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Sri Lanka has experienced over 20% interest rates in early 2000 with high inflation and heavy domestic borrowing by government. After easing off the inflation and improved access to the international capital market, Sri Lanka government shifted it's budget deficit funding from domestic to foreign. Thereby able to reduce the domestic interest rates gradually. But country did not executive the required fiscal and monetary reforms, resulted in fail to face the external shocks and finance institutions will face immense precure to adjust their borrowing cost in no time.