CS/TCM/CCGCB/XIV/8
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CS/TCM/ CCGCB/XIV/8
October 2009
Original: ENGLISH
COMMON MARKET FOR EASTERN
AND SOUTHERN AFRICA
Fourteenth Meeting of the COMESA Committee of
Governors of Central Banks
Mauritius
October 29-30, 2009
REPORT OF THE FOURTEENTH MEETING OF
THE COMESA COMMITTEE OF GOVERNORS
OF CENTRAL BANKS
09(IZ-mmn)
A. INTRODUCTION
1. The Fourteenth Meeting of the COMESA Committee of Governors of Central Banks was held from October 29 to 30, 2009 in Mauritius.
B. ATTENDANCE, OPENING OF THE MEETING, ELECTION OF THE BUREAU, ADOPTION OF THE AGENDA AND ORGANISATION OF WORK
2. The meeting was attended by representatives from Central Banks of Burundi, Comoros, Congo (D.R.), Egypt, Kenya, Libya, Malawi, Mauritius, Madagascar, Rwanda, Seychelles, Sudan, Swaziland, Uganda, Zambia and Zimbabwe. The African Union, the United Nations Economic Commission for Africa, the African Development Bank, Bank of Tanzania, Bank for International Settlement, COMESA Clearing House, and the PTA Bank also attended the meeting. The list of participants is at Annex IV.
Opening of the Meeting (Agenda item 1)
3. The Vice Prime Minister and Minister of Finance and Economic Empowerment of the Republic of Mauritius, Hon. Dr Ramakrishna Sithanen, GCSK, made a statement. In his statement he wished all Central Bank Governors and their delegations a very warm welcome to Mauritius. He stated that this meeting was taking place at a far less stressful time than a year ago, when the world was just about to start its coordinated approach to facing down the global recession. Growing signs that the global economy is crawling out from a deep recession is now visible. This recovery is, however, projected to be fragile.
4. With regard to our region, Dr. Sithanen stated that the situation still looks challenging. After sustaining strong growth for nearly a decade, the economy in Sub-Saharan Africa is projected to slow down markedly to a mere one percent in 2009, due to slumping exports and disrupted capital flows. Agricultural exports from Africa are seriously hindered by non-tariff barriers in developed economies. Such a performance inflicts untold hardships on the poor and vulnerable sections of the population.
5. He informed the meeting that the Africa Regional Technical Assistance Centre of the IMF will be set up in Mauritius and expressed gratitude to the Bureau of the COMESA Committee of Governors of Central Banks held in July 2009 in Cairo, Egypt for supporting the candidature of Mauritius.
6. He also informed the meeting that Mauritius will be hosting the COMESA Fund (Infrastructure) as an instrument of Aid for Trade that addresses productive capacity and infrastructure needs as well as adjustment costs associated with integration and economic reforms.
7. Before the Vice Prime Minister and Minister of Finance delivered his statement, Dr. Maxwell Mkwazalamba, the Commissioner of Economic Affairs of the African Union Commission made a statement to the meeting. He extended greetings to the meeting from the Chairperson of the African Union Mr. Jean Ping who wished the meeting all the success. He thanked COMESA and Mauritius for inviting the African Union to Mauritius and to the meeting.
8. Dr. Mkwezalamba informed the meeting that the continued engagement between COMESA and the African Union is in line with the Protocol governing relations between the African Union and the Regional Economic Communities. He also informed the meeting that the African Union Commission is pleased with COMESA’s progress in monetary harmonization and regional integration as a whole. Commissioner Mkwezalamba then went on to inform the meeting that the overall decline in economic performance of Africa in the recent years owing to the impact of the global economic and financial crisis should remind the meeting of the fragility of the economies of COMESA Member States and the need to accelerate integration in order to reduce the impact of the external cyclical variations that emerge periodically. He therefore called on the Governors to play their role to facilitate regional integration and expressed hope that their meeting would not only focus on recent achievements and progress but also intensify collective efforts to implement key measures that should encourage irreversible integration of COMESA Member States and thereby promote economic and social development of Africa. He also called on the Governors to play an active role in the establishment of the three continental /pan African institutions namely, the African Monetary Fund, the African Investment Bank and the African Central Bank.
