EAC budget to be funded through hybrid approach

EAC budget to be funded through hybrid approach
EAC Sectoral Council on Finance and Economic Affairs retreat held in Mombasa, Kenya (photo credit: Courtesy)

The East African Community Sectoral Council on Finance and Economic Affairs (SCFEA) has resolved to use a hybrid model to finance the East African Community budget.

At a two-day retreat that ended in Mombasa, Kenya, yesterday, SCFEA recommended to the Council of Ministers of the bloc to approve the model as the new mechanism of financing the community.

The model states that each member state should contribute 65 per cent of the budget. The 35 per cent is set to be contributed based on the partner state’s average nominal GDP per capita for five years following an assessment by the World Bank.

In his speech at the opening session of the Retreat of Sectoral Council on Finance and Economic Affairs, the Chairperson of the SCFEA, Ukur Yatani, said it was important to have a sustainable financing mechanism for the EAC budget.

He said meeting number 12 of SCFEA held in May 2021 approved recommendations of the study, except the proposed hybrid model of contributing to the EAC budget where consensus was not reached.

“Let us discuss objectively and guide the council on the appropriate mechanism for sustainably financing the community,” Yatani said.

The Secretary-General of the East African Community, Peter Mutuku Mathuki, said the incumbent model of financing the EAC was not sustainable.

He said the major setback faced by the EAC was the inability to finance itself through sustainable financial resources for program implementation.

“For a long time, we have noted and discussed the need to find a sustainable financing mechanism to ensure that our community can take full charge of its integration agenda,” Dr Mathuki said.

The retreat was attended by ministers for finance from the partner states namely: Ukur Yatani (Kenya), Christine Niragira (Burundi), Dr Claudine Uwera (Rwanda), Dr Mwigulu Lameck Nchemba (Tanzania), Akor Maguk Kor (South Sudan) and Haruna Kyeyune Kasolo (Uganda). 

The model

Partner states settled on the new model after a study was carried out and results analysed about the alignment of EAC structure, programs, and activities with the potential resources at the EAC Partner States, which could sustain the community by substituting dependency syndrome.

Major projects, programs and activities were identified and possible constraints in funding from the partner states which caused delays in disbursements were identified.

They agreed to adopt the model based on its assessed contribution component and principles of equity, solidarity, equality and size of economies of partner states.

It was agreed that the hybrid model would be implemented and reviewed after three years. The EAC Secretariat was directed to ensure that the cost of running the East African Community is as low as possible.

Genesis

The consultant was contracted in September 2019 by the EAC Secretariat to study “the required reforms to align the EAC structure, programs and activities with financial resources available from the EAC Partner States to ensure the sustainability of the community while addressing the dependency syndrome.”

The consultant was to carry out extensive research to recommend sustainable financing mechanisms and reforms needed to justify the East African Community budget based on financial resources that are available from partner states and development partners.

In January 2020, the eleventh meeting of the Sectoral Council on Finance and Economic Affairs approved the inception report. The initial draft of the study was developed by the consultant in June 2020 concerning the contract.

On May 7, 2021, the twelfth meeting of the Sectoral Council on Finance and Economic Affairs (SCFEA) endorsed the recommendations of the study.

The meeting had differing views about the proposed hybrid model that entailed 50 per cent of the total budget should be contributed by the partner states.

The remaining 50 per cent would be assessed through 40 per cent on GDP per capita, 5 per cent on Intra-EAC trade and 5 per cent on imports from outside EAC.

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