Corporate Centre Mbabane, Swaziland
1. Introduction
Your Excellency, Honourable Prime Minister of the Kingdom of Swaziland; Mr A
T Dlamini,
Honourable Minister, L E Dlamini,
MP, Minister of Enterprise and Employment and other Ministers, here
present,
Master and Mistress of Ceremonies, fellow speakers,
Distinguished guests,
Ladies and gentlemen,
It is indeed a rare honour to me to be able to address you this evening on
this auspicious occasion. It is also a distinct pleasure to be able to do this
at the invitation of Ms Sibongile Mdluli, Deputy Governor of the Central Bank
of Swaziland, to whom I extend my congratulations for having been selected as
Business Woman of the Year 2006. Congratulations Madam! The Corporate Skills
Centre, whose objective, I have been informed, is to build the capacity of
young professionals on cross-cutting short-term courses to meet the skills gaps
which have been identified in the constantly evolving business environment, is
a laudable initiative; and I am particularly honoured to be able to offer my
support at its inception. With continued support from tonight's main sponsor
and the REDI, success is almost assured.
2. Formation of a Monetary Union
I have been asked to speak about the formation of "Monetary Union,
Perspective on the Swaziland Economy": a matter which I addressed in 1992 in a
paper which was presented under the title:
"Questions regarding Monetary Management: aspects of recorded experience in
a quasi-optimal currency area (1)." In that paper, I argued thus:
�Having shed the status of being a protectorate of Great Britain upon
obtaining independence in 1968, Swaziland could have refashioned its
orientation in a number of ways; including ones in extreme complete isolation
(pure self reliance) or, at the other extreme, incorporation into a larger unit
and management by some authority other than Britain.
The nature of the problem, I argued
�is to find that institutional framework within which to maximise national,
social welfare subject to the constraints which are imposed by the decisions
which all other countries have made; for it is these decisions which define the
universe within which choice must be exercised.
I also asserted that,
�for a small, emergent economy with limited bargaining power, the option of
refashioning the global economy in order to maximise national welfare does not
exist, whereas such an option does exists for the large, mature economies which
created the Bretton Woods institutions and the post-war economic order.
Although this was stated in the previous century, I believe it to be true
still. In the event, the authorities have made choices most importantly, in
this regard, by participating actively in the institutions of the African Union
(AU)and the Southern African Development Community (SADC), the essence of whose
programmes are described below.
3. Monetary Union in Africa
Article 44 of the Abuja Treaty calls for the harmonisation of economic
policies across the African continent and emphasises two important pillars of
economic integration: the promotion of intra-Africa trade and the enhancement
of monetary co-operation. The latter is guided by the African Monetary
Co-operation Programme (AMCP) which seeks to operationalise the monetary
co-operation mandate of the Abuja Treaty and the Constitutive Act of the
African Union. In the main, this involves a single monetary area, encompassing
a common currency and a common central bank by the year 2021. In terms of the
AMCP monetary union in Africa is to be achieved in six stages starting in
2002/03 and culminating in stage VI in 2021 with the introduction and
circulation of the common African currency. During these six stages, African
governments and central banks will have to work towards harmonisation and
co-ordination of macroeconomic and monetary policies, the harmonising of
interconnected payment and clearing systems, the strengthening and
harmonisation of banking and financial supervision and the observance of
increasingly strict macroeconomic convergence criteria.
3.1 The African Monetary Co-operation Programme (AMCP) Stated in point form,
the stages of the programme are as follows:
Stage I - (Year 2002-2003):
* establishment of Sub-regional Committees of the Armament Acquisition Control
Board (AACB) where they do not exist and revitalisation of existing
committees.
* adoption by each Sub-region of formal monetary integration programme.
Stage II (Year 2004 - 2009):
* harmonisation and co-ordination of macroeconomic and monetary policies
* harmonisation of Concepts and Methodologies including statistical
frameworks
* gradual liberalisation of the capital account
* gradual interconnection of payments and clearing system
* fostering the development of Banking and Financial Systems, including
promotion of African banking networks
* promotion of sub-regional and regional stock exchanges
*strengthening and harmonisation of banking and financial supervision and
regulation.
* Observance of the following macroeconomic indicators by year 2008:
- budget deficit or Gross Domestic Product (GDP) ratio not exceeding 5
percent
- central bank credit to government not exceeding 10 percent of previous year's
tax revenue
- single digit inflation rate
- external reserves or import cover of at least 3 months
- reduction of Current Account Deficits (excluding grant) as percent of GDP to
sustainable level
- pursuit of debt reduction initiatives on public debt as percent of GDP of
sustainable level
- achieving and maintaining high and sustainable rate of growth of real
GDP.
