Interview with Governor of the Central Bank of Seychelles, Caroline Abel ‘Banks need to innovate to support economic transformation’ |28 October 2021
Governor Abel
Seychelles NATION: Governor Abel, another feather has been added in your cap, having won the Central Bank Governor of the Year Commendation Award from the African Leadership Magazine. Were you expecting this award and what does it signify?
Governor Caroline Abel: I was not expecting this award, and as I always say, any award that I receive reflects the work done by the whole institution. As mentioned when the award was presented, it is in recognition of the achievements in stimulating growth and stabilising the country’s macroeconomic environment. This is the result of a lot of work being done within the institution by the respective teams. When it comes to central banks, it is true that most of the time, you will see the Governor coming out to explain what the institution is doing. Nevertheless, we must appreciate that there is a pool of individuals putting in the efforts, and these efforts are being recognised through the Governor. That is why I always dedicate any recognition bestowed upon the Governor to all the staff.
Seychelles NATION: This award recognises the reforms, modernisation, consolidation, integration and expansion of Africa’s banking and financial system. In one of your recent press conferences, you also talked about how our banks should be innovative. Would you please elaborate?
Governor Abel: If you look at Seychelles today compared to some years ago, the banking system has to evolve in relation to what is happening in the economy. Today we are talking a lot about the digital economy agenda. With the pandemic, we are also talking about diversification because, as you know, Seychelles is reliant on tourism as its main source of income. When we had the complete shutdown of the tourism sector, we would have been in an even more difficult situation in terms of foreign exchange receipts without the contribution of the fisheries sector. Given the various dynamics resulting from the evolving economy and the current realities of the pandemic, banks cannot continue with the same model. There are multiple issues being raised, including by the private sector, and CBS feels that the financial system needs to respond to those issues to reflect what is happening on the ground while also adopting a more forward-looking approach.
Much emphasis is being placed on the need for the private sector to innovate, to a certain extent, which may require investment in new infrastructure. So, there is a need for financial products that can assist the private sector to invest in new infrastructure. When we say that new emerging activities should come alongside tourism to support and diversify the economy, the financial system also needs to look at those emerging activities and see how to support them through various means of financing.
Today, many central banks are also having discussions and looking more closely at climate change, which was not the case in the past. In Seychelles, there has been much talk about this issue and now the financial system also needs to take note of it. While we know that there are risks associated with climate change that need to be properly assessed, the financial system needs to see how resources can be made available to assist those affected by climate change.
What is also important to note is that in Seychelles, when we talk about the financial system, many people think only about the banks, particularly the loan facilities, but we also need to think about other sectors. For example, the insurance companies – are they also innovating in this new environment? As we put more emphasis on digitalisation, are we going to have new products that address issues like cyberrisks? Many new things are coming and we all need to acknowledge this and see how to fit them within the context of our work. We need action if we want to move forward. This is why the consultations CBS is continuously having with the banks and the private sector is important. It presents an opportunityfor us to acknowledge and consolidate all the issues being encountered across all segments of the economy and bring all stakeholders together. It is equally important that we understand each other and see where we can compromise at times to bring the economy forward.
The Central Bank is presently engaging with the banks at an individual level, but going forward, we will be organising economic forums to highlight the economic realities and challenges. Similar to what is being done to implement the private sector relief schemes, we will also bring the banks and the private sector together to see how things are improving. It is very important to have this continuous engagement.
Currently, apart from products, we are also looking at pricing with a particular emphasis on interest rates to ensure a more favourable interest rate environment for the business community, while taking note that banks have to do their individual risks assessments when considering loan requests. We are mindful that they have to make sure that all the prudential requirements established by the Central Bank are respected and that we have stable institutions, while cognisant that banks are at the centre of the economy to ensure appropriate financial flows.
Seychelles NATION: As the Governor of CBS, much attention has been on how you and your team are managing the country’s coffers. You are being looked upon as the ‘avant-gardiste’ of our economy – how did you manage to stay firm and keep on educating our people?
Governor Abel: My current role has been shaped by my long journey at the Central Bank, including the guidance received from my mentors until I took on the leadership position in 2012. I am also guided by the various teams within the CBS. In addition, my participation in international meetings alongside other central banks presents ample opportunities to learn from the realities experienced by the central banking community, especially during the more challenging and stressful periods. It is during times of crisis that you encounter the most challenges. Hence, when everything is going well, it is vital that we are always mindful of difficult times, continuously prepare and always have the necessary tools to face any eventuality.
With the pandemic, we felt that it was important to communicate to the public, building onto the increased engagement with the population since 2018. This stems from the fact that in recent times, central banks around the globe, which were previously more conservative, have started to realise the importance of having a clear communications strategy. In this light, in 2017, CBS requested technical assistance from the International Monetary Fund (IMF) on central bank communications. We felt that we needed to be talking more to the population to shape expectations.
