Sri Lanka must sacrifice growth for stability: economist

Feb 19, 2009 (LBO) – Sri Lanka’s government should focus on restoring macro-economic fundamentals which have deteriorated in recent years to help it overcome the global economic crisis, even if means slower growth, an economist has said. Resources had to be set aside for both while the government had to do normal development activities.

But macro-economic fundamentals remain weak with inflation still high and a deteriorating current account position, Weerakoon said.

Although there were expectations of an exchange rate adjustment to cope with these problems, the rupee was held fairly steady until late last year, and the real rate was still considered too high.

“Sri Lanka is entering the economic crisis with weak public finances, high inflation and currency appreciation that perhaps is not the best platform on which to meet fresh challenges to the economy,” she said.

Difficult Balance

In setting monetary policy, the government has a difficult balance to strike and the policy “must not be too tight or too loose that the grip on inflation slips,” Weerakoon said.

With domestic inflation remaining high despite sharp falls in global commodity prices, it was clear that domestic policy bears the main respons