East African central banks grapple with shrinking reserves amid conflicts, disasters

JUBA – East African central bank governors convened in Juba, South Sudan, to address a pressing concern – dwindling foreign exchange reserves due to a confluence of regional conflicts and natural disasters.

The meeting, held against the backdrop of devastating floods in Kenya, highlighted the region’s economic vulnerability to internal and external shocks.

James Alic Garang, South Sudan’s central bank governor, attributed the declining reserves to ongoing conflicts within the region and geopolitical tensions affecting oil exports.

“Conflicts and the upcoming elections strain South Sudan. Geopolitical tensions, including the conflict in Sudan, affect our oil pipeline,” Alic said.

He further elaborated that the Israel-Palestine conflict disrupts South Sudan’s oil shipment routes, impacting the region’s economic performance.

Despite a projected GDP growth of 4% in 2024, Alic acknowledged the challenge of subdued yet volatile inflation. Inflation rates had fallen from a staggering 50.8% in 2020 to 5% in 2023, but recent oil export disruptions threaten this progress.

Central bank representatives from Uganda and Kenya echoed similar concerns. Adam Mugume, Uganda’s central bank research director, highlighted the difficulty in meeting the East African Community’s target of maintaining a 4.5-month import cover.

“Uganda’s economic performance has been good, but building reserves is a current challenge,” Mugume said. “Acquiring dollars through traditional sources like budget support is difficult.”

Kenya, on the other hand, presented a slightly more optimistic outlook. Kamau Thugge, Kenya’s central bank governor, attributed their economic rebound to increased remittances and tight monetary policy.

While Kenya aims to attract more foreign direct investment, Thugge emphasized the need for regional collaboration to build resilience against global and geopolitical challenges.

Emmanuel Tutuba, Tanzania’s central bank governor, underscored the overarching threat of global economic shocks and climate change on the region’s macroeconomic convergence goals.

He pointed to worsening fiscal space, rising debt vulnerabilities, and the devastating effects of droughts, floods, and diseases brought on by climate change.

The meeting served as a platform for regional central banks to discuss policy coordination and deeper economic integration to navigate these multifaceted challenges and ensure a more stable and resilient East African economy.