Using the pandemic as an opportunity for reform for higher growth: CB Chief

Central Bank Governor Professor WD Lakshman

  • Emphasizes that COVID-19 gives a unique chance to reorient strategies and thought patterns, and to solve long-standing structural problems in the economy
  • The economy is projected to recover in 2021 from which the country could enter a new era of social and economic prosperity
  • Said that the banking sector is an indispensable part of the institutional structure to achieve growth, development
  • Emphasizes the absence of an effective development banking system, a wide range of responsibilities entrusted to the commercial banking sector
  • Central Bank believes prudent asset quality monitoring is essential to manage NPL levels
  • Calls on banks to continue to play an active role, to become a solid pillar to support shared growth

Central Bank Governor Professor WD Lakshman called yesterday for the COVID-19 pandemic to be used as an opportunity to address long-standing structural issues that prevent the economy from achieving more equitable growth and more equitable.

“Despite its devastating effects, the pandemic has also offered us unique opportunities to change, to reorient our strategies and our ways of thinking. It is important to seize this opportunity to address the long-standing structural issues in our economy, ”said Prof Lakshman in his keynote address to the Association of Professional Bankers (APB) – Sri Lanka Research Symposium 2021 titled“ Sri Lanka Economic Resurgence in 2021 through Strategic Vision ‘.

“The immediate challenge we face today is obviously to emerge stronger from the current crisis facing the country. The economy is expected to recover in 2021 as the threat of a pandemic fades with increased vaccinations across the country.

“However, a long-term view of economic policies is essential to alleviate some of the structural weaknesses in our economy that have hampered its performance in history. The government’s new economic framework is a positive step in this direction, as the promotion of the domestic production sector has been identified as the main driver for moving the country forward. At the same time, measures must be taken to avoid stagnating growth, promoting an innovation-driven economy.

“The COVID-19 pandemic has changed the socio-economic landscape of the world on an unprecedented scale and rate. We are at the end of the first quarter of 2021, the year that we believe will mark the recovery and resurgence of the economy, from which we could enter a new era of social and economic prosperity. Our medium and long term expectation is to achieve a sustainable growth target of 6% with equitable income distribution, poverty reduction, low levels of unemployment and a sustainable environment. “

However tempered this statement with the warning that these are “extremely difficult” goals to pursue simultaneously.

“One of the obvious trade-offs is to reduce the expected growth rate to 6%, even though 8% growth could be achieved by sacrificing some socially important goals. Even with compromises, this multifaceted growth path is elusive. This requires the engagement of a wide range of stakeholders. “

The governor added that the government has moved to an alternative path of development, characterized by some interesting political choices.

The growth of domestic production is the key to the success of the new economic strategy. These policies to promote income-generating activities are also expected to help maintain a reasonable level of full employment in the country, with income distribution patterns likely to become less skewed as poverty levels decline. The methodology for achieving these social goals involves agricultural, industrial and service activities – micro, small, medium and large.

He said the Central Bank recognizes this notable change in policy direction and the need to keep interest rates low and a less volatile exchange rate, in order to create an environment conducive to the promotion of domestic production and support. local businesses.

“What we need is not an isolated episode of strong growth, but rather sufficiently high, stable and shared growth that must be sustained for many years. This can only be achieved by continuously improving productivity, promoting innovation to develop new knowledge and being vigilant on movements of socio-economic and politically sensitive indicators such as poverty, unequal distribution and unemployment ” , he stressed.

The governor underlined that the bankers have the possibility of supporting this company by directing more credits towards projects, companies and activities which support innovation in various fields.

“As a result of efforts to ease monetary conditions and extend credit to needy sectors, overall interest rates in the economy have fallen dramatically, firmly establishing a single-digit interest rate structure. Many of the benchmark average interest rates set by the Central Bank have reached historically low levels, with notable cuts in average rates on new deposits and loans. “

In the absence of an effective development banking system, Prof Lakshman said a wide range of responsibilities, some of which are not strictly within a commercial banking system, are vested in the banking sector.

He also said that credits disbursed to the private sector by licensed commercial banks have steadily picked up in recent months, although they have not yet reached the levels envisaged.

“The Central Bank believes that careful monitoring of the quality of banking sector assets is important, as companies are still recovering from the recession and are at risk of struggling, leading to increased levels of non-performing loans (NPLs). Therefore, the necessary prudential measures are essential to preserve the stability of the financial sector. “

As the economy has entered an unprecedented era with very low interest rates which further incentivize the production sector, the governor said the banking sector has an important role to play in introducing new financial alternatives and to meet this emerging need, in an environment of low interest rates and low inflation.

He also cautioned that it was important to be simultaneously vigilant about the emergence of illegal financial systems such as pyramid schemes, which could attract unsuspecting savers as mechanisms for investing their savings.

Prof Lakshman called on banks to continue playing an active role in this regard in order to become a strong pillar to support the shared growth path of the country’s economy.

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