ECONOMYNEXT – Sri Lanka shares closed lower on Friday as selling pressure increased following the government’s decision to relax import restrictions imposed two years ago and for having obscure direction on domestic debt restructuring and optimization, an analyst said.
“The market is down on the lack of direction in domestic debt restructuring and debt optimization,” an analyst said.
The main All Share Price Index (ASPI) was down 0.18 percent or 15.65 points at 8697.07, while the most liquid index, S&P SL20, was down 0.18 percent or 4.60 points at 2,485.22.
The government plans to lift import controls on 100 items that were banned during forex shortages in the past two years, which had been hurting small and medium-sized industries, State Minister for Finance Shehan Semasinghe said.
“Stocks went down due to selling pressures resulting from relaxed import restrictions, which are expected to reduce the monopolistic powers held by domestic retailers,” an analyst said.
The main reason for the market’s negative sentiment is the loss of monopoly as import restrictions ease, an analyst said.
“The market is seeing more selling pressures as investors are taking a stance until more clarity is given on domestic debt restructuring assurances and interest rates are high,” an analyst said.
Sri Lanka’s government is to disclose the stance on domestic debt restructuring towards the end of May, which is why investors have adopted a wait and see approach.
Analysts said the low volumes seen in the market are due to the debt restructuring concerns, and investors are waiting for the monetary policy review for the next month.
Sri Lanka’s banks said assurances has been received that the stability of the sector cannot be risked in a planned domestic debt overhaul, to make the defaulted debt sustainable under a program with the International Monetary Fund.
Sri Lanka’s banks have sought clarity on a proposed domestic debt restructure, questioning whether there is a non-voluntary element in the plan, and have also called for transparent discussions with all banks.
The top losers during trading were Aitken Spence, John Keells Holdings and Cargills.
Sri Lanka’s central bank has terminated the cash margin requirement on import letters of credit that was imposed over the previous 12 months to limit imports, as liquidity injection triggered forex shortages and a currency collapse.
In an order issued under the monetary law, the central bank imposed a 100 percent cash deposit margin on 843 imports on May 19, 2022, and February 16, 2023, to discourage imports.
Sri Lanka had controlled imports of 3,000 items denoted by HS codes out of a total of 8,000 during the past two years.
The controls were then brought down to 1,000 as they were hurting small and medium-sized industries that depended on inputs.
“By the beginning of next month, we will be able to lift controls on another 100 items,” Minister Semasinghe told parliament.
The market generated revenue of 729 million rupees, while the daily average turnover was 1.2 billion rupees.
The market generated a foreign inflow of 20 million rupee and the net foreign outflow was 262 million rupees. (Colombo/May 25, 2023)