Sri Lanka budget backs peace bid

Tourism is set to increase with the ceasefire and peace talks

Sri Lanka will present ambitious budget plans next year fuelled by lower defence costs and a big jump in overall spending.

It certainly places Sri Lanka on the regional map, if not on the international map

Ravi Karunanayake, Commerce Minister

The plan to boost expenditure by 60% comes amid the peace bid to end the island's two-decade war with the Tamil Tiger rebels.

With peace talks that started last week expected to last for several years and a ceasefire in place, defence spending was forecast to fall.

The government has been struggling to right an economy hit hard by the separatist war and a drought last year.

The halt in fighting will allow capital spending for the military that has averaged more than 5% of gross domestic product in recent years.

Confidence increases

Cutting the budget deficit, which was in double figures last year, was a government promise to international donors such as the International Monetary Fund.

"The public needs to see more capital spending next year," Commerce Minister Ravi Karunanayake told the BBC's World Business Report.

He said that the proposals had been ratified by the cabinet and would be submitted to parliament on 6 October.

"We have developed business confidence," he said.

The present government inherited negative economic growth but now that figure has climbed to 4%.

The truce and peace talks have spurred hopes that investment and tourists will return to the island and help the economy grow

"It certainly places Sri Lanka on the regional map, if not on the international map," he said.

He insisted that the government had to be optimistic.

"If we pessimistically try to run government we will probably end up like one of the banana republics - so we certainly have faith in the process we have embarked upon."