EAC heads to assent to Monetary Union today

The five heads of state for EAC member states will meet in Kampala today to, among others, sign the East African Monetary Union Protocol, officials have said.The protocol is expected to pave way for a single currency within the East African Community.“All Presidents have confirmed attendance and they are arriving today (yesterday) ahead of the ceremony on Saturday (today),” James Mugume, the permanent secretary in Uganda’s foreign affairs ministry, said.By press time, President Paul Kagame had arrived in Kampala for the Summit.The ceremony, to take place at Kololo Independence grounds, will also see Kenya’s President Uhuru Kenyatta take over EAC chairmanship from Uganda’s President Yoweri Museveni.Rwanda was supposed to take up the one-year rotational chair but declined, citing a busy 2014, a year in which the country will mark the 20th commemoration of the Genocide against the Tutsi and the liberation anniversary.Jacqueline Muhongayire, the minister for EAC affairs, said apart from signing the protocol, other issues top on the agenda include reviewing how decisions of the previous Heads of State Summit had been implemented.“There will also be discussions on the progress report of the admission of South Sudan into the regional bloc,” she said.While many argue that a single currency will facilitate and strengthen trade between the EAC member states, some have raised fears over its implementation especially when time for using a single currency comes.“The biggest challenge is that some of the partner states are moving into becoming oil economies and this means that their currency will appreciate compared to those that won’t export oil,” said Oswald Leo, an economist at the East African Development Bank (EADB).Inflation issuesBut Robert Maate, the coordinator of the EAMU protocol says such fears have been catered for and that an East African statistics body will be established, with the mandate to produce inflation figures to guide price stabilisation.“We shall have the East Africa stabilisation fund which will be a credit line to be extended to member states with economic challenges,” Maate told The New Times in an interview in Kampala yesterday.EAC partner states will also be required to contribute to the stabilisation fund that will cushion partner states against challenges like inflation shocks.The Monetary Union Protocol is the third stage toward a united EAC Political Federation, the Customs Union and Common Market protocols having already come into force.To avoid any financial mishaps, Enos Bukuku, the EAC deputy secretary-general in charge of planning and infrastructure, said all the different currencies will cease to be used once the regional currency comes into force.He said the Heads of State will determine the name of the regional single currency and where the much anticipated East African Central Bank will be located.“You can’t have two legal tender – it has to be one. This means that all the other currencies in the different EAC partner states cannot be used alongside the single regional currency,” Bukuku said.The signing of the protocol today will enable the establishment of a monetary union as well as provide for a wide scope of co-operation in monetary and financial sectors among the EAC Partner States.Bukuku said to achieve a single currency regime within the region, the partner states will be required to surrender monetary and exchange-rates policies to one authority.According to Maate, realising a single EAC currency is a long process and necessary institutions to oversee that process will have to be established.During the 10-year intervening period, macro-economic convergence criteria as well as legal and institutional frameworks to drive the process will be established.Integrated financial markets will also be created.“We shall begin with East African Monetary Institute (EAMI) which will carry out all the preparatory work,” said Maate.Protocol roadmapEAC Monetary Protocol is expected to be in place by 2016, according to a roadmap set out in the protocol, it will operate until 2024 after completing its preparation mandate and then give way to the regional central bank.EACB will be the central bank of the whole EAC region and its mandate will be to ensure stability of financial prices as well as monitoring, surveillance and enforcing compliance of all other macro matters.“The role of EACB will basically be policing of all EAC countries to ensure they follow agreed criteria,” said Maate.The proposed central bank will be headed by an independent and autonomous council. “It will not be influenced by any partner state,” said Maate.EACB will be responsible for policy formulation and the National Central Banks (NCBs) will have the mandate to implement the policies from EACB.“The exchange rates, for exampale, will be formulated by EACB and implemented by NCBs in each partner state,” Maate said.For a country to join the single currency area, it will have to adhere to set guidelines. Such a country will have to attain an inflation rate of less than 8 per cent, a fiscal deficit of less than 3 per cent of the country’s growth domestic product (GDP), a public debt of less than 50 per cent of its GDP and less than 4.5 per cent reserve cover of its imports.“Any three EAC partner states which will adhere to the set guidelines will move on and join the single currency area; the rest will follow,” Maate said.The process will not be without challenges; delay in ratification of the protocol and financial constraints for funding key institutions are some of the challenges that are bound to arise.“Partner states may also struggle in complying with the macro-economic convergence criteria,” Maate said.