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 Post subject: Rebuilding costs to widen Sri Lanka deficit
 Post Posted: Wed Jun 01, 2005 5:13 pm 
Rebuilding costs to widen Sri Lanka deficit

@ By Renee Lawrence Bloomberg News

COLOMBO Sri Lanka's budget deficit will widen to more than 9 percent of gross domestic product this year because of the cost of repairing damage caused by the December tsunami, the central bank has said.

"Additional expenditure being incurred to rebuild tsunami-affected areas may pose a challenge unless funded through external assistance," the Central Bank of Sri Lanka said in a report on Friday. Sri Lanka had a budget deficit of 8 percent of GDP last year and had previously forecast that this year's shortfall would be 7.6 percent.

President Chandrika Kumaratunga's government has been struggling to bolster economic growth after Sri Lanka's fishing and tourism industries were hit by the tsunami, which killed more than 30,000 people on the island.

Rising oil prices have put further pressure on the budget. The cost of fuel subsidies is set to increase to 15 billion rupees, or about $150 million, this year from 10 billion rupees in 2004.

Foreign donors have pledged $3 billion in aid to help the nation recover from the tsunami. Still, the central bank governor, Sunil Mendis, said April 29 that economic growth this year might slow to 5.3 percent from 5.4 percent in 2004.

The central bank will release details of a sale of dollar-denominated bonds to be used to finance the budget deficit and ease its borrowing costs. "We haven't finalized the final figure yet, but we will make an announcement next month," Mendis said.

The deputy central bank governor, W.A. Wijewardena, said on April 29 that Sri Lanka would sell $150 million of dollar-denominated bonds this year, down from $250 million last year.

The central bank report released Friday said threats to the 2002 cease-fire that ended Sri Lanka's two-decade civil war could further crimp growth.

Cellphone stake to be sold

Telekom Malaysia this year will sell a 9.3 percent stake in its Sri Lankan cellphone unit, MTN Networks, the Telekom chairman, Radzi Mansor, has said.

Telekom has invested $200 million in Sri Lanka since 1994 and wants to expand through MTN Networks, the country's biggest cellphone operator. Proceeds from the sale will be used to expand its network and increase subscribers to two million this year, Mansor said. MTN has 1.5 million users.

"We will use the funds to invest in increasing capacity and getting into the rural areas, especially the northeast, where we see high growth," Mansor said. "We will also take some of the funds raised back into Telekom."

MTN expanded its coverage into Jaffna, in northern Sri Lanka, 90 days after the government agreed to a cease-fire with the northern-based rebels.

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