As the Common Market for Eastern and Southern Africa (COMESA) region continues to struggle with multiple trade tax structures and overlapping membership, the African Development Bank (AfDB) has called for uniform fiscal and macro-economic policies in the 19 states of the eastern and southern Africa bloc.
This, the bank says, will boost fiscal surveillance at the regional and national levels. It will also set the stage for a monetary union.
“Fiscal convergence is essential to Comesa’s macroeconomic convergence programme, and is a bridge between monetary and trade integration programmes,” AfDB President Donald Kaberuka said in a report, titled “Facilitating Multilateral Fiscal Surveillance in Monetary Union Context with Focus on Comesa Region.” The report which was made public last week, had been commissioned by the Comesa Secretariat two years ago.
The report proposed the establishment of a single currency for the Comesa region, a move that is seen as a stepping stone in cementing regional economic growth. It suggested a roadmap for fiscal convergence in a programme that runs up to 2018 but offers no specifics that can connect the dots between trade and monetary integration.
By 2015, the report says the 19 countries are supposed to maintain an overall budget deficit to GDP ratio of 4 percent, an annual average inflation rate of not more than three per cent, and keep external reserves of at least five months of imports. It also recommended that the countries should have eliminated central bank financing of budget deficits over the same period.
Principal Economist at AfDB, Jian Zhang, said; “A major responsibility also lies with the national authorities to encourage national ownership of the multilateral fiscal surveillance framework, reinforce their national public finance management systems, and formulate their individual convergence programs.”
While the Comesa region has launched its Customs Union in 2009, the implementation of common external tariff structures has been slow, causing numerous trade disputes with firms in the region.
However, it had established a number of specialised institution including the PTA Bank and PTA Reinsurance companies both headquartered in Nairobi, the Khartoum-based regional Court of Justice, a clearing house based in Harare, and the Regional Investment Agency (RIA) in Cairo; to maintain its current macro-economic policies after it launched a free trade area in 1994.
The report attested to this, saying, “Progress has been made in the implementation of the Comesa Monetary Cooperation Programme especially in the establishment of the free trade area, the regional payment system, reduced inflation and budget deficits.”
However, Prof. Manasseh Nshuti, Rwanda’s former Finance and Economic Planning Minister said, though the single currency initiative is important, this is not the right time to propose it. He said a strong financial independence of member countries should first be sought.
“We need to have harmonised fiscal regimes and we still have other outstanding issues like corruption, lack of transparency and different inflation rates, meaning that it might be difficult for the member countries to sort these issues,” he said.
He added that “We are not yet ready for the Comesa currency. We haven’t even achieved the EAC Monetary Union that we have always been singing about.”