Sri Lanka told to keep fiscal policy promises to win investor confidence

Aug 17, 2010 (LBO) – Sri Lanka must improve its business climate and stick to fiscal policy targets like reducing budget deficits to win investor confidence and foreign investment to accelerate growth and roll-over debt, an economist said. Andrew Colquhoun, Head of Asia Pacific Sovereigns at Fitch Ratings, said the island’s level of public external indebtedness is high and had led to problems in 2008 which led to the International Monetary Fund being called in.

“The main question is will the authorities reduce the budget deficit as they have promised?” he told a forum during a visit to assess the country’s sovereign credit outlook.

Investors and lenders were awaiting the anticipated major fiscal policy statements coming up in a presidential tax commission report and the government budget in November.

In recent years, successive Sri Lankan governments have regularly exceeded promised budget deficit targets.

“If, as they told the IMF and the interim fiscal policy statement in June said, the government can grow tax revenue and cut expenses and narrow the deficit to eight percent and narrower in the medium term, it will shore up investor confidence,” said Colquhoun.

“It also makes it more likely the sovereign will be