Will new financing model end EAC cash woes?

Arusha. The long-awaited sustainable financing mechanism for the East African Community (EAC) is here at last.

This time around mandatory contributions will partly depend on the size of the partner state’s economy..

The new funding plan was adopted at the Summit of the regional Heads of State held here on Friday.

The leaders agreed on a hybrid system of equal contributions and remittances which will be based on each country’s economy.

Under the sustainable financing mechanism, there would be a 65 percent equal contribution by all the eight partner states.

Another 35 percent will be assessed as a contribution formula which will largely depend on the size of the economy.

The sustainable financing project for the EAC was mulled and made public in 2011 and was aimed to address financial challenges facing the organization.

It is primarily targeted to shore up funding of the regional body’s activities and operations from the mandatory contributions by the partner states.

This was necessitated by failure or delay by some member countries to remit funds to the Arusha coffers for multiple expenditures.

For about a decade, EAC annual expenditure has revolved around $100 million, about a half through remittances by the partner states and the rest from the development partners.

For instance, of $103 million EAC budget for 2023/24 financial year, some $59 million (25 percent) would come from the partner states.

The remaining $44.8 million will be sourced from an array of the development partners supporting the Community.

A communique issued by the EAC secretariat after the summit did not say when the new financing mechanism will be operationalised.

The new model, nevertheless, requires EAC partner states to contribute equally 65 per cent of the budget.

The remaining 35 per cent of the total budget will be contributed based on the assessment of partner states’ average nominal GDP per capita for the previous five years as assessed by the World Bank.

The proposed hybrid model would, however, be reviewed after each three years, the summit directed.

The development not only follows concerns over inadequate funding of the EAC, but also the ability of some partner states to contribute given the level of their economies.

The cash crunch the Community has faced in recent years has been compounded by the increasing number of the EAC institutions without corresponding rise in budget.

The same has been the case with the rising number of the partner states, some of which have turned into heavy debtors for failure to remit funds.

A report presented before the regional leaders on Friday by the technocrats stressed the need to roll out the new financing model at last.

“There is a need to adopt a model that is simple in terms of parameters to be used on the assessed contribution component,” a report seen by The Citizen said.

The desired model has to be “sensitive to the principles of equity, solidarity, equality and the size of the partner states’ economies”.

Besides the rolling out of the new financing mechanism, the EAC secretariat was directed to implement cost cutting measures.

The secretariat, which is the executive organ of the Community, was implored to keep the running cost of the Community “as low as possible”.

The summit, which was attended by six of the eight Heads of Stats of the eight member states, directed punitive measures against countries which default on mandatory contributions.