Sri Lanka suffered the shock and shame of negative economic growth (last year). We want to reverse that

Finance Minister, KN Choksy

The government, which has agreed a ceasefire with Tamil Tiger rebels, set an economic growth target of 3.5-4.0% for 2002.

It also said it planned to cut the budget deficit to 8.5% in 2002, from 10.8% last year.

Sri Lanka's economy shank last year, as growth was hit by the global economic downturn, a severe drought and a major rebel attack at the island's sole international airport.

"For the first time in our history, Sri Lanka suffered the shock and shame of negative economic growth. We want to reverse that," Finance Minister KN Choksy said in the speech.

Tax reform

The finance ministry introduced a number of changes to the country's tax system to try and help business.

It announced that a corporate tax surcharge, introduced last year, would be removed, and that the tax system as a whole would be streamlined.

The International Monetary Fund, with whom Sri Lanka is currently negotiating, had urged the country to simplify the tax system.

Mr Choksy also announced that Sri Lanka hoped to raise 21bn rupees ($221m; �155m) through the sale of state assets this year, although no details of which businesses would be sold were given.

No 'peace dividend' yet

Although the government and the Tamil Tigers agreed a ceasefire last month, analysts say it is too soon for any benefits to be reflected in the government's expenditure.

Military spending, which accounts for 5.3% of economic output, is unlikely to be cut, as much of it is fixed already.

Analysts say the truce will have to hold for a longer period of time before the economy can enjoy any "peace dividend".