CS/TCM/MERP/VIII/6
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CS/TCM/MERP/VIII/6
October 2010
Original: ENGLISH
COMMON MARKET FOR EASTERN
AND SOUTHERN AFRICA
Eighth Meeting of the COMESA Monetary and Exchange
Rates Policies Sub-Committee
Lusaka, Zambia
18-19 October, 2010
REPORT OF THE EIGHT MEETING OF THE
COMESA
MONETARY AND EXCHANGE RATES POLICIES
SUB-COMMITTEE
10 (IZ-mmn)
A. INTRODUCTION
1. The Eight Meeting of the COMESA Monetary and Exchange Rates Policies Sub-Committee was held from 18 to 19, October 2010 in Lusaka, Zambia. The sub-Committee reviewed the activities that were undertaken based on its 2010 Workplan and prepared a Workplan for 2011.
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 Congo (D.R.) Egypt, Kenya, Mauritius, ,Malawi, Swaziland, Sudan, Uganda Zambia and Zimbabwe. The list of participants is at Annex I.
Opening of the Meeting (Agenda item 1)
3. The Chairman of the meeting, Dr. Adam Mugume, Director of Research in Bank of Uganda on behalf of Dr. Pollycarp Musiguzi, Executive Director, Governor’s Office, Bank of Uganda welcomed the delegates to the meeting and called the meeting to order. He expressed his confidence that the Sub-Committee would come up with concrete proposals to move the COMESA Monetary Cooperation Programme forward.
Election of the Bureau ( Agenda item 2)
4. The following countries were elected as Bureau members:
Chairperson: Uganda
Vice Chairperson: Congo (D.R.)
Rapporteur: Malawi
Adoption of the Agenda and Organisation of Work (Agenda Item 3)
5. The Meeting adopted the following agenda:
(i) Opening of the Meeting
(ii)Election of the Bureau
(iii). Adoption of the Agenda and Organisation
4(iv) Report of the Workshop on Multilateral Fiscal Surveillance for COMESA
(v) Report on Training on Econometric Analysis of Macroeconomic Policies
(vi) Work plan for the Monetary and Exchange Rates Policies Sub-Committee for 2011
(vii) Any Other Business
(viii). Adoption of the Report and Closure of the Meetings
C. ACCOUNTS OF THE PROCEEDINGS
Report of the Workshop on Multilateral Fiscal Surveillance for COMESA (Agenda Item 4)
5 The Secretariat made a presentation under this agenda item. The meeting was informed that a joint workshop for Central banks and Ministries of Finance was held from 16 to 17, December 2009, in Mauritius in collaboration with African Development Bank (AfDB) and under the aegis of the Regional Multidisciplinary Centre of Excellence (RMCE). The meeting was also informed that East African Community (EAC), Economic Community for West African States (ECOWAS), European Central Bank (ECB), International Monetary Fund, (IMF), West African Monetary Institute (WAMI), Southern African Customs Union (SACU), shared their experiences on multilateral fiscal surveillance during the meeting.
6 The meeting further informed that the Objectives of the workshop were:
(i) To ensure more rigorous budgetary discipline through surveillance and coordination of budgetary policies in the member States of COMESA.
(ii) To achieve budgetary position in member countries that safeguard against breaching the agreed upon convergence criteria and ensure the long term sustainability of public finances;
(iii) Bring together leading experts from EU, WAMI, ECOWAS, Secretariat etc. to discuss and draw experiences from the continent and other regions.
(iv) Promote partnership with AfDB, UNECA, AU and other RECs, to push this agenda forward.
7 The meeting was briefed on the following issues that were discussed in the workshops:
1. The Trends of Fiscal Reforms in COMESA Member Countries
8 The following were the trends that were observed in fiscal reforms in COMESA member countries in recent years
9 .
