Sri Lanka is aiming to accelerate the pace of economic expansion to 7 percent with its 2013 budget, government officials said, by pumping in money for post-war infrastructure projects, while raising import tariffs to protect local industries.
President Mahinda Rajapaksa will present the 2013 budget today, the fourth since the end of a 25-year war that had hindered the Indian Ocean island nation’s economy.
Sri Lanka is expected to spend over $21 billion on the construction and rebuilding of ports, roads, railways and other infrastructure through 2015.
“It will be a growth and development-oriented budget,” a Finance Ministry source said on condition of anonymity.
Both the Central Bank and Finance Ministry have previously said the budget proposals will support an economic growth target of more than 7 percent and single digit inflation. Growth in 2012 is expected to be 6.8 percent.
The new budget also aims to curb the fiscal deficit and protect local industries such as diary and leather in a bid to replace imports, four government officials told Reuters on condition of anonymity.
Two government sources involved in budget preparations said achieving this year’s budget deficit target of 6.2 percent of the gross domestic product was challenging as revenue has not been up to the target. However, they said, the government may aim to reduce the deficit to 6.1 percent in 2013.
The country cut the deficit to 6.9 percent last year from 8.0 percent in 2010 under the terms of a $2.6 billion International Monetary Fund (IMF) loan.
The IMF fully disbursed the loan in July. The Central Bank said the country will negotiate a fresh loan in January to fund development activities.
Businesses have called on the government to cut corporate taxes further. But analysts said the government has little flexibility given the low tax collections this year and may actually be looking to raise new taxes.
“The government may raise some import tariffs to protect some local industries like diary and leather. Such a measure will encourage local industries and reduce import cost. The government may also raise some indirect taxes to increase its revenue,” Colombo-based TKS Securities’ Research Head Danushka Samarasinghe told Reuters.
Three analysts said they also expect some tax relief to export-oriented businesses amid slowing shipments to Europe, the country’s main export destination.