Sri Lanka is expected to invest US$7.07 bn on its armed forces during the forecast period

Wednesday 18 July 2012, Amsterdam

The Sri Lankan defense expenditure grew at a CAGR of 10.12% during the review period to value an estimated US$1.42 bn in 2012. During the forecast period, the country’s defense expenditure is expected to be driven by factors such as post war rehabilitation, a tense relationship with India and a persistent threat from separatists. However, military expenditure is expected to record a decrease in growth of -0.10% CAGR and remain at US$1.41 bn by 2016. As a result of a decrease in overall defense expenditure, the country’s defense budget as a percentage of GDP is also expected to decline from 2.65% in 2011 to 1.44% in 2016 (reference see graph).

Sri Lanka is expected to invest US$7.07 bn in its armed forces, of which US$0.33 bn is forecast to be on the acquisition of military hardware, offering foreign OEMs limited opportunities to cater to the Sri Lankan defense industry. Furthermore, during the civil war the country procured weapons by taking loans, and therefore over the next five years a portion of military expenditure will be spent on the repayment of existing loans.

Incidents of malpractice within the country’s military industrial base may limit the growth of the country’s defense sector. In addition to damaging the country’s image in the global arms market, it also discourages foreign OEMs from market entry.

As a result of a lack of domestic defense capabilities, Sri Lanka is dependent on foreign suppliers to meet its military requirements. Arms imports, which registered increase during 2008, are further decreased due to a portion of the nation’s capital expenditure being used to repay the loans taken out by the government during the civil war.