IMF programme approval fails to cheer investors

The International Monetary Fund (IMF) Executive Board approving the second programme review, failed to cheer the Colombo Stock Market yesterday as investors appeared to have shrugged off anything coming out from the multilateral lender.

The broader All Share Price Index shed 0.25 percent to 12, 359.86 while the S&P SL20 gave up 0.44 percent to 3,670.16.

Foreigners continued to end up as net sellers of Sri Lankan stocks.

It appears that the IMF programme review approvals are increasingly becoming non-events and their penny pinching money is getting shrugged off by the investors as staying with the programme has massively weighed on the economy’s forward march than any benefit their money could do to the economy.

Sri Lanka’s economy recovered from the foreign exchange shortage led economic downturn due to robust inflows from tourism trade, remittances and resilient export earnings.

The suspension on most foreign currency loans has also helped to add more space to the country’s external sector which in turn helped to ameliorate the then hardships on the economy and its people.

Investors increasingly consider that staying with the programme is going to be a drag on the stocks, the companies which generate cash flows and the overall economy due to the heavy handed nature of their conditions, specially on taxation.
While the interest rates have become a tailwind for the listed companies’ cash flow generation, the very high taxes have been a massive drag on their bottom lines.
With the corporate tax rate at 36 percent, value added tax rate at 18 percent and Social Security Contribution at 2.5 percent and many other taxes on top of them, the businesses have been squeezed to the hilt while the consumer spending has been below potential.