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The East African : Nov 17th 2014
The EastAfrican NEWS NOVEMBER 15-21,2014 COUNTDOWN TO EAST AFRICAN COMMUNITY MONETARY UNION Central banks agree on forex reserve ratio Each count≥y should always have enough dolla≥s to buy 4.5 months’ wo≥th of impo≥ts By CHRISTABEL LIGAMI Special Correspondent E ast African Community partner states have re- duced the stock of foreign exchange that central banks need to keep in a countdown to the ambitious launch of the East African dollar in less than a decade. EAC central bank gover- nors agreed during their Sectoral Council meeting in Nairobi two weeks ago that each country should all the time have enough dollars to buy 4.5 months’ worth of imports, yielding to pressure from Kenya, which felt the initial proposal of six months would hurt economies seeking to promote exports. “We are going to the eco- nomic convergence stage of the Protocol on the East African Monetary Union (EAMU) and this is a comfortable rate that can be maintained by all the partner states,” said Eliazar Muga, senior assistant director of economic affairs at Kenya’s Ministry of East African Affairs, Commerce and Tourism. Qualifying criteria The money men have been searching for consensus on the qualifying criteria for the Monetary Union, which will culminate in the launch of a single currency. Questions on the independence of central banks also hampered the ratification of the EAMU Protocol by some members, but the governors have now agreed that the monetary authorities will retain the national policy-making role. The import cover, as the forex reserve is known, indicates how well an economy can pay its foreign trade partners for supplies, and influences the stability of the currency. If it is high, the currency tends to strengthen, making exports expensive and imports cheaper. For East African econo- mies, which are net importers, the challenge is to balance the interests of agricultural producers that rely on exports and other sectors of the economy that depend on imported oil, machinery and intermediate goods in industrial processes. “A common dollar reserve rency. Kenya, Uganda and Tanza- nia have shillings as their national currency. Mr Osoro said ordinarily, bigger economies like Kenya would have lower import covers but the EAC benchmark had been arrived at with regard to the combined economy of the five East Africa partner states. IMF requirements A Monetary Policy Com- THE LOCAL ANGLE FOR EAC GOVTS: A Bill establishing the East African Monetary Institute is due for circulation to member states for negotiations by central banks on common monetary and exchange rate operations. This will lead to the publication of reference exchange rates between the East African dollar, national currencies of members states and those of other countries. will help the partners reach an indicative exchange rate among the region’s currencies, which would be applied in a monetary union,” said Jared Osoro, director of the Kenya Bankers Association Centre for Research on Financial Markets and Policy. The agreement on the im- port cover is the second major step towards establishing the single currency after the governors agreed last year on establishing an East Africa Payment System that is already operational. However, other convergence criteria, such as inflation, fiscal deficits and debt to GDP ratios are still under discussion. The payment system and the single currency are expected to reduce the cost of “This level of foreign exchange reserves is considered adequate to cushion against short-term shocks.” Central Bank of Kenya governor Njuguna Ndung’u The road map for issuance of the new currency will be developed by March 2015, the central bank governors resolved. FOR THE PUBLIC: The EAMU protocol provides for a stabilisation facility for shocks arising from external factors such as the 2008 economic crisis or a sharp surge in international oil prices. currency conversion across the region and eliminate risks to cross-border investments that arise from volatility in exchange rates. The EAC partners had for two years differed on the regional Monetary Policy Committee requirement that each country should have enough hard currency to cover at least six months of imports. Kenya had initially pushed for a four-month import cover for each country while Uganda and Tanzania wanted an import cover of not less than six months. Levels of reserves Currently, Kenya has enough forex reserves to cover 4.6 months and Tanzania 4.4 months worth of imports, the same level as Uganda. The International Mon- etary Fund requires that the reserves be either in dollars or gold but the EAC has settled on the dollar because it is already widely accepted as the indicator exchange rates in the region, including Rwanda and Burundi where the franc is the national cur- For EA economies, which are net importers, the challenge is to balance the interests of agricultural producers that