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ECONOMYNEXT – Sri Lanka National Medicine Regulatory Association (NMRA) has given permission to raise drug prices by 29 percent on the request of private importers due to steep depreciation of rupee against the US dollar, the subject minister told the parliament on Friday (11).

HOwever, medical experts have raised concerns over unafforable drugs.

State Minister of Production, Supply and Regulation of Pharmaceuticals, Channa Jayasumana told the parliament, that the drug regulator NMRA has agreed to grant permission to increase prices by 29 percent at a meeting held on Friday.

“With the changes in the dollar we had inquiries to change the prices. But me nor the Minister of health has the power to change or increase the prices.” Jayasumana said.

“The NMRA committee had a meeting today and discussed about it and recommended a price increase percentage which we as the ministry can implement. Accordingly, the price increase they have given permission is 29 percent,”

Meanwhile, the Federation for Health Professionals (FHP) said, state hospitals are experiencing a shortage of more than 50 essential drugs and specialists have had to plan their treatments with just a few of the more affordable substitute medicines.

“This increase in prices is a serious crisis for the entire healthcare system, as it has become the norm to buy all the expensive drugs from private pharmacies,” the convener of the Federation for Health Professionals, Ravi Kumudesh said.

“As a result of this price increase, it is inevitable that the prices of essential drugs will continue to double or triple or even increase on a daily basis at competitive prices and the hospital staff will have to maintain a health care system that varies according to the amount of money available at hands of patients.”

Free Health at Stake?

FHP said in addition to the dollar problem, an increase in freight rates for pharmaceuticals due to the sharp decline in the arrival of cargo ships and aircraft, increase in oil prices, will lead to further increase in drug prices in the future.

“Unless a definite plan is put in place, the public must be prepared for an environment in which free health care will not function in the country,” Kumudesh said.

Commenting on the allegation on medicine shortage, the minister said the shortage has been created by sellers, dealers and importers by preventing adequate supply to the market expecting price hike.

Jayasumana said the state-owned storages have enough supply for 6 months while the private suppliers had informed the authorities of having enough supplies for another 4 months. However, due to the forex shortage in the country, private medicine suppliers informed a possible shortage in medicine earlier this month.

The Sri Lanka Chamber of Pharmaceuticals Industry (SLCPI), at a press briefing held on March 3, said, due to inability to open letters of credit, country will face a shortage of essential drugs in the market by next month.

Azam Jaward the Vice President, SLCPI said the industry has not been given priority to a certain extent due to the current power crisis where fuel is given priority.

“Delays in NMRA, price control is causing a problem along with the dollar crisis,,” HE SAID.

“Until last month we did not have any major issues. But now the banks have been advised to prioritize issuing LCs to import fuel. If this trend continues, even for the lifesaving drugs, we will have a serious issue.”

“We are at the moment have the supply for another 2-6 weeks, some medicines for another 3 months, but we are concern about the possible situations that can arise in the future in this country due to drug shortage.”

Negative Consumer Reaction 

Medical and Civil Rights Professional Association of Doctors (MCPA) in a letter before the price increase said affordable drug prices are likely to reduce patients taking adequate medicines at appropriate intervals.

Dr. Chamal Sanjeewa, the President of MCPA said many patients are tempted to buy the drugs in small amount “without taking them for the prescribed period of time.’’

‘’If the price of medicine increases, the public will not use medicine in the appropriate and prescribed manner,’’ he said asking for the government intervention to help the poor to ensure medicinal supply at an affordable price.

‘’If there’s no fuel you can stay at home and work if there’s no gas you can convert to firewood or kerosene cookers if there’s no electricity you can light a candle, but if there’s no medicine there is no alternative the people have.’’

He also warned that if Sri Lanka manufactures drugs, it must be done in the right quantity and quality for the patients as there is potential to use Sri Lankan resources to control the budding anticipated shortage.  (Colombo/Mar12/2022)

ECONOMYNEXT – Sri Lanka will start debt restructuring talks with the International Monetary Fund (IMF) in April on a plan to address its debt crisis, including assistance with debt restructuring and managing its foreign exchange shortage, Reuters reported quoting three unnamed sources on Friday (11).

“We are taking our proposal and a plan,” Reuters report said on Friday (11) quoting one of the sources who declining to be named since the discussions are confidential.

“The government is serious about fixing things. We will discuss options based on our plans,” the source said.

