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East African Community road to common currency

THE five East African community central banks have agreed to re-examine the macroeconomic convergence criteria set as benchmark for member states to qualify for the envisaged monetary union.


Under EAC’s monetary union plan slated for release by 2012, member states have to harmonised inflation rates, Gross Domestic Product (GDP) levels, fiscal deficit and foreign reserve covers.


The five central banks which met in Arusha recently said the prior criteria differed in methodological and definitions, defeating the logic behind the sought convergence criteria.


Bank of Tanzania Director for Economic Research and Policy Joe Masawe told the ‘Daily News’ that the problem was that each individual central bank had used different methods and definitions to calculate and arrive at the convergence benchmark.


‘’We agreed to hire a consultant who will work and arrive at more appropriate convergence criteria,’’ Dr Masawe said on Thursday.


The EAC Secretariat was given the task of hiring the expert to work on a single methodology and definition that would be accepted by all five central banks.

The consultant expects to deliver the harmonisation criteria as soon as possible to enable member states to meet their target of EAC monetary union in 2012.


‘’The date set is still viable,’’ Dr Masawe said, ‘’As countries need at least a year of negotiations.’’


However, he warned that the date would ‘only be valid’ depending on the member states’ ability to meet the convergence benchmark criteria during the transit period.


The outcome of the expert report, which is expected soon, will also be used to draw a roadmap and action plan to evaluate if the 2012 deadline is still appropriate time for the EACMU.

Dr Masawe could not rule out the rescheduling of the 2012 deadline, saying: ‘’We don’t want to rush into a monetary union that will not be sustainable’’.


The issue of common macroeconomic convergence benchmark arose when Kenya wanted the foreign reserve to be revisited to cover for only four months while Tanzania and Uganda insisted for six-month covers.


Currently, the Tanzania has official foreign reserves amounting to USD 3,778.4 million sufficient for 5.3 month cover, while Kenya has almost similar figure but enough 3.5 months cover.


Tanzania also calculate its reserves by including foreign assets of commercial banks to have a total gross foreign reserves of the banking system of USD 4,761.1 million of last October 2010, which was sufficient to cover for about 7.5 months of projected import of goods and services.



Business/Financial Journalist

The Daily News


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