By Staff Reporter
Uganda’s Deputy Governor, Bank of Uganda Dr Louis Kasekende has warned the East African Community (EAC) to brace itself for economic shocks likely to hit the region if not addressed.
Speaking recently at a symposium to mark 50 years of the Central Bank of Kenya under the theme “East African Monetary Union – What Lies Ahead”, Dr Kasekende acknowledged that although there are enormous benefits of a union like the EAC and the European Union, the problems it comes with are also many. He added that the problems experienced by some of the monetary unions already in existence around the world indicate that they entail serious risks and advised that preconditions for realizing tangible benefits and avoiding costs must be fully understood and put in place during the transit from national currencies to a common regional currency.
Kasekende further said there was a need for strong, enforceable rules to ensure fiscal sustainability of each partner state, adding that with the establishment of their monitory union there will be no option of refinancing their public debt from their own central bank reserves. He called on member countries to learn how to mitigate the adverse impact of asymmetric macroeconomic shocks the likelihood of which will be increased if one or more partner states become a major oil producer. Dr Kasekende reminded partner states of the rationale of the monetary union, emphasizing that the monetary union is aimed at facilitating transactions within an integrated economic area and to eliminate risks which might arise from unforeseen currency movements and the costs of exchanging currencies in order to complete transactions.
He cautioned that for the partner states to benefit from the union effectively, there was a need for comprehensive economic integration within the EAC, not just free trade in goods but also free trade in services and free movement of factors of production. “We should acknowledge that economic integration in the EAC needs to be further strengthened as a precursor to an optimal common currency,” Kasekende noted. He disclosed that although EAC partner states have implemented a customs union, trade in goods within the region is still at only 10 per cent of the total merchandise exports and imports of the five partner states. “The five partner states have a combined GDP of US$147 billion, but their combined intra-EAC exports amount to only US$3.2 billion, or 2 per cent of their combined GDP,” he observed.
Dr Kasekende attributed the low GDP to the obstacles of intra-regional trade created by non-tariff barriers mainly because of the structure of the region’s economies, which can only produce a fraction of the traded goods consumed in the region. The East African common market came into force in 2010 however some of its key provisions have not been fully implemented including residual barriers to free movement of capital, the free movement of services, and free movement of labour which is not compatible to comprehensive economic integration and monetary union anywhere in the world.