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Sri Lanka to Focus 2010 Budget on Rebuilding After Civil War

[Bloomberg, Monday, 27 July 2009 15:14 No Comment]

Sri Lanka plans to focus spending in the government’s 2010 budget on rebuilding areas liberated from Tamil Tiger rebels after the end of 26 years of civil war.

“Improving living conditions and restoration of economic activities through accelerated resettlement, rehabilitation and reconstruction programs” will be given priority, the Ministry of Finance said in its budget circular to ministries and other state institutions.

The ministry called for better utilization of “foreign resources” and containment of recurrent expenditure to help narrow the budget deficit to 6.6 percent of gross domestic product in 2010 from an estimated 7 percent this year.

President Mahinda Rajapaksa will in November present the government’s 2010 budget after ending the Liberation Tigers of Tamil Eelams’ quest for a separate homeland with record defense spending. The International Monetary Fund and Asian Development Bank last week announced increased lending to Sri Lanka to help revive the war-ravaged east and north of the island.

Foreign Minister Rohitha Bogollagama said July 24 the government will need extra time to resettle more than 280,000 ethnic Tamil civilians stranded in transit camps in the country’s north after fleeing the military offensive.

The IMF, which approved a $2.6 billion loan, said Sri Lanka’s government has undertaken a program aimed at rebuilding reserves, reducing the fiscal deficit, strengthening the financial sector and reconstructing conflict-affected areas.

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The ADB plans to raise Sri Lanka’s annual allocation to $300 million in 2010 from $200 million, to fund road, power and water and sanitation projects in the island’s north and east, among others, the lender’s South Asia lead economist Narhari Rao said July 23.

Central Bank Governor Nivard Cabraal said July 21 the IMF aid package will likely improve the island’s credit rating and help make borrowing costs cheaper.

Cabraal has driven down interest rates this year, taking advantage of inflation at a five-year low, in a bid to spur spending and investment and make up for slowing exports.

The central bank this month raised its 2009 economic growth forecast for Sri Lanka to as much as 4.5 percent from an earlier estimate of 2.5 percent.

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