Sri Lanka fiscal management critical for managing inflation: think tank

Oct 03, 2008 (LBO) – Sri Lanka’s government spending policies, and foreign borrowings are key to keeping inflation down though tight monetary policy can bring short term results, a think tank has said.

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“Whilst a sharp drop in credit growth is expected to moderate inflationary pressures to an extent in the immediate short-term, the medium-term outlook for price stability will hinge critically on Sri Lanka’s fiscal policy stance,” the Institute of Policy Studies (IPS) said in a statement.

The IPS has just released its ‘State of the Economy report, which assesses the economic activities in the past year and comments on the outlook for the future.

The IPS say the government needs to manage debt and in particular its tendency to borrow abroad on commercial terms.

“Increased recourse to foreign currency denominated debt borrowed on commercial terms not only exposes the economy to higher risks, but also complicates monetary policy and exchange rate management,” IPS said.

IPS says attention needs to be paid to external sector developments due to an “anticipated deterio