It also said Finance Minister Basil Rajapaksa will travel to Washington D.C. in mid-April to present Sri Lanka’s proposal to senior IMF officials, attributing to two sources “with knowledge of the ongoing discussions”.

Reuters said both Sri Lanka’s finance ministry and the IMF did not immediately respond to questions.

Sri Lanka’s central bank governor Ajith Nivard Cabraal, however, said the upcoming meetings with IMF officials were not meant for debt restructuring talks.

“Meetings of Sri Lankan authorities with the IMF officials over the next few weeks are NOT for the purpose of debt restructuring as stated by some news agencies,” Cabraal said in his tweet feed.

Analysts have observed contradiction between the finance minister and central bank governor over policies to face the debt crisis. Cabraal has said Sri Lanka will not go for IMF where as Rajapaksa has said the country has been talking to many international financial agencies including the IMF to address the debt crisis.

Sri Lanka’s foreign reserves have plummeted over 70 percent in the first 11 months of last year and were at 2.31 billion US dollar by end February.  The island nation has to pay over 4 billion US dollars in this year including 1 billion US dollar international sovereign bond in July.

The shortage of foreign exchange has resulted in scarcity for fuel, import food, cooking gas, and milk powder. The fuel shortage has also resulted in a power cuts across the country.

Cabraal has said the IMF could impose free float of the currency, raising interest rates up to 50 percent, reducing the size of public sector, curbing pension scheme, and force Sri Lanka to sell state assets if the country goes for a programme with the global lender.

However, the resistance to start negotiations with the IMF has reduced in the last four months with the most members in the cabinet of ministers have agreed to explore the option.

The central bank has raised the key monetary policy interest rates by 200 basis points since January this year, while allowed nearly 30 percent depreciation in the rupee currency as it switched to flexible exchange rate from holding the rupee around 200 per US dollar.

Some government officials have said the central bank’s monetary tightening and flexibility in the exchange rate were part of the strategy before start talking to the IMF. (Colombo/March11/2022)

ECONOMYNEXT – Sri Lanka’s staple food prices shot up by at least 10-30 rupees each on Friday (11) evening, following a rupee devaluation in the country to control a forex crisis as global commodity prices rose due to Russian-Ukraine war.

The Central Bank of Sri Lanka (CBSL) allowed a flexible exchange rate on Tuesday (07) which has resulted in a 17-percent depreciation in the currency so far.

Dealers said the rupee was quoted around 260/75 against the USD on Friday.

The price increase is expected to raise inflation which is already at a record high of 15.1 percent by February 2022, a 14-year high.

Following the devaluation, the country saw commodity prices soar including the price of medicine and air tickets. Three-wheel fares also went up.

“Everything has increased. Tell me what has not increased? Today itself flour, bakery items and diesel and petrol increased,” S.M.D Suriyakumara, Lanka Confectionery Manufacturers Association (LCMA) Chairman, told EconomyNext.

“We have no alternative methods of production. We will just increase our prices to go in line with our competitors and carry our business forward.”

He said association members have no option but hike their prices.

The rupee was held around 200 rupees for nearly one year despite economists and experts asking the central bank to allow flexibility in the exchange rate.

Staple food prices by Friday

Bread, a staple food of Sri Lanka, will be increased by 30 rupees from March 12 and other bakery products too will be increased by 10 rupees each along with rice packets.

“We don’t have any alternatives in Sri Lanka at present to wheat flour,” N K Jayawardene, the president of the All Ceylon Bakery Owners Association told EconomyNext.

“Most of the wheat supply comes from Russia and Ukraine, so there’s a huge issue in supply due to the Russian invasion and on top of that we are facing the dollar crisis.”

Sri Lanka imports 45 percent of wheat from Russia and Ukraine.

“Today the dollar is at 270 rupees and on top of that diesel and transportation prices are also increasing because of shipping issues. These are the main reasons for the pricing increment as suppliers can’t charge the same old amounts when so many things have gone up in price,” said Jayawardene.

This was announced following news reports of wheat millers in the country increasing their prices by 30 to 40 rupees in the market.

One of the largest wheat millers, Serendib Wheat, has increased the price by 35 rupees according to reports.

“We are in big trouble. All raw ingredient prices have gone up. We were struggling to do business with this gas issue, and now  there is this price issue,” Asela Sampath, All Island Canteen Owners Chairman told EconomyNext.

