He pointed out that certain Latin American countries such as Argentina, Venezuela etc. had to bring consolidation up at a time when they had no choice but to do so, since they were under stress.
“But certain other countries like Singapore addressed it at a time when it was suitable for them and we are doing the same thing,” he said delivering the keynote at the MTI Banking Forum held recently on the subject of financial sector consolidation.
The Governor further said that the Banks and Non-Banking Financial Institutions (NBFIs) needed some improvement for a long time but the time was not right.
“Its not something that you can do every day, there has to be a time and a place. Year 2014 seemed to be the ideal period of time for us to introduce a new improvement into our economy, through financial sector consolidation,” he added.
Cabraal noted that as far as Sri Lanka is concerned, it is not under any stress now and it’s a good time for the country to introduce these changes so that it can position the financial sector for the future. He added that by 2025, Sri Lanka will probably have a USD 10,000 per capita income.
“We can’t have problems that would surface at that time. We need to resolve them today when they are at a much lower level. If we don’t address those now, we’ll have to address it at the time when it becomes bigger in 2020,” he said.
Meanwhile, the Governor explained that financial sector consolidation is similar to the various economic and policy measures taken by the Central Bank over the last few years, such as measures to curb currency depreciation, manage debt, having a flexible rupee, the IMF programmes etc.
Cabraal noted various instances since 2006 where Sri Lanka had taken measures necessary for the economy and country as a whole at that particular point of time.
The 2006 treasury bills and bonds issue to foreigners which opened at 5 percent and was increased to 10 percent in 2007, the US$ 500 million international sovereign bond, measures taken in 2008 to deal with inflation, stabilization of the currency and debt management, eradication of terrorism in 2009, various policy changes in 2011 and 2012 in respect of currency depreciation, inflation and sustainability have been such instances.
He further said, as a result of these initiatives the country now has achieved growth of 7.5 percent on average for 5 years, interest structure developed to a fairly high capacity, inflation in single digits, unemployment down to 4.2 percent, poverty down to 6.2 percent, fiscal deficit at 5.9 percent and per capita income at US$ 3,280.
“Still not a fantastic figure but much better than many countries in the region and the US$ 1, 240 we had in 2003. These are major changes from where we were and there is still room for improvement. We can now say to a great extent that we have a balanced economy and Sri Lanka has been put on to a sustainable path.”
Cabraal opined that these measures taken since 2006 gives the assurance that Sri Lanka has had the courage, patience and endurance to do what it has set out to do.
“This consolidation will be another added to the list of achievements as far as our country is concerned to bring it to a solid footing. We can now look to the next wave of development in our country with a lot more confidence,” he said.