NAIROBI, Kenya, Jul 14 – East African banks have been urged to expand throughout the region as a way of fast tracking the implementation of the East African Monetary Union.
Central Bank of Kenya Governor Prof Njuguna Ndung’u argues that with the implementation of the East African Common Market Protocol which allows free movement of goods and services across the region, banks would have to have firm bases in the region to facilitate trade and investment.
“What we want from our banks is for them to facilitate and support investment and trade in this region. That is what the movement towards integration means and that’s where convergence becomes very critical,” Prof Ndungu said.
Already, Kenya Commercial Bank and Equity are some of the Kenyan institutions that have expanded into the region as part of their growth strategy.
Prof Ndung’u said the greatest hurdle would have to be overcome by regional governments as they negotiate different aspects of the Common Market Protocol.
“We have gone through the much trickier bits. We have almost common or uniform monetary policies except a few countries that still have a few controls, which they are phasing out,” he said.
EAC Heads of State have already given a 2012 deadline to have the Monetary Union running. Governors of EAC Central Banks have already embarked on the road map towards a single currency and have already come up with a framework for fast tracking its implementation.
The Monetary Affairs Committee, through the EAC Secretariat, engaged the services of the European Central Bank in 2009 to carry out the study on the establishment of a Monetary Union.
Findings from the study show that there are still a number of challenges facing the formation of the Monetary Union. For starters, there will be need for convergence in key economic areas such as inflation, exposure to external shocks, debt levels, as well as GDP growth rates.
The report prescribes maintaining an overall budget deficit to GDP ratio of not more than six, excluding grants. At the same time member States must ensure that annual average inflation rates do not exceed five percent.
Prof Ndungu said the journey would not be easy arguing that proper systems will have to be in place to ensure that all partner State’s economic situation are factored in the new monetary system to avoid what is currently happening to the Euro.
“I am very confident in every policy because when you adhere to the rules it’s usually very critical. Kenya has been able to create its own fiscal space without debt relief and can be replicated in the region,” he said.
He was speaking on the sidelines of the ninth meeting of the Assembly of African Central Banks in the eastern Africa sub region to review progress made towards the harmonisation of monetary policies for the creation of an African Central Bank and common currency.