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Tuesday August 16th, 2022

Sri Lanka drug prices up after money printing hits rupee; concern over cost

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.”

Classical economists and analysts had called for central bank reforms to stop the agency from printing money and being forced to depreciate the currency when the last administration set up the price control agency instead curbing the central bank’s ability to print money.

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Sri Lanka’s pharma control Neros fiddling while Colombo burns with falling rupee

“It is the Central Bank that destroys the currency and pushes up the cost of drugs,” EN’s economics columnist Bellwether said when a drug price control agency was set up in 2015 in a Germany ‘social democracy’ style move (Weimar Republic) as the central bank printed money.

“When the currency is destroyed by the state, prices of all imported and domestically produced goods go up.

“The NMRA is a farce. It is a dangerous farce. If the rulers want to keep prices down, not only of drugs but of all goods, first follow prudent monetary and fiscal policies that allows for exchange rates to be stable.

“Or abolish the Central Bank and re-create a currency board so that money printing is illegal and the currency is fixed.”

The parliament which makes laws can take away the powers of the Monetary Board has to print money to manipulate interest rates and bring the currency down.

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)

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Sri Lanka sovereign rating at SD but ISBs downgraded to ‘D’ by S&P

ECONOMYNEXT – Sri Lanka’s sovereign rating remains at Selective Default (SD), but the country’s sovereign bonds were downgraded to ‘D’ after missed interest payments, Standard and Poor’s, a rating agency said.

“The Sri Lanka government remains in default on some foreign currency obligations, including international sovereign bonds (ISBs),” the S&P said.

“We do not expect the government to make the payments within 30 calendar days after their due dates.

“We lowered the ratings on the affected bonds to ‘D’, following missed interest payments due on June 3, June 28, and July 18, and a missed principal payment due July 25.”

Sri Lanka is still paying senior creditors with money coming from deferred payments from the Asian Clearing Union.

Sri Lanka started to borrow heavily in foreign bond markets from 2015 after battering its currency peg with extraordinary liquidity injections under ‘flexible inflation targeting and the country lost the ability to roll-over maturing rupee bonds at gross financing level.

From 2015 to 2019, the country had monetary stability only in 2017 and 2019 as the pegged exchange rate regime was shattered with liquidity injections to target an ‘output gap’.

However the targeting the output gap led to currency crises (balance of payment deficit) and growth fell as stabilization measures were slammed.

From 2020 to 2022 even more aggressive liquidity injections were made and taxes were also cut saying there was a ‘persistent output gap’ until all foreign reserves including borrowed reserves were lost and the the country defaulted in peacetime.

The International Monetary Fund gave technical assistance to Sri Lanka to calculate the output gap and also endorsed ‘flexible inflation targeting’, with overnight repo injections, term repo injections, outright purchase of bond, despite having a reserve collecting peg.

On April 12, 2022 Sri Lanka defaulted despite being at peace.

The full statement is reproduced below:

Sri Lanka Bonds Downgraded To ‘D’ After Missed Payments; Sovereign Ratings Affirmed

Overview

The Sri Lanka government remains in default on some foreign currency obligations, including international sovereign bonds (ISBs).

We do not expect the government to make the payments within 30 calendar days after their due dates.

We lowered the ratings on the affected bonds to ‘D’, following missed interest payments due on June 3, June 28, and July 18, and a missed principal payment due July 25.

We affirmed our ‘SD/SD’ foreign currency and ‘CCC-/C’ local currency ratings on Sri Lanka. The outlook on the long-term local currency rating is negative.

Rating Action

On Aug. 15, 2022, S&P Global Ratings affirmed its ‘SD’ long-term and ‘SD’ short-term foreign currency sovereign ratings on Sri Lanka. At the same time, we affirmed our ‘CCC-‘ long-term and ‘C’ short-term local currency sovereign ratings. The outlook on the long-term local currency rating remains negative.

In addition, we lowered to ‘D’ from ‘CC’ the issue ratings on the following bonds with missed coupon or principal payments:

US$650 million, 6.125% bonds due June 3, 2025.

