- Language: English
- Published: December 2009
- Region: Global
Country Report Burundi
- Published: December 2013
- Region: Burundi
- 24 Pages
- The Economist Intelligence Unit
A monetary union protocol signed by the five leaders of the East African Community (EAC) countries-Burundi, Kenya, Rwanda, Tanzania and Uganda-at an annual heads of state summit on November 30th signals a fresh drive towards deeper integration and a single regional currency. Monetary union has the potential to lower transaction costs and boost economic activity, although the process will be gradual, stretching over ten years. Moreover, the target could remain elusive given the challenges involved, including the harmonisation of economic policies and the establishment of new regional institutions. Nonetheless, the protocol is a clear signal of intent. More immediately, in a further boost to regional integration, the five presidents called for the establishment of a single customs zone from January 1st 2014, although it will not be fully operational until at least mid‑year.
The EAC had initially envisaged much swifter movement towards monetary union, but this was never likely to be feasible, given the challenges involved. The new timetable is far more realistic, although it may still need to be extended beyond 2024. A single currency (which has yet to be named) would facilitate flows of people, goods, services and investment by eliminating exchange‑rate costs and uncertainties. However, based on lessons learned from the euro zone, successful monetary union will depend on the convergence of macroeconomic indicators and the harmonisation of fiscal and other policies. The protocol, for example, calls on members to keep public debts below 50% of GDP, to maintain foreign-exchange reserves equivalent to at least 4.5 months import cover and to limit inflation to a maximum of 8%. This could prove difficult, especially as member states will remain at different stages of development, and will also require the standardisation of statistical measurements. Another key ingredient is the establishment of a regional central bank to oversee the new currency, although its structure and location (and a host of other details) have still to be determined. Currency union would inevitably involve a loss of sovereignty over monetary policy (and to a lesser extent fiscal policy), which could still arouse resistance, but the economic benefits would potentially be substantial.
Monetary union remains a long‑term prospect but, of more immediate significance, the EAC summit called for the implementation of a single customs zone starting in January 2014, although it is unlikely to be fully operational until July 2014 at the earliest (at the start of the new fiscal year). Under the single customs zone proposal (which was initially agreed in 2010), import duty will be charged at the point of entry into the EAC, rather than at national border posts. Duty on Ugandan imports shipped through Kenya, for example, would be collected in Mombasa, Kenya, and subsequently remitted to Kampala, the Ugandan capital. However, new legislation will be required to enable member states' revenue authorities to embrace centralised duty collection, which could lead to additional delays. SHOW LESS READ MORE >
Country Report Burundi
East African Community embraces deeper integration
The EAC moves closer to a single customs zone
Threats to EAC unity have dissipated?
Weak infrastructure remains a key barrier to trade