IMF warns about risks for the financial system in sub-Saharan Africa

Oct 29, 2015

The region faces a deteriorating economic environment, according to the institution.

In its new report, the International Monetary Fund (IMF) recommends that sub-Saharan countries put in place policies to face the new economic environment, deemed "less favorable".

"According to projections, the growth of sub-Saharan Africa is expected to fall to three per cent in 2015, against five per cent in 2013 -14, before recovering slightly to stand at four per cent in 2016 thanks to the gradual recovery of activity globally," said the report.

These countries, according to the IMF, are affected by the decline in commodity prices, which weakens the financial sector of nations exporting commodities.

"The fall in the prices of commodities is often associated with an increase in nonperforming loans and bank costs, thus reducing bank profitability, liquidity and provisions for bad loans. Because of this fragility, the this fall in prices tends to increase the probability of banking crises," says the report.

Credit to the private sector grew on average five-fold in sub-Saharan Africa during the last twelve years and the IMF want to alert governments in the region that exceptionally high credit growth episodes tend to be accompanied by an increase financial risks.

The report concludes that "increased financial supervision" is therefore justified in these countries, "especially in the case of oil exporters, where a reduction in export earnings can cause a tightening of financial conditions."ADNFCR-2976-ID-801804440-ADNFCR