About 73 percent of total spending was current spending, though there were some improvements. Of the current spending 91 percent was for interest payments, salaries and subsidies, which the agency said diverted resources from public investment.
In Sri Lanka the state runs a deficit in the current account of its budget and the entire capital budget and a part of its current budget is financed by debt.
State energy, airline and transport enterprises also run losses.
"These losses crowd out private investment and raise contingent liabilities," Moody's said.
State enterprises losses reduce the domestic savings rate.
This year substantial corrections are expected in losses of state petroleum and electricity utilities, Moody's said.
The finance ministry expected the Ceylon Electricity Board expects to cut losses to 38 billion rupees in 2012 from 61 billion in 2012 and Ceylon Petroleum Corporation to 20 billion rupees from 91 billion a year earlier.
"We believe this target is aggr