Financial Sector Reforms

Financial sector acts as a core vocal point for any economy to thrive, grow and develop in a competitive environment. For this objective to be achieved, financial sector require two fundamental and complementary reforms to achieve the desired results and outcomes. It is the financial sector that acts as a transmission mechanism in the allocation of resources especially the savings in the economy. The investment level is also greatly dependent on the reforms affecting the financial sector. Several reforms are advocated for the establishment of a reliable sector which drives economic growth in appositive trend.

First the financial liberalization forms a fundamental component in determination of how much in the free market is supplied and at what price. The private sector is the major participant as opposed to government input in determination of credit and liquidity levels in the economy. Karl Marx and John Smith are the greatest advocacies of this notion in financial sector reforms. The provision of major credit public utilities is at the hands of private investors and other players as opposed to government involvement. The sole responsibility of the government is the regulatory and control besides participating in subsidiary responsibilities to ensure good and conducive environment for private players. Mackinnon-Shaw recommended financial sector reforms to be undertaken to improve its performance in the economy when the balance of payment is in a worse position to spare the economy’s international credibility. It’s also vital to deal with insolvency situation of the country’s banking system which not only hinders financial sector growth but also the holistic economic growth and sustenance. According to Gregory, low interest rates in an economy does not favor the operations and growth of the economic units involved, therefore, reforms to address low interest rates is not only necessary but also vital in attempts to improve the situation (Guillermo 24).

Financial sector reforms also ensure that the state does not undertake massive pre-emption of country’s financial resources from the banking sector in order to finance and bridge its deficit. When the economy experiences excessive and massive structural and microeconomic as well as macroeconomic regulations, reforms are paramount to encourage innovations in the sector while increasing the transactional costs hence encouraging a positive financial sector growth translating to positive economic growth. Therefore with consideration of the repercussions of not performing the financial sector reforms, it’s my opinion that these reforms are paramount to enhance the economic growth and development. This would not only ensure liberalization of financial sector, but also guarantee proper and efficient utilization of resources (savings).  

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