African Gov'ts urged to monitor balance sheets of banks

As the global financial crisis takes its toll on African countries, Deputy Managing Director of the International Monetary Fund (IMF), Takatoshi Kato, has urged African countries to monitor balance sheets of banks and act promptly when necessary as a way of stemming the tide.

Kato, who spoke at the just ended 12th Summit of the African Union (AU) in Addis Ababa suggested that national governments should monitor the balance sheets of financial institutions and be prepared to act promptly when necessary, use the fiscal space in budgeting judiciously and to allow exchange rates help rebalance growth when possible.

“Governments should identify banking system vulnerabilities and plan how they will react should a banking crisis erupts, recognising that the resources to support their financial systems may be limited.

“The liquidity and usability of reserve assets, the status of non-performing loans in the banking sector and the availability of trade credit deserve particular attention,” he noted.

Kato said that although circumstances differ from one country to the other, meaning that there was no single recipe for the crisis; these were key principles that will help governments manage the crisis.

He further explained that fiscal responses should be tailored according to the need of each country. Kato acknowledged that there may be scope for fiscal stimulus in some countries while others may not take that option due to weakened fiscal position. The bottom line is that spending plans should be carried out in the medium-term context, with measures to protect the most vulnerable.

Kato also advised that “real exchange rates would have to depreciate to preserve macroeconomic stability in countries where the terms of trade has deteriorated. Others with exchange rate flexibility should allow the nominal exchange rate depreciates while keeping fiscal and monetary policies sufficiently tight to avoid a devaluation-inflation spiral.”

The IMF official noted that African countries should not hesitate to move ahead with planned structural reforms to enable them stabilise. He stated that the IMF stands ready to work with the continent to strengthen their capacity to meet this and future challenges.

The IMF is also stepping up its policy dialogue with the continent, he said while noting that a conference in Tanzania, slated for March 10th and 11th and co-hosted by Tanzania President, Jakaya Kikwete, would give policy makers, the civil society and the private sector in Africa the opportunity to discuss policies that will ensure successes achieved in the past decade are sustained.

He disclosed that a special session will be devoted to IMF's engagement with the continent. During this session, African finance ministers will have a discussion with the managing director on issues facing the continent and how to strengthen the fund's support for the continent, he stated.

The fund projects that Africa will be hard hit by the global downturn thereby putting its recent progress at risk. For instance, growth in Sub-sahara Africa is expected to slow down from 51/2 per cent in 2008 to about 31/2 per cent in 2009, about 3 per centage points less than earlier projected, he said.