SHARP DIFFERENCES IN MONETARY POLICIES DELAYING THE ESTABLISHMENT OF EAST AFRICAN MONETARY UNION IN THE REGION AS ORIGINALLY PLANNED FOR 2012.

EAC Specialized Feature By Leo Odera Omolo In Kisumu City

The much talked about and planned East African Community [EAC} Monetary Union, where a single currency will be used for all the business transaction in the region is expected to be in place in the year 2012.

However, the economists and experts in East African politics are sending out skeptical signals that this might not be feasible because of the existing differences in macroeconomic policies and the economic structures of the EAC member states.

EAC member states are Kenya, Tanzania, Uganda, Rwanda and Burundi. One of the example given is that for instance; Burundi, which only recently joined the EAC economic bloc does not have a revenue authority to formulate and implement tax policies, like its other partners like Kenya, Tanzania, Uganda and Rwanda.

In a brief opening remarks, during the recently concluded 3rd EAC Media Summit, held in Kampala, Uganda, the EAC Secretary General, Ambassador Juma V Mwapachu told the delegates comprising of media owners, editors, journalists and correspondents that the most difficult task is to establish a Monetary Union.

He said this is because it requires all the partner states to harmonize different macroeconomic policies and come up with a strong monetary union. The success of such a monetary union, he added, hinges critically on member countries pursuing convergent macroeconomic policy.

‘There are still many things that need to be done, because of so many differences in macro economies. Because of these divergent economic policies, we might not have a monetary union by 2012.”

Addressing the same forum, the Director General of Customs Union and Trade in the EAC, Mr. Peter N.Kiguta, predicted that the EAC Customs Union will be in place by January 2010.

Kiguta said this being an integration process of implementation of customs union, is a process not an invent, therefore it is continuous. However there are certain milestone that are to be achieved at given dates.

“The transition period in the elimination of internal tariffs”, he said, “is set to be achieved from Ist January 2010”, adding that “currently, the highest duty paid on affected Kenyan goods entering Tanzania is five per cent, while those entering Uganda attract only two per cent. But from the First January 2010,these duties will go to zero, thereby enabling trade between all EAC partners states to be duty free zone”.

Mr Kiguta further explained that currently, the EAC applies the CET as revised in 2007 to incorporate new international developments. However, tariff rates for some goods have been adjusted in order to accommodate critical policy changes of specific partner states. Such changes are usually temporary for specific periods of times. Carried in the long run ,the CET is expected to gain some stability.

In accordance with the customs union protocol, a review of the highest CET rate of 25 per cent is to be undertaken within five years. The review process has already been initiated and is being carried out by the partner states with back stopping of the EAC secretariat at Arusha,Tanzania.

Mr Kiguta further explained that the policy environment under which the customs union is being established include liberalization of cross border trade, underlies the process of establishment of the customs union. However, he said, some impediments continue to be encountered in the form of non tariff barriers {NTBs}. A mechanism for identifying and monitoring removal of NTBs has been operational.

Similarly, Mr. Koigjta went on saying that the on-going implementation of economic policy reform, mostly under the sponsorship of IMF and World Bank, is geared towards creation of a policy environment ,which is supportive of liberalization of trade and investments, as a catalyst for economic growth. Such fiscal monetary, financial sector and structural economic policy reforms are mainly aimed at stemming macroeconomic imbalances. Since they come with financial packages, it is difficult to discern how partner states could have performed in trade liberalization under regional integration without such financial support.

“And also much of what has been achieved nationally in terms of moving towards economic convergence such as GDP growth rates and low inflation is attributable more to implementation of national reform program, rather than regional policies”, said Mr. Kiguta..

Mr Kiguta explained that EAC member states are also members of other regional economic communities {RECs} namely Common Market for East and Southern Africa [Comesa} and the Southern African Development Community {SADC}. These RECS have their own programs for trade liberalization.

This is to say for example. Kenya, Burundi and Rwanda were already trading duty free under COMESA before the latter two, namely Tanzania and Uganda commenced implementation of the East African Customs Union in January this year and in only their membership of the Comesa FTA eased their implementation of the EAC Customs Union.

Apparently, the governors of Central banks in the region recently called for a comprehensive study to assess the extent of economic variance such as inflationary situation ,interest rates, level of budgetary deficits as well as foreign exchange reserves, basically taking a look at the current preparedness of each partner state for the creation of the EAC Monetary Union..

The study is expected to recommend ways for fast tracking a monetary union for East Africa, and the EAC Secretary General, Ambassador Mwapachu says that the study being undertaken by the European Union Central Bank is expected to be completed in about six weeks from now

Currently, the European Union {EU} is the most integrated economic region in the world with 26 member states, 16 countries of which are in Euro zone or use the European single currency Euro introduced by the union in January 1999.

Ends

leooderaomolo@yahoo.com
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From: Leo Odera Omolo
Date: Tue, Sep 1, 2009 at 10:00 PM
Subject: sharp differences in monetary policies delaying the creation of EAC Monetary Union