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Monetary Union on the horizon for East African Community

The establishment monetary union in East African is set to go a notch higher as the regional parliament prepares laws for setting up key institutions. The East African Legislative Assembly (EALA) said its committees used the three-week Dodoma sittings, which began on April 9 to collect views on the East Africa Monetary Institute (EAMI) Bill, 2017 and the Statistics Bureau Bill, 2017, which earlier sailed through the first and second readings.

The Monetary Institute Bill seeks to set up EAMI as an agency to initially perform the role of a regional central bank. It will be expected to craft policies required to back a single currency. The EA Statistics Bureau Bill will on the other hand create a regional agency akin to European Union’s EuroStat, charged with gathering data to guide decision making within the EAC Monetary Union.

The East African Monetary Union protocol lays groundwork for a monetary union within 10 years during which the partner States will progressively converge their currencies into a single currency for the block.

Countries such as Kenya, Uganda, Tanzania, Rwanda, Burundi and South Sudan are bound to meet specific thresholds on public debt, inflation, foreign exchange reserves and fiscal deficit by the start of 2021 to enable the implementation of the single currency effectively within the region.

Furthermore, the States are mandated to maintain their respective debt-to-GDP ratio at no more than 50 per cent and also maintain fiscal deficit at not more than three per cent of the GDP. Lastly, the States must also maintain overall inflation at eight per cent and hold foreign exchange reserves of 4.5 months of import cover.

All these exciting developments have taken place on the backdrop on Africa’s March’s free trading landmark agreement. According to analysts, Africa is set to be the nucleus of the global growth expected to be experienced over the next decade. The continental free trade area will offer substantial opportunities for industrialisation, diversification, and high-skilled employment in Africa.

A single continental market offers opportunities that will lead to accelerated manufacturing and intra-African trade of value-added products, moving from commodity based economies and exports to economic diversification and high-value exports. And if historic data is anything to go by, the most diversified economies have thrived the most.

Africa is indeed going in the right direction with these two discussed developments!


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