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Thursday June 1st, 2023

Indian credit line: Sri Lanka’s SPC calls tenders from Indian medical suppliers

ECONOMYNEXT – Sri Lanka’s State Pharmaceuticals Corporation (SPC) has called tenders from Indian medical suppliers for medicine purchase through an Indian credit line in order to fill a gap of medical supplies in the state health sector, an SPC official said.

SPC General Manager Dinusha Dassanayake told EconomyNext on Thursday (31) that tenders were called on Thursday and SPC will take the necessary steps after considering the bids offered by the suppliers.

“The Medical Supply Division sent us a list of medicines they need to get in order to close the supply gap we have in the country at the moment due to the current situation,” said Dassanayake.

“Since this is through the Indian credit line, one condition they had was that the medicine that we import be of Indian origin. So we placed a condition when calling bids that only Indian suppliers may  apply.

“Once we have received all the tenders, we will evaluate them and finalise our orders,” he said.

From the one billion US dollar credit line from India, 200 million USD is to purchase medical supplies.

Sri Lanka is currently in the midst of a severe forex shortage which has hampered imports including essentials such as medicines.

State Minister of Pharmaceutical Production, Supply and Regulation, Channa Jayasumana in a Facebook post said on Thursday that, under the Indian credit line, Sri Lanka has been given a limited time to purchase the medicine.

“Medicines can be bought only by Indian suppliers. They will have the opportunity to open letters of credit (LC) for tender-approved items after the procurement process. That way, only 40 drugs were included,” said Jayasumana.

Jayasumana added that Sri Lanka’s state health sector needs about 1,500 medicines and 3,000 surgical/medical equipment.

“Almost 80 percent of imported medicines are from India anyway. The Medical Supply Unit (MSD, set up a list of essential medicines and surgical equipment for the next year as soon as it became aware that medicines can be available under Indian loan,” he said.

“The relevant payment will be directly done by the State Bank of India (SBI) after sending the list to Indian officials upon selection of suitable suppliers among them. This is going to be done in Indian rupees. The sooner this process is over the sooner we get the medicines. We have been given a limited time range for that,” said the state minister.

Several state-owned hospitals in Sri Lanka were forced to temporarily stop routine surgeries due to a shortage of medicines. Hospital management had informed staff to use the available medicines only in emergency cases till the supply was recovered.

“Private sector suppliers are not in a position to import the medicine ordered last year as it was difficult to open loan letters due to the dollar shortage. If we don’t take advantage of this opportunity to get our medicines for the country when we get US dollars and other foreign currency, we will be in a severe drug crisis in the next few months,” Jayasumana warned.

Private sector condition is worsening

Meanwhile, an industry representative from the private medicine supply sector told EconomyNext that conditions are worsening for private sector importers. He said even the National Medicine Regulatory Authority had authorised a price increase of medicine by 29 percent earlier this month, and private sector supply is down by about 30 at present at the moment.

“The situation is much worse now than when we explained it earlier this month. The banks do not entertain any LC  applications and ask for credit for up to 180 days for both LCs and documents against acceptance documents. In the absence of any forward booking mechanism, who knows what the rupee will be against the USD in 180 days? How do you cost your shipments?” the source told EconomyNext.

He added that many products are out of stock in both the state and private health sectors.

“The last price increase by a whopping 29 percent was when the US dollar reached 260 rupees. The official rate is over 300 now and the unofficial crossed the 400 mark today,” the source said.

He said the situation will get much worse for supplies, and  the industry anticipates most essential price controlled items will be in short supply as the importers are incurring losses on their sale.

Commenting on the tender calls for Indian suppliers under the Indian credit line, he said it is a ray of hope to control the situation.

“The first tenders are being called on Thursday (31). With a 25 percent performance bond, many established companies are reluctant to participate and supply under this scheme.  As the NMRA registration requirement is likely to be waived for this supply, it is mostly the lower end opportunists that are likely to supply,” he said.

The source said the government’s opinion of the local manufacturer is somehow the solution to this problem without realising that local value addition in pharmaceuticals is low as active pharmaceutical ingredients, buffering agents, excipients, machine tools, packaging even most often technical staff all have to come from abroad.

