Sri Lanka should avoid excessive debt: Malaysia’s Mahathir

June 11, 2010 (LBO) – Sri Lanka should target investment led growth and minimize borrowings which could lead to a future debt crisis, former Malaysian prime minister, Mahathir Mohamed said.

As a result Sri Lanka has run up national debt to almost 86 percent gross domestic product (GDP) in 2009 from just 16 percent at the time of independence from British rule.

Sri Lanka’s debt has topped 100 percent at times, and the state has escaped by depreciating the currency, reducing the domestic value of the debt and impoverishing savers, who are mostly old people and pension beneficiaries of a provident fund.

Malaysia despite enjoying economic success and tip top infrastructure has a federal government debt of only 46 percent of GDP in 2009. Its external debt was only 2.9 percent of gross domestic product.

Sri Lanka’s external debt was about 36.5 percent of GDP. Sri Lanka has also grappled with an internal war which ended last year.

Mohamed said opening economy to foreign investors is key to development.

Some of Malaysia’s key infrastructure projects like roads were developed by international investors who charged ‘toll’ from motorists who wished to use it.