Sri Lanka has to cut budget deficit, boost rule of law, for growth: economists

Oct 26, 2013 (LBO) – Sri Lanka has to reduce its budget deficit to boost domestic savings and improve rule of law to create a better environment for investment, economists said. Reduction of budget deficits will increase domestic savings, reducing the dependency on foreign borrowings for investments, A V de S Indraratne, chairman of Sri Lanka Economists Association and a former professor of economics told members of the Sri Lanka Economic Association inaugurating its annual sessions.

This will allow high growth to be sustained, he said.

Indraratne said government overspending or ‘dis-savings’ were keeping Sri Lanka’s domestic savings rate down.

Budget deficits are caused by rulers who spend beyond that ability of the people to pay taxes to finance their spending or be honest enough to tax people transparently to show that all state spending is ultimately financed by the citizens themselves.

Economic analysts have also pointed out that Sri Lanka has a high domestic private saving rate compared to the rest of South Asia and even East Asia, but state enterprises which make large losses are also classed as ‘private sector’ in Sri Lanka.

This makes not only