Central Bank Independence in East African Countries: The Case of Kenya, Uganda and Tanzania

Abstract

Central Bank Independence (CBI) enables monetary policymakers to act in a timely and appropriate manner in the pursuit of a single price stability objective. This paper presents a critical assessment of the legal and actual independence of central banks in three East African economies. It applies one de facto and four de jure measures of CBI and reveals that the Central Bank of Kenya (CBK) and Bank of Tanzania (BOT) had a higher actual independence in their early years of formation than in 1990-2006, while the Bank of Uganda (BOU) had a higher actual independence in 1986-2006 than in 1979-1986. The legal independence of the CBK and BOT has improved with the stipulation of a single policy objective, constrained finance amount and market determined interest rate on loans to government, as well as improved accountability. However, the method of appointment for governors, the term of office and dismissal of the Chief Executive Officer (CEO) of the two central banks as well as the BOU reflect less independence. The amended statute of the BOU is less reformed for it does not specify a single policy objective, allows a higher amount of loan to the government, and is less accountable.