Finance Ministers of the East African Community partner states have agreed on a hybrid model that requires each partner state to contribute, equally, 65% towards financing the regional bloc’s budget.
This breakthrough, according to an EAC statement, came as the Sectoral Council on Finance and Economic Affairs concluded a two-day retreat in Kenya’s port city of Mombasa, on Tuesday, November 16.
"The new model requires EAC Partner States to contribute equally 65% of the budget while the remaining 35% 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,” reads the statement.
The meeting recommended that the EAC Council of Ministers, the policy making Organ of the Community, to approve the model as the new financing mechanism for the six-member bloc.
Regional ministers in charge of EAC affairs are scheduled to meet from November 26 to 27 in preparation of the next EAC Summit. The date and venue of the Summit will be confirmed after the Council agrees on substantive issues to be presented to Heads of State.
As noted, the agreement on the new model came after the findings of a study on the required reforms to align the EAC structure, programmes and activities with the financial resources available from partner states in order to ensure sustainability of the Community while addressing the dependency syndrome.
The study identified key priority projects, programmes and activities that can be implemented with available resources now and in the future without slowing the integration momentum as well as identifying constraints with the existing funding structure by partner states and development partners that causes delays and, or non-compliance with disbursements obligations.
"After thorough deliberation of the recommendations from the study, the meeting agreed to adopt a model that is simple in terms of parameters to be used on the assessed contribution component and sensitive to principles of equity, solidarity, equality and the size of the Partner States’ economies.”
The development, if implemented, will be a major breakthrough as regards to finding a solution to the longstanding problem of member states that default on their financial obligations.
For long, internal resources have remained constrained as countries continuously failed to make their obligatory remittances to the EAC Secretariat on time.
Review after three years
As noted, the Ministers also agreed that the proposed hybrid model will be reviewed after three years of its implementation.
They directed the EAC Secretariat to implement cost cutting measures to ensure that the cost of running the Community is as low as possible.
Kenya’s Cabinet Secretary to the National Treasury who is also the Chairperson of the SCFEA, Amb. Ukur Yatani, recalled that their last meeting held in May arrived at a consensus on all recommendations of the study, except one recommendation regarding the proposed hybrid model.
At the time, it is noted, there were divergent views.
Peter Mathuki, the EAC Secretary General, said the current model of funding the EAC budget is practically not sustainable, this being one of the reasons why the Summit directed the Council to look for more sustainable options.
Mathuki informed to the Ministers of Finance that that one important issue that continues to affect the Community is the lack of sustainable financial resources to implement its programmes.
Mathuki said: "For a long period, we have noted and discussed the need to find sustainable financing mechanism in order to ensure that our community is able to take full charge of its integration agenda.”
Mathuki told the meeting that the study was finalized and validated by the Committee on Fiscal Affairs (CFA) in September 2020, and it recommended a hybrid model of funding the Community’s budget, along with some measures to ensure financial sustainability, including introduction of sanctions, cost reduction measures and efficiency in spending the Community’s resources.
Currently, partner states contribute equally - $8 million – to the bloc’s budget as outlined in Article 132 of the EAC Treaty.
The Treaty provides for additional funding from Development Partners and any other sources as may be determined by the Council of Ministers.