East Africa: Monetary Union?

Discussions are continuing on creating an East African Monetary Zone, where the five member countries of the East African Community (EAC – Burundi, Kenya, Rwanda, Tanzania and Uganda) would share a single currency.

EAC Secretary-General Dr Richard Sezibera (Credit: DFID)

EAC Secretary-General Dr Richard Sezibera announced December 2012 as the date when the five partner states will sign the East African Monetary Union (EAMU) protocol.

“The integration agenda is speedy by design; I am confident we can have the Monetary Union Protocol signed, but also sure that implementation may take much longer,” the EastAfrican quoted Dr Sezibera as saying.

It is envisaged that by embracing a single currency, EAC partner states would remove the costs of having to transact in different currencies and the risk of adverse exchange rate movements for traders and travellers alike within the region. This is the third step for the integration after agreeing on a Customs Union and Common Market. The next planned step  after the Monetary Union is a Political federation, The Star, Nairobi reported.

A high level task force negotiating the East African Monetary Union (EAMU) Protocol recently ruled out the possibility of partner states bailing each other out in case of a financial crisis.

The task force – formed to thrash out disagreements in the implementation of the EAMU – reached a consensus in late July on this contentious outstanding issue, deciding that neither the community, nor partner state should be liable to bail out other member states. The clause would not be applicable to mutual financial guarantees for the joint execution and financing of specific projects.

The task force is hoping the no-bailout clause will foster fiscal discipline in the proposed single currency area and, in particular, address the “free rider” issue.

Director of the Makerere Institute for Social Research at Makerere University, Prof Mahmood Mamdani, warned however that the EAC could fall into the Eurozone trap if rushed into a monetary union before shaping a clear political landscape.

But EAC Deputy Secretary-General Dr Enos Bukuku says the Eurozone has given the EAC lessons about the importance of harmonisation and coordination of fiscal policy. The EAMU is being fashioned on the Eurozone model.

EAC 2011 Figures

  • Surface area (incl. water): 1.82 million sq. km
  • Population: 133.1 million
  • GDP (market prices): $79.2 billion
  • GDP per capita: $685

Source: EAC Facts & Figures Report (2011)

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