Sectoral Council on Finance and Economic Affairs agrees on the Hybrid Model of Financing the EAC Budget
….as Retreat of Sectoral Council on Finance and Economic Affairs concluded in Mombasa, Kenya
East African Community Headquarters, Arusha, Tanzania, 17th November, 2021: The East African Community Sectoral Council on Finance and Economic Affairs (SCFEA) has agreed on a Hybrid Model of financing the EAC budget.
A two-day retreat of the SCFEA held in Mombasa, Kenya from 15th to 16th November, 2021 further recommended to the EAC Council of Ministers, the policy making Organ of the Community, to approve the model as the new financing mechanism for the EAC.
The new model requires EAC Partner States to contribute equally 65% of the budget while the remaining 35% of the total budget will be contributed based on the assessment of Partner States’ average nominal GDP per capita for the previous five years as assessed by the World Bank.
The agreement on the new model came after the findings of a study on the required reforms to align the EAC structure, programmes and activities with the financial resources available from EAC Partner States in order to ensure sustainability of the Community while addressing the dependency syndrome.
In addition, the study identified key priority projects, programmes and activities that can be implemented with available resources now and in the future without slowing the integration momentum as well as identifying constraints with the existing funding structure by Partner States and Development Partners that causes delays and/or non-compliance with disbursements obligations.
After thorough deliberation of the recommendations from the study, the meeting agreed to adopt a model that is simple in terms of parameters to be used on the assessed contribution component and sensitive to principles of equity, solidarity, equality and the size of the Partner States’ economies
The meeting further agreed that the proposed hybrid model will be reviewed after three years of its implementation and directed the EAC Secretariat to implement cost cutting measures to ensure that the cost of running the Community is as low as possible.
Speaking at the opening session of the Retreat of Sectoral Council on Finance and Economic Affairs in Mombasa, Kenya, the Kenya’s Cabinet Secretary to the National Treasury who is also the Chairperson of the SCFEA, Hon. (Amb.) Ukur Yatani, underscored the importance of a sustainable financing mechanism for the EAC Budget.
He recalled the 12th meeting of SCFEA that was held in May 2021 arrived at a consensus on all recommendations of the study, except one recommendation regarding the proposed hybrid model of contribution to the Community’s budget, where the meeting had divergent views.
“Let us discuss objectively and guide the Council on the appropriate mechanism for financing the Community in a sustainable manner,” said Hon. Yatani.
On his part, the EAC Secretary General, Hon. (Dr).Peter said the current model of funding the EAC budget is practically not sustainable, which is one of the reasons why the Summit directed the Council to look for more sustainable options.
Dr. Mathuki informed to the Ministers that that one important issue that continues to affect the Community is the lack of sustainable financial resources to implement its programmes.
“For a long period, we have noted and discussed the need to find sustainable financing mechanism in order to ensure that our community is able to take full charge of its integration agenda,” said the Secretary General.
Dr. Mathuki told the meeting that the study was finalized and validated by the Committee on Fiscal Affairs (CFA) in September 2020, adding that the study recommended a hybrid model of funding the Community’s budget, along with some measures to ensure financial sustainability, including introduction of sanctions, cost reduction measures and efficiency in spending the Community’s resources.
Currently, Partner States contribute equally to the budget of the Community as outlined in Article 132 of the Treaty for the Establishment of the EAC. The Treaty further provides for funding additional funding from Development Partners and any other sources as may be determined by the Council.
The Retreat of the Sectoral Council on Finance and Economic Affairs was attended by Finance Ministers from the Partner States, namely: Hon. (Amb.) Yatani (Kenya), Hon. Ms Christine Niragira (Burundi), Hon. Dr. Claudine Uwera (Rwanda), Hon. Dr. Mwigulu Lameck Nchemba (Tanzania), Hon. Akor Maguk Kor (South Sudan) and Hon. Haruna Kyeyune Kasolo (Uganda).
Notes to Editors:
In September 2019, the EAC Secretariat contracted a consultant to undertake a study on “the required reforms to align the EAC structure, programmes and activities with financial resources available from EAC Partner States in order to ensure sustainability of the Community while addressing the dependency syndrome.”
The broad objective of the consultancy was to undertake a comprehensive study to recommend on the sustainable financing mechanisms and the required reforms to the East African Community in order to rationalize the Community’s budget in line with the financial resources available from the Partner States and Development Partners in order to ensure its sustainability.
The 11th meeting of the Sectoral Council on Finance and Economic Affairs in January 2020 approved the inception report. Following the approval of the inception report, the consultant developed a first draft report of the study in June 2020 as per the contract.
The Ministerial session of the 12th meeting of Sectoral Council on Finance and Economic Affairs (SCFEA), which was held on the 7th May 2021, among other things, considered the recommendations of the above-mentioned study and approved most of the recommendations.
However, the meeting had divergent views regarding the proposed hybrid model, in which 50% of the total budget would be contributed equally by all Partner States and the remaining 50% would be assessed based on GDP per capita (40%), Intra-EAC trade (5%) and Imports from outside EAC (5%).
Having considered the divergent views above the Sectoral Council on Finance and Economic Affairs, directed the EAC Secretariat to convene a dedicated Session of EAC Ministers of Finance and Central Bank Governors by September 2021 to consider the proposed hybrid model and finalize the matter.
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About the East African Community Secretariat:
The East African Community (EAC) is a regional intergovernmental organisation of six Partner States, comprising Burundi, Kenya, Rwanda, South Sudan, Tanzania and Uganda, with its headquarters in Arusha, Tanzania.
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