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Mobile phone money transfer in Ntulele, Kenya: financial system access in low-income countries is broadening (photo: Shashank Bengali/MCT)

The IMF and Civil Society

Expanding Financial Sector in Low-Income Countries

June 4, 2012

According to a new IMF policy paper, low-income countries can strengthen overall economic stability and spur growth by building stronger and more diversified financial and banking sectors.

The paper, which also discusses the types of policies that can help promote “healthy” financial sector development, says low-income countries should promote “financial deepening” to underpin economic growth and improve living standards. Financial deepening refers to the process of enhancing and broadening financial systems by increasing the depth, liquidity, efficiency, and volumes of financial institutions and markets, diversifying domestic sources of finance, and extending access to banking and other financial services. Financial deepening refers to the process of enhancing and broadening financial systems by increasing the depth, liquidity, efficiency, and volumes of financial institutions and markets, diversifying domestic sources of finance, and extending access to banking and other financial services.

Part of the IMF’s efforts to strengthen its overall financial sector monitoring—or financial surveillance—in member countries, the paper highlights the linkages between financial deepening, macroeconomic policy effectiveness, and stability in low-income countries.

“There are important linkages between the degree of financial depth and the effectiveness of a country’s macroeconomic policies. This paper is an important first step in systematically highlighting these linkages,” said IMF Deputy Managing Director Min Zhu. “I am hoping that our bilateral surveillance in low-income countries will increasingly focus on these linkages to help countries better manage volatility and achieve strong durable growth.”

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