9. He informed the meeting that the African Union is happy with the progress that COMESA is making in many areas, including monetary integration. He cited the implementation of the Regional Payments and Settlement System (REPSS), and ongoing discussions on monetary and exchange rates policies of the progress being made. He also congratulated COMESA, EAC and SADC in taking a bold move to address the challenges of overlapping membership that affects progress in regional integration through a tripartite arrangement that will lead to the creation of a single free trade area. He expressed hope that the tripartite arrangement shall also include harmonization of monetary policies, an area in which COMESA has made progress. He ended his statement by wishing the Governors a fruitful meeting and deliberations.
10. Mr. Stephen Karangizi, Assistant Secretary General (Programme) of COMESA made a statement on behalf of Mr. Sindiso Ngwenya, the Secretary General of COMESA. In his statement he underscored that regional integration if approached with pragmatism can offer the region a real opportunity to attain productivity gains, aver marginalisation and carve the regions niche in the rapidly integrating global economy.
11. He emphasised the importance of monetary and fiscal policy harmonisation to foster national policy credibility and reduce the risk of policy reversals. He reported that the Regional Payment and `Settlement System (REPSS) became is now operational. He said that this will significantly contribute to the expansion of intra-COMESA trade by reducing transaction costs. He also reported that all preparations for the establishment of the COMESA Monetary Institute are completed. He said that, when the Institute becomes operational it will significantly contribute in enhancing the implementation of the COMESA Monetary integration agenda.
12 The Governor of the Bank of Mauritius, Mr. Rundheersing Bheenick made a statement. In his statement he welcomed Governors of COMESA Central Banks delegates and representatives of regional and international organizations to the 14th Meeting of the COMESA Committee of Governors of Central Banks. He noted that against the backdrop of the global financial crisis, banking systems in COMESA have remained sound and resilient as a result of sound management, transparency and prudent regulation. He emphasized the need to focus more on how finance can better release the potential locked up in the natural resources of the region and the need for more trade, including intra-regional trade. The Regional Payment and Settlement System (REPSS) can play a central role in the development of the internal market of COMESA through a reduction in the cost of payments in intra-regional transactions by over 50 per cent. Exploiting the economies of regional scale is already strengthening the resilience of Member States to exogenous shocks, reducing the prevalence of conflicts, enhancing the voice of COMESA in international fora and improving terms of trade with other regions.
13. He highlighted the vital role of Financial Stability in the wake of the major upheaval in the Western financial system and welcomed the proposal to set up Financial Stability Units in COMESA Central Banks. He thanked the Bureau of the COMESA Committee of Governors of Central Banks and the Secretary-General of COMESA for their support to Mauritius for hosting AFRITAC (South), one of the two new African Technical Assistance Centres, which the IMF is establishing in Africa. He commended the COMESA Fund, which will soon be up and running with its two windows, the Adjustment Facility and the COMESA Infrastructure Fund to be based in Mauritius. Against the backdrop of improved growth prospects for Sub-Saharan Africa in 2010, he underlined the need to focus on the Monetary Cooperation Programme to further deepen regional integration while reducing the risk of policy reversal.
Significantly contribute in enhancing the implementation of the COMESA Monetary integration agenda.
14. The Governor, Central Bank of Kenya Prof. Njuguna Ndung’u moved the vote of thanks. He expressed his appreciation to the Vice Prime Minister, Minister of Finance and Economic Empowerment Honourable Dr. Rama Krishna Sithanen, for gracing the occasion of the14th meeting of the COMESA committee of Governors of Central Banks. He said that the meeting provided an excellent forum for COMESA Governors to share experiences and look for solutions to common challenges in today’s dynamic and fast changing world. He highlighted the need to drive capacity building for policy analysis to the next level by having a centre of research excellence in the region. Such a centre would drive policy and define coverage for further monetary integration in the region.
15. On sharing experiences, he said that currently most central banks are undergoing transformation involving institutionalizing the Monetary Policy Committee (MPC) within their decision making structures. The MPC are improving policy effectiveness and therefore allowing flexibility of decision making. The quality of decisions however depends on the appointing authority as well as policy space that would ensure that the Governor’s hands are not tied. He mentioned the presentation to the Committee of Governors by the Central Bank of Kenya (CBK) on the “Evolving Structure and Role of the Monetary Policy Committee” sighting such experiences.
