Why central bank has no governor nine months on

Bank of Uganda headquarters in Kampala, Uganda. PHOTO/FILE

What you need to know:

  • Sunday, October 23, marked exactly nine months since Emmanuel Tumusiime-Mutebile, the Bank of Uganda’s (BoU’s) Governor of just under 21 years, passed on. Since then, there has been no substantive governor at Uganda’s central bank even as the economy grapples with inflationary pressures. In this explainer, Isaac Mufumba explores the ramifications of not filling the vacant position.

Sunday, October 23, marked exactly nine months since Emmanuel Tumusiime-Mutebile, the Bank of Uganda’s (BoU’s) Governor of just under 21 years, passed on. Since then, there has been no substantive governor at Uganda’s central bank even as the economy grapples with inflationary pressures. 

When did the Bank of Uganda come into existence?
The Bank of Uganda was established under the Bank of Uganda Act of 1966. It is a body corporate with perpetual succession and a common seal and may sue or be sued in its corporate name. The Act was amended in 2000 to enable the institution to among other things maintain external reserves for promoting the stability of the shilling and putting in place a financial structure that would help the country have a balanced and sustained economic growth rate.

So where does the Bank’s authority lie?

Article 161(2) vests the authority of the Bank in its Board of Directors. The article provides thus:  “The authority of the Bank shall vest in the Board, which shall consist of a governor, a deputy governor and not more than five other members.”

Who chairs the Board?
According to Article 161(4) of the Constitution, the Governor and the Deputy Governor are chairperson and deputy chairperson of the board of the Bank.

Who appoints the governor and the Board?
Article 161(3) makes the appointment of the governor, the deputy governor and all other members of the Bank’s Board the prerogative of the President.
The article provides that, “The governor, the deputy governor and all other members of the board shall… be appointed by the President with the approval of Parliament...”

Who qualifies to be the Governor?
Section 8 of the Bank of Uganda Act requires candidates for the job of Governor to be citizens of Uganda and to possess “recognised qualification in economic, financial, business or banking experience.” Section Article 27(1) of the same Act says that the governor is required to be “a person of recognised financial or banking experience.”

So why hasn’t Mutebile’s replacement been named?
President Museveni has not been in a hurry to fulfil his obligations under the Constitution and the Bank of Uganda Act even when it is clear that there is no shortage of Ugandan citizens with the requisite qualifications and experience. And this is not the first time that he hasn’t been in a hurry to fill a vital government office.
The State Minister for Finance (General Duties), Mr Henry Musasizi, however, says that the President will name a Governor in due time.
“It is the prerogative of the appointing authority and you know sometimes he may want to take his time,” Mr Musasizi told Saturday Monitor, adding, “The bank is well. There is a Board, there is a management team and they are working well. Everything is working well. We have not yet seen anything related to the appointment of a governor that is affecting the performance of the Bank.”

What other considerations come into play?
It turns out there is quite a number. Writing in an article titled “Ugandan President keeps governor’s role vacant” and published on www.centralbanking.com<http://www.centralbanking.com> in May, Ben Margulies argues the loyalty of the person to the president is key.
“The prolonged delay may reflect the nature of the Uganda government, where technocratic concerns must compete with demands for loyalty to the President,” Mr Margulies wrote.

Former Bank of Uganda Governor, the late Emmanuel Tumusiime-Mutebile

What is the role of the IMF and the World Bank?
Opinion on how much influence the World Bank and the International Monetary Fund (IMF) have in the matter firmly rests on a cornerstone of conjecture.
Whereas Fred Muhumuza—a development-oriented policy researcher who also teaches economics at Makerere University—says that they have no say in the matter, a former economist at the World Bank, who talked to Saturday Monitor on condition that he is not named says that they must be kept in the loop.
“It is advisable that one should be schooled enough to understand what they do. It is always wise for the President to consult them because he is going to borrow from them through the central bank. It is therefore important that the person who is going to be governor is someone who can work with them (IMF and World Bank) and have a conversation,” the economist says.

Is the lack of a governor impeding efforts to contain inflation? 
Inflation has been on the rise since February. In January inflation stood at 2.7 percent, rising to 3.2 percent in February, 3.7 percent in March, 4.9 percent in April, 6.3 per cent in May, 6.8 percent in June, 7.9 percent in July, 9 per cent in August and 10 per cent last month.
One school of thought argues that whereas that rise has been driven by mostly exogenous factors, there can be no meaningful endogenous attempts to contain it without a substantive governor .
The bank’s former economist says there seems to be a failure at the top to appreciate the importance of having the office filled at all times.
“They say that after all the powers are vested in the Board, but I can assure you that if not filled quickly, nobody will take responsibility. They say the deputy governor can remain in charge, but a Deputy is meant to be in charge of the administration while the Governor is in charge of policy. To say that the deputy governor should be able to do both policy and administration is overstretching it,” the former central bank economist reasons.

Is the lack of a governor impacting the economy?
Muhumuza says whereas there might be some concern over the vacuum at the Bank, it would not result in ripples such as falls in stocks and share prices on stock markets as would be the case in Europe. “I don’t think the impact would be so big because we do not have such sensitive and developed markets. The role of our markets here is still very small,” he says.

Is decision making being hampered?
The previously mentioned former central bank economist, however, says the situation is affecting decision making. “When you are in an acting capacity like that you cannot take firm positions. You wouldn’t come out and boldly say, ‘this is not right.’ Or that ‘we handle this with care. It is a hot metal’ because you are waiting to be appointed or expect to be promoted,” the economist said.

Constitutional lawyer, Mr Dan Wandera-Ogalo, adds that many functions, such as those spelt out in Section 48(1) of the Bank of Uganda Act, are pegged to the person of the governor.
“The minister may with consultation with the governor give directions of a general nature relating to the financial and economic policy of the bank,” Mr Wandera-Ogalo said, adding, “Governor according to Section 1 of the Act means a person appointed under the provisions of Section 27 of the Act.”
Some of the said functions include promotion and maintenance of the stability of the Shilling; regulating currency systems and; promotion of economic development “So if the minister and the deputy governor have been making decisions and the minister issues directives on these policy issues like the stability of the currency, regulating the currency system, then whatever they have been doing is a nullity because these are matters of policy which have to do with the governor,” Mr Wandera-Ogalo avers.

Does it pose  legal challenges?

Mr Wandera-Ogalo believes so, and forecasts “a lot of unnecessary litigation” going forward. It is inevitable, he adds, that people will challenge “the decision made by the Bank of Uganda.” The only way out, he concludes, is for the President to do his job.