East African states need a working political federation and an integrated financial system for the planned monetary union to succeed, the Kenya Bankers Association yesterday said.
According to the KBA, the East African Community financial sector has not fully responded to the region's integration process while the states differ in fiscal policies.
"There will be challenges in a common monetary policy when fiscal policies differ at state level. The sequencing of a successful monetary union should be superseded by competitive financial sector and a fiscal union, which are assured by political federation," chief executive officer, Habil Olaka said.
He advised the EAC to borrow from United States of America's monetary and fiscal union that has succeeded due to the political federation as opposed to the European Union which has suffered crisis due lack of a common fiscal policy.
"The challenges of the Euro Zone during and post the global financial crisis links to banks being separately regulated while monetary policy is handled by the European Central Bank. The EAC should articulate its framework for financial stability clearly," he said.
He spoke yesterday during the financial services conference held by the Institute of Certified Public Accountants of Kenya in Nairobi.
He lauded the progress realized through the removal of trade barriers, saying that it is the financial sector that catalyzes all aspects of integration.
He urged the EAC Monetary Affairs Committee to ensure financial sector competitiveness in the wake of international financial players entry in to the region.
"International banks are expanding operations across the region due to the integration initiative and the arising opportunities. Their entry has brought implications to the local banks through uncompetitive practices and there is need for regulators to ensure true convergence," he said.