COLOMBO (AFP) — Sri Lanka is expected to unveil its biggest ever war budget this week, as a government military campaign to crush the Tamil Tiger rebels takes a heavy toll on the island's balance sheet.
The government plans to increase defence spending by 20 percent to a record 1.45 billion dollars in 2008, raising fears of higher corporate taxes and further cuts in development projects, officials and analysts said.
Part of the increased defence budget, which accounts for about a fifth of Sri Lanka's 27 billion dollar economy, is expected to be used to replace weapons and equipment destroyed during recent heavy fighting.
"About four million dollars a day is spent on military related expenses. Quite high for a little country like ours," said economist Muttukrishna Sarvananthan, a consultant to the World Bank.
The government last month had raised 500 million dollars by selling a five-year bond, ostensibly to pay for infrastructure projects.
But critics say the government may now be forced to spend the money on replacing military hardware, after the Tigers last month staged a daring attack that wiped out an entire fleet of spy planes and other aircraft.
Air force chief Roshan Goonetilake placed those losses at 15 million dollars, but press reports say the actual replacement cost would be several times more.
"The unfolding of events in the recent weeks makes it most likely that there would be a huge expenditure on military hardware imports. Such expenditure may be rational in the context of the war," the Sunday Times newspaper said.
It said in the long run, however, "The economy would be scarred by the wounds we inflict on it now."
The government has indicated it is intent on a military strategy, rather than the troubled country's moribund peace process, to bring the rebels to heel after 35 years of conflict that have left tens of thousands dead.
It said Monday it would keep up air strikes on rebel territory to force peace with the Tigers after the group's number two was killed in an air raid last week.
President Mahinda Rajapakse, who is also finance minister, is due to present his budget proposals on Wednesday, and is expected to forecast a 15 percent rise in overall spending to 13.2 billion dollars in 2008, officials said.
But spending is taking its toll.
Economists estimate the conflict cuts two percentage points off the island's annual growth rate, which has averaged 5.5 percent in recent years.
Graeme Wheeler, managing director of the World Bank, also underlined during a visit last week that Sri Lanka's public debt was high -- around 93 percent of gross domestic product.
"Government spending is dominated by two things -- interest payments on debt and a significant proportion of spending towards security-related issues," Wheeler said.
He urged Colombo to cut a political deal with Tigers to help spur economic growth.
"Conflict is an enormous burden to both the Sri Lankan people and the country's longer-term economic prosperity," he said.
Channa Amaratunga, an economist with Boston Capital, agreed.
"It's very hard on the economy, which faces high inflation and high interest rates," Amaratunga said. "As long as we continue with a military strategy, you can't see any decline in the defence bill."
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