COLOMBO: Sri Lanka plans to announce a war budget on Thursday in which it will hike defence spending next year by 45 per cent amid a spiralling conflict with separatist Tamil Tiger rebels, officials say.
The budget comes against the backdrop of an International Monetary Fund warning on Tuesday to Sri Lanka that the escalating violence could prompt an economic crisis with surging inflation and dwindling foreign currency reserves.
Despite the upsurge in fighting that has claimed over 3,300 lives since December, the economy was forecast to expand by over seven per cent in 2006 and more than eight per cent in the coming year, government officials said.
“We're going to see an expansion that has not been seen for nearly 30 years,” deputy finance minister Ranjith Siyambalapitiya said.
Preliminary budget estimates placed before parliament projected defence spending would jump to Rs139.55 billion in the 12 months to December 2007 from an estimated 96.21 billion rupees in 2006.
The documents did not contain a 2007 deficit estimate. But the strain of spending on the three-decade-old ethnic conflict which has killed over 60,000 people was apparent even before the flare-up in violence last December in defiance of a 2002 truce.
The 2006 deficit is projected at 9.1 per cent of gross domestic product, up from 8.7 per cent the previous year. The ethnic conflict along with rising global oil prices has pushed inflation to a forecast average 12 per cent for 2006 from 3.6 per cent last year, the government said. In October, inflation stood at 17.2 per cent.
“It's difficult to see how the country can achieve high growth and keep inflation down at the same time unless there's an end in sight to the (ethnic) conflict,” said Alistair Corera, director at Orion Fund management.
Military purchases of weapons and other equipment jumped nearly three-fold with the army, navy and the air force budgets leaping.
Sri Lanka's finance secretary P.B. Jayasundara said overall defence spending was about 4.5 per cent of GDP. Neighbouring India's defence spending represents about 2.5 per cent of GDP.
Jayasundara said the budget to be presented in parliament by President Mahinda Rajapakse, who is also finance minister, would target infrastructure. “We don't have adequate electricity and the quality of electricity available isn't good enough. We don't have roads. Our port capacity is not sufficient,” he said.
He said the government hoped to borrow foreign funds to finance a coal power plant, expand the Colombo port and create a southern highway network.—AFP
