Sri Lanka stocks end at 5-month high after IMF deal announcement

ECONOMYNEXT – Sri Lanka stocks gained on Thursday (01) for the third session to end at five-month high after the International Monetary Fund (IMF)  confirmed a 48-month, $2.9 billion Extended Fund Facility (EFF) for the island nation to come out of the economic crisis, brokers said.

The main All Share Price Index (ASPI) shot up 2.02% or 183.49 points to 9,925.81, its highest since March 30.

The market generated 4 billion rupees in turnover, higher than this year’s average daily turnover of 3.14 billion rupees.

“IMF staff level agreement lifted the market. Investors believe normalcy will prevail sooner than later,” a market analyst said.

“Investors expect the economy to recover sooner than later.”

The market saw a net foreign inflow was 127.6 million rupees on Thursday. The total net foreign flow turned into inflow on Wednesday and the bourse has seen a net foreign inflow of 677 million rupees so far this year.

The IMF announced that it has reached staff level agreement with Sri Lanka with possible a 48-month 2.9 billion dollars in Extended Fund Facility (EFF) once the debt restructuring is done.

This facility is subjects to many conditions and the agreement needs to be approved by IMF management and the Executive Board.

Under the program the budget will have to generate a primary surplus (debt before interest) of 2.3 percent by 2024. The 2022 expected primary deficit is 4 percent of the GDP.

It called for personal income tax more progressive and broadening the tax base for corporate income tax and VAT.

IMF has also said that all the creditors including China must agree to restructure their existing loans before it lends the EFF facility.

In the newly proposed interim budget, the president has already proposed to increase the VAT. However, exclusion of corporate earning tax boosted the sentiment.

Sri Lanka defaulted on its foreign debt on April 12 and deepened an economic collapse into a political crisis. Sri Lanka is facing its worst fuel and economic crisis in its post-independence era. The economy is expected to contract more than 8 percent this year.

The more liquid S&P SL20 index ended 2.73% or 80.01 points up at 3,008.98.

The main index ASPI has gained 17.3 percent in August after gaining 5.3 percent in July. It lost 9.3 percent in June, 23 percent in April, and 14.5 percent in March.

The index has lost 24.3 percent so far this year after being one of the world’s best stock markets with an 80 percent return last year when large volumes of money were printed.

Investors are also concerned over the steep fall of the rupee from 203 to 370 levels so far in 2022.

Sampath Bank pushed the index up, closing 7.5 percent higher at 34.4 rupees a share.

Lanka IOC closed 7.4 percent up at 192.5 rupees a share, and Melstacorp gained 4.5 percent to 56.2 rupees. (Colombo/Sept01/2022)