Arusha — EAST African Community (EAC) states are aspiring for a single EAC currency by 2024. Tanzania, Kenya and Uganda are determined to merge their respective shillings with Rwanda and Burundian Francs to form the single legal tender for the bloc in the next seven years.
South Sudan will also lose its relatively valuable pound, melting Juba's currency into the envisaged EA currency.
Latest reports on the process for the proposed Monetary Union (MU) for the six EAC member states indicate that the envisaged MU is expected in 2024, with introduction of the common currency to replace the national currencies as well as establishment of the regional central bank, East Africa Central Bank (EACB).
"Transition to the EA Monetary Union (EAMU) is as a two-phase process, with the initial convergence phase enabling partners to work towards achieving preconditions designed to limit the union's exposure to internal economic strains," said EAC Principal Communication Officer Simon Owaka.
He revealed the preconditions as macroeconomic convergence criteria, full implementation of the Common Market protocol, establishment of institutions to support the MU and harmonisation of policies and practices.
"Once these preconditions are satisfied, partners will enter the final conversion phase, announcing a predetermined date for the union formation."
According to the EAMU protocol, the EAC members have agreed on four primary convergence criteria, which all partner states have to attain and maintain for at least three years before joining the MU.
The criteria are headline inflation of eight per cent ceiling, reserve cover of 4.5 months of import; ceiling on overall fiscal deficit of three per cent of GDP, including grants; as well as ceiling on gross public debt of 50 per cent of GDP in net present value terms.
With exception of South Sudan, current annual headline inflation in all countries is below eight per cent, with all EAC partners, except Kenya, having debt to GDP ratios of below 50 per cent.
According to Mr Owaka, besides Uganda and Kenya, other EAC countries have not achieved the 4.5 months of import cover criterion since 2014. Also compliance with the fiscal deficit criterion, including grants, has averagely been challenging for most EAC partners, especially South Sudan, Kenya and Burundi.
But, the targets have to be achieved by 2021 and there is therefore no reason to doubt that any of EAC state will fail to achieve the convergence targets in 2024.
Central Banks in Tanzania, Kenya, Uganda, Rwanda and Burundi have agreed to converge in terms of monetary policy regimes and exchange rate policies, moving from reserve money based framework to forward-looking price based monetary policy framework by December 2018.
"The Bank of Uganda has already taken bold steps, having introduced the Inflation Targeting Lite (ITL) in July 2011 and replacing the reserve money with interest rate as operating target. Kenya has also adopted the forward-looking approach to monetary policy, with a view to move towards inflation targeting," said the EAC officer.
Central banks in the EAC states are currently implementing legal, regulatory and supervisory amendments in their national legal instruments to harmonise banking supervision and regulatory frameworks in the region.
Two policy documents have so far been developed to guide tax harmonisation process. The EAC Tax Treaty Policy was developed to provide guideline framework for future treaty negotiations by EAC partner states.
And, the EAC Model Tax treaty is expected to further develop partner states' economic relationship and enhance cooperation in tax issues to eliminate double taxation without creating opportunities for tax evasion or avoidance.
The partner states have developed the draft Policy Framework for Domestic Tax harmonisation, which identifies possible areas for harmonisation and coordination as well as establishing the Regional Technical Working Group (RTWG) on harmonisation of national laws. EAC