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Sri Lanka sees cautious budget for 2000

COLOMBO: Sri Lanka's ruling People Alliance, battling a high fiscal deficit, slower economic growth and a serious drain on its purse from the continuing ethnic war, is expected to unveil a cautious budget on Monday.

There are expected to be few major surprises after the government last week increased diesel and kerosene prices by 23 percent and 48 percent respectively.

The move was part of an attempt to lower subsidies and raise revenues at a time when the government is spending six percent of gross domestic product on the war against the Liberation Tigers of Tamil Eelam (LTTE).

The LTTE have been fighting for a separate homeland for minority Tamils in Sri Lanka's north and east since 1983.

The increase in petroleum prices is widely expected to raise prices across the board and fuel inflation that is at its lowest level in decades.

Sri Lanka's inflation rate measured on 12-month moving average eased to 4.7 percent in 1999 from 9.4 percent the previous year. In January it was 4.4 percent.

Government officials said they expected the 1999 deficit to come in at around 7.9 percent of GDP and that they planned to lower it to 7.5 percent in 2000.

The budget deficit in 1998 was 9.2 percent of GDP.

GDP is expected to grow by 4.5 percent in 2000 against an estimated rise of four percent in 1999.

The government is also hoping that a major privatisation drive this year will help lower its borrowing and thereby reduce pressure on revenue sources.

The government is planning to list Sri Lanka Telecom and raise between $350-$400 million by selling part of its stake in the company that is 35 percent owned and managed by Japan's Nippon Telegraph and Telephone Corp 9432.T.

In 1999 the government raised only 100 million rupees ($1.36 million) from its privatisation drive.

Deputy Finance Minister Gamini Peiris told parliament that 1999 revenues were estimated at 200 billion rupees, lower than the earlier estimate of 214.3 billion due to a correction in revenue estimate in respect of the 12.5 percent goods and services tax that was introduced in 1998.

A senior finance ministry official told Reuters that the GST rate structure was unlikely to be changed in the future as it was fixed at a moderate level to sustain it in the long term.

"It will not be changed from the revenue point of view. But if we see that there is a need for exemption on some industry from the investment point of view then it is a different thing," said P.B. Jayasundera, secretary to the ministry.

The major concern however continues to be the large war bill that is eating into the economy.

Sri Lanka allocated some 48 billion rupees for defence in 1999. This year it will be 52.4 billion rupees.

"We hope to keep defence spending at around five percent of GDP this year," said Jayasundera.

The army faced some of its worst defeats at the hands of the LTTE in November when it lost vast swathes of land in the northern Wanni region and large quantities of arms and ammunition.

The government has ordered new helicopters, boats and radar monitoring equipment costing millions of dollars to back a new military strategy.-Reuters