Sri Lanka gets less bang for capital buck: economist

Jan 30, 2010 (LBO) – Sri Lanka is saving and investing too little and spending too much and the country is also getting less returns than more efficient economies for the money spent to boost capital stock, a top economist has said. Countries that invest more will generate higher levels of growth and incomes. East Asian nations have had levels of investment close to 50 percent to push growth to near 10 percent levels.

Bang for buck

The other factor is the efficiency of the economy which determines how much output a given amount of investment will bring. Economists measure this by the incremental capital output ratio (ICOR).

“If we are an efficient nation we should have the lowest ICOR,” W A Wijewardene, a top economist and former deputy governor of Sri Lanka’s central bank told forum in Colombo.

“USA has an ICOR of 2.5, Japan about 3.0, Western Europe again about 2.5, Australia about 3.0. Sri Lanka’s ICOR has been about 5.0.

“That means, for us to earn one rupee we have to invest, five rupees; whereas in the USA, for them to earn one rupee, they only have to invest two and a half rupees.”

Wijewardene says it is about 20 kilometres from his residence to the centre of Sri Lanka’s capital Colom