(Recasts to add details from statement)
WASHINGTON, July 28 (Reuters) - The IMF on Tuesday urged Kazakhstan to take further measures to restore confidence in its banking sector and said large "anti-crisis" spending will push the budget into deficit for the first time since 2000.
In its annual review of Kazakhstan's economy, the
International Monetary Fund said it was important to deal
"promptly" with losses at the country's largest bank BTA
In addition, it called for an independent assessment of other large banks. A slowing economy and an exchange rate devaluation in Kazakhstan have added to pressures on bank balance sheets, the IMF said.
In May, Kazakhstan, which responded to the economic crisis with a $10 billion spending package, warned it could let BTA and Alliance fail if creditors did not agree to restructure debt.
Both banks were nationalized and are in talks with creditors to restructure their debt. Alliance announced in May that it had defaulted on more than $10 million in debt.
The country's financial watchdog should be granted legal authority, independence and resources to carry out its mandate to intervene early and forcefully when needed, the Fund said.
"They (IMF directors) also emphasized the need to ensure effective operation of the deposit insurance fund," it said.
"Directors called for strengthened financial sector regulation and supervision, including ... improved on- and off-site supervision and further restrictions on foreign currency lending to unhedged borrowers."
The IMF said Kazakhstan's economy is likely to contract 2 percent this year and to resume growth of 2 percent next year.
"Lower oil prices will push the current account balance back into a deficit, although with foreign direct investment remaining strong and new bilateral financing emerging the overall balance of payments will remain robust," the IMF said.
The Fund said monetary policy was "appropriately" geared toward supporting economic activity, including reductions in reserve requirements and policy rates.
It said staff assessments showed that the exchange rate was "broadly in line with fundamentals." It also said that preserving a stable exchange rate was important for regaining confidence in the banking sector, while also limiting the risks from the corporate sector's large foreign exchange exposure.
The IMF said there were benefits to moving toward a more flexible exchange rate once economic conditions stabilized. (Reporting by Lesley Wroughton and Lucia Mutikani; Editing by Andrea Ricci and James Dalgleish)