Emmanuel Tumusiime-Mutebile: Challenges for sound banking systems
in East Africa - a central banker's perspective
Opening remarks by Mr Emmanuel Tumusiime-Mutebile, Governor of the Bank of Uganda, at
the 16th East African Community (EAC) Monetary Affairs Committee Meeting, Kampala,
23 May 2013.
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Governors of EAC Central Banks
Secretary General of the EAC
Senior staff and technical officials
Ladies and gentlemen
Good morning
It is with great pleasure that I welcome you to Kampala for the 16th meeting of the East
African Community Monetary Affairs Committee (MAC). It is also an honour for me to host
this meeting. The purpose of the meeting is to assess the status of implementation of
previous MAC decisions, and to consider any salient issues that may have emerged since
our last meeting a year ago here in Kampala.
As is usual at the MAC meeting, the format will involve the presentation of a report of the
technical officials of our five central banks, followed by a discussion of the issues raised in
the report. The technical report will be presented by the current chairman of the technical
officials, Dr Adam Mugume, of the Bank of Uganda. Our technical staff has worked extremely
hard over the last three days to produce a very comprehensive and analytically rigorous
report. I would like to thank them all for the very good job that they have done. Fellow
Governors, you have already received a brief on the issues in the technical report from your
own technical officials this morning.
Without wishing to pre-empt the discussions, I would like to highlight briefly the following
issues which I think merit particular attention today.
First, financial stability is becoming an increasingly important area of responsibility for central
banks in East Africa as elsewhere in the world. For the EAC, several trends in recent years
have the potential to heighten vulnerability to financial instability. These trends include, inter
alia, the rapid growth in the volume of short term portfolio capital flows, attracted often by
favourable interest rate differentials. These capital flows are intermediated through our
banking systems and could potentially expose banks to both liquidity and market risk. The
volatility of these capital flows, which is often caused by events in the global financial
markets, sometimes leads to highly disruptive movements in nominal exchange rates which
policymakers cannot ignore. The importance of regional and international banks in our
economies also poses risks unless we can put in place effective systems of consolidated
supervision and mechanisms for resolving cross border banks in the event of a financial
crisis, in a manner which avoids systemic disruption. We will hear a presentation on financial
stability by officials of the IMF late this morning.
Secondly, during the transition to East African Monetary Union (EAMU), we need to
strengthen coordination of macroeconomic policies among each of the partner states. This is
especially important for monetary and exchange rate policies, which will have to become
progressively more closely aligned as we move towards the irrevocable implementation of
the EAMU. The macroeconomic convergence criteria, which will be enshrined in the EAMU
Protocol, provide the framework for macroeconomic policy harmonisation.
Thirdly, I would like to emphasise the need to accelerate the integration of payment systems
within the EAC. There are several ongoing initiatives in this field, among which is the
East African Payments Systems (EAPS). The EAPS project aims to interlink all the Real
Time Gross Settlement Systems in the region to enable cross border transactions to be
processed in an efficient manner, which is essential for boosting intra-regional trade.
Fellow Governors, before we begin our deliberations, I would like to make a few remarks
about the lessons to be drawn from the ongoing crisis in the Euro zone. As central bankers
we have naturally been keen observers of the unfolding events in the Euro zone, such as the
recent bail out of Cyprus and its banking system. The problems of the Euro zone have direct
relevance for the East African Community because the EAMU is analogous in many respects
to the European Monetary Union. Hence it is imperative that we draw the right lessons from
the euro zone crisis and avoid the mistakes made in the Euro area if we are to build a single
currency in East Africa on sustainable foundations.
One of the key lessons which I draw from the Euro zone crisis is the need for a very robust
institutional framework. This is especially relevant in two areas, that of fiscal policy and bank
regulation. The euro zone crisis is simultaneously both a sovereign debt crisis and a crisis of
fragile banking systems, both of which reflect, to some extent, institutional weaknesses in the
Euro zone. This has prompted reforms in the Euro zone such as the Fiscal Compact and the
ongoing efforts to create a Euro area wide banking union. The fiscal framework of the EAMU,
including the rules for fiscal balances and public debt, is the responsibility of the EAC
Ministers of Finance, but the responsibility for ensuring that our banking systems remain
sound and are resilient to shocks lies with ourselves as central bankers.
Finally, fellow Governors, I once again want to reiterate that it is a great privilege to host you
in our beautiful city, Kampala, the City of undulating hills. I invite you to enjoy the sites and
savour the cuisine in this part of the world.