Furore over RBM

Experts have described recent revelations of ‘abnormal remunerations’ at the Reserve Bank of Malawi (RBM) as a fundamental lapse on governance and have implored the Tonse Alliance administration to devise lasting remedial measures to ensure the bank meets appropriate corporate governance standards.

A civil rights activist Rafik Hajat and renowned legal expert Justin Dzonzi said separately that the revelation from the central bank smacks of lack of modern-day democratic principles.

Weekend Nation sought views from the experts on what could be the best way of ensuring objectivity in determining salaries for RBM senior management when the bank’s governor also sits as its board chairperson.

According to Section 11 (1) of the Reserve Bank Act the Governor shall be chairman of the Board and, in his absence the Deputy Governor shall be chairman

Section 11 (3) states that the Chairman and three other directors shall form a quorum at any meeting of the Board 

On the other hand, Section 13 (1) states The Governor shall be responsible for the day-to-day Executive management of the Bank and shall be answerable to the Board for his actions and decisions.

Parliament is in a similar situation as the central bank where members determine their own salaries and perks.

The experts were also quizzed on the best practices that could be adopted by the central bank and Parliament to ensure that their operations are devoid of conflict of interest when senior managers and legislators determine their own privileges.

This is against a background of recent leakage of the bank’s former governor Dalitso Kabambe’s salary which is said to have more than tripled between 2017 and 2020, let alone the salaries for the bank’s directors also shot up exponentially during the same period.

“The events at RBM indicate a fundamental lapse on governance. It is therefore incumbent upon the government to identify the loopholes that exist and apply remedial measures to ensure that appropriate standards of corporate governance are met and are being adhered to in all aspects of operations within the Reserve Bank,” said Hajat on Thursday. In a recent interview with ZBS Television Kabambe defended his K24 million monthly salary saying it wa decided by the Board of the Bank and it was based on his years of service and  performance in the Bank.

According to him, RBM-which is a lender of last resort-remains a crucial player in regulating the country’s economy, “as such this is a matter of national importance.”

Weighing in on the same, Dzonzi said on Thursday that it was worrying that the central bank is not following best corporate governance principles as recent events surrounding the bank have no space in a democratic world.

However, he said it was imperative for everyone to first appreciate the history of central banks all over the world including the Bank of England, and the Federal Reserve Bank of the United States of America  which historically were private banks.

While providing a comprehensive history of central banks, Dzonzi said historically as they amassed more wealth such that they were able to bail out governments in times of huge debts and eventually they became ‘bankers’ banks.’

As a result, he said most central banks across the globe have over the years surrendered their governance to their board of directors.

“[But] Reserve Bank of Malawi (RBM) is a statutory corporation and was created by a statute. This is why under the RBM Act, when it comes to composition of board, the board chair combines as a governor.

“In other words, the employee is also the owner at the same time which is contrary to rules of corporate governance…all institutions must be run by people and for the people and they ought to be run along good democratic principles,” Dzonzi said.

He also observed that central banks elsewhere in the world speak one language which is that they are unique and therefore even their governance structure should be unique and by that they should depart from the common corporate governance principles.

“This is why we have ended up with a situation where the governor is the chief executive officer as well as the chairperson for the board, an arrangement that is an outright breach of corporate governance.

“As a result of this kind of setup, the decision-making processes of the central bank ignore public sentiments and political realities. This is not an entirely bad thing because the essence of a central bank is to regulate money supply in an economy and so if it is overly politicised there is a danger that it would start making political decisions which may hurt the economy so to protect it from that there is this call that it must be independent from politics,” said Dzonzi.

He said the challenge was that operating in that kind of environment also provides room for abuse noting that the current huge salaries in one of the poorest countries on earth shows a serious disconnection with reality.

“When you live in one of the poorest countries you need not to compare yourself with rich countries when making some decisions. Going forward, we need to put mechanisms that perhaps would distance certain decision-making processes from the individuals.

“We have no problem with the independence of the central bank with monetary policy issues but when it comes to conditions of service they should be totally independent. Perhaps the power should be vested with the Ministry of Finance so that decisions affecting their conditions of service should reflect the general status of the economy.

“With respect to members of Parliament, their conditions of services should also be vetted by an independent body to decide what would be competitive packages for them in an economy like Malawi,” Dzonzi said.

Weighing in, Happy Kayuni a political and administrative  studies lecturer at Chancellor College observed that what is happening at RBM and Parliament is not in tandem with  governance issues and asked government to demonstrate what it has been  promising  about good governance and rule of law by, among other things, starting with correcting these institutions.

‘‘The reforms exercise which government is undertaking should carefully look into these matters. We know that some of these institutions are highly politicised.  For instance, members of Parliament are used to build support of government agendas.

Kayuni also suggested that there should be an independent body to look at the operations and conduct of these institutions to correct such issues and ensure there is sanity in the institutions. 

A Chancellor College economics lecturer Exley Silumbu said provisions for the independence of the central bank are there but what needs to be done is for the duty bearers to be answerable and cautious with their actions in particular on governance issues.

He said: “We do not want a governor to be too affiliated to the President. RBM has to be credible. It is a very important component of the economy hence it needs to be accountable with its actions to build confidence in the people.

“Central banks have been given a lot of independence and this to some extent is justifiable, however, duty-bearers should not abuse this independence.”

Currently, auditors have instituted a forensic appraisal at RBM to establish how its affairs have been managed in recent times and the audit results would be concluded in the first quarter of 2021.

RBM spokesperson Onellie Nkuna said this week that the bank would share the findings of the forensic audit with all its stakeholders once the audit is complete.