The annual budget which increases spending on the armed forces has drawn mixed reactions. While supporters of the government welcomed it as a budget that breaks away from dependency on foreign loans and grants, opponents say it will exacerbate economic woes.
President Mahinda Rajapakse, who is also the commander-in-chief and finance minister, sought approval for the country's largest-ever defense budget from Parliament on Thursday, November 6 as government forces continued their military offensive in the North.
Rajapakse proposed to spend 177 billion rupees ($1.6 billion) on defense for 2009, an increase of 6.4 percent from 166.4 billion rupees ($1.5 billion) allocated this year.
In his speech, Rajapakse said Sri Lankan soldiers had seized several LTTE bases and large swathes of land in the Tamil-dominated north and were close to crushing the organisation.
"It is to eradicate terrorism through this true humanitarian exercise that we spent a substantial amount of money on national security," he said.
Rajapakse also announced a one percent tax on most goods and services to "rebuild communities and infrastructure facilities affected by terrorism," and downgraded the country's economic growth.
Despite high inflation, running at 23.4 percent at the end of last month, the government's war against the Tamil Tigers is seen as highly popular among the majority Sinhalese community.
Rajapakse also announced increased taxes on imported food (from fruit and vegetables to milk powder), electrical and household goods, and raised import and export cargo duty from three percent to five percent.
Official figures showed that overall state expenses for 2009 will increase 15 percent to 15.6 billion dollars, nearly twice the expected government revenue of 7.92 billion dollars.
The government hopes to bridge the deficit with local and foreign loans.
Dayasiri Jayasekara, a lawmaker from the main opposition United Nation Party (UNP) attacked the budget and warned that resorting to external borrowing would lead to ‘dire consequences’.
“There is a bleak picture of our economy today. We have identified certain shortcomings in the Appropriation Bill for the 2009 Budget as well. The Government has been compelled to go for external borrowings at high interest rates. It will have dire consequences on the economy,” Jayasekara said.
Rajapakse's supporters disagree with the opposition’s view.
”This is a budget that breaks away from neo-liberal economic policies... it tries to strengthen the national economy,” said Wimal Weerawansa, an ally of President Rajapakse.
Two days prior to Rajapakse unveiled the annual budget, on Tuesday November 4, the UNP presented its 'alternative budget proposals’ pledging to increase the salary of public sector workers by Rs. 7500, and a minimum wage of Rs. 40,000 for soldiers.
UNP lawmaker Ravi Karunanayake commenting on the proposals said, a future UNP government would reduce the 'burden' of 110 ministers to 35 ministers.
"Savings will be utilised for security development,".
