Why East African single currency is still a long way off

What you need to know:

  • It may take nearly ten years or more from now for the seven-nation bloc to have one currency, according to an expert. Initially, the tentative date for the launch of the shared currency was 2024.

Arusha. The East African single currency project is still a long way off.

It may take nearly ten years or more from now for the seven-nation bloc to have one currency.

Initially, the tentative date for the launch of the shared currency was to be 2024, some two years away.

“Technical experts have set a new date for the single currency to be 2031,” said Dr Pantaleo Kessy, a monetary expert with the East African Community (EAC).

The new proposed date will, however, be subject to approval by the EAC Council of Ministers during its next sitting in January 2023.

The decision to this effect was made by the EA Finance Ministers during one of their routine meetings held in Arusha two weeks ago.

Adoption of the single currency is well articulated in the East African Monetary Union (Eamu) Protocol signed in 2013.

But Dr Kessy outlined reasons why the desired single currency project will be subjected to a further delay.

“We cannot adopt a common currency without full implementation of the Customs Union and Common Market protocols,” he said.

He told journalists that the two protocols were key to unifying the monetary systems in the bloc.

“Trade in the EAC is not yet 100 percent tariff-free. Non-tariff barriers (NTBs) are still notorious,” he said.

He revealed this here yesterday during a capacity-building workshop for journalists from various media houses in the region.

He added that not all the EAC member countries have met the four mandatory macroeconomic convergence criteria to attain the status.

Among these is the requirement that a country that will be admitted to the bloc should not have an inflation rate exceeding eight percent.

Member states should have forex reserves to cover at least four months’ imports and fiscal deficits averaging 3.5 percent.

States should also avoid borrowing more than 50 percent of their respective GDPs.

“No partner state has achieved the criteria on all four convergence criteria,” he told the workshop virtually.

The EAC partner states are yet to comply because many of them still owe over 50 percent of their GDP.

He cited some partner states that are implementing mega infrastructure projects, forcing them to borrow over 50 percent of their GDP from domestic resources.

Dr Kessy added that, in order to transform the region into a monetary union, a host of institutions have to be created.

“None have been made. We are not fully prepared for the single currency. We are in trouble,” he pointed out.

One of the bodies that should have been created some years ago is the East African Monetary Institute (EAMI).

The Bill for its creation has not only been passed by the regional assembly but has also been endorsed by all the partner states.

EAMI would later be transformed into the East African Central Bank, which would issue the single currency.

However, as it awaits creation, a debate is going on about which of the seven member states would host it.

Dr. Kessy hinted that four partner states—Tanzania, Burundi, Uganda, and Kenya—have shown interest in hosting the institution.

“Verification missions have been to all the countries, and a report on the findings will be presented to the Council of Ministers,” he stated.

He declined to outline the criteria that will be used in selecting a host country as he addressed journalists at the EAC seat.

Recent reports in the EAC corridors hinted that Tanzania scored higher following the findings by experts on a suitable seat at the institute.

Operationalisation of the institute is expected to set the community on a journey towards a single currency economy.

Other necessary institutions that will be established under the single currency protocol are already in the works.

These are the East African Statistics Bureau, the East African Surveillance Compliance and Enforcement Commission, and the EA Financial Services Commission.