The East African Community Council of ministers is set to meet before the end of this year to review the roadmap towards the implementation of a single currency regime after agreeing that the initial 2024 deadline was not attainable after all.
The delay in implementation is set to subject regional traders and travellers to prolonged exposure to costly currency conversion transactions and exchange rate risks, which are adversely impacting the volume of intra-regional trade.
EAC Secretariat Secretary General Peter Mathuki told The EastAfrican consultations on the revised timelines with the partner states are on-going with the final proposal expected to be tabled before the Council of Ministers within the next six months.
“Consultations with the partner states on the revised roadmap are ongoing in which we shall form a proposal to present before the sectoral council of ministers to approve or confirm the roadmap before the end of this year,” said Dr Mathuki.
The EastAfrican has learnt that the creation of a monetary union — the third pillar of regional integration after the Customs Union and the Common market — is facing challenges.
This is largely due to the inability of member countries to comply with the macroeconomic convergence criteria on inflation, fiscal deficit, public debt and the volume of foreign exchange reserves, with the establishment of critical institutions necessary for the implementation of the single currency regime lagging way behind.
The Protocol for the establishment of the East African Monetary Union (EAMU) was signed by the heads of state in Kampala on November 30, 2013, setting up a 10-year roadmap for attaining a single currency regime in 2024.
The single currency regime is expected to eliminate transaction costs of exchanging currencies and remove exchange-rate volatility in cross-border trading activities.
However, the plan to have a single East African currency in 2024 collapsed in 2019 after the EAC Council of Ministers, the central decision-making and governing organ of the EAC, resolved the deadline was not attainable, sending member countries back to the drawing board.
As a result, the member states tasked the EAC Secretariat with constituting a team of regional experts to review the roadmap and come up with new timelines.
The EAC is way behind in setting up relevant institutions to support a single currency, the most important being the East African Monetary Institute (EAMI), the equivalent of a regional central bank that was supposed to be up and running in 2015.
Dr Mathuki said implementation of the EAMU protocol roadmap is in progress in a “careful” but calculated manner while acknowledging that member countries are facing challenges in complying with the macroeconomic convergence criteria particularly with regard to the 50 percent debt-to-Gross Domestic Product (GDP) ratio, as well as a fiscal deficit of three percent due to increased expenditure on infrastructure developments and spending to mitigate the economic impact of the Covid-19 pandemic.
“Most of the EAC partner states are on track towards the attainment of the EAMU Convergence Criteria by December 2021 especially on headline inflation and reserve cover in months of imports,” he said.
In West Africa, the 15-member Economic Community of West African States (Ecowas) suspended the 2020 single currency regime deadline largely due to challenges of attaining a requisite degree of macroeconomic convergence and establishing an adequate institutional framework, according to the latest report on Regional Integration in West Africa by the US research Group Brookings.
“Whatever the eventual timing, this is an ambitious goal and has potentially significant implications for economic integration within the region,” according to the report
West Africa’s proposed currency zone has wide size disparities among its economies with Nigeria — the largest economy in Africa — accounting for 66.7 percent of GDP in Ecowas, while Ghana and Cote d’Ivoire account for 10 percent and 6.6 percent respectively
A study by the United Nations Economic Commission for Africa (Uneca) on the readiness of the EAC for a Monetary Union carried out in 2017 shows that the implementation of some decisions by EAC central bank governors has delayed or decisions changed because they are not binding.
“The lack of firm commitments to implement decisions taken by different regional committees to fast-track the implementation of EAMU protocol due to more focus on relative national gains and sovereignty is one of the major challenges in the journey towards full regional integration,” according to the Uneca report.
According to Uneca, there is still no clear evidence about synchronisation of the region’s business cycles and macro-economic convergence, suggesting that there could be substantial costs for the member countries from a fast-tracked process.
The Protocol for the establishment of the EAMU provides for the creation of four key institutions and for member states to attain and maintain a set of four primary convergence criteria for at least three years before joining the bloc’s planned single currency.
The institutions comprise the East African Monetary Institute (EAMI), the East African Financial Services Commission, East African Statistics Bureau and the East African Surveillance, Compliance and Enforcement Commission.
According to the Protocol, the EAMI was supposed to have been up and running by 2015 while the other institutions were supposed to be operational in 2018.
Member countries are required to meet and comply with a debt-to-gross domestic product (GDP) ratio of 50 per cent, fiscal deficit (including grants) of three per cent of the GDP, overall inflation of eight per cent and forex reserves of 4.5 months of import cover for at least three years before the launch of the single currency regime.
The single currency regime is the third pillar for the EAC regional integration process after the Customs Union, the Common Market, with Political Federation being the last pillar.
Implementation of the single currency regime is expected to pave the way for a political federation, the fourth and final pillar of the EAC integration.