COLOMBO Sri Lanka is to announce new tax measures Thursday in another war budget that has set aside an unprecedented 63.39 billion rupees ($745 million) for defense, AFP quoted officials here as saying.

The government is to announce in Parliament Thursday the new revenue proposals aimed at keeping down the budget deficit buffeted by escalating defense spending to battle Tamil Tiger rebels, officials said.

"It is most likely that the government will try to widen the tax net to rope in more people to pay their dues to the state," a senior treasury official said.

The budget for calendar 2001 is being presented in the back drop of a worsening economic crisis in the country.

"We are facing a financial crisis. We are facing a foreign exchange crisis," said Ports Minister Ronnie de Mel who had presented 11 budgets under the previous administrations. "We are indeed facing a crisis situation."

De Mel said the country's foreign reserves had fallen sharply due to a surge in military spending to import hardware. The government's priority was to keep the budget deficit under control, he added.

Figures tabled in Parliament last month show defense spending in 2001 is 63.39 billion rupees, compared to an estimated figure of 52.43 billion rupees last year.

However, last year's actual defense spending overshot the original budgetary allocation to hit anything between 83 to 85 billion rupees (just over one billion dollars), officials said.

They said the unexpected expenditure on the purchase of new military hardware to resist a major onslaught by Tamil Tiger guerrillas in the northern peninsula of Jaffna in April resulted in the sharp rise in defense spending.

In rupee terms, the defense outlay this year is a 20 percent increase, but in U.S. dollar terms it is about the same reflecting the sharp depreciation of the local currency against the U.S. dollar.

Government expenditure this year is estimated at 364 billion rupees and the government plans to raise its borrowings to 247 billion rupees.

Last year, the government expenditure was estimated at 294 billion rupees and the state's borrowing limit was 169 billion rupees. The increase in the government's borrowing limit this year amounts to a 46 percent rise.

In the defense budget, about 46 percent goes to the Sri Lankan Army while the second biggest chunk of 19 percent goes to the police.

Financial analysts here expect the government to raise the current 6.5 percent National Security Levy (NSL) by at least one percentage point to meet the increasing military spending.