(Colombo) REUTERS: Sri Lankan shares closed nearly unchanged yesterday, steadying at a 17-month high hit in the previous session, as positive sentiment surrounding tax cuts by the country’s new government continued to cheer investors, while the rupee ended weaker.
The benchmark stock index closed 0.05 percent up at 6,215.23, its highest since June 25, 2018. The bourse gained 1.5 percent last week, and is up 2.69 percent for the year.
The rupee fell 0.22 percent to 181.25/35 per dollar, compared to Friday’s close of 180.85/181.00, Refinitiv data showed. It is up 0.7 percent so far this year.
The government said on Wednesday it had decided to reduce value-added tax (VAT) to 8 percent from 15 percent from December 1 and abolish some other taxes as well, in its attempt to boost economic growth that has fallen to a near two-decade low.
Emerging Asia Economics said in a note yesterday that the tax cut decision would provide a significant boost to the economy but put increased strain on the country’s fragile public finances.
Unless Sri Lanka raises taxes elsewhere or cuts spending, the VAT cuts will lead to around US $ 2 billion in lost revenue (around 2 percent of GDP) and the deficit is likely to widen to around 6.5 percent of GDP in 2020,” it said.
“This is much larger than the 5.3 percent deficit target agreed with by the IMF (International Monetary Fund), who could withhold future loan payments unless the government reverses course.”
Foreign investors were net buyers in the equity market for the first time in five sessions yesterday and after being net sellers for 24 sessions out of 26.
They bought a net Rs.70.1 million worth of shares yesterday but the market has suffered a net foreign outflow of Rs.10.7 billion worth of equities so far this year, according to index data.
Equity market turnover was Rs.702.6 million, less than this year’s daily average of about Rs.725 million. Last year’s daily average was Rs.834 million.
Meanwhile, foreign investors were net buyers of government securities on a net basis for the sixth straight week, purchasing a net Rs.4.3 billion worth of government securities in the week ended November 27.
Total foreign outflows from government securities through November 27 stood at Rs.43.7 billion, according to the Central Bank data.