rely on exports and other sectors of the economy mittee statement released 10 days ago showed that the Central Bank of Kenya had foreign exchange reserves of $7.1 billion or an equivalent of 4.64 months of import cover at the end of last month. The build up from $6.377 billion equivalent to 4.21 months of import cover at the beginning of September 2014 was attributed to utilisation of the proceeds of the $2 billion sovereign bond floated by the government in June. “This level of foreign ex- change reserves is considered adequate to cushion the foreign exchange market against short-term shocks,” CBK Governor Njuguna Ndung’u said on November 4 when announcing that the Central Bank Rate will remain at 8.5 per cent. The Bank of Uganda (BoU) said recently that it had forex reserves equivalent to 4.4 months of imports, the highest level since the 2008 global financial crisis. “The stock of Uganda’s for- eign exchange reserves at the end of February 2014 amounted to $3.276 billion, which is an increase from $2.046 billion at the end of November 2013,” the executive director of research at BoU, Dr Adam Mugume, told the Daily Monitor in an interview. Tanzania’s foreign ex- change reserves reached $4.53 billion in the year to August, which was about 4.4 months of import cover, slightly lower than $4.56 billion a year ago. The International Mon- etary Fund requires developing countries to have foreign exchange reserve that can cover at least three months of imports. 5 INVITATION TO TENDER Kenya Institute of Bankers Strategic Capacity Assessment The Kenya Institute of Bankers (KIB) jointly with FSD Africa (FSDA), wish to identify and contract a consultancy firm to carry out a strategic capacity assessment of the institute and its training programmes in banking and financial services. KIB is a membership-based organization made up of corporate and individual members. It currently has 47 banks as corporate members with their employees as individual members. Some of the member and non-member banks have over 288 branches in the East African Community, South Sudan and the rest of Africa. KIB has a governing Council represented by corporate members from the banking and finance Sector. FSDA, a financial sector deepening trust, aims to support financial sector development across the African continent by encouraging skills development, transfer of knowledge (e.g. research, business models, policy approaches etc.) across borders, and by building the capacity of financial systems in other ways. Supporting the development of wellfunctioning credit markets development is a priority for FSDA. The primary purpose of the consultancy is to: • Carry out an institutional capacity assessment of KIB in light of its institutional re-engineering and demand from financial industry. This should include identification of areas of vulnerability and specific recommendations on how these can be solved; • Consider KIB’s future role, proposing an imaginative vision for the institution that is both consistent with its current mandate and realistic in light of the resources that are likely to be available to it within reasonable expectations; • Establish the relevance of KIB’s current education and training programmes to the skills needs of the banking industry! Does KIB’s programme meet the skills needs of the Industry? If not, establish the skills needs of the industry and make recommendations on what KIB should do to meet the needs of the industry. • Make recommendations of how KIB could strengthen capacity to meet its current and future needs with particular focus on enhancing its role as an examining and accreditation body; • Propose a road map for the capacity strengthening process including monitoring indicators. Your proposal should contain: • Names and CVs (maximum 3 sides of A4 paper each) of lead consultant (s) including qualifications and relevant experience in providing the kind of assessment required and an outline of team structure. • A summary of your/your firm’s experience in providing the kind of analysis called for in the terms of reference. • A description of your understanding of the role of the Consultants as outlined in the terms of reference. • A description of how you/your firm intend to fulfil the Services within the suggested timeline. • A financial proposal- an estimated budget for both professional fees and reimbursable expenses. Your proposal which should not exceed 10 sides of A4 (font size 11), excluding CVs, company brochures etc. should be sent to firstname.lastname@example.org under a subject line reading ‘Invitation to tender: KIB strategic capacity assessment’. Detailed terms of reference can be obtained from FSD Africa’s website www.fsdafrica.org/ opportunities. We encourage you to be fully conversant with all of the requirements of the terms of reference before developing your proposal. Proposals must be received by FSD Africa no later than 1200 (EAT), Friday 5th December, 2014.
Nov 10th 2014
Nov 24th 2014