16. The Governor identified three main issues that face COMESA regional Central Banks. Firsts, there is the need for more policy space for regional Central Banks to operate. Second, is the need to further enhance central bank independence in the region. Third, the challenges of the global and economic financial crisis was identified as a case in point which brings to sharp focus the need for flexibility intertwined with central bank independence. Therefore there is need for adequate support for central bank independence and policy space. The Governor emphasized that the envisaged COMESA Monetary Institute would enhance capacity within COMESA.
17. The Governor, Central Bank of Kenya Prof. Njuguna Ndung’u once again thanked Vice Prime Minister, Minister of Finance and Economic Empowerment Honourable Dr. Rama Krishna Sithanen, for finding time and opening the14th meeting of the COMESA committee of Governors of Central Banks.
18. After the opening speeches, the following presentations were made:
1. The Evolving Structure and Role of Monetary Policy Committees by Ms. Sheila M M’bijjewe
The Governor of the Central Bank of Kenya, Prof Njuguna Ndung’u, introduced Ms. Sheila M. M’bijjewe, Member of the Kenya Monetary Policy Committee. She made a presentation entitled “The evolving structure and role of Monetary Policy Committees”. The presentation reviewed the institutional framework of Monetary Policy Committee (MPC) drawing from established central banks and suggested lessons for COMESA Central Banks. Ms. M’bijjewe noted that the policy landscape requires the MPC to be efficient and effective and underlined that the procedures for appointment of MPC members influence the incentive, loyalty and behavior of the member. The diversity of central banks requires that the MPC composition, structure and functions should be carefully tailored to meet the requirements of their Monetary Policy objectives. The separation of the MPC from the Board of Directors was considered as a major governance issue. Moreover, transparency and communication is important to the economy. She stressed on the need for sharing of experiences in the evolution of MPC so that COMESA central banks can make use of best practice. She concluded that MPCs do seem to improve the quality of decisions and the communications of such decisions to the market.
2. Issues in the Governance of Central Bank by Mr. Gavin Bingham
Mr. Gavin Bingham, Secretary-General of the Central Bank Governance Forum of the Bank for International Settlements (BIS) made a presentation on issues in the governance of central banks. He discussed the current approach to governance which focuses on price stability as the overriding objective of monetary policy. In the performance of its monetary policy objective, the central bank is vested with appropriate powers, safeguards and resources and is accountable to the public through clear, observable objectives. However, the global financial crisis led to a dramatic change in the size and composition of central bank balance sheets such that central banks have assumed significant financial, reputational, legal and political risks. Financial stability has gained importance in the mandate of central banks. These developments have important implications on governance issues. Central banks now require close collaboration with other authorities and risks significant losses from their operations. The G-20 has called for the establishment of an explicit responsibility for systemic stability by central banks and other authorities responsible for financial stability. New issues have emerged from the financial stability role of central banks pertaining mainly to the nature of powers and protections to central banks, adequacy of financial resources and greater oversight of the central bank. According to Mr. Bingham, the answers to these issues will shape the governance arrangements for central banks in the future.
Election of the Bureau (Agenda item 2)
19. Governors elected their incoming Bureau as follows:
Chairperson : Mauritius
1st Vice Chairperson : Egypt
2nd Vice Chairperson : Sudan
1st Rapporteur : Swaziland
2nd Rapporteur : Burundi
Adoption of the Agenda and Organisation of Work (Agenda item 3)
20. The Governors adopted the following agenda:
1. Opening of the Meeting;
2. Election of the Bureau;
3. Adoption of the Agenda and Organisation of Work;
4. Report of the Outgoing Chairman on the activities of the Bureau;
5. Consideration of the Report of the 14th Meeting of the Committee on Finance and Monetary Affairs on the following:
a) Status of Implementation of the Decisions of the 13th Meeting of the COMESA Committee of Governors of Central Banks;
b) Status Report on the Implementation of the Regional Payment and Settlement System (REPSS);
c) Report on the Progress Made by Member Countries towards Macro-Economic Convergence in 2008;
d) Report of the Seventh Meeting of the Monetary and Exchange Rate Policies Sub-Committee on the following: