Announcing an emergency budget, Acting Finance Minister Sarath Amunugama also announced special incentives for the apparel industry soon to be affected by the EU decision to rduce tax concessions.

The European Union recently announced the withdrawal of GSP+ trade concession after Sri Lanka failed to abide by the agreed measures to improve the human rights situation in the country.

It is the first time in the history of Sri Lanka that the government announced such an emergency budget has been announced in the middle of the year.

IMF loan

The budget deficit "will be reduced to eight perecent of GDP by next year with a final target of bringing down the deficit gap to five perecent of the GDP and resettle all remaining dispalced people by the end of the year," according to government Information Department website.

Budget deficit will be reduced to eight perecent of GDP by next year with a final target of bringing down the deficit gap to five perecent of the GDP Information Department

Minister Amunugama also announced that the International Monetary Fund (IMF) has released the next tranche, USD 407 million, of the agreed Stand-by Arrangement for Sri Lanka.

The release was held back by the IMF after the government failed to produce a budget proposal in November, last year.

The government also plans to develop tourism, housing development and invest for rural development during the next six years.

The most notable of the emergency budget is that no proposals were announced for revenue or expenditure, analysts say.

Minister Amunugama said that a "more business-friendly" tax structure would soon be announced after the Tax Commission issues its report in August.

The government also said the private sector investment had risen 10 percent to 31 percent.

Former military commander, Gen Sarath Fonseka, meanwhile told BBC Sandeshaya that the defence allocations in the budget are not enough.