Financial experts want the East African Community to resolve legal gaps and commitment loopholes, which have emerged as top concerns standing in the way of a Monetary Union.
Pessimism is growing as to whether EAC will strike a deal on the Monetary Union set for the end of 2012, with economists warning that the exercise will only succeed if governments rid it of political interference.
Paul Collier, who teaches economics at Oxford University said the risks for such a project are enormous, arguing that the region should leave the project to the next generation to implement.
“Considering what happened in the Eurozone, the Monetary Union is not the way to go. Politically driven monetary union and common currency is risky to economic integration,” said Prof Collier during the joint EAC-IMF high profile regional conference on the integration of the financial sector held in Arusha recently.
Prof Collier said 16 out of 17 Eurozone countries are said to be contravening rules on fiscal deficit and balance of payment.
“The result of their misdeeds is high sovereign borrowing costs, slowing bank credit and tighter fiscal policies,” said Prof Collier.
He added: “If the most developed countries in the Eurozone can find themselves in a Catch-22 situation simply because they broke monetary and common currency rules, what would happen if a similar fate gripped a young EAC bloc?”
The EAC bloc, which is negotiating the protocol for the Monetary Union to be fashioned on the European Union model, is already facing serious challenges in implementing agreements reached in the past, such as the Customs Union and Common Market Protocols.
“We are going to discuss with the EAC heads of states to let our technocrats continue working on the monetary union protocol, but the signing and implementation should delay,” said Mustafa Mkullo, Tanzania’s Finance Minister.
EAC Secretary General Richard Sezibera said he plans to convene a retreat of central bank governors, EAC Affairs ministers as well as those of finance and their permanent secretaries in the first week of April, to reach consensus on the Monetary Union.
Experts said focus now should be on making the Customs Union and Common Market Protocols work before embarking on the monetary union and political federation.
The deputy managing director of IMF Naoyuki Shinohara, said non-tariff barriers remain key obstacles, cautioning, that without a truly integrated market, the EAC trading bloc is not likely to see the full benefits of improved productivity, competitiveness and welfare.
He added that the global economic problems such as the Eurozone crisis as well as rising oil prices and the risk of softening commodity markets are bound to widen trade deficits.