Recent media coverage across East Africa has highlighted one of the most serious financial crises the EAC has experienced since its revival in 2000. Some media houses went as far as suggesting that the organisation was on the brink of collapse. This troubling situation has been caused by arrears amounting to $89 million with the chief defaulters being DRC ($27 million), Burundi ($22.7 million), South Sudan ($21.8 million) and Somalia ($10.5 million).
The EAC plays a central role in shaping trade, investment and infrastructure development across its member states. For Arusha, the stakes are even higher. As the headquarters of the EAC, the city’s economy benefits enormously from the activities of the regional body. Any prolonged crisis within the EAC could ripple through several sectors of Arusha’s local economy, particularly the hospitality industry – hotels, restaurants, taxis and tour operators that rely on visiting officials and delegations.
The EAC’s financial distress would also affect the purchasing power of its staff. This, in turn, would impact landlords, retail shops and schools serving regional staff families; and not least the “mamamboga” whose customers include EAC employees.
It is encouraging, however, to note that the Summit moved to resolve this impasse by waiving 50 per cent of the arrears and requiring the balance to be paid within two years. The Summit also decided to transition from the equal contribution model to a hybrid model, under which members would make 50 per cent equal contributions to the budget, with the remaining 50 per cent being paid through assessed contributions.
This was a bold move. The previous formula requiring equal contributions from all members placed disproportionate pressure on smaller economies. However, for the EAC to operate sustainably and avoid repeated liquidity crises, a more resilient and equitable model – beyond what was agreed last week – is necessary.
First, I propose that the percentage of equal contributions be reduced to 40 per cent from the agreed 50 per cent in order to make it more affordable for smaller economies. Based on the current EAC annual budget of $120 million, this would require each member to make an equal contribution of $6 million, enabling the collection of $48 million from the eight member states.
Second, the remaining $72 million should be allocated based on GDP, with larger economies such as Kenya and Tanzania contributing more and smaller economies contributing less.
It should be said at this point that defaulting does not always stem from inability to pay; at times, it reflects a lack of political will. Based on the EAC budget of $120 million, for example, DRC’s equal contribution represents only 0.09 per cent of its GDP of $80 billion. This compares favourably with Tanzania and Kenya, both of which have estimated budgets of $120 billion for 2026, making their share approximately 0.1 per cent of GDP. For Burundi and South Sudan, with GDPs of $4 billion and $5 billion respectively, the equal contribution represents a heavier burden – 3 per cent and 2.4 per cent.
The EAC should also consider introducing a modest regional levy of between 0.1 per cent and 0.2 per cent on imports entering the bloc. As the EAC is already a customs union, such a levy could be collected automatically at ports and border posts and transferred directly to the EAC Secretariat.
