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.
Officials have included police spending with the armed forces, and say no direct defence spending comparison can be made.
"We have included police. All security-related and all defence-related expenditures are there," said R.A. Jayatissa, Deputy Secretary to the Treasury. "This reflects a large increase in salaries."
"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.
Jayatissa said the government was also comparing its 2007 forecast to 609.3 billion rupees rather than the amount budgeted for last year, citing an appropriation act – which means that overall spending would increase by 32 percent rather than 40 percent.
"The expenditure of the government ... will be 804,643 million for the service of the period beginning
In its appropriation bill issued in late 2005, the government forecast its overall expenditure would total 568.3 billion rupees in 2006.
"They need to get public sector spending under control ... and improve tax collection. There's no other way," said Dushyanth Wijayasinghe, head of research at Asia Securities in
Analysts say much will depend on whether a new round of peace talks between the Tamil Tigers and the government due later this month will defuse weeks of the worst fighting since a 2002 truce and halt a new chapter of the island's two-decade civil war.
Many investors have either cancelled or held back investments in the $23 billion economy amid a rash of violence that has killed hundreds of civilians, troops and rebel fighters this year and flared into military offensives in August.
"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."
Inflation rose to 11.2 percent in September as measured on a 12-month moving average, due largely to the impact of high international oil prices on a country that produces no crude of its own. The central bank has had to raise its policy rates three times so far this year in a bid to tame inflation.
Some analysts, however, fear fighting between the government and Tamil Tigers could hit the economy and dent growth prospects. The central bank and government have forecast economic growth of around 7.0-7.5 percent for 2006 and 8.0 percent in 2007.
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.
