Are we serious about private investment?

Investment needs to increase from 28% (2010) to 34% of GDP to attain the government’s growth target of 8%, as Sri Lanka’s incremental capital output ratio is 4.2. Public investment has been capped at 6% - 7% of GDP. This means that private investment, both domestic and foreign, needs to increase from the current 21% of GDP to 27-28%. It is, therefore, important to create a conducive business climate that encourages private investors to fill this gap. Failure to do so will mean that the government’s growth target will not be met on a sustained basis. Attempts to circumvent the lack of private investment by raising the level of public investment are likely to undermine the government’s own fiscal consolidation targets and thereby have an adverse impact on the country’s macroeconomic fundamentals. As a lower-middle-income country with an increasing exposure to capital markets, Sri Lanka cannot afford to allow this to happen.