Nov 22, 2010 (LBO) – Sri Lanka is awaiting a budget for 2011 which will increase total taxes extracted from the people to fund state spending, while there are hopes that excessively taxed sections will get some reductions and the deficit will narrow. The current account deficit has been the key reason for low total domestic savings and investment, despite the country having a relatively high level of private sector savings.
In 2009 national savings were dragged down by 3.7 percent of GDP by state net consumption (dis-saving). For 2010 net state consumption is planned for 2.0 percent of GDP, but budget data up to August showed that the target has been missed.
In recent years however the state has increased public sector investment, using borrowed money, especially in the power sector, which is a high quality investment.
China has been key funder of infrastructure, especially in power, which has been a long felt need and could bring substantial short and long term returns while altering the cost structure of the entire economy, which is increasingly dependent on power.
Long term Deception
For several decades steady monetary debasement has been used by the state to reduce real value of salaries and outstanding loans own