COMESA Experiences in Macroeconomic Convergencw IBRAHIM A. ZEIDY COMESA MONETARY INSTITUTE Presented at the Regional Workshop on Exchange of Experiences and Best Practices in Policy Convergence and Establishment of Single Currencies within RECS July 2012 UN-ECA, Addis Ababa, Ethiopia 1

Outline Back Ground Back Ground PROGRESS MADE IN THE IMPLEMENTATION OF THE COMESA MONETARY POLICY HARMONIZATION PROGRAMME PROGRESS MADE IN THE IMPLEMENTATION OF THE COMESA MONETARY POLICY HARMONIZATION PROGRAMME OUTSTANDING CHALLENGES FOR IMPLEMENTATION OF MACROECONOMIC CONVERGENCE CRITERIA IN COMESA OUTSTANDING CHALLENGES FOR IMPLEMENTATION OF MACROECONOMIC CONVERGENCE CRITERIA IN COMESA ACTIONS TAKEN BY COMESA TO ADDRESS THE OUTSTANDING CHALLENGES ACTIONS TAKEN BY COMESA TO ADDRESS THE OUTSTANDING CHALLENGES RECOMMENDATIONS RECOMMENDATIONS 2

3 Back Ground The mandate to set up a Monetary Union in COMESA is derived from Article 4 (4) of the COMESA Treaty signed in Kampala, Uganda on 5 th November, 1993, which states that the COMESA Member States shall “in the field of monetary affairs and finance, co-operate in monetary and financial matters and gradually establish convertibility of their currencies and a payments union as a basis for the eventual establishment of a monetary union”. This mandate is further reinforced in Articles which respectively deal with the: COMESA Monetary and Fiscal Policy Harmonization (MFHP), Establishment of Currency Convertibility and Formation of an Exchange Rate Union. The mandate to set up a Monetary Union in COMESA is derived from Article 4 (4) of the COMESA Treaty signed in Kampala, Uganda on 5 th November, 1993, which states that the COMESA Member States shall “in the field of monetary affairs and finance, co-operate in monetary and financial matters and gradually establish convertibility of their currencies and a payments union as a basis for the eventual establishment of a monetary union”. This mandate is further reinforced in Articles which respectively deal with the: COMESA Monetary and Fiscal Policy Harmonization (MFHP), Establishment of Currency Convertibility and Formation of an Exchange Rate Union..

4 Back Ground (cont’d) Under the program, Member States committed themselves to the following a gradual, four-stage process of achieving monetary integration: Under the program, Member States committed themselves to the following a gradual, four-stage process of achieving monetary integration:.

5 Back Ground(Cont’d) Stages of Implementation of COMESA Monetary Harmonisation Programme Stages of Implementation of COMESA Monetary Harmonisation Programme - Stage I: Consolidation of existing - Stage I: Consolidation of existing instruments of Monetary Co- operation and instruments of Monetary Co- operation and implementation of policy measures aimed at implementation of policy measures aimed at achieving macroeconomic convergence achieving macroeconomic convergence - Stage Two : Introduction of limited currency - Stage Two : Introduction of limited currency convertibility and informal exchange rate convertibility and informal exchange rate union union

6 Back Ground Stages of Implementation of COMESA Monetary Harmonisation Programme Stages of Implementation of COMESA Monetary Harmonisation Programme - Stage Three: Formal exchange rate union and co- - Stage Three: Formal exchange rate union and co- ordination of economic policies by a common ordination of economic policies by a common monetary institution; and monetary institution; and - Stage Four : Full Monetary Union involving the - Stage Four : Full Monetary Union involving the use of one common currency issued by a common use of one common currency issued by a common Central Bank. Central Bank.

