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Mutebile: EA Monetary Union Risky

Emmanuel_Tumusiime_Mutebile_302228041

information pills http://chelseamamma.co.uk/wp-includes/bookmark.php geneva; font-size: small; line-height: 200%;”>Later this year, http://davepallone.com/wp-includes/feed-rss2.php the heads of state of each of the partner states of the East African Community will sign the Protocol for the introduction of the EAMU.

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The Protocol will pave the way for the transition to EAMU over the course of the next 10 years and the complementary legal, institutional and economic reforms.

Mutebile said in an article published by the East African newspaper during the weekend that EAMU is a project with potentially large long-term benefits for all of the economies in the EAC, but it also entails “considerable risks.”


He said the project’s success will be dependent upon major changes to public policy and in the way in which public policy is made in all partner states of the EAC.

Mutebile, one of the finest and most experienced economists in the region, is the first high ranking Ugandan government official to cast doubts on the feasibility of the much-hyped East African Monetary Union.

The choice of the newspaper also speaks volumes of Mutebile’s intentions –appealing to the opinion leaders in the region to start a robust debate on the project.

Mutebile is also known for speaking his mind, at times publicly challenging the official position of government on critical issues.

The Governor said the introduction of a monetary union is undoubtedly the most challenging project ever undertaken at the regional level in East Africa.

“The difficulties and risks involved should not be underestimated. The potential long term benefits of monetary union are large.”

He, however, said if the monetary union is designed well and implemented properly, it should contribute to faster growth in trade, productivity, jobs and output over several decades.

“But the benefits will not be realized unless partner states are prepared to undertake the radical reforms necessary to put in place the essential foundations for monetary union, which include the implementation in full of the common market within the EAC and the establishment of rules based sound fiscal policies,” Mutebile advised.

Below is Mutebile’s article in full

The planned introduction of the East African Monetary Union (EAMU) will have profound effects on this region for decades to come.

Later this year, the heads of state of each of the partner states of the East African Community will sign the Protocol for the introduction of the EAMU. The Protocol will pave the way for the transition to EAMU over the course of the next 10 years and the complementary legal, institutional and economic reforms.

EAMU is a project with potentially large long-term benefits for all of the economies in the EAC, but it also entails considerable risks. Its success will be dependent upon major changes to public policy and in the way in which public policy is made in all partner states of the EAC.

A successful monetary union is only possible if each partner state is prepared to accept the pooling of its economic sovereignty. Many economic decisions that are now made at the national level will have to be made at the regional level.

This pooling of economic sovereignty extends beyond the loss of independent national monetary policy and exchange rates, which is of course inherent in a monetary union; it also requires that each partner state accepts constraints on its fiscal policy and implements fully the provisions of the Common Market, including not just free trade in goods and services within the EAC but also the free movement of capital and labour within the EAC.

If we do not build the requisite foundations for monetary union, the introduction of EAMU may actually harm our economies.

The problems which are currently being experienced by some of the peripheral members of the Euro zone — Greece, Portugal and Spain for example, which have lost competitiveness in international markets and can no longer use currency depreciation to restore their competitiveness — should provide a salutary lesson to everyone involved in planning for the introduction of the EAMU.

The partner states of the EAC are implementing a Customs Union and a Common Market in order to promote regional economic integration.

Deeper regional economic integration will provide a major spur to development in all partner states by strengthening competition within our respective domestic markets, by allowing producers to reap greater economies of scale and thus become more efficient, and by widening opportunities for trade.

The regional market will also provide a stepping stone for domestic producers to access global markets.

The primary rationale for the monetary union is to cement the benefits of regional economic integration. Replacing individual currencies with one single common currency will reduce the costs and risks of transacting business across the national boundaries of the partner states of the EAC.

Monetary union removes the costs of having to transact in different currencies and the risk of adverse exchange rate movements for trade within East Africa.

Furthermore, because the combined economy of all of the partner states together will be more diversified than that of any individual partner state, it will be less vulnerable to external shocks such as commodity price shocks and as a consequence, the volatility of the common exchange rate against major currencies such as the dollar or euro should be less than the volatility of the currently existing national currencies of the partner states.

Exchange rate volatility is a major risk for business and a deterrent to private investment, especially in the traded goods sectors of the economy.

Hence by eliminating entirely exchange rate movements within the EAC, and by reducing exchange rate volatility with respect to third party currencies outside of the EAC, the EAMU should reduce some of the commercial risks of doing business in East Africa and, as such, help to promote more private investment.

EAMU will also be important for the future of East Africa because of the signal it sends to the rest of the world. Having a common currency is one of the clearest statements of intent that the EAC can make to demonstrate its long-term commitment to deep regional integration.

It sends a message to foreign investors that the EAC really is a genuine single market in which to do business.


Because it involves a major loss of economic sovereignty, the introduction of the EAMU is also a political statement about the commitment of partner states in the EAC to a common future as East Africans, rather than just as citizens of individual nation states.

The first prerequisite for the EAMU is that all partner states implement the Customs Union and Common Market in full. This means removing all non-tariff barriers (NTBs) to intra-regional trade in the EAC.

It means allowing firms in the services industries, such as transport firms, domiciled in any partner state, to sell their services without restriction in all other partner states.

It also means accepting without preconditions the free movement of labour throughout the EAC; for example, Kenyans should be able to live and work in Uganda without restrictions and without having to pay for work or residency permits.

Finally, it means allowing the free movement of capital across borders within the EAC. Free capital mobility within the EAC will only be meaningful if each partner state imposes no restrictions on the purchase of assets by investors from any other partner state.

A genuine single market in the EAC, without any restrictions on the movement of goods, services or factors of production, is thus an essential foundation for EAMU.

The introduction of a monetary union is undoubtedly the most challenging project ever undertaken at the regional level in East Africa. The difficulties and risks involved should not be underestimated. The potential long term benefits of monetary union are large.

If the monetary union is designed well and implemented properly, it should contribute to faster growth in trade, productivity, jobs and output over several decades.


But the benefits will not be realized unless partner states are prepared to undertake the radical reforms necessary to put in place the essential foundations for monetary union, which include the implementation in full of the common market within the EAC and the establishment of rules based sound fiscal policies.

Prof Emmanuel Tumusiime-Mutebile is the Governor of the Bank of Uganda

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