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The Central Bank, Institute of Policy Studies and economists argue that the government would have to increase its spending to speed up efforts to normalise the North and East and build infrastructure capacities to facilitate the post war economy, but warn that wasteful and inefficient spending could cause stress.
According to the Central Bank, government debt was 105 percent that of the country’s Gross Domestic Product (GDP) in 2002. In 2004 it came down to 102.3 percent and has since declined gradually to reach 81.1 percent in 2008.
In 2004, the outstanding debt stock amounted to Rs. 2.139 trillion with the domestic debt stock amounting to Rs. 1.143 trillion. In 2008 the outstanding debt stock reached Rs. 3.578 trillion.
However, the government’s debt stock increased to 84.4 percent of GDP in 2009. The estimated outstanding debt stock amounts to Rs. 4.154 trillion with the domestic component reaching Rs. 2.407 trillion.
Central Bank Governor Ajith Nivard Cabraal said the increase of the government debt to GDP ratio indicated monies spent well but that the government was committed to brining it down to 66 percent in a few years time.
"The debt to GDP ratio which was declining over the past few years, increased from 80 percent in 2008 to 84 percent in 2009. This was because of the war effort, IDP welfare and development activities in the post war economy. These monies were well spent," he said presenting the bank’s ‘Road Map of Monetary and Financial Policies for 2010 and Beyond’.
"But the government needs to aim at reducing the debt stock, reaching a target of 60 percent of GDP in 2015."
Cabraal said based on indicators published by the UN Economic and Social Commission for Asia and the Pacific, Sri Lanka was classified as moderate to less indebted country.
In 2009, the Public Debt Department of the Central Bank raised Rs. 653 billion from domestic sources and Rs. 355 billion from foreign sources. Rs. 520 billion worth of government securities were retired during the year.
The country’s second international sovereign bond of US$ 500 million was oversubscribed by 13 times last year.
Sri Lanka’s sovereign rating is B+ and Cabraal said efforts would be made to improve the country’s ratings to investment grade BBB- by 2013.
He said this year would be a challenging year for the county’s economy and stressed the need for government to rationalise its expenditures while public corporations should be encouraged to look at external sources when borrowing, thereby leaving room for the private sector to borrow from the domestic banking system.
