COLOMBO, March 23: Sri Lanka’s hopes of reviving an economy strangled by decades of war received a boost after the government revealed a pro-reform budget, analysts and business chambers said on Saturday.

An overhaul of the tax system underpinned sweeping reforms announced on Friday with reductions in corporate and income taxes to try and stimulate economic growth and cut the budget deficit from 10.8 per cent last year to 8.5 per cent this year.

“It’s a pro-reform and a pro-private sector budget,” said Dhushyanth Wijesinghe, head of research at Asia Securities.

Analysts said the budget would support government plans of 3.5 to 4 per cent economic growth this year after the economy shrank by 1.3 per cent in 2001, the first time it has contracted in 50 years.

More international donor funding can be expected due to the reforms in the budget with some of the funds directed towards reconstruction of the war-torn north and east.

Peace hopes are at their highest in years after the government and separatists signed an indefinite ceasefire in February brokered by Norway.

An official of the International Monetary Fund in Colombo said the fund would soon consider releasing further tranches from a stalled $253 million balance-of-payments support facility.

The World Bank is expected to look at funding a longer-term poverty reduction and growth facility for the country.

“The Ceylon Chamber of Commerce hails the budget as one in the right direction,” the country’s leading business chamber said in a statement but warned that some of the fiscal targets were a little ambitious.

The United National Party in its first budget replaced a goods and services tax and a cascading defence levy with a two-tier value added tax and promised to sell-off loss making enterprises.

Privatization proceeds of 21 billion rupees ($221M), outlined in the budget, will be crucial if the budget deficit is to be cut to 8.5 per cent this year.—Reuters