(i) The fiscal framework of member countries aim at striking the right balance between supporting growth and maintaining medium term debt sustainability;
(ii) Sustained efforts are being made to improve coordination of monetary and fiscal policies;
(iii) Sustained efforts are being made to widen tax base and improving tax administration;
(iv) Sustained efforts are being made to use high concessional borrowing effectively to avoid debt distress;
(v) Member countries are introducing debt management strategies;
(vi) Member countries are introducing PFM medium term action plan to support budget preparation;
(vii) Sustained efforts are being made for medium term expenditure framework (MTEF) which focuses on creating space for higher capital spending;
(viii) Member countries are making every effort for creating fiscal space to increase spending on infrastructure;
(ix) Member countries are restraining non-priority spending, and making spending more efficient;
(x) Member countries are designing appropriate measures to mitigate external shocks such as increase in food prices, oil prices and global financial and economic crisis; and
(xi) Member countries are making sustained efforts to provide for measures to cushion the initial shocks of adjustment on the living standards of the poorest groups through social safety nets;
2. Challenges to be addressed to implement Multilateral Fiscal Surveillance
10 The following are the challenges that were identified by RECs as regards their experiences in conducting multilateral fiscal surveillance:
(i) Lack of comparable, timely and reliable data to facilitate surveillance which will lead to difficulties in monitoring performance;
(ii) External shocks;
(iii) Lack of appropriate compensation mechanism to address variations in initial conditions (e.g., compensating countries for loss in revenue due to trade liberalization);
(iv) Lack of adequate enforcement mechanism;
(v) Lack of credible commitments to fiscal sustainability;
(vi) Failure to incorporate the regional convergence criteria in national economic programmes;
(vii) Overlapping membership;
(viii) Weak institutional capacity;
(ix) Limited resources to support adequate institutional and technical mechanisms;
(x) Pressure on the budget of member countries not to comply to fiscal rules as a result of fiscal implications of external shocks, such as the global financial and economic crisis, food price increases, stimulus packages, rescue plans etc.
3 The case for Fiscal Rules for Promotion of Monetary Integration in COMESA, EAC and SADC.
11 The meeting was informed that fiscal rules were useful devices to ensure fiscal discipline among countries. It was pointed out that effective implementation of fiscal rules require a robust legal basis, a clear definition of institutional responsibilities; transparent accounting, and timely and comprehensive reporting of national government operations. Fiscal rules can be specific quantitative targets or procedural rules which refers to mandated processes and institutional requirements. The workshop also discussed the degree of tightness of fiscal rules in COMESA, EAC and SADC.as regards, the strength of fiscal rules, legal enforcement basis, enforcement institution, fiscal convergence targets and stages.
4. The Case for Tripartite Arrangement for Fiscal Policy Cooperation in COMESA, EAC and SADC
12. The meeting was informed that the workshop discussed the following areas in the fiscalcooperation among COMESA, EAC and SADC to achieve fiscal convergence:
(i) A framework for fiscal policies of EAC, COMESA and SADC member States is necessary for monitoring and supervising the deficits and debt of each member country on an annual basis;
(ii) Need for a structured reporting procedures, and enforcements and sanctions;
(iii) Timely submission of reports on performance of convergence programme;
(iv) Need for great involvement of fiscal affairs Committees often drawn from Ministries of finance and economic development in surveillance of performances of fiscal and other macro-economic convergences criteria;
(v) Need to develop early warning system;
(vi) Comprehensive study on multilateral fiscal surveillance ; and
(vii) Need for political will and strong commitment.
13. The meeting was also informed that the workshop discussed the following proposed procedures on fiscal coordination and surveillance within the Tripartite Arrangement of COMESA, SADC and EAC.
(i) Need to have Common fiscal Programmes;
(ii) Provision of information to the Tripartite Secretariat;
(iii) The implementation of the Tripartite procedural framework should revolve around the Tripartite Summit; a Tripartite Council of Ministers; and a Tripartite Secretariat of the three RECS; and
(iv) The Tripartite Secretariat shall constitute a framework for dialogue between the Member States and the institutions and amongst the Member States, playing a crucial role in developing and engraving a mechanism of peer review and peer pressure;
(v) Need to agree on realistic and credible data for margins for customs union and forming one customs union and a common market;
(vi) Need for a harmonized convergence criteria for the three RECs;
(vii) All Member States should be required to submit to tripartite secretariat medium term programmes on the budgetary position as well as economic outlook on what they base their budget plans;
(viii) The programme should be assessed by the tripartite secretariat as well as the fiscal and monetary committee for peer review and pressure;
(ix) Institutionally, the implementation of the tripartite procedural framework should evolve around the interaction of the Member States with three actions:
- The tripartite Summit
- The tripartite Council of Ministers
- The tripartite Secretariat of the three (3) RECs.
