The East African Community Council of Ministers is expected to meet before the end of this year to consider the roadmap towards the implementation of a single currency regime after agreeing that the initial deadline of 2024 was ultimately not achievable.
The delay in implementation is expected to expose regional traders and travelers to prolonged exposure to expensive currency conversion transactions and exchange rate risks, which negatively impact the volume of intra-regional trade.
EAC Secretariat General Secretary Peter Mathuki said East Africa’s consultations on revised timelines with partner states are underway and the final proposal is expected to be presented to the Council of Ministers in the next six months.
“Consultations with partner states on the revised roadmap are underway in which we will formulate a proposal to be presented to the sectoral council of ministers to approve or confirm the roadmap before the end of this year,” said Dr Mathuki.
The EastAfrican has learned that the creation of a monetary union – the third pillar of regional integration after the customs union and the common market – faces challenges.
This is largely due to the inability of member countries to comply with the macroeconomic convergence criteria on inflation, budget deficit, public debt and the volume of foreign exchange reserves, the establishment of critical institutions necessary for the establishment implementation of the single currency regime which is behind schedule. behind.
The Protocol Establishing the East African Monetary Union (UEMA) was signed by Heads of State in Kampala on November 30, 2013, establishing a 10-year roadmap to achieve a single currency regime in 2024.
The single currency regime should eliminate transaction costs associated with exchanging currencies and remove exchange rate volatility in cross-border business activities.
However, the plan to have an East African single currency in 2024 collapsed in 2019 after the Council of Ministers of the EAC, the central decision-making and governance body of the EAC, decided the deadline was not achievable, sending member countries back to the drawing board. .
Accordingly, Member States tasked the EAC Secretariat to assemble a team of regional experts to review the roadmap and propose new timelines.
The EAC is lagging far behind in putting in place relevant institutions to support a single currency, the most important being the East African Monetary Institute (EAMI), the equivalent of a central bank region which was supposed to be operational in 2015.
Dr Mathuki said that the implementation of the EAMU Protocol Roadmap is proceeding in a “cautious” but calculated manner, while acknowledging that member countries face challenges in complying with the macroeconomic convergence criteria, especially with regard to the debt-to-gross domestic product (GDP) ratio of 50 percent, as well as a budget deficit of three percent due to increased spending on infrastructure development and spending aimed at mitigating the economic impact of the Covid-19 pandemic.
“Most of the EAC partner states are on track to meet the EAMU convergence criteria by December 2021, especially with regard to headline inflation and month-to-month reserve coverage. imports, ”he said.
In West Africa, the 15 members of the Economic Community of West African States (Ecowa) suspended the deadline for the 2020 single currency regime largely due to challenges of achieving a required degree of macroeconomic convergence and to establish an adequate institutional framework, according to the latest report on Integration in West Africa by the American research group Brookings.
“Whatever the timing, this is an ambitious goal that has potentially important implications for economic integration within the region,” according to the report.
The currency area proposed by West Africa has great disparities between its economies, Nigeria – Africa’s largest economy – accounting for 66.7% of ECOWAS GDP, while Ghana and the Côte d ‘Ivory represent 10% and 6.6% respectively.
A study by the United Nations Economic Commission for Africa (Uneca) on the readiness of the EAC for a monetary union carried out in 2017 shows that the implementation of some decisions of the governors of the central banks of the EAC has been delayed or modified because they are not binding.
“The lack of firm commitments to implement the decisions taken by the various regional committees to accelerate the implementation of the EAMU protocol due to the increased emphasis on relative national gains and sovereignty is the one of the major challenges on the way to full regional integration “, according to the Uneca report.
According to Uneca, there is still no clear evidence of the region’s synchronization of business cycles and macroeconomic convergence, which suggests that there could be substantial costs for member countries of an accelerated process.
The protocol for the establishment of the UEMA provides for the creation of four key institutions and for member states to achieve and maintain a set of four primary convergence criteria for at least three years before joining the block’s planned single currency.
Institutions include the East African Monetary Institute (EAMI), the East African Financial Services Commission, the East African Bureau of Statistics and the Supervisory Commission , East African Compliance and Enforcement.
According to the protocol, EAMI was supposed to be operational in 2015, while the other institutions were supposed to be operational in 2018.
Member countries are required to respect and respect a debt to gross domestic product (GDP) ratio of 50%, a budget deficit (including grants) of 3% of GDP, overall inflation of 8% and foreign exchange reserves of 4 , 5 months of import coverage for at least three years before the launch of the single currency regime.
The single currency regime is the third pillar of the EAC regional integration process after the customs union, the common market, with political federation being the last pillar.
The implementation of the single currency regime should pave the way for a political federation, the fourth and last pillar of EAC integration.