As a share of GDP, private investment amounted to 16% on average between 2000 and 2009, among the lowest ratios in the euro area. Given Malta’s track record in attracting foreign direct investment, this shortfall is probably more a reflection of a relatively low level of domestic private investment. The latter is unlikely to be related to the cost and availability of finance. Interest rates are at historic lows and, contrary to the experience elsewhere, credit to the private sector continued to expand during the recession. As for possible structural factors, the diversification of the economy away from manufacturing towards services is also unlikely to have been a factor. Similar sectoral shifts elsewhere did not result in a declining investment share. Rather, the relatively low level of private investment could, in part, be a legacy of the past, when firms in protected sectors could survive without the need to invest to face up to competition. In addition, in key sectors such as tourism and the wholesale and retail trades, the operating surplus has fallen, on average, over the past decade. Weak profitability, which is partly due to labour costs rising faster than productivity, reduces both the incentive to invest and the internal funds available to do so. Hence the emergence of a perverse cycle of weak profitability, low investment, poor productivity growth and a loss of competitive strength. These weaknesses are reflected in persistent current account… These structural weaknesses show up in a persistent deficit on the current account of the balance of payments.

Therefore, the budget has to be viewed as a forward looking medium to long term strategy. The sustainable development strategy rests on the following: Regional and provincial development with focus on rural roads, housing, electricity, water supply and livelihood development; Human resource development programmes; and Other sectoral programmes. The infrastructure development will expand economic activity, address capacity constraints and bottlenecks. To sustain growth momentum, it is planned to increase investment/GDP ratio to about 30%. Diversification of exports, relocation of export ventures and provision of support services will address regional disparities and unemployment issues. The budget also plans to improve human resource skills and enable youth to further their career paths. The skills imbalance will be addressed through the university curricula and the universities will be persuaded to improve research skills and talents of undergraduates to cater to the demands made by the business community. Through infrastructure improvements, such as ports, airports and financial services, it is proposed to make Sri Lanka a service hub in South Asia and a part of the global supply chain. Many firms in East Asia and India have already linked themselves to the global supply chain and there lies an opportunity for Sri Lanka to establish such links now. In this regard, sub-contracting, outsourcing, encouraging business processes, back office functions, strategic partnerships, franchising, promoting off-shore insurance businesses, and the provision of logistical support will be promoted. This move would also help to attract foreign direct investments to the country.