Sri Lanka’s high deficit spending hurt investment capital: analysts

Dec 04, 2009 (LBO) – Sri Lanka’s deficit spending, heavy state consumption, opaque monetary and fiscal policies and resulting high inflation has stifled investment credit markets and skewed savers towards the short term, analysts have said. “Vacillating primary account deficits meant volatile interest rates, further hampering any viable termed out structure of savings, of whatever savings were generated.”

He was addressing senior executives at the 05th LBR-LBO Chief Financial Officer forum on ‘Developing a vibrant corporate debt market: issues and challenges’ in Colombo.

Market Manipulation

Sri Lanka’s state has the tools to destablize the economy very quickly, especially by mis-using loopholes in the central bank law to monetize the deficit.

Sri Lanka’s inflation can shoot up from low single digits to over 20 percent in less than a year. Risk free yields can also fluctuate from 8.0 percent to 20.0 percent in a few years. Import taxes can change literally overnight with no parliamentary debate.

In so-called ‘developed’ nations, governments are limited by constitutions that guarantee liberties and equality to the people and strong institutions that protect the economic and other freedoms, giving them the free