One of the four pillars of East African Community integration, the most ambitious perhaps is the East African Monetary Union (EAMU) and its poster child, a common regional currency.
Signed on November 30, 2013, the EAMU Protocol laid the groundwork for a monetary union and a common regional currency by 2024.
Under the protocol, the EAC Partner States were expected to progressively converge key aspects of their monetary policy, culminating in a common currency in 2024.
Coming after a Common Market and Customs Union, the Monetary Union was supposed to lead to an East African Political Federation.
To guide implementation, the states committed to harmonising monetary and fiscal policies; financial, payment and settlement systems; financial accounting and reporting practices; as well as policies and standards on statistical information.
Ultimately an East African Central Bank would be established to issue and manage a common legal tender. Key convergence criteria such as keeping annual core inflation within an 8 per cent band, overall fiscal deficits including grants at 3 per cent, import cover at 4.5 months and public debt at 50 per cent of GDP were agreed and ratified by member states.
Less than five years to 2024, the report card is varied and the project is looking increasingly unachievable within the promised timelines.
By December 2018, South Sudan, Kenya and Burundi had had burst their ceilings for public debt which was running at 64, 54 and 52 per cent of GDP respectively.
Although Tanzania, Uganda and Rwanda were still within limits, they were also creeping towards the ceiling at 37, 40 and 41 per cent respectively.
In its review of progress during 2018, the United Nations Economic Commission for Africa Uneca, concluded that the establishment of institutions to drive the monetary convergence had been delayed for lack of solid commitment by partner states.
According to Uneca, “key decisions taken by the different regional committees to fast-track the implementation of the EAMU protocol due to more focus on relative national gains and sovereignty is one of the big challenges in the journey towards full regional integration.”
Uneca further notes rather candidly that compliance with fiscal convergence criteria was not easy in the current macroeconomic context of member states where they still face a significant deficit in investment spending.
Uneca is right on the money there. A developing economy needs money—in this case loans—to build its productive capacities.
However, debt sustainability cannot be taken lightly because beyond a certain threshold, an economy can be thrown into debt servitude where the bulk of its output is sucked into debt repayment.
EAMU is troubled but it need not be in peril because it is still a necessary milestone to an economically and socially robust East Africa. All that is needed to make it work is a more realistic timeline that takes into account the vulnerabilities of the regional economy to external and internal shocks.