“We have increased the price of everything.”

Rice packets will be increased by 20 rupees and Kottu by 10 rupees while other short eats will be increase by 5 rupees.

Rice packets can be bought at different prices from 150 to 400 rupees in wayside shops, so everything will now go up by 20 rupees.

Egg prices which already rose during the December festival season is trading between 27-28 rupees in the local groceries. Poultry and egg producers have not announced a price increase yet but said they are in discussion to do so.

Sugar wholesalers in the Colombo Pettah market said on Friday that they sold a kilo of white sugar at 190 rupees whereas on the previous day it was at 170 rupees per kilo.

“Everything is going to rise. Rice will increase by 15 rupees; flour has increased by 40 rupees; dhal will increase by 30 rupees, and sugar will rise by 20 rupees,” a spokesperson for KingFisher, a wholesale grocery store in Colombo, said.

“Prices are increasing but ’I don’t think there will be a shortage and goods will somehow come. Yesterday rice was 170 and today it’s 190. Flour was 150 rupees yesterday and today it is 190 rupees. Sugar was 150 yesterday and today it is 170 rupees, and dhal was 330 rupees and today it is 360 rupees.’’

Other staples like green grams and cassava were also sold at higher prices on Friday, consumers said.

(Colombo/Mar11 /2022)

ECONOMYNEXT – Sri Lanka may go for an International Monetary Program sources said as efforts are under way to float the exchange rate to end forex shortages amid high budget deficits and rising oil prices, which are creating additional deficits in state energy companies.

Sri Lanka’s forex reserves have been depleted to 2.3 billion US dollars by February 2022.

An IMF programs involves both a monetary program and a complementary fiscal program.

Sri Lanka has been reluctant to raise fuel prices as global prices rose and the currency was floated.

Soft pegged central banks usually float the currency after running out of reserves.

Though tourism in recovering, Sri Lanka has been hit by sharply higher oil prices after Russia’s invasion of Ukraine.

Co-ordinated Attack

An IMF program would allow both the fiscal and monetary policy to be co-ordinated, a source aware of the matter said.

Former Deputy Governor of the Central Bank W A Wijewardena, said an overall co-ordinated program is needed though the float was step in the right direction.

“A piecemeal attack will not help,” Wijewardena said. “We need a macro-economic plan that will cover the interest rates, exchange rate, monetary policy and the budget.”

Quite separate from the forex problem rates have to be raised to contain inflation, he said.

A float triggers a structural change in prices which will be fully accommodated with open market operations unless rates are raised. Working capital needs of companies rises suddenly when currencies collapse which has to be provided by new deposits rather than open market operations.

Budget can get a little better as tax revenues go up with inflation.

An IMF stand-by arrangement typically involves a reserve money program which limits domestic money growth and a budget deficit target.

An IMF deal is signed by both the Finance Minister and the Central Bank Governor and the country has to make formal request for financing.

Sri Lanka now also needs debt restructuring with the International Monetary Fund having determined that the debt sustainable analysis is negative.

An IMF program also has a non-default rule (continuous performance criterion on non accumulation of external arrears) and such programs are fully pre-financed.

Budget Finance

In addition to debt restructuring, the World Bank, the Asian Development Bank, Japan usually chips in budget finance, provided reforms are done which will allow the economy to grow and repay the loans.

Visiting Asian Development Bank chief Masatsugu Asakawa had “highlighted the need to underpin sound macroeconomic management with structural reforms,” the Manila-based lender said in a statement amid a two day visit to the island.

Controls that do not help the crisis, such as import licenses which breed corruption usually have to be removed and exchange controls have to be phased out. (Colombo/Mar12/2022)

ECONOMYNEXT – Sri Lanka’s actions including a float of the currency and taxes on imported items will help the economy stabilize amid global turmoil, Central Bank Governor Nivard Cabraal said, as the rupee fell in an free float exercise.

The rupee closed at 255/265 to the US dollar on March 10, after opening at 240/260 as the currency headed towards a free float. The kerb market rate and the interbank spot market have unified.

There was still no active trading in the spot market.

Sri Lanka is facing high oil prices and the central bank has depleted its reserves.

Cabral has tightened policy rate 100 basis points to 7.50 allowed market rate to go up, and has also called for fuel price hikes as oil prices rocketed in a bubble fired by the Federal Reserve worsened by Russia’s invasion of Ukraine.

