Regional Divisions Delay East Africa’s Long-Awaited Common Currency Premium

The East African Community’s vision of a single currency is under threat due to political pressure, staff shortages, and the significant challenge of aligning key economic indicators. Together, these issues have delayed the implementation of the third pillar of regional integration. The proposed single currency was intended to reduce cross-border transaction costs, increase intra-regional trade, and strengthen East Africa’s bargaining power in global markets. It would also spare truck drivers long waits at border crossings such as Malaba, where they have to exchange currencies, while allowing small-scale traders in Kigali, Mombasa and other regional markets to trade more seamlessly. However, while regional technocrats have long warned that member states are failing to meet core macroeconomic convergence criteria regarding inflation, public debt, fiscal deficits and foreign exchange reserves, the currency project is also being held back by deeper geopolitical gridlock. Technical data from the EAC Council of Ministers’ budget speech in June revealed an even harsher reality: the partner states are moving further apart, rather than converging. The EAC convergence criteria require all partner states to maintain an inflation ceiling of eight per cent, a fiscal deficit below three per cent of GDP, gross public debt under 50 per cent of GDP in net present value terms, and foreign exchange reserves of at least 4.5 months of import cover. But this vision has largely fallen victim to domestic economic pressures, with these targets being shattered. Escalating sovereign debt, fuelled by aggressive infrastructure spending and external borrowing, has compromised the fiscal consolidation plans of member nations. In her Budget speech for the 2026/27 fiscal year, EAC Council of Ministers’ Chairperson Rebecca Kadaga revealed that only half of the eight member states currently meet the eight per cent headline inflation ceiling. Only three states have kept their fiscal deficits within three per cent of GDP, four comply with the 50 per cent public debt threshold and two have met the reserve-cover requirement of at least 4.5 months of imports. The EAC bloc currently comprises Uganda, Tanzania, Rwanda, Burundi, Somalia, South Sudan, the DRC and Kenya. Implementing the East African Monetary Union (EAMU) requires at least three countries to meet all the necessary conditions. For the 2026/27 fiscal year, the EAC allocated just $4.12 million for the entire regional monetary roadmap, including the operations of the long-delayed East African Monetary Institute (EAMI). This represents only 3.71 per cent of the bloc’s total budget of $110.86 million. According to the EAC Sectoral Council on Finance and Economic Affairs (SCFEA), the attainment of macroeconomic convergence criteria is mixed, with partner states showing varying degrees of compliance across the key indicators. “While some states have sustained strong real GDP growth and made progress in maintaining inflation within the prescribed single-digit thresholds, pressures from global shocks and domestic factors have led to periodic deviations in others,’ the Council said at its 18th meeting, held in Arusha in May. “Fiscal performance continues to be challenging, with several partner states recording budget deficits above the agreed ceilings. This is largely due to elevated public expenditure and debt-servicing costs. Similarly, the public debt levels of a number of partner states remain above the convergence benchmarks, reflecting increased borrowing in recent years.” According to the report, implementation of the EAMU roadmap has also been slow due to staff shortages at the EAC Secretariat, including vacancies in the Fiscal and Monetary Affairs department. The meeting noted the need to reactivate the EAMU roadmap monitoring committee and to second staff from the central banks and other relevant institutions of partner states as a stopgap measure to support its implementation, pending staff recruitment. The EAC protocol for establishing a single-currency regime, signed in Kampala in 2013, provides for creation of four key institutions: East African Monetary Institute (EAMI), the EAC Bureau of Statistics, East African Financial Services Commission (EAFSC), and the East African Surveillance, Compliance and Enforcement Commission (EASCEC). According to the revised EAMU roadmap, these institutions were expected to be established by 2023. The bills establishing the EAMI and the EAC Bureau of Statistics have been signed into law, while the bills for the EAFSC and the EASCEC have been passed by the East African Legislative Assembly (EALA) and sent to the partner states for review before being signed into law, according to the SCFEA. SCFEA states, “While progress has accelerated recently, delays in operationalising the institutions, particularly the EASCEC and the EAFSC, continue to pose risks to the effective implementation of the monetary union and the timely achievement of the single-currency objective.” The deadline for the EAC to transition to a single-currency regime was pushed back from 2024 to 2031, as the partner states remained trapped in a political stalemate over which country should host the EAMI. The EAMI is a key institution for implementing the single-currency regime and is a precursor to the regional central bank. As none of the countries were willing to compromise on the location of the EAMI, the institution could not be established, legally operationalised or funded. This effectively halted all technical progress on the regional currency roadmap. The collapse of the EAC’s single-currency timeline was not solely due to the failure to meet macroeconomic convergence criteria; the final nail in the coffin was political gridlock, specifically the multi-year dispute over which nation should host the EAMI. According to Kenya’s Ministry of EAC Affairs, realising the region’s single-currency regime will require sustained political commitment, stronger fiscal discipline, continued institutional development, and full compliance with the macroeconomic convergence criteria. “The EAMU remains firmly on course, although the timeline has shifted from 2024 to 2031. Important foundations have been established, including the EAMI and convergence monitoring mechanisms,” the ministry said in an emailed statement. “Achieving the 2031 target requires sustained political commitment, stronger fiscal discipline, continued institutional development and full compliance with the macroeconomic convergence criteria.” Although an independent verification committee commissioned by the EAC ranked Tanzania as the most technically suitable host for the EAMI, other member states rejected the outcome of the process. Tanzania, however, insisted that the rules of the verification exercise should be respected and that the regional central bank precursor should be in Dar es Salaam. The verification exercise was carried out in March 2023 and ranked Tanzania the most suitable to host the regional central bank with a score of 86.3 percent, followed by Uganda (82.42 percent), Burundi (78.1 percent), and Kenya (77.35 percent). The other partners did not express interest, but Kenya said the verification metric was flawed, a position backed by Uganda and South Sudan. Only Tanzania and Burundi agreed with the report while the Democratic Republic of Congo and Rwanda sought an alternative to resolve the stalemate. Consequently, Kenya proposed a political solution to the impasse and has since been lobbying its regional counterparts for support to host the institution. The EAMI is supposed to be the operational engine room for the monetary union — the entity responsible for designing the single-currency notes, harmonising regional banking laws and coordinating cross-border payment platforms.