Sri Lanka is set to unveil a revised welfare laden budget on Thursday, banking on peace to jump-start economic growth, amidst a backdrop of escalating violence that has renewed fears of the island slipping back to war. Sri Lanka is set to unveil a revised welfare laden budget on Thursday, banking on peace to jump-start economic growth, amidst a backdrop of escalating violence that has renewed fears of the island slipping back to war. Financial markets have been skittish, after Tamil Tiger rebels unleashed a new round of attacks on government troops bringing to 28 the death toll since the weekend and fuelling fears that a near four-year truce was on the brink of collapse.
Analysts say the uncertainty could spook investment climate and a lot would depend on how Sri Lanka’s new President Mahinda Rajapakse raises the cash to meet new expenses.
“Investors dislike uncertainty. Two days of incidents have already spooked investors and they may sit out and wait till things get a bit clearer,” said Channa Amaratunga, chief investment officer at Boston Asset Management.
Treasury Secretary P B Jayasundara, however, scoffed market jitters, saying the budget is drawn up on a platform of peace and not an ‘imaginary war situation’.
Rajapakse, in his capacity as finance minister, is expected to present the revised budget in parliament, to include welfare measures promised in his election manifesto.
The bulk of the revised budget will be spent on wage hikes for civil servants, subsidies to farmers and fisherman and concessions to small scale entrepreneurs, Deputy Finance Minister Ranjith Siyambalapitya told reporters on Wednesday.
The ‘extras’ come with a US$ 50 million price tag, which is likely to widen the budget deficit marginally by about 0.2 percent of gross domestic product, analysts said.
The 2006 budget presented on November 8, which was later scrapped, set a nine percent deficit target, higher than this year’s estimate of 8.5 percent.
“It’s a doable (elections) manifesto…doesn’t envisage going to war….it talks about a peaceful country, about rebuilding tsunami hit areas, about north east development,” he said.
When questioned if the country could slip back to an emergency situation, he said such incidences are “imaginary and theoretical”.
“If such a thing happens, it’s a different scenario…it’s the government’s responsibility to protect the nation,” Jayasundara said.
“We have had this situation for the last twenty five years, its nothing new,” chipped in Wijedasa Rajapakse, minister for restructuring state banks.
Jayasundara declined to disclose budget figures, but said government revenue and spending plans for 2006 will be aimed at achieving an annual eight percent growth up from 5.4 percent in 2004.
The Central Bank expects the economy to grow by between 5.0 and 5.5 percent this year.
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