East African Community partner states through their Finance ministers have approved a proposal that will see contributions from each partner state reflect a country’s ability to pay.
This was despite a rejection of the same by Tanzania.
A Sectoral Council on Finance and Economic Affairs meeting held last week in Mombasa and chaired by Kenya’s National Treasury Cabinet Secretary Ukur Yatani has now recommended changes on the EAC contributions model.
The committee has proposed a hybrid model of financing the EAC budget, in which 65 percent of the budget is contributed equally by all partner states. The proposal will also see 35 percent of the total budget assessed based on partner states’ average nominal GDP per capita for the previous five years, as assessed by the World Bank.
The move is expected to improve remittances to the EAC organs and institutions to enable them run their activities smoothly.
“The Sectoral Council on Finance and Economic Affairs recommends to the Council to: Approve a hybrid model of financing the EAC budget, in which 65 percent of the budget is contributed equally by all Partner States and 35 percent of the total budget is assessed based on Partner States’ average nominal GDP per capita for the previous five years, as assessed by the World Bank,” Mr Yatani said, adding that there was need to adopt a model that is simple in terms of parameters to be used on the assessed contribution component.
In a move that will allow each partner states time to review and adopt the proposal, the model shall be reviewed after a period of time.
“The Sectoral committee directs that the proposed hybrid model be reviewed after three years. There is a need to adopt a model that is sensitive to principles of equity, solidarity, equality and the size of the Partner States economies,” said Mr Yatani in a report dated November 16, 2021.
The council has also directed cost cutting measures at the Arusha-based regional bloc to ensure that the cost of running the Community is as low as possible.
The proposals are part of the Ministerial session of the 12th meeting of Sectoral Council on Finance and Economic Affairs (SCFEA), which was held on the May 7, 2021.
Among others, considered the recommendations of the above mentioned study and approved most of the recommendations.
However, the meeting had divergent views regarding the proposed hybrid model, in which 50 percent of the total budget would be contributed equally by all partner states and the remaining 50 percent would be assessed based on GDP per capita (40 percent), Intra-EAC trade (5 percent) and Imports from outside EAC (5 percent).
“The United Republic of Tanzania did not agree with the study recommendation of the hybrid model, while Kenya, Rwanda, Uganda and Burundi agreed to adopt the proposed hybrid model,” Mr Yatani explained justifying the idea behind the proposal.
The current EAC budget is financed by equal contributions from the Partner States.
The current model was adopted when the Community had only three Partner States (Kenya, Uganda and Tanzania) whose economies were not significantly different from each other.
However, the Community has expanded by admitting three more partner states, namely Rwanda, Burundi, and South Sudan with varying economic structures and sizes.
“Given this fact, the current equal contribution model may not be sustainable since it puts a heavier burden on some Partner States considering the size of their economies,” said Mr Yatani.
Currently delayed payments and non-compliance has resulted in arrears amounting to $33.05 million as of April 17, 2020.
“This suggests that in essence, the current model of funding the EAC budget is practically not sustainable, which is one of the reasons why the Summit directed the Council to look for other options which are more sustainable,” Mr Yatani said.