The surprise result of the presidential election, which saw Mahinda Rajapaksa defeated by his challenger Maithripala Sirisena, is proving to be a step back for investors, reports Bloomberg.
Sri Lanka's stock index is the world's fifth worst performer since the election last month, while the new government last week cancelled casino licenses, reduced public investment and introduced a one-off 25% tax on companies or individuals who reported more than $15mn in profits.
Australian mogul James Packer has already withdrawn from a $350mn hotel resort, with several Chinese projects also now in danger of being cancelled.
“The new government has gone beyond condemning what it sees as overpriced or immoral projects and targeted big domestic business as a whole,” Sasha Riser-Kositsky, Asia Associate at Eurasia Group, said in a Jan 30 note. The moves increase uncertainty for foreign and local companies and “will depress private investment,” he said.
The budget released last week included several populist measures designed to ensure re-election at the parliamentary polls later this year.
“Foreign buying may slow down in the next three months, given the policy uncertainties and a short-term cabinet,” said Reshan Wediwardana, an analyst at First Capital Equities Ltd. in Colombo. “The market will then look for whether the government that is elected is going to give a strong policy direction.”
The Ceylon Chamber of Commerce, Sri Lanka’s largest industrial grouping, said the taxes would send a confusing signal to investors.
“These are not desirable features of a competitive economy and a modern tax system,” it said.
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