EAC to revise economic targets to attain monetary union dream

Wednesday November 22 2023

Flags raised at the East African Community headquarters in Arusha, Tanzania. PHOTO | COURTESY


After missing the first deadline for the attainment of a monetary union, the East African Community (EAC) secretariat is seeking to revise the macroeconomic convergence targets set in 2013 as pre-requisites to the roll-out of a single currency in the region.

The monetary union dream, the third pillar of the EAC economic integration, was planned to be realised by November 2023, setting the precedent for the issuance of a common currency in the region, but this has been missed.

Ministers of finance last year extended the deadline by ten years as all of the four core prerequisites to the establishment of the monetary union, including attaining macroeconomic convergence targets, are yet to be realised.

Read: EAC to wait longer for monetary union

Pantaleo Kessy, principal economist in charge of monetary affairs at the EAC secretariat, told journalists that they are currently doing new studies to see if the set macroeconomic targets are still attainable within the ten-year window set for the achievement of the desired one-currency area.

“We have had ten years to try and achieve the convergence criteria, and as you can see, some countries are really lagging behind. So, the ministers of finance directed us to undertake another study to really see if these convergence criteria are tenable,” Dr Kessy said during a press briefing at EAC headquarters in Arusha, Tanzania on Wednesday.


“We’re giving ourselves until 2031, but if the criteria are not attainable, 2031 will come and we’ll give ourselves another 10 years. So, we need to do another study, taking into account what has happened between 2013, when we were negotiating the protocol, and now.”

Macroeconomic convergence is the second of the four key prerequisites to the monetary union in the region. It requires that all countries in the community should have headline inflation of less than 8 percent, central bank reserves worth at least 4.5 months of imports, fiscal deficit and public debt of at most 3 percent and 50 percent of GDP respectively.

However, no country has been able to completely attain achieve these targets so far, with some countries lagging behind in nearly all of them. All countries are yet to reduce their fiscal deficits to less than 3 percent of GDP, and most are struggling to minimise public debt to less than 50 percent.

Mr Kessy said that while these initial targets were informed by professional economic research, times have changed, and global economic shocks have made it difficult for the attainment of some of the targets.

Read: African blocs discuss single currency challenges

“The global economy today is so uncertain, there are so many risks which were not there at that time (in 2013). Also, the fiscal deficit, for example, was not attained by all countries, and if you ask them, they say they’re trying to close the infrastructure gap,” Dr Kessy said.

But even as the region works towards more realistic macroeconomic convergence targets, the three other prerequisites to the monetary union protocol are also yet to be realised.

The first one – the full realisation of the first two pillars, that is customs union and common market protocols – remains incomplete due to minor challenges, which EAC says are being addressed.

The protocol also requires the establishment of key institutions, which include the East Africa Monetary Institute, East Africa Statistics Bureau, East Africa Financial Services Commission, and the East Africa Surveillance, Compliance, and Enforcement Commission, all of which are yet to be established.

The last precondition for the monetary union protocol is the harmonisation of monetary and fiscal policies across the partner States of the EAC, which is also yet to happen completely.