COMMON CURRENCY PROTOCOL SIGNED BY EAC HEADS OF STATE
(Posted 01st December 2013)
The just ended 15th ordinary Summit of the Heads of State of the East African Community, which took place at the Commonwealth Resort in Munyonyo / Kampala, has finally signed the protocol for the establishment of a common currency for the member states after more than four years of often acrimonious negotiations. The process is expected to take up to 10 years, to allow member countries to harmonize a number of crucial elements, such as inflation rates, the tax to GDP ratio, debt to GDP ratio and fiscal deficits.
In addition will the Protocol, which is to be implemented over a 10 year period, as the region undertakes the requisite institutional and economic reforms to support it, provide for the establishment of an EAC Central Bank.
It is anticipated that the powers of the national banking systems in charting monetary and fiscal policy, most of the economic decisions are currently made at the national level by central banks will be progressively reduced and eventually fully vested in the regional central bank.
Under Article 5 of the Protocol, member states will first have to fully implement the Customs Union and the Common Market Protocol before they can implement the Monetary Union.
They will also have to first harmonize and coordinate their fiscal, monetary and exchange policies, as well as phase out any outstanding central bank lending to their governments and public entities.
The member states must also first attain the set macroeconomic criteria and maintain them for at least three consecutive years before embarking on the monetary union. This entails: Capping core inflation at five per cent; fiscal deficits, excluding grants, of no more than six per cent of GDP and a minimum tax-to-GDP ratio of 25 per cent.
Notably was the minimum threshold for the launch of a common currency set at three member states, immediately raising the spectrum of the present ‘Coalition of the Willing’ between Uganda, Kenya and Rwanda, which in fact make up the CoW and which are already moving towards a fast tracked integration of their revenue collection, transport infrastructure, security cooperation and a common tourist Visa. Thus is the way paved for yet more speed differentials in the future should one or two of the EAC member states again feel that they are not ready, having to let the other member states move ahead at a faster pace and of course then having to play costly catch up without much ability to then change de facto developments already embraced by the others.
While the official pictures showed all smiles from the now concluded EAC Summit, during which Kenya’s President Uhuru Kenyatta took over the chairmanship of the regional group from Uganda’s President Yoweri Museveni – Rwanda’s President Kagame reportedly stood down from his entitlement to chair the EAC after Museveni’s term of office expired – it was reported that behind the scenes some serious horse trading went on as well as some apparently candid exchanges of views vis a vis Tanzania’s position towards the Coalition of the Willing. Kenya has already moved to assure Tanzania that the railway line from Voi to the border at Taveta will also be upgraded as the new standard gauge Mombasa – Nairobi – Uganda border – Kampala – Rwanda border – Kigali railway has now reached construction stage but it cannot at this stage be fully assessed just what, if any concessions, the three made towards Tanzania or if they simply, as some suggested, left it to East Africa’s largest country to play catch up. What is known that Burundi was courted by the three to come on board, and that in the process major incentives were offered, including to once again look at the introduction of French as another EAC language, something which has in the past failed to get a majority vote, leaving Burundi language wise out in the cold, unlike Rwanda which has over the past decade rapidly embraced English as their primary language.
As always, time will tell and it is expected that more leaks will give greater clarity what transpired behind the closed doors, as the Three met the Two for the first time since the Three started their rapid engagement policy back in June.
Watch this space.