Sri Lanka should lower inflation to protect poor people: World Bank

Nov 01, 2007 (LBO) – Sri Lanka should lower inflation to protect the poor and take steps to clear economic imbalances that were building up, a top visiting World Bank official said. Sri Lanka had a currency board before 1951.. “The rate of inflation is approaching 20 percent, and the government budget deficit and debt levels are too high,” World Bank managing director Graeme Wheeler told reporters in Colombo.

Sri Lanka has fiscal deficits of more than 8 percent of gross domestic product (GDP) and years of mis-investing borrowed money has pushed national debt above 90 percent of GDP and made interests payments one of the biggest expenses of the state.

Budget deficits are too large to be bridged by borrowings cause high inflation in developing countries.

Consumer prices in the capital Colombo hit 19.6 percent in October and country-wide inflation topped 21.7 percent in August.

Explicit Target

The Central Bank promised to keep inflation below 10 percent in a monetary policy road map published in January 2007, but a worsening budget deficit forced it to print money, driving inflation up.

The island’s central bank is forced to finance the governmen