EAC - Macroeconomic Policy Convergence

The EAC has been carrying out comprehensive economic reforms since the 1990s in order to stimulate the growth of the private sector. One such reform has been the gradual liberalization of financial sectors and capital account mobility in order to enhance macroeconomic harmonization. Consequently, EAC member States have moved towards adopting more flexible exchange rate mechanisms. Moreover, macroeconomic policy convergence is mandated by article 83 and 84 of the Treaty establishing the EAC, which specifies the framework for macroeconomic coordination and monetary fiscal policy harmonization within the EAC.

The Protocol on the Establishment of the EAC Common Market requires member States to pursue macroeconomic policy convergence to fully benefit from a Common Market. The free movement of capital has therefore been advanced in the Protocol, which states that the harmonization in other areas of cooperation, including investment promotion and private sector development, needs to be enacted. With regard to the investment climate, the EAC Secretariat recently finished implementing the components of the Financial Sector Development and the Regionalization Project for Africa between the EAC and the World Bank on Investment Climate Programme.

The EAC is in the preparatory stages of establishing an EAC Monetary Union. In November 2013, the Heads of States and Government signed a Protocol on the Establishment of the East African Community Monetary Union. The critical areas of harmonization include, monetary and exchange rate policy harmonization; statistic harmonization; fiscal policy coordination and harmonization; financial market coordination; banking supervision and financial stability; harmonization of payments and settlement systems; and cohesive accounting and financial standards. EAC also made the decision to establish the East African Monetary Institute and the East African Central Bank to fulfil these goals.[1]

[1]African Union, Status of Integration in Africa IV (Addis Ababa, Ethiopia, 2013). Available from http://www.au.int/ar/sites/default/files/SIA%202013(latest)_En.pdf.