12 January 2013

East Africa: AfDB Pushes for Single Regional Currency

Photo: In2EastAfrica
Rwandan franc.

A new report by African Development Bank has proposed the establishment of a single currency in the Common Market for East and Southern Africa (Comesa) member countries, a move that is seen as a stepping stone in cementing regional economic growth.

The report says if the monetary union is achieved, it will benefit in a greater macroeconomic convergence in the region.

The report stands against the prevailing skepticism about the desirability of pursuing the objective of monetary unions in Africa, and hence the need for fiscal convergence and multilateral surveillance among regional economic communities' member countries.

Donald Kaberuka, the president of the African Development Bank, says the monetary union would be essential for economic integration.

"Fiscal convergence is essential to Comesa's macroeconomic convergence programme, and is a bridge between monetary and trade integration programmes," Kaberuka said.

The bloc that consists of 19 members, including Rwanda, would provide a wide market to the production sectors and elevate the proper flow of goods and services.

Not yet time

"A major responsibility also lies with the national authorities to encourage national ownership of the multilateral fiscal surveillance framework, reinforce their national public finance management systems, and formulate their individual convergence programs," says Jian Zhang, Principal Economist at AfDB.

However, Prof. Manasseh Nshuti, a Kigali-based economist, argues that though it is an important initiative, this is not the right time to propose it. Prof. Nshuti advises that there is a need to first concentrate on ensuring strong financial independence of member countries.

"We need to have harmonised fiscal regimes and we still have other outstanding issues like corruption, lack of transparency and different inflation rates, meaning that it might be difficult for the member countries to sort these issues," he said.

Prof. Nshuti, a former Finance minister, said it would not make sense to have a single Comesa currency before achieving the East African monetary union.

"We are not yet ready for the Comesa currency. We haven't even achieved the EAC Monetary Union that we have always been singing about," he said.

The long-waited EAC single currency had initially been proposed for 2012.

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