{UAH} Swedish minister cautions on EA single currency
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Swedish minister cautions on EA single currency
Thursday, 31 May 2012
By Al-amani Mutarubukwa
The Citizen Reporter
Dar es Salaam. Sweden has advised East African Community (EAC) member states to first create strong economic fundamentals for convergence before rushing to introduce a single currency in the region. The advice was given yesterday by the Swedish minister for Finance, Mr Anders Borg, during a public lecture on "Lessons from the European Crisis" at the University of Dar es Salaam.
He said: "I am a supporter of the monetary union, but I would advise that the EAC countries take cautious steps by building very strong economic fundamentals, without which partner states are likely to see negative productivity and a high rate of unemployment." He said, if rushed, the monetary union may backfire by dragging even better performing economies to negative growth because of disparity in productivity among them.
Instead, he advised that the EAC partner states make use of the over 130 million people of the regional market at their comparative advantage to increase trade integration and productivity among themselves.
Although Sweden is a member of the European Union, it rejected a proposal to adopt the euro currency in 2003 and has since recorded better economic performance than the rest of Europe.While productivity has been negative in Europe in the past few years, Sweden is growing at 1.5 per cent, three times that of European countries.
According to Mr Borg, who was on a state visit to–South Africa, Zambia and Tanzania, Sweden has been able to perform well as a result of structural reforms that it underwent within the past 20 years. These especially concerned strengthening the fiscal framework that involved deregulating the agricultural sector, improving entrepreneurial climate and increasing investment in research and development (R&D).
In a quick rejoinder, local economists said looking at the experience of the Eurozone economic crisis, concurred that the EAC bloc should not rush into establishing a single currency.
"We must be very careful with the monetary union in EAC. We could start with increasing the degree of our political relations and labour market issues before saying farewell to our currency, which would mean giving away financial sovereignty as a tool to regulate the economy," said Mr Adolf Mkenda, an economist at the University of Dar es Salaam (UDSM).
Sharing similar sentiments, another UDSM economist, Prof Delphin Rwegasira, said a single currency has its advantages, especially easing business and trade transactions in the region. This would offer potentials for growth in the region and thus economic prosperity, he said.
However, he felt that partner states have to first develop other pillars of the EAC integration – Customs Union and Common Market – so as to create similarities in productivity and the labour market. EAC members had planned to sign the monetary union protocol as its framework this year even as negotiations for policy rules for the eventual single currency continued.
However, the challenge has been the fact that while South Sudan is entirely dependent on oil, Uganda and Tanzania have recently discovered commercially viable oil and gas reserves respectively. On the other hand, Kenya and Rwanda are less reliant on natural resources.
This makes it more difficult for member countries to have similar fiscal objectives, as resource rich countries have more spending power than agricultural and service-based economies.
The EAC was revived 12 years ago following collapse in 1977 of the first one whose members were Kenya, Uganda and Tanzania.
-- Thursday, 31 May 2012
By Al-amani Mutarubukwa
The Citizen Reporter
Dar es Salaam. Sweden has advised East African Community (EAC) member states to first create strong economic fundamentals for convergence before rushing to introduce a single currency in the region. The advice was given yesterday by the Swedish minister for Finance, Mr Anders Borg, during a public lecture on "Lessons from the European Crisis" at the University of Dar es Salaam.
He said: "I am a supporter of the monetary union, but I would advise that the EAC countries take cautious steps by building very strong economic fundamentals, without which partner states are likely to see negative productivity and a high rate of unemployment." He said, if rushed, the monetary union may backfire by dragging even better performing economies to negative growth because of disparity in productivity among them.
Instead, he advised that the EAC partner states make use of the over 130 million people of the regional market at their comparative advantage to increase trade integration and productivity among themselves.
Although Sweden is a member of the European Union, it rejected a proposal to adopt the euro currency in 2003 and has since recorded better economic performance than the rest of Europe.While productivity has been negative in Europe in the past few years, Sweden is growing at 1.5 per cent, three times that of European countries.
According to Mr Borg, who was on a state visit to–South Africa, Zambia and Tanzania, Sweden has been able to perform well as a result of structural reforms that it underwent within the past 20 years. These especially concerned strengthening the fiscal framework that involved deregulating the agricultural sector, improving entrepreneurial climate and increasing investment in research and development (R&D).
In a quick rejoinder, local economists said looking at the experience of the Eurozone economic crisis, concurred that the EAC bloc should not rush into establishing a single currency.
"We must be very careful with the monetary union in EAC. We could start with increasing the degree of our political relations and labour market issues before saying farewell to our currency, which would mean giving away financial sovereignty as a tool to regulate the economy," said Mr Adolf Mkenda, an economist at the University of Dar es Salaam (UDSM).
Sharing similar sentiments, another UDSM economist, Prof Delphin Rwegasira, said a single currency has its advantages, especially easing business and trade transactions in the region. This would offer potentials for growth in the region and thus economic prosperity, he said.
However, he felt that partner states have to first develop other pillars of the EAC integration – Customs Union and Common Market – so as to create similarities in productivity and the labour market. EAC members had planned to sign the monetary union protocol as its framework this year even as negotiations for policy rules for the eventual single currency continued.
However, the challenge has been the fact that while South Sudan is entirely dependent on oil, Uganda and Tanzania have recently discovered commercially viable oil and gas reserves respectively. On the other hand, Kenya and Rwanda are less reliant on natural resources.
This makes it more difficult for member countries to have similar fiscal objectives, as resource rich countries have more spending power than agricultural and service-based economies.
The EAC was revived 12 years ago following collapse in 1977 of the first one whose members were Kenya, Uganda and Tanzania.
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