East African Community member states will have to wait longer for a monetary union. A taskforce to look into the matter has proposed to delay the implementation of the East African Monetary Union (EAMU) until 2031 from initial date of 2024, saying it is too soon considering members have not attained all requirements.
The proposed delay is an indictment on the members’ commitment to achieve EAMU, a key pillar of integration.
The EAMU is the third pillar of the EAC, others being the Customs Union and the Common Markets Protocol. The region, under EAMU, is expected to adopt a single currency by 2024.
“We have a roadmap that was supposed to be implemented between 2013, when the Monetary Union protocol was signed, and 2024. But we did not manage to implement most of the activities in that roadmap,” said Dr Pantaleo Kessy, Principal Economist, EAC Secretariat.
“According to the roadmap, the EAC convergence criteria were to be attained by 2021 and be maintained for three years in the run-up to the establishment of the Monetary Union in 2024.”
However, going through each activity, shows that all the partner states - Burundi, Kenya, Uganda, Tanzania, Rwanda and South Sudan - are behind schedule.
According to the EAMU roadmap, four broad prerequisites need to be achieved ahead of the establishment of the Monetary Union and the first one includes the full implementation of the Customs Union and Common Market protocols.
However, both the Customs Union and Common Market Protocols are currently under implementation. Although much progress has been made, the protocols are not yet fully implemented.
“Partner states are at different levels of implementation and that partly slows the implementation of the EAC third pillar, the EAMU,” said Dr Kevit Desai, Principal Secretary at the EAC and Regional Ministry of Kenya.
Second, not all partner states have attained the four macroeconomic convergence criteria, for the implementation of the monetary union.
These include ceilings on headline inflation of 8 percent; reserve cover of 4.5-month import; on overall deficit of 3 percent of GDP; and on gross public debt of 50 percent of GDP.
“Attainment of these criteria has been challenging to most Partner States, partly due to increased demand for infrastructure development and spending to mitigate the economic impact of the Covid-19 pandemic,” Dr Kessy explained.
“Kenya, Uganda, Tanzania and Rwanda attained the headline inflation target of less than 8 percent in 2021. But only three Partner States attained the official foreign exchange reserve target of 4.5 months of imports.”
Long past deadline
Further, three Partner States attained the debt to GDP target of less than 50 percent; while none was able to attain the fiscal deficit criterion of 3 percent of GDP (including grants).
The EAC is yet to put in place institutions that will carry out the mandate and implement the EAMU protocol.
The taskforce is made up of financial experts from EAC’s partner states’ ministries of Finance, Central Banks, capital markets, insurance and pension firms.
The East African Monetary Institute is one of the institutions expected to carry out the preparatory work for the One Single currency under EAMU which was planned to be in place by 2024.
The Council of Ministers designated July 1, 2021, as the date for the coming into effect of the EAMI, the precursor to the East African Central Bank.
But the deadline is long past.
The other three institutions proposed under the EAMU include the EAC Financial Services Commission; the EAC Surveillance, Compliance and Enforcement Commission; and the EAC Statistics Commission. Establishment of these institutions is lagging behind, partly due to lack of resources.
The fourth criteria that is still lacking behind is the harmonisation of Policies and legal frameworks to support implementation of the EAMU Protocol.