“So the impact of the shortage of foreign currency will affect availability anyway,” he said.

The NMRA was delaying registration and reregistration of drugs, further contributing to supply disruptions in addition to price controls

“The pricing committee consisting of pharmacists completely untrained in pricing matters is seeking prices lower than the gazette price and are holding up registrations,” the source said.

“They have limited the number of registrations to a given molecule to 15, severely limiting competition as a couple of major importer companies account for about 10 of the suppliers,” he added.

He said the registration of new molecules where the number of suppliers are limited is slow, owing to manipulations within the NMRA. Therefore, the prices remain high for these items.

“If there ever was a pharmaceutical mafia, it’s alive and kicking inside the NMRA itself and sadly the outlook for the patients is dire,” he went on to say.

“The Indian line of credit is about a month’s supply. It will be mostly utilized by the state sector. Not much of a help where annual requirement is concerned, but a welcome relief given the situation,” he added. (Colombo/Mar31/2022)

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Sri Lanka cuts policy rates 250 basis points

ECONOMYNEXT – Sri Lanka cuts policy rates 250 basis points lowering the rate at which liquidity is injected to markets to 14.0 percent to from 16.50 percent, saying inflation was falling faster than expected.

“The Board arrived at this decision with a view to easing monetary conditions in line with the faster than expected slowing of inflation, gradual dissipation of inflationary pressures and further anchoring of inflation expectations,” the central bank said in its May policy statement.

“The commencing of such monetary easing is expected to provide an impetus for the economy to rebound from the historic contraction of activity witnessed in 2022, while easing pressures in the financial markets.”

“Headline inflation (year-on-year), based on the Colombo Consumer Price Index (CCPI), continued the deceleration path, faster-than-projected earlier, supported by the lagged impact of tight monetary and fiscal policies, strengthening of the Sri Lanka rupee, reduction in fuel and gas prices, normalisation of food prices and the favourable impact of the statistical base effect.

“The full passthrough of the large appreciation of the exchange rate observed recently is yet to be
reflected in the price levels, and it would quicken the disinflation process, as the prices of imported goods are expected to decline further in the period ahead.”

Sri Lanka’s balance of payments has been surplus for several months and the central bank has allowed the rupee to appreciate. When the BOP is in surplus and as long as the central bank can buy dollars and generate liquidity rates can fall.

“With greater macroeconomic stability being achieved through corrective policy measures, particularly in terms of faster-than-expected deceleration of inflation thus far during 2023 and the benign inflation outlook and the easing of the BOP pressures, the Monetary Board of the Central Bank of Sri Lanka, upon carefully assessing the current and expected developments, decided to relax the stance of monetary policy and reduce the policy interest rates.”

Market rates however has been high amid expectations of a domestic debt re-structuring and mainly government borrowings, with private credit negative and state enterprises also cutting losses.

Loans from the Asian Development Bank has started to come. More funding is also expected from the World Bank further easing government funding.

The full statement is reproduced below:

The Central Bank of Sri Lanka relaxes its Monetary Policy Stance

The Monetary Board of the Central Bank of Sri Lanka, at its meeting held on 31 May 2023, decided to reduce the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank by 250 basis points to 13.00 per cent and 14.00 per cent, respectively.

The Board arrived at this decision with a view to easing monetary conditions in line with the faster than expected slowing of inflation, gradual dissipation of inflationary pressures and further anchoring of inflation expectations. The commencing of such monetary easing is expected to provide an impetus for the economy to rebound from the historic contraction of activity witnessed in 2022, while easing pressures in the financial markets.

Inflation is projected to decelerate notably in the period ahead, reaching single digit levels
earlier than expected

Headline inflation (year-on-year), based on the Colombo Consumer Price Index (CCPI), continued the deceleration path, faster-than-projected earlier, supported by the lagged impact of tight monetary and fiscal policies, strengthening of the Sri Lanka rupee, reduction in fuel and gas prices, normalisation of food prices and the favourable impact of the statistical base effect.