As part of this exercise, we consulted the public and the media to seek their views on how they see the Central Bank. One key feedback was that they could not understand much when CBS talked as it was too technical. Consequently, with CBS celebrating its 40th anniversary in 2018, we started to reach out to the public through a series of articles to explain the role of CBS, its functions,and provide an overview of the functions of the different divisions. The CBS website was also revamped to provide more information. In 2019, we even started contemplating whether we should hold live press conferences every quarter to announce the monetary policy decision. When we were suddenly faced with the pandemic in 2020, we had to start having live press conferences earlier than anticipated, given the significant changes in the economy, which led to many risks and uncertainties. It was important for the public to be kept well informed of how the pandemic was affecting the economy and individual livelihoods – this is how our communication has evolved. We have received numerous feedback from the public saying that they can better understand what is happening in the economy with the finance and economic matters being explained in a simpler manner than before.
It is important to note that the drive to convey as much information to the public is also in line with CBS becoming one of the first central banks to adopt the IMF Central Bank Transparency Code – a decision approved by the CBS Board last year. We now have a small team driving this process of ensuring greater transparency according to the Code. In November this year, we expect a team from the IMF to start assessing CBS’ implementation of the Code.
We firmly believe that it is essential to keep on communicating with the public not only on central banking issues but also on other economic matters and policies, and this is a mission that CBS has set out to attain.
Seychelles NATION: Do you think you have helped to change the mindset and attitude of the population?
Governor Abel: I would say yes to some extent, but we are not there yet, as there are still many topics that we need to address. However, it is gratifying to meet people who say they appreciate that CBS has come forward to explain things in simple language. Now that we have reduced the frequency of the live press conferences, we have people who call to ask when the next one will be held, which shows that people desire to know more.
We also organise various educational and awareness initiatives targeting different segments of the population. Through these engagements, we receive questions from the public that help us devise more awareness programmes to enhance their knowledge on highlighted matters.
It is interesting to note that the impact is far-reaching – we even have retirees who have contacted us to share that they are starting to save after hearing the key messages being highlighted by CBS. So, we do see some positive results.
Seychelles NATION: Meanwhile, some businesses and many individuals still complain about the lack of communication from their banks. How can CBS help to mitigate this issue?
Governor Abel: This is something we are continuously echoing during our interactions with the banks. Last year when we brought them alongside CBS to explain the situation and the various measures they were implementing in light of the impact of the pandemic, we advised them to maintain this engagement with the public. We have had comments from the banks that when they do work together, the public tends to see them as a cartel. We are working with them to ensure that the public understands that the banking community can come together to address common issues in line with the standards they have to apply, although they differ in terms of actual products and services they offer. We expect that there will be more engagement with the public, particularly now that we are in the final stages of having a new piece of legislation for financial consumer protection. The Financial Consumer Protection law, which aims to bring some balance in how financial institutions and consumers interact, has been approved by the Cabinet of Ministers and will soon be presented to the National Assembly.
Seychelles NATION: Individuals and businesses are also complaining that banks are reluctant to give loans nowadays. What does CBS have to say about this reality?
Governor Abel: There are two main issues affecting loans at the moment. Firstly, when there is uncertainty about the performance of the economy – and in our current circumstances being heavily dependent on tourism, which trickles down to other activities – banks will take extra precautions when considering loan facilities. Banks have to carry out their risk assessment and feel satisfied that the borrower will be able to repay the loan in the future. On the other hand, the economy is still weak and there are emerging needs that have to be supported.
Now, when we say that the economy is weak, this means that the pricing of loans needs to better reflect the reality of the economy. Regarding the emerging elements, we all know that the pandemic is affecting trade and there has been a lot of emphasis on the growth of the agricultural sector to meet local demand. There is also much emphasis on the fisheries sector, to enhance the sector’s contribution to our foreign exchange earnings. For these sectors to grow or new businesses to emerge, there would be a need for financing if the individuals or companies do not have upfront capital. So, if banks are seeing more demands coming from the agricultural sector and if they are following the general message being conveyed about agricultural activity in the country, they need to relook at their business model and see how to assist the sector.
There are some new realities that we cannot overlook – we have new companies emerging in sectors where there is growth potential, we also have more companies having to go digital, all of which may require financing. How are banks approaching these new realities to help these companies move forward? We are currently discussing these issues with the individual banks to get them to rethink and meet the emerging demands. Internally, the banks need to change their mindset and become more innovative. Financial institutions have a crucial role to play in supporting the transformation of the economy.
Another reason why we are saying banks need to innovate is that we have the newly launched Fintech Strategy, which is expected to cater for the emergence of new types of financial institutions, the non-banks, which will create competition. In many countries, it has been observed that when new financial institutions emerge, banks tend to raise barriers because they cannot manage the competition. We will have to see how the situation evolves in Seychelles. Being a small country, with all institutions offering the same kind of products, we have not seen a behaviour change. So, we hope that the Fintech Strategy, where we will have non-bank institutions coming in, will help create a different environment for the customers.
Seychelles NATION: As Governor, are you satisfied with the IMF-backed government economic reforms, particularly in regards to communicating the targets and reforms that will affect the economy and the people?
