Most East African Community partner states, including Rwanda, are on track to fulfil the monetary union convergence criteria, officials have said. The region has given itself 2024 to have established the East African Monetary Union (EAMU). “Most of the EAC partner states, including Rwanda, are on track towards attainment of the EAMU convergence criteria, especially on headline inflation and reserve cover in months of imports,” Soraya Hakuziyaremye, the Deputy Governor of the National Bank of Rwanda, told The New Times. Challenges remain in attaining the remaining criteria by some of the partner states, she said. The EAMU is the third pillar of the six-member bloc’s integration process before it ultimately transforms into a political federation. Peter Mathuki, the EAC Secretary General, told The New Times that partner states are now implementing the earlier agreed road map. A meeting of the regional Monetary Affairs Committee (MAC) – partner states’ central banks governors – on March 4, reviewed the status of implementation of previously agreed actions towards the establishment of the EAMU. The Committee reflected on the progress in attaining the convergence criteria and highlighted the areas that are lagging behind. Regarding the convergence criteria, Hakuziyaremye emphasised that a high degree of economic convergence is important for individual countries planning to form a monetary union. “The aspect is also important for the stability of the monetary union once [it is] formed,” she said. The EAMU protocol provides for a set of four primary convergence criteria which must be attained and maintained by each EAC partner state, for at least three years, before joining the monetary union. The four are: a ceiling on headline inflation of 8 per cent; reserve cover of 4.5 months of import; a ceiling on the overall deficit of 3 per cent of GDP, including grants; and a ceiling on gross public debt of 50 per cent of GDP in net present value terms. In their March 4 meeting, the Committee also noted that central banks made significant strides towards the creation of key institutions of the monetary union, particularly the EAMI; harmonisation of monetary and exchange rate policies; harmonization of regulatory frameworks; implementation of measures to strengthen regional payments systems; enhancement of cyber security frameworks; risk management for partner states’ Central Banks; and promoting cross-border trading in government securities. Increased demand for government spending to mitigate impact of Covid-19 pandemic The Committee also noted that there have been delays in realising targets set out in the EAMU roadmap and that there are several challenges that could further impede the timely implementation of EAMU protocol. Hakuziyaremye said: “The challenge in attaining some of the criteria is partly due to increased demand for infrastructure development and increased government spending to mitigate the economic impact of the Covid-19 pandemic at a time when revenue collections are still low.” Therefore, she added, the MAC and partner states will continue working with the EAC Secretariat to fast track the execution of activities in the EAMU roadmap, and continue tracking the achievement of macroeconomic convergence. The Council of Ministers, the central decision-making organ of the EAC, on March 1 tabled before the regional Parliament three draft laws which will pave way for the establishment of the long-overdue East African Monetary Institute (EAMI), a transitional mechanism to the East African Central Bank that will issue the single currency also expected to be in place by the year 2024. This regional monetary institute, a precursor to a regional central bank, is one of the four institutions expected to carry out much of the preparatory work for the creation of the EAMU, an important stage in the regional integration agenda. “The EAC partner states signed a protocol in 2013, setting out the process and convergence criteria for attainment of a Monetary Union in the EAC region over a period of 10 years. The envisaged Monetary Union is expected to be in place in 2024 with the introduction of a common currency to replace the national currencies and the establishment of a regional central bank,” Mathuki said. “The transition to the East African Monetary Union is conceptualized as a two-phase process. In the initial convergence phase, the partner states are to work towards achieving preconditions designed to limit the union’s exposure to internal economic strains.” The preconditions Mathuki referred to include macroeconomic convergence criteria, establishment of institutions to support the Monetary Union and harmonization of policies and practices. “To this effect, the EAC partner sates agreed on specific implementation timelines as specified in the EAMU roadmap. The EAC partner states are currently implementing the agreed road map.” The Council of Ministers in February 2021 directed the EAC Secretariat to initiate the process of identifying the host country of the EAMI and directed that the host partner state will cover office rent, office equipment, utilities and other support for the first two years. In line with EAC procedures, the Secretariat constituted a verification committee which is now verifying the applications to host the institution, including suitability of the location and facilities being offered by the interested partner states. “The Committee is currently undertaking verification missions to partner states that applied to host EAMI,” Mathuki said. About six years ago, officials indicated that the Community was behind schedule as regards establishment of the Institute and that partner states needed to double their efforts. Initially, establishing the EAMI; initiating the pertinent legal instruments, identifying the host partner state, signing host country agreements and operationalising the institute were target activities for 2015 but they were not achieved. Institutions such as the East African Statistics Bureau, East African Surveillance, Compliance and Enforcement Commission, and the East African Financial Services Commission, earlier planned to be established by 2018, were also not established. Kevit Desai, the Principal Secretary in Kenyas State Department for EAC, on Thursday said: Most of the challenges are surmountable but some like establishing the EAMU institutions have not been achieved in terms of timelines. For example, EAMI was to be established by 2015 according to the roadmap on the realisation of EAMU. Achievement of macroecoomic convergence criteria depends on partner states fiscal and monetary policies with regard to debt, inflation, exchange rates. Achieving some of these require political will and fiscal discipline. In March 2018, when the regional Parliament sought clarity on what was being done, Dr Ali Kirunda Kivejinja, Uganda’s former Minister for EAC Affairs who was Chairperson of the Council of Ministers, noted that the assessment of progress towards achieving the primary convergence criteria showed that most partner states had achieved some of the convergence targets ahead of the year 2021, and were making steady progress in achieving remaining convergence targets. At the time, Dr Kessy Pantaleo, a principal economist at the Arusha-based EAC Secretariat also told The New Times that there was “no reason at the moment to doubt that any of the EAC partner states will fail to attain the convergence targets in 2021.”
