EAC single-currency: How far are we six years later?

The East African Community (EAC) has hit a roadblock in its ambitious plan to establish a single currency regime, six years after the establishment of the EAC Monetary Union in 2013. The EAC Heads of States initially provided a 10-year roadmap for the integration, but relevant institutions to support a single currency have not been established, pushing the EAC Council of Ministers to reconsider their strategy. Economic Analyst, Reginald Kadzutu, sheds light on the challenges hindering the progress towards a single currency in East Africa. Kadzutu highlights that the institutions necessary to facilitate the transition to a monetary union have not been put in place, remaining only on paper without concrete implementation. Disparities in growth trajectories, growth paths, and economic policies among EAC member states have contributed to the delay in achieving the set deadline of 2024. The lack of convergence in fiscal and economic policies has hindered the growth and macroeconomic stability needed for a successful monetary union. Moreover, the directive from the Sectoral Council on Finance and Economic Affairs to review the EAC Monetary Union roadmap indicates a potential extension of the timeline by another four to five years to allow for more alignment among member states. Kadzutu expresses concerns regarding potential leadership changes across EAC countries, which could disrupt the continuity and progress of the integration process. The delay in setting up the East African Monetary Institute, equivalent to a regional central bank, further complicates the path to a single currency. Kadzutu emphasizes that countries are wary of relinquishing monetary independence, as the establishment of such an institute would centralize key economic decisions like interest rate policies, inflation targets, and money supply. The fear of losing control over crucial economic variables has led to a reluctance in creating the necessary institutions for a monetary union. Notably, Kadzutu opines that the current focus of EAC member states on internal growth and protectionist policies hampers progress towards a monetary union. Trade disputes and protectionism measures between countries like Kenya, Tanzania, and Uganda underscore the lack of a unified economic vision within the region. Kadzutu argues that until internal challenges are resolved and mutual trust established, the prospect of a successful monetary union remains distant. A recent development in Kenya, where the parliament approved raising the borrowing ceiling to $85.7 billion, raises questions about the impact on the monetary union. Kadzutu highlights that such actions can undermine convergence criteria like debt-to-GDP ratios, essential for a stable monetary union. Kenya's decision to prioritize debt management over compliance with union parameters signals a lack of commitment towards harmonizing economic policies among EAC member states. While the EAC Monetary Union falls under the regional integration agenda, Kadzutu suggests that the focus should shift towards enhancing the customs union and promoting the free movement of goods within the region. Strengthening the customs union and leveraging each member state's comparative advantage would lay a solid foundation for deeper economic integration. Kadzutu emphasizes the need for seamless trade and cooperation before embarking on the complex journey towards a single currency. In conclusion, the road to a single East African currency faces significant challenges stemming from divergent economic policies, delays in institutional setup, and internal priorities of member states. Kadzutu's insights underscore the importance of overcoming internal barriers and fostering regional cooperation before advancing towards a monetary union, highlighting the long-term nature of achieving economic integration in East Africa.