COLOMBO: Sri Lanka's President Mahinda Rajapakse on Thursday increased import taxes in an annual budget which allocated a record $2.2 billion for defence, three years after ending a war with Tamil rebels.

Rajapakse, who also holds the defence and finance portfolios, told parliament the country had suffered the effects of a global economic downturn as it emerged from nearly four decades of ethnic bloodshed.

“The economic crisis in the US and Europe, the political uncertainties in the Middle East and the slower growth in China and India have adversely affected us,” Rajapakse said.

“In an uncertain world, we have managed to maintain a 6.8 per cent economic growth this year.”Expansion was 8.0 per cent in the first two full years after the military crushed Tiger rebels in May 2009.

Rajapakse said a trade deficit of $10 billion last year was too high and announced tax incentives for local manufacturers. Customs duties on cars and luxury goods were raised to discourage imports.

The figures showed the government allocating $2.2 billion for the Ministry of Defence and Urban Development in 2013, compared to estimated spending of $1.77 billion this year.

The government has maintained that it needs to boost the defence budget to pay for weapons bought with loans during the fight against the rebels. Revised estimates put overall government spending next year at $13.73 billion, up from $11.8 billion in 2012.

But official figures showed the budget deficit narrowing to 5.8 per cent of GDP in 2013, down from 6.2 per cent of GDP in 2012.

Rajapakse also announced several populist measures, including a ban on the sale of land to foreigners whose purchases have raised local prices.

He offered free school uniforms and shoes to children in rural areas of the country of 20 million people and lifted all taxes on racing cars, saying it would encourage the development of motor sports in the country.