dr Njoroge alluded to that such ruinous schemes like Goldenberg came about in the 1990s; the consequences of which we are still paying.

The architect, Kamlesh Patni, came up with what was known as export compensation. In truth, Sh16 billion was paid for fictitious gold exports. That led to a near economic collapse; the depletion of dollar reserves led to massive inflation (the worst in history) with the price of food and other basic commodities going up by the minute. That should not be allowed. That the National Treasury could commission a Bill with far-reaching implications on the powers and roles of CBK is cause for alarm. Njoroge believes the Financial Markets Conduct Bill 2018 will weaken the Banking Act and in the end render Central Bank a toothless institution unable to attain its vision of growing into a modern entity at the heart of a vibrant economy.

It should never be lost on us that the bank failures that happened in the 1990s were accompanied by major loss of public funds and erosion of confidence in the banking sector.

A lot will be at stake if the independence of CBK is infringed.Creating parallel institutions that will lead to a twin-peak model of governance could make it challenging for CBK to instill market discipline in a sector that holds more than Sh3.8 trillion in assets.

The National Treasury should not overlook this crucial office when drafting new regulations, especially when they touch the foundation of CBK’s existence.Weakening CBK could also give banks room for reckless behaviour, putting depositors’ money at stake.

The governor’s reference to “certain parties that lie in wait, poised for mischief” should have depositors worried if indeed the impact of the proposed laws is exactly as Njoroge has interpreted them.Even away from Central Bank, the Government should be ready to embrace the independence of constitutionally-recognised institutions and work with them, without which the economy is at risk of crumbling.