Reuters - Sri Lankan shares closed nearly unchanged on Monday, steadying at a 17-month high hit in the previous session, as positive sentiment surrounding tax cuts by the country’s new government continued to cheer investors, while the rupee ended weaker.

** The benchmark stock index closed 0.05% up at 6,215.23, its highest since June 25, 2018. The bourse gained 1.5% last week, and is up 2.69% for the year. ** The rupee fell 0.22% to 181.25/35 per dollar, compared to Friday’s close of 180.85/181.00, Refinitiv data showed. It is up 0.7% so far this year.

** 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.” ** Foreign investors were net buyers in the equity market for the first time in five sessions on Monday and after being net sellers for 24 sessions out of 26.

** They bought a net 70.1 million rupees ($389,444) worth of shares on Monday, but the market has suffered a net foreign outflow of 10.7 billion rupees worth of equities so far this year, according to index data.

** Equity market turnover was 702.6 million rupees, less than this year’s daily average of about 725 million rupees. Last year’s daily average was 834 million rupees.

** 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.