Sri Lankan rupee fell 0.22% to 181.25/35 per dollar on Monday, compared to Friday's close of 180.85/181.00, Refinitiv data showed. It is up 0.7% so far this year.
Meanwhile, foreign investors were net buyers of government securities on a net basis for the sixth straight week, purchasing a net 4.3 billion rupees worth of government securities in the week ended Nov. 27.
Total foreign outflows from government securities through Nov. 27 stood at 43.7 billion rupees, according to central bank data.
The government said on Wednesday it had decided to reduce value-added tax (VAT) to 8% from 15% from Dec. 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 on Monday 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 $2 billion in lost revenue (around 2% of GDP) and the deficit is likely to widen to around 6.5% of GDP in 2020," it said.
“This is much larger than the 5.3% deficit target agreed with by the IMF (International Monetary Fund), who could withhold future loan payments unless the government reverses course."
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