Extract D suggests that some leaders within the East African Community (EAC) are calling for strict regional surveillance with the power to penalise non-compliance with regional fiscal benchmarks, such as a fiscal deficit ceiling.

Extract D: Fiscal Rules and Integration in the East African Community

The drive towards the East African Monetary Union (EAMU) has renewed debates among member states of the East African Community (EAC) regarding the strictness of macroeconomic convergence criteria. To establish a single currency, member states agreed to a set of fiscal benchmarks, including a fiscal deficit limit of 3% of GDP and a gross public debt limit of 50% of GDP.

However, many member states have struggled to meet these targets as they attempt to finance critical infrastructure projects to support long-term economic development. In Kenya, large-scale infrastructure spending, such as the Standard Gauge Railway, pushed the budget deficit and public debt levels higher. Critics argue that complying with a rigid regional fiscal constraint would choke off necessary public investments, whilst supporters argue it is vital to prevent unsustainable debt accumulation and inflation.

With rising debt-servicing costs across the region, some leaders are calling for regional surveillance with the power to penalise non-compliance. Others argue that sovereign nations must maintain the flexibility to run counter-cyclical fiscal policies to buffer against commodity price shocks and external crises.