by Munetsi Madakufamba – SANF 05 no 72
Member states of the Southern African Development Community (SADC) are working towards stabilizing macro-economic variables in preparation for a common currency expected in the next few years.
Fudzai Pamacheche, Acting Director of the SADC Directorate on Trade, Industry, Finance and Investment said it is critically important that member states get the economic fundamentals right if the envisaged common currency is to be a success.
SADC central banks are currently harmonizing their monetary policies with a view to establishing a common monetary unit by 2016.
Speaking at the SADC Summit in Gaborone, Botswana, this week, Pamacheche said there would have to be convergence on fundamentals such as inflation, budget deficits and exchange rate stability, as well as currency convertibility.
The framework for achieving some of these fundamentals is outlined in the Regional Indicative Strategic Development Plan (RISDP), SADC’s 15-year blueprint. The RISDP targets a common currency in 10 years time but the SADC central banks are saying this can be achieved much earlier than that.
The RISDP also sets a target for member states to record single digit inflation figures by 2008. Pamacheche said this target is achievable because 9 out of 13 member states are already registering single digit inflation rates.
Similarly, SADC hopes to achieve sustained fiscal discipline by targeting budget deficits that are less than five percent of national budgets by 2008, which can be achieved through tighter expenditure controls, and strengthened revenue collection and tax bases.
Pamacheche said member states need to have stable exchange rates and, even more important, currencies that are convertible in all the other member states.
At the moment, only the South African rand is convertible in all SADC countries, followed by the Botswana pula which is convertible in some but not all the member states.
“It’s a long process (towards a common currency) and a number of technical issues would have to be addressed,” said Pamacheche.
SADC is also working on establishing a Free Trade Area by 2008. This is to be achieved through the implementation of the SADC Trade Protocol, which began in 2000. Member states are removing tariffs and non-tariff barriers on all but a few sensitive products for which separate agreements are being negotiated.
The Free Trade Area is expected to boost intra regional trade which has steadily increased from five percent of all international trade before the implementation of the trade protocol, to the current 25 percent. By 2008, the intra regional trade is expected to rise to 35 percent.
The common currency is expected to spur intra regional trade to even greater heights. (SARDC)
