IN recent weeks, East Africans found themselves caught in a whirlwind of online fake news, falsely suggesting the imminent arrival of a unified currency.
Thankfully, these claims were categorically denied by authorities. Nevertheless, this incident serves as a reminder of a much-discussed, yet seemingly elusive, goal of establishing a single currency for the East African Community (EAC).
The EAC envisioned the East African Monetary Union (EAMU) as a cornerstone for deeper economic integration, following in the footsteps of the customs union and common market, which also faced implementation challenges.
A single currency was expected to enhance regional stability, boost trade and investment, streamline transactions, and drive overall economic growth. However, the path to this goal has proven rockier than anticipated.
The EAMU protocol, signed by heads of state in 2013, established a 10-year roadmap to achieve this goal by 2024 (as originally planned).
The roadmap outlined criteria for the establishment of the Monetary Union which included the attainment of macroeconomic convergence criteria, the establishment of institutions to support the Monetary Union and the harmonisation of policies and regulatory frameworks.
However, the agreement also acknowledged the principle of variable geometry, allowing some flexibility in the integration process. The road to a single currency has proven bumpier than anticipated.
Member countries struggle to meet the macroeconomic benchmarks including the debt-to-GDP ratio of 50 per cent, fiscal deficit (including grants) of three percent of GDP, overall inflation of eight per cent, and foreign exchange reserves of 4.5 months of import cover - deemed crucial for a functional monetary union, with current data suggesting significant shortfalls in some areas.
Additionally, the EAC is lagging in establishing key institutions, most notably the East African Monetary Institute (EAMI)- the precursor to the East African Central Bank. The other three institutions are the: EAC Financial Services Commission; EAC Surveillance, Compliance and Enforcement Commission, and; EAC Statistics Commission. At the heart of the delays lie unresolved disagreements among partner states.
A sticking point has been the selection of a host country for the EAMI. According to publicly available information, discussions on this issue were suspended during a recent Council of Ministers meeting, highlighting the ongoing lack of consensus. Consequently, the timeline for achieving the monetary union was reluctantly pushed back to 2031, with far-reaching implications for harmonising policies, promoting trade, and unlocking the region's economic potential.
The EAC's experience is not unique, as other regional blocs, like the economic community of west African states, have struggled to achieve a single currency.
Moreover, the changing global landscape in favour of inward-looking protectionist policies and the potential risks associated with a single currency (as cautioned by economist Joseph Stiglitz) add complexity to the endeavour.
However, there's still hope. Public support for a single currency within the EAC is strong, providing policymakers with a powerful tool to expedite its establishment. The EAC operates on a more balanced playing field compared to some regional blocs dominated by a few powerful members.
Now with eight member states, decisions require consensus, ensuring all voices are heard. This approach fosters inclusivity and avoids potential resentment, but can also lead to a slower pace compared to models with clear leaders. Moving forward, member states must redouble their efforts towards achieving the macroeconomic convergence criteria.
This means implementing sound fiscal and monetary policies, managing debt levels, controlling inflation, and maintaining adequate foreign exchange reserves.
Open communication, sharing best practices, and collaborative decision-making are crucial to navigating these challenges.
The key to resolving the current impasse surrounding the EAMI's host country likely lies in diplomatic engagement between member states. With a political will, through open communication and negotiation, a solution can be reached that addresses the concerns of all parties.
In conclusion, while the establishment of a single currency for the East African Community faces significant challenges and delays, the dream remains alive. The EAC must confront these challenges head-on, addressing macroeconomic benchmarks, resolving institutional issues, and fostering consensus among member states.
Sign up for free AllAfrica Newsletters
Get the latest in African news delivered straight to your inbox
The opportunities that a single currency presents in terms of trade facilitation, monetary stability, financial integration, and infrastructure development are too valuable to be overlooked.
By harnessing the collective strength of the region and maintaining a steadfast political commitment to the goal of a single currency, the EAC can navigate the challenges and seize the opportunities that lie ahead, ultimately leading to a more integrated, prosperous, and resilient East Africa.
The writer is an economic analyst and researcher currently engaged in a PhD programme at the University of South Africa (UNISA). The perspectives presented in this article solely reflect the author's opinions and are independent of any institutional affiliation.
For further communication, please reach out via email at deokimolo@gmail.com
