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Sun, 31 August 2014 15:31:56
Sri Lanka could benefit from greater private investment: World Bank MD
19 Nov, 2012 10:19:26
Nov 19, 2012 (LBO) - Sri Lanka has shown high debt-backed investment led growth when the rest of the world was slowing but to attract long term "good quality" investors, a better environment is needed, a top World Bank official said.
Sri Lanka's fiscal side was improving with debt levels while falling from high of 100 percent to 80 percent of gross domestic product but was still high compared to East Asia, making the country vulnerable Sri Mulyani Indrawati, a managing director at World Bank said.

Recent growth of around 8.0 percent was partly driven by 30 percent plus investment spending, with state spending largely driven by debt, she said.

If greater "good quality" private investment is attracted Sri Lanka could reduce external vulnerabilities and not be bound by budget constraints, she said.

The starting point was good budgeting and monetary policy followed by addressing structural issues such as skills and law.

"If you are trying o invite good quality private investment it will require a lot of signaling about the kind of investment environment that you are going to provide," she said.

If what was promised in macro-management was consistently delivered it will improve confidence, she said.

Sri Lanka's finance ministry has said it is on track to cut budget gap to 6.2 percent of GDP in 2011 and is aiming from 5.8 percent next year.

Sri Mulyani said the country has made gains in the World Bank's 'Doing Business' rankings.

She said property rights had to be respected, the legal framework had to provide for the sanctity of contracts and enforcement.

Sri Lanka's rulers began expropriating domestic and foreign investors again last year violating property rights, a practice that was largely abandoned from the 1980s.

The country has also slipped in World Bank governance indicators.

On the structural side Sri Lanka could improve the quality of the labour force.

Before joining the World Bank Sri Mulyani was finance minister of Indonesia from 2005.

An economist with international experience, she is credited with boosting tax receipts of the state, halving debt to 30 percent of GDP and boosting foreign investment and growth.

Sri Lanka's 30 percent plus investment levels in recent years were comparable to East Asia but excessive external debt finance could make the country vulnerable and the country had to boost its savings rates.

Sri Lanka's private savings rate is comparable to that of Malaysia, but analysts say unlike East Asian nations the government is a net dis-saver.

In 2010 for example Malaysia's private savings rate was 22.2 percent of GDP and in Sri Lanka it was 20.8 percent. But the government ran a 2.1 percent deficit in the current account of the budget dragging the overall saving rate to 18.7 percent.

In East Asia, state enterprises also invest and run surpluses, in Sri Lanka they get handouts from people's taxes and make large losses.

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