Apr 26, 2010 (LBO) – Sri Lanka’s public investments are on the rise as government builds new infrastructure for a post-war revival, laying the foundation for more private investment, Treasury secretary P B Jayasundera said.
“Now we have around 25 percent of total investment.”
In 2009 the government invested the equivalent of 6.7 percent of GDP, despite an ongoing war until May.
Sri Lanka has a rickety infrastructure because the government has under-invested for decades and mis-used taxes extracted from the people on populist adventures and subsidies.
Sri Lanka’s private sector also cannot build infrastructure as chronic budget deficits have taken away all the savings of the people and kept long term interest rates too high to finance infrastructure.
The government prints money to finance what it cannot borrow and extract as taxes, making both inflation and interest rates wildly volatile.
Even last year the government ran a deficit of 9.8 percent higher than a promised 7.0 percent of gross domestic product budget gap.
Of the deficit while 6.8 percent of GDP went for investment, 3.7 percent went for current expenses, which perhaps the main problem with the island’s budgets.