By Yakubu LAAH InvestAdvocate

Lagos (INVESTADVOCATE)-The International Monetary Fund (IMF) Monday advised France to phase out regulated interest rates.

Executive Directors of the IMF gave this advice at the conclusion of 2013 Article IV Consultation with France.

Apart from phasing out regulated interest rates, the directors advised France to remove tax disincentives against deposits, according to them, if this is done, tax incentives on financial products will be better aligned with regulatory objectives.

The IMF directors welcomed the significant progress achieved in reducing financial vulnerabilities while preserving the capacity of banks to provide credit.

They affirmed that the combination of low bank profitability and weak growth prospects calls for continued vigilance.

According to the IMF, the French financial system would need to adapt further to prudential requirements, notably in regard to bank funding structures, which continue to rely heavily on wholesale funding.

The IMF executive board also endorsed the efforts deployed by France to keep the process of convergence toward the Single Supervisory Mechanism and Single Resolution Mechanism (SSM/SRM) in the European Union (EU) on track; while commending the banking reform for aligning the resolution regime to the EU directive, in line with Financial Sector Assessment Program recommendations, ring-fencing trading activities, and strengthening the macro-prudential framework.

Also, IMF directors said in a context of weakening economic conditions in Europe, sizeable fiscal consolidation and domestic policy uncertainty, the French economy flat lined in 2012, but recent improvements in economic indicators support the expectation of a gradual recovery in the second half of 2013.

“Credit conditions remain supportive, and private demand is unencumbered by balance sheet repair issues and thus more apt to respond favourably to an improvement in confidence,” the IMF Board said.

They projected the French economy to contract by 0.2 percent (0.2%) in 2013 and to grow by 0.8% in 2014.

The economy’s growth potential, beyond its cyclical recovery, is hindered by structural rigidities in labour and product markets, which have, over time, contributed to a gradual loss of cost competitiveness and export performance’” the IMF Board said.

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