7 Back Ground (cont’d) In November 2004, the COMESA Monetary Cooperation Programme was revised to make it consistent with the convergence criteria of the African Monetary Cooperation Programme (AMCP) that envisages the creation of an African Monetary Union by This was necessitated because, COMESA is one of the building blocks of AU. In this respect, the date for the coming into being of COMESA Monetary Union (CMU) was changed from 2025 to The following are the revised Agreed upon macro-economic convergence criteria: In November 2004, the COMESA Monetary Cooperation Programme was revised to make it consistent with the convergence criteria of the African Monetary Cooperation Programme (AMCP) that envisages the creation of an African Monetary Union by This was necessitated because, COMESA is one of the building blocks of AU. In this respect, the date for the coming into being of COMESA Monetary Union (CMU) was changed from 2025 to The following are the revised Agreed upon macro-economic convergence criteria:

8 Back Ground (cont’d) Revised Monetary Cooperation Programme of COMESA Primary Criteria Primary Criteria - Overall budget deficit/GDP ratio (excluding - Overall budget deficit/GDP ratio (excluding grants) of not more than 5% grants) of not more than 5% - Annual average inflation rate not exceeding 5% - Annual average inflation rate not exceeding 5%

9 Back Ground (cont’d) Revised Monetary Cooperation Programme of COMESA Primary Criteria Primary Criteria - Minimize the central bank financing of the budget towards 0% target - External reserves of equal to or more than 4 months of imports of goods and non-factor services Not < 4 months - External reserves of equal to or more than 4 months of imports of goods and non-factor services Not < 4 months

10 Back Ground (cont’d) Secondary Criteria Secondary Criteria - Achievement and maintenance of stable real - Achievement and maintenance of stable real exchange rates exchange rates - Achievement and maintenance of market based - Achievement and maintenance of market based positive real interest rates positive real interest rates - Achievement of sustainable real growth rate of real - Achievement of sustainable real growth rate of real GDP Not < 7.0% GDP Not < 7.0%

11 Back Ground (cont’d) - Sustained pursuit of debt reduction initiative on domestic and foreign debt. i.e. reduction of total debt as a ratio of GDP sustainable level - Total domestic revenue to GDP ratio of not less than 20%; - Total domestic revenue to GDP ratio of not less than 20%; - Reduction of current account deficit (excluding grants) as - Reduction of current account deficit (excluding grants) as a % of GDP to sustainable level a % of GDP to sustainable level

12 Back Ground (cont’d) Secondary Criteria Secondary Criteria - Achievement and maintenance of domestic - Achievement and maintenance of domestic investment rate investment rate - Implementation of the 25 Core Principles of Bank - Implementation of the 25 Core Principles of Bank Supervision and Regulation based on agreed Action Supervision and Regulation based on agreed Action Plan for Harmonization of Bank Supervision for the Plan for Harmonization of Bank Supervision for the COMESA region COMESA region - Adherence to the Core Principles for Systematically - Adherence to the Core Principles for Systematically Important Payments Systems (SIPS), by Important Payments Systems (SIPS), by modernizing the payment and settlements system modernizing the payment and settlements system

13 Existing Institutional arrangements for the Implementation of the COMESA Monetary Cooperation Programme The Authority of Heads of State and Government; t The Authority of Heads of State and Government; t The Council of Ministers; The Council of Ministers; The Committee of Governors of Central Banks. - The Committee of Governors of Central Banks is empowered under the Treaty to among other things monitor, and ensure the proper implementation of the Monetary and Financial Co-operation programmes. Every year, a Bureau of the committee of COMESA Central Bank Governors is elected to conduct business on its behalf during that year. The Committee of Governors of Central Banks. - The Committee of Governors of Central Banks is empowered under the Treaty to among other things monitor, and ensure the proper implementation of the Monetary and Financial Co-operation programmes. Every year, a Bureau of the committee of COMESA Central Bank Governors is elected to conduct business on its behalf during that year.

14 Existing Institutional arrangements for the Implementation of the COMESA Monetary Cooperation Programme As part of the strategy to enhance monetary cooperation among COMESA member States, the committee of Governors of COMESA Central Bank (CGCCB) in 2004 approved three new Sub-Committees, namely: Monetary and Exchange Rate Policies Sub-Committee; Financial System Development and Stability Sub-Committee, and; Mobilization of Financial Resources Sub-Committee. All Sub-Committees report directly to the Bureau of Governors. As part of the strategy to enhance monetary cooperation among COMESA member States, the committee of Governors of COMESA Central Bank (CGCCB) in 2004 approved three new Sub-Committees, namely: Monetary and Exchange Rate Policies Sub-Committee; Financial System Development and Stability Sub-Committee, and; Mobilization of Financial Resources Sub-Committee. All Sub-Committees report directly to the Bureau of Governors.

