Kenya has ratified the East African Monetary Union Protocol, ahead of the December 31 deadline. This leaves Uganda as the only country yet to ratify the protocol.

According to Peter Njoroge, director of economics at Kenya’s Ministry of East African Community, the country has already deposited its ratification instruments with the EAC Secretariat as required by the Treaty.

“This is to confirm that Kenya has now agreed to the EAMU protocol,” said Mr Njoroge. “However, for it to be operational, all the EAC partners have to ratify it as per the treaty,” he added.

Once the protocol is ratified by all the partner states, it is expected that, like the Common Market Protocol and Customs Union, the partner states will officially launch it for implementation.

“This could be some time next year,” noted Mr Njoroge.

According to reports, Uganda has delayed ratifying the EAMU protocol due to budgetary constraints. Burundi, Rwanda and Tanzania have already ratified the protocol and deposited the instruments of ratification with the EAC Secretariat in Arusha.

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The Heads of State Summit signed the protocol on the establishment of the EAMU in November last year and directed that the partner states ratify it by July this year. According to the protocol’s timelines, the laws are supposed to be signed by November next year.

Last month, EAC central bank governors agreed that each country should have enough dollars to buy 4.5 months’ worth of imports, bowing to pressure from Kenya, which felt the initial proposal of six months would hurt economies seeking to promote exports.

The single currency is the third pillar of the EAC integration after the Customs Union and the Common Market, which have paid off through improved turnaround for movement of cargo from Mombasa to Kampala from 18 to four days and from Mombasa to Kigali from 21 days to six days.

In the drive towards a common currency by 2024, the East African Payment System has been established to facilitate cross-border transactions and bolster intra-regional trade without requiring traders to convert from one national currency to another. The payment system should be harmonised by 2018.

READ: Derivatives to manage EAC exchange rates

Harmonise policies

EAC member states will also harmonise monetary and fiscal policies and establish a common central bank. As a first step to achieving the goal, Kenya, Uganda, Tanzania and Rwanda present their budgets simultaneously every June.

The states have also set fiscal and monetary convergence targets of headline inflation below eight per cent, fiscal deficit of three per cent, gross public debt below 50 per cent and foreign reserve cover equivalent of 4.5 months of domestic imports. These should be achieved by 2021.

“The regional monetary union will only hold when all the member states are able to respect and strictly observe the convergence criteria,” IMF president Christine Lagarde warned in January while on a visit to Nairobi.

She said monetary union organs such as the proposed East African Central Bank (EACB) should have powers to supervise national central banks in order to ensure the targets are achieved.

Under the protocol, central banks of member states will be required to deposit foreign exchange reserves with the EACB so as to stabilise the common currency. These will comprise gold and foreign currencies that each state holds as at the time of launching the monetary union — excluding East African currencies.

International Monetary Fund reserves and special drawing rights will also qualify as foreign-exchange reserves.

Once the protocol is effected, all foreign exchange transactions by the EAC governments will be carried out through the EACB or the relevant national central banks within the target set out in the region’s common monetary and exchange rate policy.