Tanzania: 'Monetary integration should not be pushed too fast in sub-Sahara Africa'

Dar es Salaam, Tanzania (PANA) - Monetary integration should not be pursued too fast in sub-Sahara Africa, but the region should give priority to implementing a comprehensive structural reform agenda, according to high-level policymakers and academics who, this week, gathered in Mauritius to discuss the future of currency areas.

During their two-day seminar from 7-8 March, jointly organized by the Africa Training Institute (ATI), the International Monetary Fund (IMF) and the Banque de France, several of the over 30 participants from Africa, America, and Europe were skeptical about the gains from fiscal unions at this stage.

A press statement the IMF issued on Friday about the seminar said the participants’ views converged on the prerequisites for monetary integration such as more trade and economic integration.

IMF Deputy Managing Director Carla Grasso and Institute for Capacity Development Director Sharmini Coorey underlined the timeliness of this seminar.

They said that monetary integration was "arguably one of the most pressing macroeconomic policy questions of our times", with urgent questions regarding governance and design of the Euro area on the one hand, and enthusiasm for further monetary integration in Africa on the other.

During discussion by participants, the exposure of potential monetary union members to large asymmetric shocks and the risks associated with large current account imbalances were recognized as sources of concern.

Some participants noted that while monetary unions—such as the CFA zone—had contributed to price stability, "there are more gains to be achieved on growth and economic development from trade integration, than perhaps from monetary integration".

"A panel that focused on the need to develop capacity before starting regional integration agreed on the need for better infrastructure development in all sectors—both physical and IT—as well as for strengthened human resources as prerequisites for reaping the benefits of any form of regional integration."

UN Economic Commission for Africa Executive Secretary, Dr. Carlos Lopes, made a strong appeal to African leaders to deliver on their agreed upon strategy of industrialization in Africa as a prerequisite for a successful regional integration.

He noted the priorities of investing in infrastructure and the development of both human resources and institutions, arguing that "while Africa is late in the industrialization race, some factors play in its favour going forward".

Lopes said that these include the continent’s large internal market, the declining cost of fossil fuel energy and large potential for renewable energy, low labour costs, and the large gains in employment that could be realized from even a modest increase in the value chain produced within Africa given the low current level.

According to the IMF, several participants were skeptical about the gains from fiscal unions at this stage, as a complement to monetary unions, given that many countries do not feel ready to give up political sovereignty, which comes with the implementation of a fiscal union.

"However, with a single monetary policy, fiscal rules are necessary to avoid the free rider problem even in the absence of a deficit monetization risk," the Fund's statement noted.

Asymmetric shocks in a monetary union can be significant given the economic structure of many African countries as commodity exporters.

On this, several speakers emphasized that the rich literature on optimum currency areas can be a valuable reference, as it discusses mitigating factors such as factor mobility, diversification, financial integration, and fiscal mechanisms in the face of such asymmetric shocks. However, making such mitigating factors require structural reform.
-0- PANA AR/MA 11March2016

11 march 2016 08:36:18




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