BoB seeks greater autonomy
The Finance Ministry is considering an amended Bank of Botswana (BoB) Act that, amongst others, will enhance the central bank’s autonomy and support its role in the transformation of the economy.
Since its establishment in 1975, the BoB has been wholly government owned with its board and governors appointed by the President and the Finance Minister. Monetary policy, which includes interest rate management, has been influenced by the fiscal authority and also been supportive of government’s economic aspirations such as recently seen in the BoB’s slew of initiatives to support economic recovery in the coronavirus pandemic.Central bank independence, or “operational autonomy” meanwhile, means that a central bank has the freedom to conduct monetary policy without political or government interference, the BoB said this week in a commentary accompanying its 2019 Annual Report.
“Going forward, there will be need to entrench aspects of practice by the Bank of Botswana and institutional relationships into legislation in order to clarify the ranking of objectives, enhance autonomy of the Bank and associated accountability requirements, improve the institutional arrangements relating to the conduct of policy, policy dispute resolution process and, generally, to update the law to align with modern practice and conventions,” the Bank said. The commentary continues: “In view of this, a draft amended Bank of Botswana Act incorporates anchors for central bank autonomy, clarity of mandate, and institutional arrangements for greater transparency and accountability.”
Senior BoB officials, including governor, Moses Pelaelo recently briefed President Mokgweetsi Masisi and his Cabinet on the Annual Report and its accompanying commentaries, which include the plans for greater autonomy. The state-owned Daily News reported last week that the central bank had submitted a draft amended BoB Act to Finance Minister, Thapelo Matsheka for “legal drafting and possible consideration by Parliament later this year”. According to the Bank’s research, there is “sufficient evidence” that central banks with clearly defined mandates, specified instruments and operational autonomy are more successful in executing policy and achieving policy objectives.
“Going forward, there is need for a legal anchor to ensure de jure central bank independence as the country’s economic landscape and structure evolve from a mineralbased to a knowledge economy as espoused in Vision 2036,” the BoB said.
The BoB also said there was general consensus that for central banks to achieve the main focus of monetary policy, which is price stability, they needed clearly defined mandates, guaranteed independence and a strong accountability framework. The accountability framework would require the central bank to explain how its decisions contributed to its goals and guard against arbitrary exercise of power.
Greater central bank independence, the BoB said, was associated with lower inflation as it lends support to greater credibility of the bank’s commitment to price stability and helps manage inflation expectations. In addition, greater autonomy avoids a situation where central banks “succumb to the temptation to stimulate the economy today at the expense of higher inflation in the future”. Limits to government influence could include exclusion in terms of operations, policy formulation and lowering the state’s access to central bank funds. Government would however still be expected to define the “public good” on behalf of Batswana then allow the Bank to pursue it.
The latest developments echo debate still ongoing in South Africa about the role of the central bank there and even the composition of its ownership.