Sri Lanka fiscal discipline key to economic growth: report

Nov 04, 2009 (LBO) - Fiscal discipline by Sri Lanka's government will be critical to ensure economic recovery and sustained, high growth anticipated with the end of the ethnic war, RAM Ratings agency said. "Sri Lanka is now well poised to achieve high sustainable growth, as the end of the armed conflict provides the government with the opportunity to create a stable macroeconomic environment where industries and businesses can thrive," it said.

"Fiscal discipline remains the key to supporting a sustainable rise in national savings and investment rates, in consonance with a reallocation of scarce resources to the productive sectors."

This will eventually result in less crowding out of private-sector financing by government borrowings, the rating agency said in a report on the island's economic prospects.

The government's budget deficit is expected to narrow as it exercises "fiscal discipline and reins in military spending" after the war, the rating agency said.

Government forces defeated the Tamil Tiger separatists in May, ending a 30-year war, and raising hopes of an economic recovery.

"The country’s persistently hefty fiscal deficit has been driven by an unsustainable rise in go