* Government targets development in 2012
* Contradictory investment policy concerns remain
* Aims 8 pct growth, 6-7 pct inflation
* Govt expenditure, borrowing to rise
By Shihar Aneez
COLOMBO, Nov 17 Sri Lanka aims to maintain
8 percent economic growth and cut its fiscal deficit to a
20-year low in the 2012 budget due to on Monday, with investors
concerned after the government sent several conflicting signals
on investment policy
The 2012 budget will be President Mahinda Rajapaksa's second
full-year budget since the end of a 25-year war that had
hindered the Indian Ocean island nation's $50 billion economy.
The budget is expected to focus on development and maintain
lower tax regimes adopted in the 2011 budget, which was meant to
instill confidence with investor-friendly polices.
"I think it is going to be an okay budget with the
government refraining from introducing any negative investor
policies," Colombo-based TKS Securities' research head Danushka
Samarasinghe told Reuters.
Investor confidence has taken three big hits over the last
month, with the government changing the terms on a $500 billion
hotel deal, the removal of the capital markets regulator who
acted against market manipulation and the passage of an asset
acquisition act that drew ratings agency criticism.
"This government is trying to do business by itself, leaving
the private sector and investors in tatters," said an economist
with a private bank on condition of anonymity.
"They will have to introduce policies to reduce government
shares in businesses and if that happens through this budget,
that will be a welcome move."
The government has continuously said it will intervene in
the market when it does not work efficiently.
The island nation plans to cut its budget deficit to 6.2
percent of the gross domestic product (GDP) in 2012, lowest
since 1992, from this year's estimated 6.8 percent and is aiming
for 8 percent economic growth.
Public investment on infrastructure will be increased by
19.4 percent to 541 billion Sri Lanka rupees ($4.9 billion), or
about 6 percent of the GDP.
Annual inflation is forecast to stay at 6-7 percent, and
government debt is expected to be trimmed to 75 percent of GDP
from this year's forecasted 80 percent.
Rajapaksa, who is also the country's finance minister, plans
to boost spending by 8.5 percent to 2.22 trillion Sri Lanka
rupees in 2012, while increasing borrowing but maintaining the
fiscal consolidation gains made under a $2.6 billion IMF loan
Rajapaksa's government has focused its post-war efforts on
building or renovating ports, roads, railways and other
infrastructure, with over $21 billion expected to be spent
The budget also comes at a time when the IMF has delayed
the eighth tranche of the loan, after the central bank rebuffed
its call to stop intervening on the rupee exchange rate.
The central bank has spent more than $1 billion
this year defending the rupee rate.
($1 = 110.205 Sri Lanka Rupees)
(Editing by Bryson Hull)