Governor Abel: As I have previously mentioned, communication is crucial in today’s environment. At the end of the day, everyone will be impacted in a certain manner when it comes to the reforms; hence we need to have a clear communication plan to talk about the various components to ensure that the population understands all aspects of these reforms if we are to succeed in implementing them.
The CBS has participated in the reform discussions with the IMF and the ministry responsible for Finance. On our side, the financial system, monetary policy, price objective and financial stability are some of the focus areas.
Together with the ministry responsible for Finance, we have engaged with some primary stakeholders, but we now need to address the various components. Not talking about it may lead to the population becoming uneasy when it comes to implementing the reforms. It is natural for people to react in a particular manner when they have limited information. Hence, the message and format in which we communicate must be clear. While the current reality does not allow us to bring a large group of people together as we were used to in the past, we can adopt innovative ways to get the message across. The public should be able to participate fully in these engagements to share their views and ideas on the proposed reforms.
Seychelles NATION: What has been the Central Bank’s message or guidance to the government as it works on the 2022 budget?
Governor Abel: The government is currently having discussions with the various ministries and departments. However, from our engagements with the IMF on the budget outcome for the next five years, the big picture is clear – public expenditure has to reduce. Having spent more than we received in revenue due to the pandemic, the budget has been in deficit and the government had to borrow. So, the objective is to reduce debt, narrow the deficit and be in surplus by the end of the four to five-year cycle.
We know the general direction, so the task ahead is the sequencing of the various policies that will be implemented. Once the government has formulated the budget, there will be continuous discussions between CBS and the ministry responsible for Finance. Any decision contemplated by the government needs to be considered by the Central Bank to see if there needs to be any policy adjustment. For CBS, what is important to know when it comes to the budget is whether the governmentwill be spending more, in which areas, the impact of the spending on inflation, and whether this would require the modification of the monetary policy. So, these are the types of interaction and policy dialogue that we will continue to have with the ministry responsible for Finance.
Seychelles NATION: FA4JR, do you believe it was a good scheme and was it well implemented?
Governor Abel: FA4JR was a form of support given to the private sector and the government taking steps to support the private sector is something that we have observed in many countries. As I have said in a past interview, the financing of FA4JR was done through borrowing. The government borrowed R1.5 billion through the issuance of bonds last year in addition to the weekly issuance of treasury bills. Revenue was not coming in, yet the government was paying the salaries of the private sector in addition to paying the salaries of the public sector. This is unheard of, as the private sector pays its own salary.
So FA4JR, as a policy intent, was not wrong. What we need to consider is how it was targeting the private sector and also how it was financed – in this case through borrowing – which increased our debt exposure and resulted in a significant budget deficit of nearly 20 percent. To bring the deficit level back to zero, the government has to reduce its expenditure or raise more revenue.
To raise more revenue, the government has two main options. One of them is through tax revenue, which then raises the question – do you increase tax, introduce new taxes, start taxing areas not being taxed? The other option is through borrowing, which comes at a cost; and the government has to reduce the amount of borrowing as the burden to pay back the debt has to be borne by the future generation. The public needs to understand these dynamics when it comes to the government budget.
Seychelles NATION: You will celebrate 10 years as Governor of CBS next year. How would you describe your experience thus far?
Governor Abel: It has been a very enriching and exciting experience since taking on the role in 2012, unknowing what the future holds. My first challenge came within the first three months when I had to face the media and explain to the population why the currency was depreciating and what CBS was going to do about it. That was my first interaction with the press during a difficult period. Almost a decade later, I would say that central banking is an exciting field because you get to do many different things every day, eventhough the reality around you can be difficult. On a personal level, I would say that I have grown as an individual. When I talk to people, especially my friends from school, they always tell me that they remember me as a quiet person. The experiences I have encountered, along with the training and mentoring that I have received, have helped in building my confidence to be able to speak openly and convey the messages of CBS to the public. I enjoy the work that I do, although it entails a lot of responsibilities. However, I do not work alone but with a very dynamic team that contributes ideas and dedicates much effort in helping CBS achieve its objectives.
Seychelles NATION: You have a unique sense of style. Do you keep up with the fashion trends?
Governor Abel: I am not someone who follows fashion per se. While I am mindful that there are circumstances where you have to attend events requiring a particular dress code, to me, keeping it simple is the best way to go. This is something I have always learnt and keep on learning from my mother. So, I have no particular attachment to fashion and like to keep it simple.
Seychelles NATION: What would be your final message to the public as we sail through the pandemic?
Governor Abel: When we listen to comments and observe people’s behaviour, we feel that they believe things are back to the way they were in 2019, but this is not the case in reality. We need to be careful in the way we do things to ensure that we can maintain the recovery we are seeing and remain on track to improve further. The recovery we see today depends on what we are doing in the country as well as what is happening outside Seychelles. From our assessment as the Central Bank, we know that things are still a bit difficult. Therefore, from the CBS perspective, the message we would like to convey to the public is to be attentive to the messages being communicated, observe what is happening in the economy and always measure our expectations. We need to remain cautious and be mindful of our expenses as we still have a long way to go until we achieve a full recovery, considering the recovery path is still very much dependent on the evolution of the pandemic.
Vidya Gappy