Financial sector most talked about issue
The most talked-about sector of the economy in 2022 was the financial sector which is already burdened with an increasing amount of non-performing loans.
The performance of the financial sector could have been better if a market based foreign exchange rate and interest rate were adopted.
Reduction of import through some restrictions has yielded good results temporarily but will have an effect in the coming months on the GDP growth.
The interest rate cap on deposits for the non-bank financial institution sector was imposed at a time when inflation and non-performing loans in the entire financial sector were rising.
No country in this region intervened in setting the rate of interest and exchange rate regime in spite of facing similar challenges and Sri Lanka is the best example.
Policies supporting the businesses during the pandemic was appreciated by all but similar support after the recovery could have been revisited based on the ground reality.
Furthermore, the liquidity situation may be tightened further for the government plan to borrow from the financial system for its deficit financing in the current fiscal year.
Similarly, frequent interventions and the low rate of interest have resulted in a substandard performance of the capital market.
Though the situation is similar in other peer countries, imposition of the floor cap did not yield the expected result.
Restructuring of some of the problem banks or non-bank financial institutions were expected but no initiative has been visible as of yet.
There is no doubt that the 2022 was a very challenging year both in the domestic and international front for many reasons including slow post-Covid recovery, Russia-Ukraine war and resultant supply chain disruptions.
Import-led inflation and massive devaluation of the local currency put the economy in a difficult situation.
Till date the government has somehow managed to deal with the macroeconomic challenges in a better way compared to its South Asia peers though foreign currency earnings and deficit financing remain the key challenges against the backdrop of a deceleration in revenue growth.
Sovereign rating of the country was stable in 2022 and that was a big comfort for the county.
Broadly it can be said the year 2022 has passed without much of a hiccup and we wish a better year ahead with good reforms and pragmatic policy formulations, especially for the financial sector.
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