EAC ADOPTS NEW MODEL IN BUDGET CONTRIBUTIONS

Finally, the East African Community (EAC) is set to adopt a new financing mechanism for its often troubled expenditure budget.

The hybrid model of financing the  budget is intended to address recurring cash crises due to delayed remittances from the partner states. 

The new model requires the six EAC partner states to contribute equally 65 percent of the annual budget. 

The remaining 35 percent of the total budget will be contributed based on the assessment of partner states' average nominal Gross Domestic Product (GDP) per capita for the previous five years. 

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. 

This would not only ensure sustainability of the Community but also address the dependency syndrome EAC has been used to for years. 

The new financing model was agreed during a two-day retreat of the Sectoral Council on Finance and Economic Affairs which ended in Mombasa on Tuesday (Nov.16th).

However, it has to be approved by the EAC Council of Ministers, the authoritative policy organ of the Community answerable only to the Heads of State.

The hybrid model of financing the budget comes after a study which identified key priority projects and programmes that can be implemented with the available funds.

Such implementation should neither slow the integration momentum nor give room to unnecessary delays and/or non-compliance with disbursements obligations. 

The EAC secretariat said in a statement yesterday that the model has been adopted because it was simple "in terms of parameters to be used".

These include the size of the partner states' economies, assessment of the contribution component and the principles of equity and equality.

If approved and operationalized, the proposed hybrid model will be reviewed after three years of its implementation. 

The Mombasa retreat, however, 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 retreat, Kenya Cabinet Secretary to National Treasury Ukur Yatani underscored the importance of a sustainable financing mechanism for the EAC budget. 

He said the decision was a breakthrough to address the EAC budget crisis, noting that when it was brought to a similar meeting in May this year, there were divergent views. 

EAC secretary general Peter Mathuki concurred with the model, saying that the current model of funding the EAC budget was "practically not sustainable". 

He said the Community has time and again been in a deep financial crisis principally due to lack of sustainable financial resources to implement its programmes.

He added that although an alternative financing mechanism has been mulled for a decade now, this is a time a conclusive decision is in sight. 

A study on the proposed model was finalized and validated by the Committee of Fiscal Affairs (CFA) in September last year and recommended a hybrid model of funding the EAC.

It adopted other measures to ensure financial sustainability, including introduction of sanctions, cost reduction and efficiency in spending the EAC resources.

Currently, the six EAC partner states - Tanzania, Uganda, Kenya, Burundi, Rwanda and South Sudan contribute equally to the budget of the Community. 

The EAC started to squarely address the matter in September 2019 by hiring a consultant whose initial report in May 2021 could not be adopted by the regional ministerial meeting. 

The initial hybrid model by the consultant, which was rejected, recommended that 50 percent of the EAC budget be contributed equally by the partner states. 

The remaining 50 percent would be assessed based on GDP per capita (40 percent), intra-EAC trade (five percent) and imports from outside EAC five percent but was rejected. 

EAC has withered through financial storms in recent years due to delayed remittances from the partner states and declining donor support.

For the past five fiscal years; 2016/2017 to 2020/2021,annual budget estimates have ranged between $110million to $97million per year.

The expenditure for the 2020/21 financial year, for instance, sailed through the regional House in February this year, over six months behind the calendar.

The $91.7million estimates for 2021/22 financial year estimates of $91.7million  were the lowest expenditure for years.

Out of the total,some $37.6million (41 percent) were to be raised by the development partners and the rest by the partner states each of which was tasked to contribute $9million to the kitty.