This week the government said it was placing controls on some imports.

“Upon our advice the government seems to be reacting positively and that would help steer the economy to calmer waters in this time of unprecedented global challenges,” Cabraal said on March 10.

“By carrying out those functions, we would be able to increase the policy space in order to take a more sustainable approach.”

Cabraal called for higher taxes on 700 imported items, which will boost tax revenues.

However authorities have also placed licenses on many items which critics say leads to corruption as they had done in the past and increases distortions in the economy.

Top economist W A Wijewardena said the float was a step in the right direction but policy rates have to be raised to help the rupee and also cool inflation.

“We have to raise rates to contain the rising inflation in the country,” Wijewardene said.

“But it has a positive effect on the exchange rate. One reason very high demand for imports is the money available. The high aggregate demand is driving imports.”

The central bank as advisor to the government has also called for higher taxes, and a break on non-urgent capital spending which will immediately put break on imports.

Related

Sri Lanka central bank asks govt to delay capex, raise taxes, sell assets to slow forex crisis

Slowing government capex financed by domestic borrowings will cool the deficit and reduce aggregate demand leaving more forex exchange inflows for items like fuel.

In 2021, investment goods imports including building materials surged to 4.46 billion US dollars from 3.5 billion rupees a year earlier while fuel imports rose to 3.7 billion dollars from 2.5 billion dollars.

The central bank has also called for higher fuel and electricity prices. Oil prices which have been bubbling due to Federal Reserve money printing (Powell Bubble) rose to levels not seen since the Greenspan-Bernanke bubble which collapsed in 2008.

Higher energy prices direct spending power to oil and reduces non-oil consumption allowing total imports to remain the same.

If oil is subsidized by credit it will drive up interest rates and if the policy rate of 7.5 percent is enforced, money will be printed to accommodate subsidy creating further pressure on the rupee.

There are calls to raise rates to help the rupee and also eliminate arbitrage opportunities between the overnight rates and the 3-month bill yield. (Colombo/Mar11/2022)

ECONOMYNEXT – Sri Lanka is once again facing a gas shortage as yet another consequence of the foreign exchange crisis in the country, leading canteen and restaurant chains to withdraw from businesses until new supplies come.

Due to the ongoing forex crisis, all sectors in the economy, mainly import businesses have been badly affected.

Despite finally floating the dollar, Sri Lanka is continuing to see shortages in all types of fuel while daily power cuts continue since February 15 with occasional exceptions.

With commercial banks refusing to open letters of credit (LCs) for essential products such as medicines, industry leaders said, Sri Lanka may continue to see shortages in the coming days.

Meanwhile, the government also gazetted 367 non-essential goods whose imports is to be restricted.

With both Litro, the state owned LP gas provider, and Laugfs Gas Pvt Ltd limiting cooking gas supply to the market, media reports showed many restaurants and canteens struggling to serve fastfood and other meals, especially in densely populated commercial areas.

“We have limited the amount of food we produce in a day to save gas until supply to the market resumes,” a restaurant owner in Kollupitiya told EconomyNext.

“Earlier we had a similar issue due to explosions happening around the country, and now we are facing a shortage again because the country can’t buy [gas].”

Another restaurant owner said his business is trying to get to the breakeven point to cover the costs of production and continue the business with minimum profit.

“Due to COVID-19 fears, people ate less at our restaurant than they did pre-pandemic times. Before that there were there [2019 Easter bombings], and now this. We are trying to continue the business hoping it would turn around,” he said.

Laugfs Gas, the private LP gas supplier in the duopoly market, said there is only a little stock left as of March 03.

“We will see a serious shortage. We have very little stock, only sufficient for one or two days in the port,” W K H Wegapitya, Laugfs’ Chairman, told Economynext last week.

Laugfs Gas controls around 20 percent of the LP gas market in Sri Lanka while the state owned Litro supplies 80 percent.

Laugfs needs on average 15-30 million US dollars per month to import gas, Wegapitya said.

“We have been supplying around 15,000 tons to the market per month but with this forex issue we are finding it difficult to continue the supply, especially with commercial banks not opening LCs for us to import gas,” he said.

