Financing the Sri Lankan armed conflict

This article begins with a discussion of the various costs which occur as a result of armed conflict. It then examines the alternative ways in which wars can be financed. Sri Lanka’s military expenditure increased six fold, in real terms, between 1981 and 1991. This increase appears to have been financed principally from a reduction in capital expenditures and by a diversion of expenditures away from Economic Affairs and Services, and within this category, especially agriculature. The implications for economic growth are examined. It is estimated that the conflict is resulting in a reduction in the rate of growth of GDP by half a percent per annum.