NAIROBI, Kenya, Nov 17 – As the debt crisis in the euro zone continues to unfold, the East African Community (EAC) is taking note of how they can avoid making such financial blunders and also how they can tackle such shocks, should they happen.
The member states acknowledge that as they continue working towards the region’s integration process, they will need to devise policies that guarantee the financial health of the bloc.
This is especially crucial at a time when the bloc-made up of Kenya, Rwanda, Uganda, Tanzania and Burundi – is currently engaged in negotiations on how to deepen the integration of the five sister states’ economies with the establishment of an EAC Monetary Union.
“I would like to confirm that in the negotiations of the Monetary Union, the experiences of the Euro, the challenges they face and how the whole matter is being dealt with, is informing how we are proceeding with our negotiation process,” Kenya’s EAC Permanent Secretary David Nalo disclosed.
The euro zone crisis has its roots in Greece, Ireland and Portugal and was largely triggered by years of overspending, heavy borrowing and consequently the inability to service their debts.
Owing to the fact that the European financial markets are heavily integrated, the crisis is threatening to suck in more countries such as Spain, Italy and even France. Worse still, its impact has been felt in the global market, which has been on a fragile recovery path since 2009 world financial crisis.
Although the East African economies are largely insulated from the world’s market, the region needs to pay close attention to what is happening in Europe particularly because the EAC is modelled around the European Union federation.
The taskforce charged with developing a strategy and roadmap of attaining a Monetary Union which should culminate in a common currency, has taken cognisance of this fact and has been holding discussions on how to harmonise tax, monetary, fiscal policies.
Last week, the team met in Dar es Salaam, Tanzania where they discussed how the region can harmonise its tax regimes to ensure the smooth operation of the EAC Customs Union and Common Market.
“It is behind these policies that you may have shocks that you do not anticipate and that is the reason they have introduced a subject on how to deal with such shocks,” Nalo explained.
The High Level Task Force has until 2012 to conclude a draft Protocol that addresses Macro Economic Policy, Statistics, Financial Sector Policy and Payment and Settlements Systems issues, a deadline that Nalo believed can be met.
Good progress has already been made with 33 out of the 96 articles in the draft Monetary Union Protocol having already been successfully negotiated.
The articles that have been agreed on include the harmonisation and coordination of fiscal policies; taxation and customs, coordination of monetary and fiscal policies; name and status of the single currency as well as the framework for building resilience and managing economic shocks.
But even as optimism continues to reign, trade experts reckon that the bloc will need to implement stringent regulations, employ a robust oversight role as well as make provision for an emergency fund that can help bail out any of the members.
The taskforce is alive to the challenges ahead and had commissioned several studies whose findings will guide its negotiation and implementation process.
According to the EAC Minister Musa Sirma, the surveys are based on the attainment of a common exchange rate policy for the bloc; on harmonised monetary policy framework and another to review the macroeconomic convergence criteria.
The proposed East African Monetary Union is the third pillar of the region’s integration agenda is expected to help reduce price instability and exchange rate volatility.
Although it portends a lot of benefits, there are fears that it will bring with it job losses through increased ‘labour mobility’ and competition as well as fear of losing national sovereignty which the bloc’s leadership is duty-bound to address.
“Fear of loss and competition over land, socio-cultural issues are related to loss of identify and social cohesion; there is also fear of losing social protection measures gained at national level. Recommendations have been made on how to address the same,” said Sirma in reference to the upcoming 13th Ordinary Summit of the EAC Heads of State.
Kenya is taking over the chairmanship of the summit to be held in Bujumbura, Burundi on November 30 where several issues such as the consideration of a report on how to address concerns and challenges on the political federation are on the agenda.