Uncertainty stalks progress to single currency deadline
Wednesday March 16 2022
East African Community (EAC) member states are nowhere near enacting crucial Bills needed to implement a single currency regime and now central banks are raising reservations on the 2024 deadline.
The EastAfrican has learnt that key Bills including the EAC Financial Services Commission Bill (2022), EAC Surveillance Compliance and Enforcement Bill (2022) and the EAC Standardisation Accreditation and Conformity Assessment Bill (2022) are yet to be acted on.
According to Kenya’s State Department of EAC Affairs the enactment of the EAC Surveillance and Enforcement Bill (2022) is critical in assessing the members’ states compliance with the macroeconomic convergence criteria.
“It will also help to regularly monitor and enforce adherence to the macroeconomic convergence criteria by the participating partner states,” Kenya’s Principal Secretary in the state department of EAC Affairs Kevit Desai told The EastAfrican last week.
“Macroeconomic convergence criteria is one of the mandatory requirements that must be attained for the establishment of the EAC Monetary Union,” added Dr Kevit.
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 are 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 the year 2015 while the other institutions were supposed to be operational in 2018.
The EAC Heads of State assented to the Bill for the Establishment of the EAMI on February 1 2019 in Arusha Tanzania and the Council of ministers designated July 1, 2021 as the date for the coming into being of the EAMI.
Members must comply with a debt-to-gross domestic product (GDP) ratio of 50 percent, fiscal deficit (including grants) of 3 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 last.
Last week, EA central banks cast a shadow of doubt over the proposed implementation of a single currency regime by the year 2024 citing delays by member countries in realising targets set out in the Monetary Union roadmap.
The single currency regime is expected to eliminate transaction costs of exchanging currencies and remove exchange-rate volatility in cross-border trading activities.
The banking regulators through the EAC Monetary Affairs Committee noted that while significant progress has been made towards realisation of a monetary union several challenges could still impede timely implementation of its protocol.
In a virtual meeting held March 4, the Committee chaired by Kenyan Central Bank Patrick Njoroge for instance singled out the cross-border payment systems, arguing that there is still more progress needed.
“The Committee noted that there have been delays in realising targets set out in the EAMU roadmap and that there are several challenges that could further impede the timely implementation of EAMU protocol,” according to the committee communiqué released March 7.
“Therefore, the Committee pledged to work with the EAC Secretariat and other stakeholders in the EAC integration process to fast-track pending activities of the EAMU roadmap.”
The committee however noted that Partner States’ Central Banks have made significant strides towards implementation of the Monetary Union including the creation of key institutions of the of the East African Monetary Union (EAMU) and harmonisation of monetary and exchange rate policies.
Other achievements, according to the committee, include, harmonization of regulatory frameworks implementation of measures to strengthen regional payments systems and enhancement of cybersecurity frameworks.
In 2019 the plan to have a single East African currency in 2024 collapsed after the EAC Council of Ministers, the central decision-making and governing organ of the EAC, resolved that this deadline is not attainable, sending member countries back to the drawing board.
Last year (2021) EAC Secretariat Secretary General Peter Mathuki told The EastAfrican that 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.
The Protocol for the establishment of the 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 third pillar of regional integration after the Customs Union and the Common market.
In West Africa leaders of the 15-member countries of the Economic Community of West African States (ECOWAS) suspended the 2020 deadline of attaining a single currency regime largely due to challenges of attaining a requisite degree of macroeconomic convergence and establishing an adequate institutional framework, according to a report on Regional Integration in West Africa by the American 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, with Ghana and Cote d’Ivoire accounting for 10 percent and 6.6 percent respectively
A study by the United Nations Economic Commission for Africa (UNECA) on the readiness of the East African Community (EAC) for a Monetary Union carried out in 2017 shows that the implementation of some decisions of EAC central banks’ governors has delayed or decisions changed because they are not binding.
“The lack of firm commitment 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 big challenges in the journey towards full regional integration,” according to report