Sri Lanka doubles defence spending

[TamilNet, Thursday, 05 October 2006, 10:46 GMT]
Sri Lanka's hardline government plans to double defence spending next year, Reuters reported Thursday. Defence spending will rise 100 percent next year to 139.6 billion rupees from 69.5 billion budgeted for 2006, the appropriation bill seen by Reuters ahead of its presentation to parliament showed.

Overall spending goes up 40% to 804.6 billion rupees ($7.7 billion) in 2007 from that budgeted for this year.

Analysts said the increase in spending was higher than anticipated, expecting the budget deficit to widen due to increased defence expenditure, and wondering where the government will find the money.

"It looks as though they might be planning to upgrade their defence hardware, which means they will have to raise foreign money," Dushyanth Wijayasinghe, head of research at Asia Securities in Colombo told Reuters.

"They could do that partly from dollar bond issues and partly from long-term credit lines from (arms) suppliers," he added. "They need to get public sector spending under control ... and improve tax collection. There's no other way."

Meanwhile, many investors have either cancelled or held back investments in Sri Lanka’s $23 billion economy amid serious clashes between the armed forces and the Liberation Tigers, especially since late July when the military launched a major onslaught against the LTTE.

"The peace process will be key," Wijayasinghe said. "If they can take it forward, that will relieve a lot of pressure on the inflationary front and enable the corporate sector to take a longer view."