14. The meeting was informed that the following recommendations were made by the workshop to enhance implementation of Multilateral Fiscal Surveillance in the COMESA region:
(i) Need for structured reporting procedures and enforcements mechanisms;
(ii) Timely submission of reports on performance of convergence programme;
(iii) Need to develop early warning system;
(iv) Comprehensive study on multilateral fiscal surveillance for COMESA;
(v) Need for political will and strong commitment; and
(vi) COMESA Infrastructure Fund to urgently address issues regarding poor infrastructure in the region;
15. The following were recommended by the Workshop to enhance effectiveness of fiscal policy for domestic resource mobilization:
(i) Improvement in the composition and control of expenditure by introducing programme based budgeting ;
(ii) Undertaking improvements in tax administration and tax structure
(iii) Enhancing revenue from exploitation of natural resources;
(iv) Using revenues from natural resources in such a way that prevents negative impact on the domestic economy, such as Dutch disease effects, excess liquidity; and inflationary pressures;
(v) Increasing public investment on economic and social infrastructure and stimulate private investment
(vi) Strengthening domestic financial institutions;
(vii) ODA should be much more directly tied to the financing of domestic investment, particularly in order to expand productive capacities and generate higher rate of growth.
(viii) To avoid fluctuation and unpredictability in ODA, there is need for longer –term commitments of aid from both bilateral and multilateral donors. Lengthening the time of commitment of ODA would be necessary in order to strengthen government capacity to mobilise domestic revenues.
(ix) Encouraging remittances. Remittances have significant impact on poverty reduction;
(x) Implementing policies that reduce capital flight
5 Action Plan for 2010
16. The meeting was informed that the workshop recommended the following activities to be carried out in 2010.
Activity / Responsibility / Completion Date1. Preparation of Multilateral Surveillance Framework for COMESA / COMESA / July 2010
1. Preparation OF Legal Framework for Multilateral Fiscal Surveillance in COMESA / COMESA / July 2010
2. A high level publication of the proceedings of the Workshop / COMESA+AfDB / July 2010
3. Field Missions to other RECS which have experience on multilateral fiscal surveillance / COMESA+AfDB / March 31, 2010-July 31, 2010
4. Harmonisation of Macroeconomic convergence criteria among COMESA-EAC-SADC / Tripartite Task Force / July 2010
5. Follow up workshop on Multilatreral Surveillance for COMESA / COMESA/RMCE/AfDB / August/September 2010
17. The meeting was also informed that a AfDB in collaboration with COMESA undertook the study. The findings of the study will be validated in a joint workshop for COMESA Fiscal Affairs Committee and the Committee of Finance and Monetary Affairs in November 2010. The meeting was also informed that after validation, the study will be presented to a Joint meeting of the COMESA Ministers of Finance and the COMESA Committee of Governors of Central banks for endorsement of the recommendations.
18. The meeting noted the report of the Workshop
7. Recommendation
19. The Committee on Finance and Monetary Affairs should take note of the issues discussed in the workshop pending the holding of a Joint Validation Workshop with Fiscal Affairs Committee in which it will deliberate on the findings of the study, the recommendation of which will be submitted to an extra-ordinary joint meeting of the COMESA Ministers of Finance and the COMESA Committee of Governors of Central Banks.
Report on Training Workshop on Econometric Analysis of Macroeconomic Policies (Agenda item 5)
20. The meeting was reminded that the 12th Meeting of the COMESA Committee of Central Bank Governors held in Tripoli, Libya in November 2007, decided that the COMESA Secretariat should organize a training workshop for member countries, in order to enable them to undertake econometric analysis of macroeconomic policies independently. In pursuit of this decision, the Secretariat organized the training from 11-15, August 2008, in Lusaka, Zambia on the design, building and use of quantitative economic policy tools, with particular reference to the econometric studies on exchange rates, monetary policies and inflation in the COMESA region, which were undertaken by the COMESA Monetary and Exchange Rates Policies Sub-Committee from 2007-2009. The Secretariat again organised the same training from 31st May 2010 to 4th June 2010 in Lusaka, Zambia.
21. The meeting was informed that the main objective of the workshop was to help participants have hands on training on the use of quantitative analytical methods for the formulation and implementation of better-informed and more consistent development policies. This would indeed assist to achieve the following:
(i) Create capacity among central banks to assess extent of real exchange rate misalignments as countries gear up to join the exchange rate mechanism (ERM) that will have to be in place before 2018 when the COMESA Monetary union will be established.
(ii) Determine empirically, the most crucial relationships which make up the COMESA economy, particularly with respect to the driving forces of growth, exchange rates, inflation, and private investment.
(iii) Developing consistency frameworks for policy coherence and harmonization within and among COMESA member countries. Of particular importance is for countries to have the capacity to be able to establish monetary policy transmission channels/mechanisms within COMESA as the region moves towards becoming a single monetary zone with monetary policy conducted by a supranational central bank;
(iv) Enhance effectiveness of the COMESA Secretariat in policymaking and policy advice.