Expenditure within the Sri Lankan defence industry has been declining at a compound annual growth rate (CAGR) of -2.99% over the past four years, to reach a value US$1.3 billion in 2012. However, the country's military expenditure is estimated to register an increase in CAGR of 8.15% over the next four years, to value US$1.8 billon in 2017.
According to a recently published report, titled 'Future of the Sri Lankan Defense Industry - Market Attractiveness, Competitive Landscape and Forecasts to 2018,' Sri Lanka has a defense budget of US$1.7 billion and less than 5% marked for capital expenditure, which presents few opportunities for foreign defence companies.
Rebuilding northern parts of the country, which were destroyed during the war and repayment of loans taken during the war, are expected to drive the country's military expenditure over the coming years.
The country is expected to maintain a low allocation for defence procurement through to 2018, focusing only on procuring necessary arms as the country focuses on reducing its debt.
Over the next five years the country is expected to invest US$10.7 billion in the fulfilment of its defence requirements, stimulated by factors such as post-war rehabilitation and a tense relationship with India.
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.
The country is focusing on increasing its revenue expenditure from an average of 94% to an average of 96%, a factor which is also expected to cause the acquisition of defence equipment to further decline. Such factors do not make the Sri Lankan defence market an attractive investment destination for foreign OEMs.
Sri Lankan defence imports registered a continuous increase during 2006-2008 due to the outbreak of civil war in the country during 2006-2009. However, since the war ended in May 2009, the country's overall arms imports have significantly reduced. With the country focusing on the repayment of debts which it undertook during the conflict with the LTTE, Sri Lankan defence imports are projected to reduce.
For more information on the Sri Lankan defence market, see the latest research: Defence Market Research
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