Stage III (Year 2009 - 2014): Assessment of macroeconomic performance and
negotiation for the establishment of a common Central Bank (Year 2015)
At this stage, countries would be required to consolidate achievements made
at the third stage. The activities under this stage would include:
* Continued observance of macroeconomic indicators of convergence
including:
- inflation rate of less than 5 percent
- overall Budget deficit or GDP ratio (excluding grants) of less than 3
percent
- elimination of Central Bank financing of Budget deficits
- external reserves of equal to or more than six months of imports of goods and
services
- reduction of Current Account Deficits (excluding grant) as percent of GDP to
sustainable level
- pursuit of debt reduction initiatives on public debt as percent of GDP to
sustainable level
* achieving and maintaining high and sustainable rate of growth of real
GDP
* assessing the macroeconomic indicators of each country or sub-region against
the convergence criteria; a comparative analysis would be made thereafter to
the Convergence Council
* commissioning of a study on the establishment of an African Exchange Rate
Mechanisim (2010)
* review of commissioned study on the African Exchange Rate Mechanism
(2011)
* observance of the following macroeconomic indicators by year 2012:
- budget deficit or GDP ratio not exceeding 5 percent by 2012
- elimination of Central Bank credit to government
- external reserves or imports cover of equal or greater than six months
* finalisation of arrangements required for the launching of the African
Monetary Union.
* this is the completion stage before the take off of the common Central
Bank.
The following activities are expected to be undertaken:
* preparation of institutional, administrative and legal framework for setting
up the common Central Bank and currency of the African Monetary Union. This
includes:
a) achieving and maintaining good governance
b) achieving central bank autonomy, particularly with regard to instrument,
personnel and financial independence.
Adoption of the institutional, administrative and legal framework for the
setting up of the common Central Bank and currency of the African Monetary
Union:
* operationalisation of Exchange Rate Mechanism
* appointment of key officers of the Common Central Bank
* preparation for the introduction of a common currency
* recruitment of staff of the Bank
* mid-term assessment of country performance
* final assessment of countries' performance against convergence criteria.
Stage IV (Year 2015 - 2021)
* launching of the African Central Bank (ACB)
* introduction and circulation of the common African currency (2015).
A transitional period during which sub-regional currencies would operate
alongside the African currency is envisaged. As the programme has progressed,
so adjustments have been made, and the current statement of the programme
envisages completion by 2015: not 2021 as in the original thinking.
3.2 The Southern African Development Community (SADC) Region
Within the SADC region, the movement towards monetary integration and
eventual union is guided by the Committee of Central Bank Governors (CCBG)
which has pledged support for the AMCP. The CCBG was established in 1995 with
the specific purpose of achieving closer co-operation and integration in the
area of monetary policy among SADC central banks.
The work of the CCBG has contributed to major developments towards regional
monetary co-operation such as significant progress in the harmonisation of the
payment and clearing systems, the approval of Memoranda of Understanding on
Co-operation, Co-ordination of Exchange Control Policies in SADC and
Co-operation in the area of Information and Communication Technology. The CCBG
has also contributed to the co-ordination of training for central bank
officials in SADC and the creation of a Training and Development Forum. As at
April 2005, the integration programme envisaged the establishment of a SADC
monetary union by 2016.
* Finalise preparation of institutional, administrative and legal framework for
setting up a SADC Central Bank by 2016;
* Launch a regional currency for the SADC Monetary Union by 2018.
3.3 The Common Monetary Area (CMA)
Lastly, the possibility of establishing a central bank for the Common
Monetary Area countries is raised from time to time: the CMA comprising
Lesotho, Namibia, South Africa and Swaziland. A study was conducted in 2005
under the auspices of the CCBG outlining the costs and benefits of the creation
of a common central bank for the CMA countries. As is normal, decisions in this
regard will be taken by the political leaders of the CMA countries, rather than
by central bankers. In short: Programmes intended to achieve monetary union
exist at the continental (AU), regional (SADC) and intra-regional levels (CMA)
and Swaziland participates in them all.
Conclusion
The questions which policy makers will have to continue to address are
clear. They include the following. Should we continue down this path? Do the
programmes have realistic time frames? Are they on target? Fortunately, I don't
have to wrestle with them; and any assessment by me would be not only
discourteous but also presumptuous. I have sketched the issues in broad
outline, and thank you all for your attention.
1. See X Guma (1992) "Questions regarding Monetary Management: aspects of
recorded experience in a quasi-optimal currency area," Harare, Zimbabwe and
Southern African Foundation for Economic Research.
Issued by: South African Reserve Bank
1 March 2007
Source: South African Reserve Bank (http://www.reservebank.co.za)