15 PROGRESS MADE IN MACROECONOMIC CONVERGENCE IN COMESA (cont’d) Primary Criteria Primary Criteria 1. Overall budget deficit/GDP ratio (excluding grants) of not more than 5% more than 5% There have been slippages in the performances of member countries regarding attainment of this criterion. The majority of countries in the COMESA are still confronted with high budget deficits mainly due to the need to develop social and economic infrastructure. In 2011, 11 out of 19 member countries missed the criteria. The countries which are highly donor-dependent tend to have high fiscal deficits (excluding grants), which would be unsustainable if donor support were not available. There have been slippages in the performances of member countries regarding attainment of this criterion. The majority of countries in the COMESA are still confronted with high budget deficits mainly due to the need to develop social and economic infrastructure. In 2011, 11 out of 19 member countries missed the criteria. The countries which are highly donor-dependent tend to have high fiscal deficits (excluding grants), which would be unsustainable if donor support were not available.

16 PROGRESS MADE IN MACROECONOMIC CONVERGENCE IN COMESA (cont’d) Primary Criteria Primary Criteria 2. Annual average inflation rate not exceeding 5% A broad disinflation process has taken place in COMESA over the last few years. A number of countries managed to have single digit inflation except in 2008 when most countries suffered from the world food and fuel crisis. This is an indication that their respective central banks are pursuing sound monetary policies. In 2011, 10 member countries missed the inflation criteria. A broad disinflation process has taken place in COMESA over the last few years. A number of countries managed to have single digit inflation except in 2008 when most countries suffered from the world food and fuel crisis. This is an indication that their respective central banks are pursuing sound monetary policies. In 2011, 10 member countries missed the inflation criteria.

17 PROGRESS MADE IN MACROECONOMIC CONVERGENCE IN COMESA (cont’d) 3. Minimize the central bank financing of the budget towards 0% target. The amount of the Central Bank’s financing is determined as a certain % on previous years total tax revenue as determined in the statutes of concerned Central Banks. Central bank financing of budget deficits is prohibited in a number of member countries and limited to not more The amount of the Central Bank’s financing is determined as a certain % on previous years total tax revenue as determined in the statutes of concerned Central Banks. Central bank financing of budget deficits is prohibited in a number of member countries and limited to not more than a certain percentage in other countries. than a certain percentage in other countries.

18 PROGRESS MADE IN MACROECONOMIC CONVERGENCE IN COMESA (cont’d) 4. External reserves of equal to or more than 4 months of imports of goods and non-factor services Not < 4 months In recent years a number of member countries met the external reserve criteria. Some countries however did not meet the criteria. In 2011, 11 member countries did not met the criteria. Accumulation of sufficient foreign exchange reserves are necessary to cushion against external shocks and ensure orderly conditions in the exchange market. In recent years a number of member countries met the external reserve criteria. Some countries however did not meet the criteria. In 2011, 11 member countries did not met the criteria. Accumulation of sufficient foreign exchange reserves are necessary to cushion against external shocks and ensure orderly conditions in the exchange market.

19 PROGRESS MADE IN MACROECONOMIC CONVERGENCE IN COMESA (cont’d) Secondary Criteria 5. Achievement and maintenance of stable real exchange rates Most of the COMESA member countries have made significant progress in moving towards market determined exchange rates and thereby reducing overvaluation of their currencies which characterised the 1980s and early 1990s. Most of the COMESA member countries have made significant progress in moving towards market determined exchange rates and thereby reducing overvaluation of their currencies which characterised the 1980s and early 1990s. The recent continued depreciation of the currencies of some member countries, has contributed to the significant rise in domestic prices The recent continued depreciation of the currencies of some member countries, has contributed to the significant rise in domestic prices

