Tanzania's financial system was still not safe from the global economic crisis, the International Monetary Fund (IMF) has warned.

In its country report for June, the IMF called for vigilance and closer scrutiny of the local financial sector, warning that local banks as well were not out of the woods yet and urging the Tanzanian government to safeguard pension funds whose significant assets in banking institutions could be undermined by the crisis, the local daily the Citizen reported on Monday.

As the rapidly-growing and inadequately supervised pension founds were particularly at risk from downturn and could also be affected by deterioration in the quality of their assets and the regulation of pension funds is weak, the IMF report pointed out that urgent action is required to put in place a regulatory authority whose law was enacted in November.

It also suggested the issuance of investment guidelines and undertaking of comprehensive audits to safeguard billions of shillings of pensioners' money.

The IMF said the pension sector accounts for over a fifth of financial sector assets, but is not effectively supervised with actuarial studies pointing to financial weaknesses in some funds.

The IMF also noted that Tanzania's banking system is vulnerable to credit risk that could result from the second round effects of the crisis likely to increase pressures, although the system remains sound.

Non-performing loans are likely to increase as the economy slows down and international commodity prices and demand for traditional exports like gold fall, the IMF warned.

In addition to the challenges, another aspect of the banking crisis could emerge from the institutions' relations with parent banks in the West that have taken huge knocks since the crisis started as foreign banks account for about 51 percent of the local banking system's assets, it added.

The IMF called for arrangements to provide emergency liquidity, improving financial sector supervision and taking a comprehensive approach to financial sector stability assessment to include all types of institutions, as well as intensifying of cross-border coordination between host country and home country supervisors to avoid transmitting stress from one institution to another.

Tanzanian President Jakaya Kikwete recently announced a 1.7 trillion shillings (about 1.3 billion U.S. dollars) economic stimulus package, among which over 200 billion shillings (152.67 million dollars) were set aside to aid local banks in separate programs fro credit financing to traders, cooperative societies and large-scale farmers who were falling behind on loan payments.

Source: Xinhua