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Sunday 10 June 2018

EAC SINGLE CURRENCY REGIME AT STAKE AS COUNTRIES STRUGGLE TO MEET TARGETS

East African countries are struggling to comply with key macroeconomic targets ahead of the operationalisation of a single currency regime by 2024.
East African countries are struggling to comply with key macroeconomic targets on fiscal deficit, inflation, public debt and foreign exchange reserves ahead of the operationalisation of a single currency regime by 2024.

The mixed performance of regional economies on these targets is likely to delay the delivery of the benefits of a monetary union to regional traders and citizens such as reduced costs of cross-border transactions.

A study by the United Nations Economic Commission for Africa (Uneca) conducted in October 2017 shows that while the partner states are on track to achieving the criteria on inflation, challenges remain in attaining the targets on fiscal deficit and adequate level of foreign exchange reserves.

This, according to the study, is due to the countries’ heavy spending on infrastructure projects and increased imports of capital goods.

Countries are expected to attain headline inflation of a maximum eight per cent, a fiscal deficit (including grants) of not more than three per cent of GDP, a public debt-to-GDP ratio of 50 per cent and forex reserves of at least 4.5 months of import cover, to qualify to join the East African Monetary Union.

Countries are also required to comply with the criteria for at least three years before the official launch of the single currency regime. This implies the countries have up to 2021 to comply with these conditions.

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