20 PROGRESS MADE IN MACROECONOMIC CONVERGENCE IN COMESA (cont’d) Secondary Criteria As regards removal of exchange restrictions, many countries accepted Article VIII of IMF Agreement., and thus fully removed restrictions on their current account. Accordingly many countries can be said to have achieved the removal of restrictions on trade flows. Further efforts are also being made to remove constraints to intra-COMESA trade, such as poor transportation net works; restrictions on movements of people; lack of trade information on products produced within COMESA; lack of linkages among financial institutions operating in COMESA; unavailability of regional payment and settlement system; etc. As regards removal of exchange restrictions, many countries accepted Article VIII of IMF Agreement., and thus fully removed restrictions on their current account. Accordingly many countries can be said to have achieved the removal of restrictions on trade flows. Further efforts are also being made to remove constraints to intra-COMESA trade, such as poor transportation net works; restrictions on movements of people; lack of trade information on products produced within COMESA; lack of linkages among financial institutions operating in COMESA; unavailability of regional payment and settlement system; etc.

21 PROGRESS MADE IN MACROECONOMIC CONVERGENCE IN COMESA (cont’d) Secondary Criteria COMESA member countries have made significant moves towards liberalisation of their financial markets. The main exceptions are the retention of exchange controls on some capital account transactions, and some continued central bank interference in exchange rate determination. some governments also retain some control over interest rates. This is not surprising, given the small domestic financial markets of many COMESA member countries. COMESA member countries have made significant moves towards liberalisation of their financial markets. The main exceptions are the retention of exchange controls on some capital account transactions, and some continued central bank interference in exchange rate determination. some governments also retain some control over interest rates. This is not surprising, given the small domestic financial markets of many COMESA member countries.

22 PROGRESS MADE IN MACROECONOMIC CONVERGENCE IN COMESA (cont’d) Secondary Criteria 6. Achievement and maintenance of stable real interest rates All countries have liberalised interest rates. Some COMESA member States have exceptionally high real lending rates and a wide margin between lending and deposit rates. This is a reflection of relative inefficiency of their banking system. There are also cases of preference by Commercial Banks to buy government papers and avoiding lending to the private sector All countries have liberalised interest rates. Some COMESA member States have exceptionally high real lending rates and a wide margin between lending and deposit rates. This is a reflection of relative inefficiency of their banking system. There are also cases of preference by Commercial Banks to buy government papers and avoiding lending to the private sector A number of countries use interest rate successfully as a monetary policy tool A number of countries use interest rate successfully as a monetary policy tool

23 PROGRESS MADE IN MACROECONOMIC CONVERGENCE IN COMESA (cont’d) Secondary Criteria 7. Growth The COMESA region’s average real GDP grew from 5.2% in 2009 to 5.8% in In order to achieve the MDGs by 2015, COMESA countries are required to achieve a sustained GDP growth rate in the range of 7- 8 % per annum. Most COMESA country have, however, continued to register growths rates below this required level of growth The COMESA region’s average real GDP grew from 5.2% in 2009 to 5.8% in In order to achieve the MDGs by 2015, COMESA countries are required to achieve a sustained GDP growth rate in the range of 7- 8 % per annum. Most COMESA country have, however, continued to register growths rates below this required level of growth

24 PROGRESS MADE IN MACROECONOMIC CONVERGENCE IN COMESA (cont’d) Secondary Criteria 8. Savings At below 20 percent of GDP, the savings rate in most COMESA member countries is very low compared to other parts of the developing world. A major reason may be that a large proportion of the population is not connected to the financial system and therefore has no access to savings instruments. At below 20 percent of GDP, the savings rate in most COMESA member countries is very low compared to other parts of the developing world. A major reason may be that a large proportion of the population is not connected to the financial system and therefore has no access to savings instruments.

