Prospects of monetary union hazy
A study by the Institute of Policy Analysis and Research (IPAR) has ruled out the possibility of a single currency by 2009 because the three countries have failed to follow the roadmap towards the establishment of a single monetary union. “Although there are regular meetings of central bank governors and technocrats, it has not been possible to adhere to the roadmap for the attainment of a monetary union,” says the study by Nzioki Kibua and Arne Tostensen. It says that while the issue of a single monetary union could be implemented based on experiences elsewhere, the three East African states were still trapped in their different political problems associated with democracy. As a result, “it is impossible to implement a monetary union based on such shaky political grounds”. Kibua is a former CBK deputy governor, while Tostensen is a researcher based in Norway. The paper says although progress had been made in some areas such as currency convertibility, liberalisation of the financial sector and close liaison of the capital markets, the three countries are yet to address crucial issues that would lead to the eventual creation of a monetary union. The slow movement towards an EAC political federation has also been cited by the IPAR report as one of the issues that continue to slow down the region’s eventual integration. “There still exist practical legal and institutional challenges and impediments that would require a much longer time to resolve,” says the paper. According to the 2001-2005 EAC development plan, the successful implementation of a monetary union was expected to overcome the country specific weaknesses and lead to greater macro-economic stability, greater regional integration and rapid economic growth. But there have been fears that the three states have allowed bureaucracy to stifle movement towards a monetary union. They have also failed to address key issues that that had been raised at the initial stages when the EAC was mooted. Such issues include the need to change the central banks into a regional monetary authority and the creation of a common currency. There are also issues related to the need to have similar macro-economic policies such as inflation targets, GDP growth rates, fiscal deficit, balance of payments, exchange rates and financial sector stability. ‘ The East African Standard.