We examine prospects for a monetary union in the East African Community (EAC) by developing a stylized model of policymakers' decision problem that allows for uncertain benefits derived from monetary, financial and fiscal stability, and then calibrating the model for the EAC for the period 2003-2010. When policymakers properly allow for uncertainty, none of the countries wants to pursue a monetary union based on either monetary or financial stability grounds, and only Rwanda might favor it on fiscal stability grounds; we argue that robust institutional arrangements assuring substantial improvements in monetary, financial and fiscal stability are needed to compensate.

The countries in the East African Community (EAC) are among the fastest growing economies in sub-Saharan Africa. The EAC countries are making significant progress toward financial integration, including harmonization of supervisory arrangements and practices and the modernization of monetary policy frameworks. This book focuses on regional integration in the EAC and argues that the establishment of a time table for the eliminating the sensitive-products list and establishing a supranational legal framework for resolving trade disputes are important reforms that should foster regional integration.

This paper takes stock of the main fiscal risks facing the EAC partner countries. These include macroeconomic shocks, and specific risks, such as the financial performance of the public enterprises, large infrastructure projects, PPPs, and pension funds. In addition, weaknesses in the institutional framework are reviewed. This analysis highlights some of the largest risks and begins to give a sense of the potential magnitudes involved.

This paper examines how susceptible East African Community (EAC) economies are to asymmetric shocks, assesses the value of the exchange rate as a shock absorber for these countries, and reviews adjustment mechanisms that would help ensure a successful experience under a common currency. The report draws on analysis of recent experiences and examines likely future changes in the EAC economies.

The East African Community (EAC) has been among the fastest growing regions in sub-Saharan Africa in the past decade or so. Nonetheless, the recent growth path will not be enough to achieve middle-income status and substantial poverty reduction by the end of the decade—the ambition of most countries in the region. This paper builds on methodologies established in the growth literature to identify a group of countries that achieved growth accelerations and sustained growth to use as benchmarks to evaluate the prospects, and potential constraints, for EAC countries to translate their recent growth upturn into sustained high growth. We find that EAC countries compare favorably to the group of sustained growth countries—macroeconomic and government stability, favorable business climate, and strong institutions—but important differences remain. EAC countries have a smaller share of exports, lower degree of financial deepening, lower levels of domestic savings, higher reliance on donor aid, and limited physical infrastructure and human capital. Policy choices to address some of these shortcomings could make a difference in whether the EAC follows the path of sustained growth or follows other countries where growth upturns later fizzled out.

Do changes in monetary policy affect inflation and output in the East African Community (EAC)? We find that (i) Monetary Transmission Mechanism (MTM) tends to be generally weak when using standard statistical inferences, but somewhat strong when using non-standard inference methods; (ii) when MTM is present, the precise transmission channels and their importance differ across countries; and (iii) reserve money and the policy rate, two frequently used instruments of monetary policy, sometimes move in directions that exert offsetting expansionary and contractionary effects on inflation—posing challenges to harmonization of monetary policies across the EAC and transition to a future East African Monetary Union. The paper offers some suggestions for strengthening the MTM in the EAC.

The CEMAC’s economy lost some momentum in 2023 and the external position deteriorated somewhat, while inflation cooled but remained high. Updated statistics revealed a much more deteriorated fiscal situation than originally estimated. The near-term outlook is one of continued recovery, with growth projected at 3.6 percent in 2024, reflecting still-high oil prices and a strong rebound in oil output. In the medium term, however, sustained growth projected at the regional level masks divergences across the region, with weaker economic performance in countries with no program or off-track Fund-supported programs. In the absence of decisive corrective actions, and with current policies unchanged, fiscal and external imbalances are set to widen in the medium term, threatening to reverse reserve accumulation and add to financial stability risks.