25 PROGRESS MADE IN MACROECONOMIC CONVERGENCE IN COMESA (cont’d) 9. Current Account Balance 9. Current Account Balance Current account position improved slightly in most countries in the region in 2011 as compared to the deterioration of the current account in some countries is due to the deterioration in trade balance as a result of lower exports following poor harvests and higher food and oil prices. Late disbursement of external aid flows has also contributed to the deterioration in the current account balances and the depreciation of the exchange rates in a number of countries. It is worthwhile to note that current account deficit that results from high level of productive investment is desirab le. Current account position improved slightly in most countries in the region in 2011 as compared to the deterioration of the current account in some countries is due to the deterioration in trade balance as a result of lower exports following poor harvests and higher food and oil prices. Late disbursement of external aid flows has also contributed to the deterioration in the current account balances and the depreciation of the exchange rates in a number of countries. It is worthwhile to note that current account deficit that results from high level of productive investment is desirab le.

26 PROGRESS MADE IN MACROECONOMIC CONVERGENCE IN COMESA (cont’d) 10.. External debt to GDP ratio There has been a decrease in External public debt in many countries in COMESA in recent years with majority of the countries recording a manageable level of stock of external public debt to GDP. The reduction in the debt to GDP ratio was mainly on account of debt forgiveness extended to a number of member countries. There has been a decrease in External public debt in many countries in COMESA in recent years with majority of the countries recording a manageable level of stock of external public debt to GDP. The reduction in the debt to GDP ratio was mainly on account of debt forgiveness extended to a number of member countries.

27 PROGRESS MADE IN MACROECONOMIC CONVERGENCE IN COMESA (cont’d) 11. Achievement and Maintenance of Investment rates of at least 20% of GDP As indicated earlier, in order to achieve the MDGs by 2015, COMESA member countries will requires to achieve a sustained GDP growth rate in the range of 7- 8 %. To achieve such performance in the current environment of the COMESA economies requires high levels of investment of up to % of GDP. However, the domestic investment rate for most member countries of COMESA has been too low to yield real growth rates that would make a substantial, positive impact on the poverty and unemployment. As indicated earlier, in order to achieve the MDGs by 2015, COMESA member countries will requires to achieve a sustained GDP growth rate in the range of 7- 8 %. To achieve such performance in the current environment of the COMESA economies requires high levels of investment of up to % of GDP. However, the domestic investment rate for most member countries of COMESA has been too low to yield real growth rates that would make a substantial, positive impact on the poverty and unemployment.

28 PROGRESS MADE IN MACROECONOMIC CONVERGENCE IN COMESA (cont’d) 12. Implementation of the 25 Core Principles of Bank Supervision and Regulation 12. Implementation of the 25 Core Principles of Bank Supervision and Regulation Most COMESA are implementing the 25 Core Principles of Bank Supervision and Regulation in accordance with Agreed Action Plan for Harmonization of Bank Supervision for the COMESA region. This is based on international best practices. The observance of these Core Principles for Effective Banking Supervision by each COMESA will among other benefits have implications for a country's credit rating, and therefore also for the cost of accessing funding on international markets. Most COMESA are implementing the 25 Core Principles of Bank Supervision and Regulation in accordance with Agreed Action Plan for Harmonization of Bank Supervision for the COMESA region. This is based on international best practices. The observance of these Core Principles for Effective Banking Supervision by each COMESA will among other benefits have implications for a country's credit rating, and therefore also for the cost of accessing funding on international markets.

29 PROGRESS MADE IN MACROECONOMIC CONVERGENCE IN COMESA (cont’d) 13. Adherence to the Core Principles for Systematically Important Payments Systems Most countries in COMESA are implementing the modernisation of their payment and settlement system. This is crucial for the development of an efficient, and secure payments, clearing and settlement system. This helps to eliminate risks from payments and facilitating the exchange and settlement of funds and securities. This will also enable to have the supply of timely and accurate information on flow of funds. Most countries in COMESA are implementing the modernisation of their payment and settlement system. This is crucial for the development of an efficient, and secure payments, clearing and settlement system. This helps to eliminate risks from payments and facilitating the exchange and settlement of funds and securities. This will also enable to have the supply of timely and accurate information on flow of funds.

