It’s all systems go as EA states okay plans for Monetary Union in 2012

Sunday May 08 2011

With the Monetary Union, individual partner states will have no way of adjusting the exchange rate to restore competitiveness, nor of easing domestic monetary policy to help conditions in the labour market. Photo/FILE

East African Community states have agreed to fast-track the harmonisation of macroeconomic and financial statistics ahead of next year’s launch of the EAC Monetary Union.

This should see the all the countries adopt a common monetary and financial statistics system as opposed to the current situation where each economy runs its own system.

Tanzania’s Minister for Finance and Economic Affairs Mustafa Mkulo told The EastAfrican that the harmonised macroeconomic policy framework should be the basis of the introduction of the Monetary Union.

“We are considering a common monetary policy, and exchange rate mechanism that will work for the five countries, taking into account three countries are using shillings whereas two countries are using the franc,” he said.

“We are also taking into account payment and settlement systems; that is to say, the use of the EAC currency in the settlement of payments for all transactions will also be considered,” he said.

The agreement followed a third meeting of the High Level Task Force to negotiate the East African Monetary Union that was held in Mwanza to take into account the progress towards the establishment of the Monetary Union.


The partner states have been cautious in pushing for the Monetary Union, with analysts saying they needed to study the implication of transferring all their monetary powers to the regional level, since after implementation of the Monetary Union, any problems would jeopardise the entire region.

For instance, individual partner states will have no way of adjusting the exchange rate to restore competitiveness, nor of easing domestic monetary policy to help conditions in the labour market.

They may suffer prolonged unemployment if their labour costs become too high and wages and salaries cannot fall.

The partner states are also supposed to maintain similar economic cycles — with similar income levels, interest rates, inflation rates and commonly agreed standards for sound fiscal policies.

According to the Director for Planning at EAC, Tharcisse Kadede, significant progress had been made by the High Level Task Force in two previous meetings.

“The Mwanza meeting was very critical in achieving the third landmark of the EAC integration agenda, the single currency,” he said.

According to Mr Kadede, the International Monetary Fund is fully committed to collaborating with the EAC in the preparation for the EAC Monetary Union and has agreed in principle to grant the EAC observer status at the Development Committee meetings convened during the World Bank and IMF spring and annual meetings in order to have co-ordinated economic policies for the region.

The recent meeting led to the ministers of finance’s pre-budget consultative meeting on May 7 in Kampala, to be attended by the governors of the five central banks.

The High Level Task Force will apprise the ministers of finance of progress so far made in negotiating the EAC Monetary Union Protocol.

The inaugural meeting of the High Level Task Force to negotiate the EAC Monetary Union Protocol was held in Arusha in January while the second meeting was held in Bujumbura in March.

The model protocol that had been developed during the study on the establishment of the EAC Monetary Union was reviewed and a new structure developed based on the matrix of issues to be negotiated under Article 5, which sets out the objectives of the community.

The model will also consider Article 151 of the Treaty, which mandates partner states to conclude protocols in areas of co--operation; Articles 82-86 (Chapter 14) of the Treaty which defines the areas of cooperation and harmonisation in monetary and financial matters; the need to have a comprehensive and self-executing EAC Monetary Union Protocol; the need to cross-reference with the already existing protocols and finally; logical flow and clustering provisions based on homogeneity of content.

The technocrats steering the process to establish the East African Monetary Union last year failed to reach consensus on key issue on the agenda.

Instead, inside sources told The EastAfrican that the first High Level Task Force meeting in Arusha had to defer the core issue of the roadmap to the Monetary Union to an unspecified date.

“That was unfortunate because without the roadmap, the negotiating team can’t set a definite date for partner states to make the monetary union operational,” the source told The EastAfrican.