Sri Lanka among countries poorly prepared to face global crisis

Jan 20, 2009 (LBO) – Sri Lanka is among 25 percent of countries that are poorly equipped to deal with the global financial crisis, and needs fiscal as well as external adjustment to stabilize itself, a World Bank economist said. Claus Astrup, World Bank's senior country economist in Sri Lanka said about 40 percent of emerging market countries were well prepared to meet the crisis with budget deficits of less than 3.0 percent and strong external current account positions.

Countries that had low budget deficits, and strong external current accounts had room to spend more and to use fiscal measures to stimulate demand.

But Sri Lanka was among the countries that had weak fiscal and external current accounts.

"The recommendation for these countries would be that in order to get over the crisis both adjustments on the fiscal on the external side would be needed," Astrup told a seminar organized by the Society of Management Accountants of Sri Lanka.

Last year, many countries were trying to curb spending and demand, to control inflation. Now faced with a global economy slowdown, many countries were increasing spending to stimulate growth.

As Sri Lanka's foreign reserves were dwindling, there is pressure now to