30 PROGRESS MADE IN MACROECONOMIC CONVERGENCE IN COMESA (cont’d) COMESA introduced a Regional Payment and Settlement System which will be used for undertaking intra COMESA trade and other transactions in a very secure and cost effective environment COMESA introduced a Regional Payment and Settlement System which will be used for undertaking intra COMESA trade and other transactions in a very secure and cost effective environment

31 Outstanding Challenges of the COMESA Monetary Integration Programme More than half of member countries fail to meet the fiscal criteria More than half of member countries fail to meet the fiscal criteria Therefore, the fiscal environment tends to be characterized by large debt and high cost of debt servicing, low generation of revenue and high budget deficit Therefore, the fiscal environment tends to be characterized by large debt and high cost of debt servicing, low generation of revenue and high budget deficit The Fiscal Rules that are in place in many member countries are soft rules and do not appear to constrain government spending. The Fiscal Rules that are in place in many member countries are soft rules and do not appear to constrain government spending. There are no obligations on member countries to fulfill convergence criteria, nor are there any sanctions for non performance There are no obligations on member countries to fulfill convergence criteria, nor are there any sanctions for non performance

32 Outstanding Challenges of the COMESA Monetary Integration Programme (cont’d) Weak Legal and Institutional Arrangements at Country Levels to Promote and Monitor Progress Towards attaining Convergence Criteria Weak Legal and Institutional Arrangements at Country Levels to Promote and Monitor Progress Towards attaining Convergence Criteria

33 Actions Taken by COMESA to Address the Challenges for Monetary Integration I. COMESA Adopted Multilateral Fiscal Surveillance Framework ( MFSM) to address the Problem of non compliance to Fiscal Criteria. The Framework proposes the following: I. COMESA Adopted Multilateral Fiscal Surveillance Framework ( MFSM) to address the Problem of non compliance to Fiscal Criteria. The Framework proposes the following: 1) Need for two level fiscal surveillance mechanism: 1) Need for two level fiscal surveillance mechanism: one at the regional level and the other at the one at the regional level and the other at the national level; national level; 2) To ensure national ownership of MFSM each 2) To ensure national ownership of MFSM each member country need to table before their member country need to table before their legislatures for approval of agreed convergence legislatures for approval of agreed convergence criteria and the Government’s commitment that those criteria criteria and the Government’s commitment that those criteria will guide future fiscal policies. will guide future fiscal policies.

34 Actions Taken by COMESA to Address the Challenges for Monetary Integration (cont’d) 3. Each country to develop national convergence programme. The central feature of the national convergence programme is the strengthening of Public Finance Management System (PFM). Each member country should bring its PFM into the minimum essential. 4. Need for the creation of National Surveillance Unit in the Ministry of Finance and an independent Budget Office in the Legislature to ensure member countries meet the convergence criteria and the chosen time path for their realisation. 5. The responsibility for monitoring convergence to be shifted from the Committee of Central Bank Governors to a new Convergence Council consisting of the Ministers of Finance and Governors of Central Banks

35 Actions Taken by COMESA to Address the Challenges for Monetary Integration (cont’d) 8. THE COMESA Secretariat play a pivotal and coordinating role in the surveillance process 9. The COMESA Fund should handle the promotional aspects of the surveillance mechanism, 10. Establish a new intra-regional SWAP facility as a regional crisis management facility along the lines of Chiang Mai Initiative with active participation of International Financial Institutions. The COMSWAP arrangement could be financed partly by voluntary contributions from member states, including their contribution in the form of ‘transferring’ their proposed borrowing rights from the central bank to the member country facing financial crisis.

36 Actions Taken by COMESA to Address the Challenges for Monetary Integration (cont’d) 12. Establishment of an Excessive Slippage Procedure in order to force a country with excessive slippage in meeting the convergence criteria to implement corrective measures. If a country fails to undertake the corrective measures and still records excessive slippages funding from COMESA Fund and other regional financial facilities excluding project funding will be kept on hold. 13. The Joint Meeting of the COMESA Ministers of Finance and Central Bank Governors which was held in July 2011 decided that the COMESA Secretariat should open dialogue with EAC and SADC to have common modalities for fiscal surveillance in the context of the Tripartite Agreement

