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The East African Community (EAC) is collaborating with the International Monetary Fund (IMF) and researchers from the London-based International Growth Centre to reexamine its macroeconomic targets for establishing a common currency.
This move comes as member states grapple with increasing public debt and widening budget deficits, raising concerns over their ability to meet the required economic benchmarks.
The review process, initiated in May 2023, is a welcome relief for partner states that failed to meet the initial convergence targets. These included thresholds on inflation, foreign reserves, budget deficits, and national debt, which were to be achieved by 2021. Due to these challenges, the EAC Council of Ministers extended the deadline for launching the single currency from 2024 to 2031.
At the heart of the review are two contentious benchmarks: the national debt threshold of 50 percent of Gross Domestic Product (GDP) and the budget deficit ceiling of three percent of GDP. With many member states facing fiscal strain, these targets have been deemed too restrictive. Governments have had to increase borrowing to fund critical infrastructure projects while contending with falling domestic revenues and declining foreign aid.
Speaking on the matter, an EAC official familiar with the discussions said, “The economic realities have shifted significantly since these thresholds were set. Member states need flexibility to address pressing development needs without jeopardizing fiscal stability.”
The IMF and International Growth Centre will analyze the region’s economic data and propose realistic adjustments to the convergence criteria. Their recommendations will likely focus on balancing the need for fiscal discipline with the economic growth ambitions of EAC nations.
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For years, the pursuit of a single currency has been a cornerstone of the EAC’s integration agenda, symbolizing a united economic front for Kenya, Uganda, Tanzania, Rwanda, Burundi, South Sudan, and the Democratic Republic of Congo. However, recurring global challenges, including the COVID-19 pandemic and economic shocks, have hampered progress, exposing the fragility of regional economies.
Financial analysts have lauded the decision to review the targets, describing it as a step toward creating a more realistic framework for economic convergence. “The vision of a single currency is still achievable, but it requires careful planning and milestones that reflect the economic realities of the region,” one analyst observed.
The outcome of this reassessment will play a crucial role in shaping the bloc’s future as it navigates the complexities of global financial trends and regional priorities.
