EAC central banks jittery of economic risks posed by Ukraine war

The East African Community (EAC) central bank governors have voiced their concerns over potential impact the the Russia-Ukraine war will have on regional economies.

During the 25^Th Ordinary Meeting of the EAC Monetary Affairs Committee held on March 4, 2021, the governors noted that the while regional economy has been on a recovery trajectory with an average growth of 4.2% posted last year, the Russia-Ukraine conflict now poses a threat as member states shake-off negative effects of coronavirus pandemic.

“The meeting was held against a backdrop of rising global inflation, tightening financial conditions, and worsening debt vulnerabilities for developing economies owing to the protracted COVID-19 pandemic and geopolitical tensions,” said the committee which was chaired by Central Bank of Kenya Governor and current chairperson of MAC Dr. Patrick Njoroge.

On the 12^th day since the Russian Federation launched a full-scale attack on Ukraine, the BBC reported on Monday that Brent crude – the global oil benchmark – spiked to above $139 a barrel, the highest level since July 2008, before easing to around $130.

The rise in global oil prices as a result of the conflict means east Africans will have to bear high fuel costs in coming weeks unless states intervene.

Similarly, wheat prices have soared to a 14-year high as exports from the two giant wheat producers remain affected due to the war.

“Growth in the region is expected to improve supported by a resumption of global economic activity with the easing of containment measures and sustained implementation of growth-supporting measures. Downside risks remain elevated due to a slower global growth, rising geopolitical tensions and increasing commodity prices,” said the committee.

Kenya for instance, imported wheat from Russia and Ukraine worth Kshs. 11 billion and Kshs. 5 billion respectively in 2019.

According to the World Bank Global Economic Prospects for 2022, Burundi is forecast to grow 2.5%, Rwanda 7.1%, South Sudan 1.2%, Uganda 3.7% Kenya 4.7% and Tanzania 5.4%.

The committee noted that EAC central banks have made progress towards the establishment of the East Africa Monetary Union (EAMU) particularly the East African Monetary Institute (EAMI), harmonization of monetary and exchange rate policies, harmonization of regulatory frameworks, implementation of measures to strengthen regional payments systems, enhancement of cybersecurity frameworks, capacity building in AML/CFT and Risk Management for Partner, States Central Banks; and promoting cross-border trading in government securities.

Nonetheless, MAC agreed to continue with interoperability initiatives for cross-border  payment systems at a national  level  in order to enhance enhancing the East African Payment System (EAPS), while engaging other stakeholders at continental level on further integration of cross-border payment systems.

The meeting was attended by Governor of the Bank of South Sudan Moses Makur Deng, Deputy Governor of the Bank of the Republic of Burundi Audace Niyonzima, Deputy Governor of the National Bank of Rwanda  Soraya M. Hakuziyaremye, Dr. Michael Atingi-Ego, Deputy Governor of the Bank of Uganda and Dr. Yamungu Kayandabila, Deputy Governor of the Bank of Tanzania.