37 Actions Taken by COMESA to Address the Challenges for Monetary Integration (cont’d) II. COMESA Adopted Financial System Development and Stability Plan in order to enhance Financial Integration. The elements of the action Plan are the following: 1) Ensuring compliance to the agreed upon convergence 1) Ensuring compliance to the agreed upon convergence criteria criteria 2) Diversifying the financial system and instruments including 2) Diversifying the financial system and instruments including integration of capital markets; integration of capital markets; 3) Modernising the payment and settlement system at national and 3) Modernising the payment and settlement system at national and regional level; regional level; 4) Full compliance with the 25 Core Principles of Bank Supervision 4) Full compliance with the 25 Core Principles of Bank Supervision and Regulation and Regulation 5) Full compliance with Basle I. 5) Full compliance with Basle I. 6) Developing a harmonised consolidated Supervision Framework 6) Developing a harmonised consolidated Supervision Framework

38 Actions Taken by COMESA to Address the Challenges for Monetary Integration (cont’d) 7) Full compliance with BASLE I. 7) Full compliance with BASLE I. 8) Implementation of Risk Based Supervision 8) Implementation of Risk Based Supervision 9) Establish a Road Map to Implement BASLE II. 9) Establish a Road Map to Implement BASLE II. 10) Development and strengthening supervisory 10) Development and strengthening supervisory frame work for insurance sector frame work for insurance sector 11) Regulation of microfinance institutions 11) Regulation of microfinance institutions 12) Ensuring Financial Stability by implement the 12) Ensuring Financial Stability by implement the COMESA Assessment Framework for COMESA Assessment Framework for Financial stability Financial stability

39 Lessons to be learnt from Euro Need to have prudent macroeconomic policies at the national level; Need to have prudent macroeconomic policies at the national level; Country risk monitoring and analysis should be strengthened in an effort to identify problems earlier and to adjust exposure in a prompt and more systematic way. Country risk monitoring and analysis should be strengthened in an effort to identify problems earlier and to adjust exposure in a prompt and more systematic way. Central banks supervisory and regulatory functions should be strengthened and there should be minimal government intervention in the decision taken by the regulatory agency. This should be accompanied by the strengthening capacity of financial institutions and enforcement of strict transparency standards in financial transactions. Central banks supervisory and regulatory functions should be strengthened and there should be minimal government intervention in the decision taken by the regulatory agency. This should be accompanied by the strengthening capacity of financial institutions and enforcement of strict transparency standards in financial transactions.

40 Lessons to be learnt from Euro (cont’d) Member countries with high proportion of short term debt as well as private capital flows in their external liabilities should be closely monitored, since that might pose problems even if their overall indebtedness is modest. Countries should be required to provide data on their economy’s overall level of external indebtedness, with an emphasis on the private component of debt, and given a breakdown of the debt by maturity, debtor and creditor. If short term debt is owed by banks, then the banking system’s soundness and quality and liquidity of its external assets must be taken into account in assessing the country’s external creditworthiness. Member countries with high proportion of short term debt as well as private capital flows in their external liabilities should be closely monitored, since that might pose problems even if their overall indebtedness is modest. Countries should be required to provide data on their economy’s overall level of external indebtedness, with an emphasis on the private component of debt, and given a breakdown of the debt by maturity, debtor and creditor. If short term debt is owed by banks, then the banking system’s soundness and quality and liquidity of its external assets must be taken into account in assessing the country’s external creditworthiness.j

41 Lessons to be learnt from Euro (cont’d) Greater intra-African trade and regional integration Greater intra-African trade and regional integration Creation of institutions at a regional level such as African Monetary Fund to play an oversight role and to curb financial instability Creation of institutions at a regional level such as African Monetary Fund to play an oversight role and to curb financial instability

42 Recommendations Implementation of the COMESA Multilateral Fiscal surveillance Framework to achieve macroeconomic convergence; Implementation of the COMESA Multilateral Fiscal surveillance Framework to achieve macroeconomic convergence; Implementation of the COMESA Road Map for Financial System Development and Stability Implementation of the COMESA Road Map for Financial System Development and Stability

43 THANK YOU FOR YOUR ATTENTION THANK YOU FOR YOUR ATTENTION