The full passthrough of the large appreciation of the exchange rate observed recently is yet to be reflected in the price levels, and it would quicken the disinflation process, as the prices of imported goods are expected to decline further in the period ahead. The favourable statistical base effect due to large month-on-month inflation that materialised during the last year is expected to slow inflation significantly in the next few months as well. Accordingly, as per the latest projections of the Central Bank, headline inflation is forecast to reach single digit levels in early Q3-2023, and stabilise around mid single digit levels over the medium term

The external sector, which underwent an unprecedented setback in 2022, begins to
demonstrate improved performance

During the four months ending April 2023, the trade deficit decreased notably, compared to a year earlier, reflecting mainly the subdued import expenditure, which outweighed the impact of moderation of external demand for merchandise exports. Inflows to the domestic forex market remain robust following the approval of the Extended Fund Facility (EFF) from the International Monetary Fund (IMF). The significant revival of workers’ remittances and earnings from tourism continued to build resilience in the external sector.

The renewed foreign investor appetite for short term government securities has also helped improve forex liquidity in the recent months.

The exchange rate, which is allowed to be determined by market forces, continues to reflect positive market sentiments underpinned by the improvement in liquidity in the domestic forex market. The Central Bank has absorbed a sizeable amount of foreign exchange from the domestic forex market thus far in 2023, resulting in a steady increase in gross official reserves (GOR). As of end May 2023, the level of GOR is estimated to have surpassed US dollars 3 billion, including the swap facility from the People’s Bank of China.

Reflecting the improved balance of payments (BOP) conditions, the Central Bank relaxed the cash margin deposit requirements imposed on selected imports in May 2023, and further measures will be initiated to loosen capital flow restrictions in the period ahead. Further, the Monetary Board viewed that a gradual phasing out of the existing import restrictions would need to commence soon.

The continuation of the IMF-EFF supported programme, further financial assistance from international development partners, such as the Asian Development Bank (ADB) and the World Bank, and renewed investor appetite, coupled with the advances in the debt restructuring process, are expected to ease the BOP constraint significantly in the period ahead, supporting the recovery in domestic economic activity. (Colombo/June01/2023)

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Sri Lanka exports down in April, trade deficit up from March, rupee stronger

ECONOMYNEXT – Sri Lanka’s exports fell 12.6 percent from a year ago to 849 million US dollars in April 2023, amid weaker external demand, while imports were down 15.8 percent to 1,431 million Us dollars, central bank data showed.

Exports also fell 1,037 million dollars in March 2023, amid seasonal effects.

The trade deficit expanded to 583 million US dollars in April from 412 million US dollars in March 2023. Imports were at 1431 million US dollars in April from 1,450 million dollars in March.

Imports can pick as tourism, worker remittances and net inflows to government go up.

The rupee continued to appreciate.

“Exchange rate showed a notable appreciation during April 2023 with the continued improvement in liquidity in the domestic foreign exchange market, the discontinuation of the daily guidance on exchange rates,” the central bank said.

Up to April exports were down 9 percent to 3.8 billion rupees and imports were down 28 percent to 5.2 billion rupees and the trade deficit was 1.4 billion rupees.

Investment goods imports were down in April amid a contraction in credit.

“Almost all types of goods listed under the three main investment good categories, namely machinery and equipment, building material and transport equipment, recorded a decline,” the central bank said.

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Sri Lanka President discusses debt restructure, program progress with IMF

ECONOMYNEXT – Sri Lanka’s President Ranil Wickremesinghe has discussed progress of International Monetary Fund program and debt restructuring during a visit of Deputy Managing Director Kenji Okamura, statement said.

“The discussion primarily focused on the progress of the IMF program between Sri Lanka and the IMF,” a statement from President’s office said.

“Attention was also paid to the on-going debt restructuring negotiations.”

State Minister of Finance Shehan Semasinghe, Senior Advisor to the President on National Security and Chief of Presidential Staff Sagala Ratnayake was also in the meeting.

Secretary of the Ministry of Finance Mahinda Siriwardena, Central Bank Governor Nandalal Weerasinghe, Deputy Director of the International Monetary Fund Anne Marie Gulde, and Resident Representative IMF in Sri Lanka Sarwat Jahan, attended this event. (Colombo/June01/2023)

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