Africa-Press – Seychelles. ‘Domestic economy continues to show positive signs of recovery’
The Financial Stability Committee (FSC) met for the second time this year on August 11, 2022, where members discussed several matters that could potentially have consequences on the country’s financial stability.
The members acknowledged that the domestic economy, driven by the tourism industry, continues to show positive signs of recovery as restrictions linked to the Covid-19 pandemic are being phased out globally, including in Seychelles.
When considering developments on the global front, the committee noted that aside from the ongoing effects of the Covid-19 pandemic and concerns over the spread of Monkeypox, which has recently been declared a global health emergency by the World Health Organisation (WHO), global economic recovery may be impacted by other downside risks.
The prolonged adverse effects of the global supply chain issues and elevated inflationary pressures arising from increased commodity prices exacerbated by the ongoing Russia-Ukraine war were highlighted as the main factors that may slow down economic growth.
Global trends to normalise monetary policy to curb inflation was also discussed and members were informed of the potential implications of higher interest rates on the cost of borrowing.
On the domestic front, members were briefed on the extent of the pass-through of foreign prices to the local economy, which is increasing the cost of living, lowering disposable income and increasing the operational costs of businesses.
There are early signs that the situation is impacting the ability of borrowers to honour their debt obligations to some extent, thus deteriorating the asset quality of the banking sector. This situation is being closely monitored.
The committee was also apprised of developments in the insurance sector, with concerns raised on the practices of some entities and professionals that do not align with the regulatory requirements. The members have called for appropriate actions to be taken to ensure regulatory compliance.
The committee also considered the outcome of the Overall National Risk Assessment (ONRA) on Virtual Assets (VA) and Virtual Assets Service Providers (VASPs), urging for swift action to be taken to implement the recommendations.
The members were also updated on the development of the country’s Financial Stability Framework, following approval of the Policy Paper by the cabinet of ministers in May this year. Work is currently ongoing to draft a Financial Stability Bill in parallel with work to develop the necessary governance regimes that will support the framework.
The members concluded that downside risks to financial stability remain in light of the mixed economic outlook and prevailing uncertainties. They agreed on the need to remain vigilant and intensify collaborative efforts to mitigate the imminent risks to domestic financial stability.
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