AfDB sets outs fiscal ‘roadmap’ for African monetary union

10 Jan 13
The African Development Bank has published plans for budgetary oversight and fiscal rules as part of moves towards monetary union in eastern and southern Africa.

By Nick Mann | 10 January 2013

The African Development Bank has published plans for budgetary oversight and fiscal rules as part of moves towards monetary union in eastern and southern Africa.

The bank’s proposals would involve boosting surveillance at both national and regional levels to achieve greater convergence in the management of public finances by countries in the Common Market for Eastern and Southern Africa. Comesa is currently a free trade area with 20 members but is aiming to achieve full monetary union with a common currency and central bank by 2018.

In Facilitating multilateral fiscal surveillance, Donald Kaberuka, president of the AfDB, said fiscal convergence was ‘essential’ to Comesa’s plans and, in particular, would act as a bridge between its efforts to integrate trade and create a full monetary union.

‘Progress has been made in the implementation of Comesa Monetary Co-operation Program, as evidenced in the establishment of the free trade area, the regional payment system, reduced inflation and budget deficits, etc,’ the report explained.

‘However, much remains to be done, particularly in the area of fiscal policy convergence that is pivotal for macroeconomic convergence. In this respect the ministers of finance, along with gvernors of central banks, need to take direct responsibility and a proactive role.’

Jian Zhang, principal economist at the AfDB, explained that national authorities would have a ‘major responsibility’ to ‘encourage national ownership of the multilateral fiscal surveillance framework, reinforce their national public finance management systems, and formulate their individual convergence programs’.

The proposals include the creation of national surveillance units in each country’s ministry of finance, as well as independent budget offices in each legislature.

The Comesa body itself should be strengthened and given more money and technical resources so it can fulfil the enhanced role it would need to take in fiscal surveillance of countries within the monetary union, it added.

Under the AfDB plans, an Excessive Slippage Procedure, similar to the Excessive Deficit Procedure in place for eurozone member states, would be established to monitor Comesa members’ progress towards the convergence criteria required for them to be part of the union.

Comesa members are: Burundi; Comoros; DR Congo; Djibouti; Egypt; Eritrea; Ethiopia; Kenya; Libya; Madagascar; Malawi; Mauritius; Rwanda; Seychelles; Sudan; Swaziland; Uganda; Zambia; and, Zimbabwe.

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