* Aims 7.5 percent economic growth next year
* Budget focuses on discouraging imports, boosting exports
* Sri Lanka expects new IMF loan in January
* New listing companies offered tax breaks
By Shihar Aneez and Ranga Sirilal
COLOMBO, Nov 8 Sri Lanka aims to reduce its
fiscal deficit to 5.8 percent of GDP in 2013, while attaining
7.5 percent economic growth next year, President Mahinda
Rajapaksa said on Thursday, announcing the island nation's
The government expects to meet this year's fiscal deficit
target of 6.2 percent, the level agreed with the International
Monetary Fund (IMF) under the terms of a $2.6 billion loan,
which was fully disbursed in July.
The deficit was brought down to 6.9 percent in 2011, under
the eyes of the IMF, from 8.0 percent in 2010.
While the deficit was being reduced, Rajapaksa forecast the
economy would gather momentum after a slowdown this year as a
result of tight monetary and fiscal policies adopted to curb the
country's fiscal and external deficits.
"We expect to maintain growth of 7.5 percent in 2013 and to
reach 8 percent thereafter. We will be able to achieve 6.8
percent growth this year," Rajapaksa told parliament while
presenting the 2013 budget in his capacity as the finance
Sri Lanka aims to accelerate growth of its $59 billion
economy by pumping money into post-war infrastructure projects.
There are some $21 billion worth of construction and rebuilding
projects in ports, roads, railways and other infrastructure
lined up through 2015.
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.
Sri Lanka expects to negotiate a fresh loan from the IMF in
Rajapaksa said the government aimed to reduce Sri Lanka's
debt to GDP ratio to 75 percent in 2012 from an estimated 78.5
percent this year.
TWIN DEFICIT TARGETED
The budget focuses on cutting imports and encouraging
exports and foreign remittances in order to curb twin deficits
of the trade and current account.
Last year, Sri Lanka ran up a record trade deficit of $9.7
billion, and in the first nine months of this year the deficit
stood at $6.78 billion, showing virtually no improvement.
The central bank and finance ministry implemented tough
policy measures, including a flexible exchange rate early this
year to avoid a balance-of-payments crisis.
"Flexibilities in the exchange market will enable the
required improvements in exports and the reduction of imports to
narrow the trade deficit," Rajapaksa said.
"The government also projects an overall surplus in the
balance of payments, which will strengthen our international
Rajapaksa increased taxes on the import of certain foods,
including red onions and maize, with the aim of becoming self
sufficient by 2015. He also raised an import tax on milk powder
to save $350 million spent on dairy products yearly.
The president also proposed a two-year depreciation
allowance for export manufacturers, including the apparel
industry, to allow for modernisation.
Rajapaksa expected inflation to slow in 2013.
"By maintaining the money supply at 14 percent and favorable
food supply, we expect inflation to drop to 7 percent," he said.
Inflation in October was running at 8.9 percent from a year
The president also offered a three-year half tax holiday for
new companies that will be listed on the Colombo Stock Exchange
before December 2013 subject to certain conditions.
(Reporting by Shihar Aneez and Ranga Srilal; Editing by Simon
Cameron-Moore and Ron Popeski)