East African Community member states have completed drafting crucial legislation required to fast-track the establishment of a single currency regime.
The EAC heads of state signed a protocol in November 2013 in Kampala committing to a 10-year road map towards achieving a monetary union in 2024.
The protocol provides for the introduction of a single currency and creation of a single central bank for the region.
The Bills for the establishment of the East African Monetary Institute (EAMI), East African Bureau of Statistics and the Surveillance, Compliance and Enforcement Commission have been completed.
“The EAMI Bill was finalised and is awaiting approval by the Sectoral Council on Finance and Economic Affairs, a statistics Bill was negotiated and is with legal drafters while the EA Surveillance, Compliance and Enforcement Commission Bill will be negotiated this month,” Geoffrey Mwau, director-general of the Budget, Fiscal and Economic Affairs Department in Kenya’s National Treasury told The EastAfrican.
The review of the Bills by the EAC taskforce had been planned for May 2015 but was delayed due to the political crisis in Burundi.
The partner states now have a five-year timeline to achieve key targets.
These include overall inflation of eight per cent, fiscal deficit including grants of three per cent of GDP, gross public debt (50 per cent of GDP in net present value terms) and a floor on reserve coverage of 4.5 months’ worth of imports.
The partner states are also expected to comply with three indicative requirements including a ceiling on core inflation of five per cent, fiscal deficit excluding grants of six per cent of GDP and a tax-to-GDP ratio of at least 25 per cent. To qualify for the monetary union, each country will have to meet the convergence criteria and comply with them for at least three years.
According to the East Africa Monetary Union (EAMU) Protocol, the primary convergence criteria will become binding by 2021.
More work pending
It has however emerged that the partner states are yet to complete preparing the Medium Term Convergence Programme (MTCP) covering the financial years 2015/16 to 2019/20.
According to Kenya’s Ministry of East Africa Affairs, this exercise was to be concluded before the July 2015 meeting of the Sectoral Council on Finance and Economic Affairs.
“The partner states are still in the process of finalising the medium-term convergence programme to show where they are and how they intend to move from there,” said Peter Njoroge, a director of economics at Kenya’s Ministry of East Africa Affairs.
According to the EAMU protocol, the East Africa monetary institute should have been in place before the end of last year while the other institutions have a deadline of 2018.
Each country’s convergence programme is expected to cover the main sectors of the economy including the real economy, the inflation outlook, fiscal and monetary aggregates, growth and the balance of payments (current account).