Bank Rates

Nov 23, 2010 (LBO) – Sri Lankan banks should provide more long-term loans and tax cuts in the government budget for 2011 are meant to encourage longer maturity lending, finance ministry secretary P B Jayasundera said. Key sectors of the economy like tea and rubber, where cultivators must wait several years for the first harvests, need longer-term lending, he told a forum on the budget organised by the Ernst & Young audit firm.

“We need bank balance sheets to correspond with the real economy and the real economy needs money,” Jayasundera said.

“Bankers must look beyond what they’ve been doing – mainly lending for short-term working capital requirements or 2-3 year lending – to 10- 15 year capital.”

Macro-economic Instability

Analysts have said Sri Lanka’s lack of long term lending is due to excessive volatility in interest rates, coming primarily from massive deficit spending and uncontrolled inflation which feed on each other.

Most long term capital in the form of pension funds of private sector workers is also taken by the state for deficit spending.

Money borrowed by the state from the people, has largely been miss-spent over several decades resulting in national debt growing t