Economic experts have warned of tough economic consequences if the East African Community rushes the establishment of the single currency owing to political pressure.
In an interview with The New Times, the former Minister of Finance and Economic Planning, Prof Manasseh Nshuti, said establishing a single currency is a technical matter that should not be politically driven.
Last week, a high level meeting in Kigali discussed the establishment of a Monetary Union, including the regional central bank that would be in charge of controlling regional financial institutions.
But Prof. Nshuti said it was important for the region to learn all the intricacies involved.
He highlighted that the region still largely depends on donations from developed countries to sustain their economies, which, he said, might hinder the process.
“It’s a good idea whose time has not yet come due to the environment we are in. We have to be economically independent otherwise the donors will control the currency,” Nshuti said.
He pointed out that donors will have to put conditions for them to continue providing support to the region meaning that they will be determining the export and imports for the region, creating more economic imbalances among partner states.
“We are all agro -countries we are not industrialised meaning that it’s difficult to control the inflation, especially the imported inflation on oil and other products.”
Rwanda has tried to keep inflation on single digit. Last month it stood at 5.8%, Kenya was at 6.1%. In Uganda, the annual inflation rate for the year ending in August 2012 declined to 11.9% from the 14.3% registered last year in July according to the statistics from Ugandan Bureau of statistics.
Burundi has the highest inflation rate in the region with 17.6 percent while Tanzania’s current rate is at 14.7 percent and according to the expert, for the region to have a stable currency, at least the inflation rate should be between 3-4 percent which is still a challenge.
The Monetary Union issue has always been receiving criticisms from various parts. Recently in Tanzania, regional and international economic experts gathered to discuss about the single currency and some experts seemed to criticise the move.
Michael J. Fuchs, a World Bank financial sector and private development advisor, African region, said the EAC should instead focus on other issues, like developing infrastructure, instead of wasting time on a Monetary Union that will not deliver development to the region.
“It’s totally irrelevant for the East African Community countries to have a Monetary Union now; it doesn’t make sense, they should first focus on developing infrastructure,” he told The New Times.
“They will have this Monetary Union but it will not contribute positively towards the community; look at the one in the central African region, it has done nothing for them.”****
However, despite the criticism EAC negotiators have always shown optimism to achieve the currency.
According to Dr Thomas Kigabo, the Rwandan chief negotiator, by the end of this year, all technical negotiations to establish a single currency for the East African Community (EAC) will be complete, adding that the member states were eager to put up the currency.
“We hope by end of November this year all the negotiations by the High Level Task Force (HTLF) will be complete,” he said.
HLTF is comprised of senior officials from the Partner States’ Ministries of Finance, Planning and Economic Development, East African Community Affairs, as well as Central Banks, Capital Markets Authorities, Insurance and Pensions Regulatory Agencies, and National Statistics Agencies.
After the implementation of the Customs Union and the Common Market, the Monetary Union is the next and third stage in the integration process. The ultimate step will be the formation of a political federation.
EAC Heads of State had set a 2012 deadline for the envisaged Monetary Union though it’s not known if it will be achieved in the targeted period.
Good to know:
The African Monetary Union is the proposed creation of an economic and monetary union for the countries of the African Union, administered by the African Central Bank. Such a union would call for the creation of a new unified currency, similar to the euro; the hypothetical currency is sometimes referred to as the afro. […] read all (Wikipedia)