Sri Lanka Port Authority officials told EconomyNext that two LP gas ships were directed to Muthurajawela gas terminal to start unloading. However, most LP gas dealers in the country have not received gas that has been requested from the suppliers so far. (Colombo/Mar10/2022)

ECONOMYNEXT – An International Monetary Fund (IMF) report on Sri Lanka’s ailing economy will be made available to all MPs and party leaders before an as yet unscheduled all party conference, according to Leader of the House Dinesh Gunawardena said.

Responding to a question by former prime minister and United National Party (UNP) MP Ranil Wickremesinghe in parliament on Wednesday (09), Gunawardena said MPs will be notified of the all party conference.

Wickremesinghe requestsed that the government immediately table the report in parliament along with relevant data so that the legislature may analyse and debate it in view of the ongoing economic crisis.

Minister Gunawardena responded that the report is publicly available, but when Wickremesinghe noted that copies have only been sent to the Finance Ministry and the Central Bank, as is practise, he said copies will be made available to all MPs before the all party conference.

The UNP leader reiterated that the report be tabled this week.

The Sri Lanka staff report comes after annual ‘Article IV’ consultation held recently.

The IMF report comes after a two year gap, due to the failure to conduct the consultation during the Covid-19 pandemic.

The Article IV report contains and analysis of economy and debt and monetary conditions.

Sri Lanka is currently going through a severe economic crisis triggered by dollar shortages due to excess money printing to keep interest rates low. (Colombo/Mar09/2022)

ECONOMYNEXT – Sri Lanka’s central bank has discontinued an 8 rupee top-up given for foreign remittances through official channels from printed money effective March 09, after the rupee was allowed to fall to 230 rupees to the US dollar.

“The 8 rupee payment has been discontinued,” Central Bank Governor Nivard Cabraal said.

A 10 rupee top up for dollars held in hand converted at banks has also been discontinued.

The payments given from printed money, expands reserve money, credit and imports and contributes to forex shortages and the overall economic crisis, analysts had warned.

It is a so-called quasi fiscal activity, or an indirect financing of the budget by the central bank new money.

An order to sell 25 percent of remittances and compulsorily converted export proceeds to the central bank remains.

Meanwhile the cabinet on Tuesday had approved a 38 rupee payment to expat workers creating further confusion.

Cabraal said it was a fiscal decision which will be clarified by authorities later.

Minister Dallas Alahapperuma said on Tuesday that the cabinet paper was submitted before the decision to float the currency was made.

The government has a large budget deficit and it is not clear how it will be funded. (Colombo/Mar09/2022)

ECONOMYNEXT – Sri Lanka devaluation of the rupee to 230 to the US dollar will not help avert the foreign exchange crisis and the one percent rate hike was insufficient with inflation running double digits, opposition legislator Harsha de Silva said.

De Silva said money printing had made it impossible to hold the 200 to the dollar exchange rate and large volumes of reserves have been lost as a result. Central bank conversion regulations had further hurt the exchange rate and inflows.

“Excessive money printing undermined the credibility of the US dollar peg at Rs. 200, as a result vital foreign exchange began to flow through unofficial channels,” de Silva said.

De Silva said the rupee will not stop at 230 to the US dollar, since the rate was not a result of market forces but was a politically determined “devaluation” which was pre-announced.

He said forex dealers were confused and the forex market was not working.

De Silva warned that a 100 basis point rate hike was not enough to stabilize the economy with national inflation at 16.8 percent in the 12 month to January.

De Silva said remittances through official channels had plunged and a 25 percent conversion rule had also encouraged exporters to park money overseas.

“Inward remittances particularly witnessed a drop of 62 percent in January 2021 compared to the year before,” de Silva said.

De Silva claimed that the rupee devaluation was triggered following a phone conversation between India’s Foreign Minister S Jaishankar to secure a meeting with Finance Minister Basil Rajapaksa to get a billion US dollar credit line.

“The current devaluation is solely to please the Indian’s in order for the Finance Minister Basil Rajapaksa to secure a visit, as devaluation was a precondition for the meeting,” he said.

The value of a currency is determined by monetary policy and the monetary anchor that is being used. If a peg (external anchor) is used printed money drives up consumption, resulting in a ‘forex shortage’ and fall in reserves to defend the peg and maintain the exchange rate.

Economists and analysts had called for changes to the monetary law to prevent monetary policy incompatible with the exchange rate from being followed and a move to single-anchor monetary policy (floating rate with inflation target or peg with floating short term interest rates). (Colombo/Mar08/2022)