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Before the dust
settles on the recent tiff between the governor of the Central Bank of
Nigeria and the National Assembly over how much of federal spending on
salaries goes the latter’s way, and before an affliction of common
sense sweeps the detritus under the carpet, it helps to draw a line
under the lessons. The main learning point is the reassurance from the
public’s response to the exchange that the domestic moral space is
alive and thriving. Apparently, despite the seeming dominance of
corrupt practices, Nigerians still can tell the difference between
right and wrong.

First, concerning
the “wrongs”. Given the serious infrastructure worries faced by those
who just want to do honest business/work in this country, it is an
unconscionable misplacement of priorities that capital spending
continues to account for only a quarter of public sector expenditure.
Second, in the light of the many shortcomings of the domestic economy,
including rising unemployment, and soft domestic demand, it is both
inefficient and inequitable for a small section of the people to
account for so large a portion of the non-capital part of public
spending. Third, it is sad that the finance minister tried to play fast
and loose with a clear opportunity to address an important aspect of
the business of correcting obvious faults in the public expenditure
management framework. Fourth, the democratic space will suffer
severely, if elected officials react as viscerally as they did to the
CBN governor’s remarks, each time someone has cause to disagree with
their practice.

Obviously, the CBN
governor was right to have alluded to the problem; and one only needs
read the speech in which he broached the issue to put the whole hoopla
in proper context. He did even better for the public’s perception of
the integrity of our much-maligned cadre of public officers, by staring
down attempts by the legislators to force him into retracting his
claims. Overall, therefore, a completely wholesome result? Reputations
were strengthened, dubious processes re-examined and weak character
types exposed.

Yet there are
worries! There is one very important leg of the CBN’s ongoing reforms
to the financial services sector that the National Assembly still has
to enact: “The Banking Sector Resolution Cost Fund”. Nothing in our
recent past justifies us in the hope that our distinguished lawmakers
would rise above their personal feelings of affront at the CBN
governor’s chutzpah (“treason”, some even called it), and consider this
bill on its merit. Might we then need to remind us of the excitement
generated by the CBN governor’s daring in order to persuade the
necessary legislation?

Everyone agrees
that the CBN governor’s recent interventions on behalf of the banking
sector are justified because of the banks’ financial intermediation
function. We need the banks to work well to efficiently allocate
financial resources. There is little disagreement on the use of a bad
bank (the Asset Management Corporation of Nigeria ( AMCON) to clean up
the industry’s balance sheet. On the question of how to pay for AMCON’s
purchase of the dud loans on the banks portfolios, however, there has
been a lively debate. Originally, it was proposed that the CBN and the
finance ministry would fund AMCON’s activities in equal proportion.
However, in the bill that it may take to the national assembly, the CBN
is proposing to guarantee bonds issued by AMCON in pursuit of the
latter’s mandate to the tune of N500 billion over a ten year period,
while banks will provide the N1 trillion balance estimated to be
necessary for this purpose.

One argument
against the CBN’s arithmetic is that the resolution cost fund bill’s
requirement that banks part with the equivalent of thirty basis points
of their total assets is a burdensome tax on the performance of healthy
banks. In the alternative, it is proposed that a more equitable measure
would be to use banks’ revenues as a denominator for calculating their
obligations to the fund.

If we have learned anything from the CBN governor vs. National
Assembly episode, it is that we must resist any attempt by the National
Assembly to pussy foot on the passage of this bill by recourse to
excuses such as these. Ireland’s recent sovereign debt debacle
strengthens the case for recourse to banking sector funds for the
industry’s rescue, rather than the public purse.