US$1.0 billion, 6.825% bonds due July 18, 2026.

US$1.0 billion, 5.875% bonds due July 25, 2022.

US$500 million, 6.35% bonds due June 28, 2024.

Our transfer and convertibility assessment at ‘CC’ is unchanged.

Outlook

Our foreign currency rating on Sri Lanka is ‘SD’ (selective default). We do not assign outlooks to ‘SD’ ratings because they express a condition and not a forward-looking opinion of default probability.

The negative outlook on the local currency rating reflects the high risk to commercial debt repayments over the next 12 months in the context of Sri Lanka’s economic, external, and fiscal pressures.

Downside scenario

We could lower the local currency ratings if there are indications of nonpayment or restructuring of Sri Lankan rupee-denominated obligations.

Upside scenario

We could revise the outlook to stable or raise the local currency ratings if we perceive that the likelihood of the government’s local currency debt being excluded from any debt restructuring has increased. This could be the case if, for example, the government receives significant donor funding, which gives it some time to implement immediate and transformative reforms.

We would raise our long-term foreign currency sovereign credit rating upon completion of the government’s bond restructuring. The rating would reflect Sri Lanka’s post-restructuring creditworthiness. Our post-restructuring ratings tend to be in the ‘CCC’ or low ‘B’ categories, depending on the sovereign’s new debt structure and capacity to support that debt.

Rationale

Sri Lanka’s external public debt moratorium prevents payment of interest and principal obligations due on the government’s ISBs. As such, interest payments due June 3, June 28, and July 18 on its ISBs maturing 2024, 2025, and 2026, and the principal payment on its July 25, 2022, ISB, would have been affected. Following the missed payments, and given our expectation that payment will not be made within 30 calendar days of the due date, we have lowered the issue ratings on these bonds to ‘D’ (default).

Overdue payments now include the following bonds:

US$1.0 billion, 5.875% bonds due 2022.

US$1.25 billion, 5.75% bonds due 2023.

US$500 million, 6.35% bonds due 2024.

US$1.5 billion, 6.85% bonds due 2025.

US$650 million, 6.125% bonds due 2025.

US$1.0 billion, 6.825% bonds due 2026.

US$1.5 billion, 6.20% bonds due 2027.

US$1.25 billion, 6.75% bonds due 2028.

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Sri Lanka rupee guidance peg edges up; market sees dull trade in govt securities 

ECONOMYNEXT – Sri Lanka’s rupee guidance peg on interbank spot trading strengthened by seven cents while yields on Treasury bills and bonds remained dull on Monday (15) with only a handful of maturities quoted ahead of the central bank’s monetary policy rates later this week, dealers said.

“There was nothing in the market. It was dull today,” a market dealer said.

The central bank will announce its latest key monetary policy rates on Thursday, August 18.

A bond maturing on 01. 06. 2025 closed at at 27.50/28.50 percent on Monday, slightly down from 27.30/28.30 percent on Friday.

The three-month T-bill closed flat at 26.00/27.00 percent on Monday.

Sri Lanka’s central bank announced a guidance peg for interbank transactions strengthened by 7 cents to 360.92 rupees against the US dollar on Monday from 360.85 rupees.

Data showed that commercial banks offered dollars for telegraphic transfers between 369.70 and 370.00 for small transactions. (Colombo/ Aug 15/2022)

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Sri Lanka stocks rally continues for 12th straight session on political stability hopes 

The main index fell for the 4th consecutive session

ECONOMYNEXT – Sri Lanka stocks gained for the 12th consecutive session on Monday (15) ending at their highest in more than four months pushed by retail shares amid signs of political stability after months of protests, dealers said.

The market generated 5.8 billion rupees in turnover, nearly twice of this year’s average daily turnover of 3.11 billion rupees.

The main All Share Price Index (ASPI) rose 1.82% or 164.04 points to 9,191.52, its highest since March 30. The index has risen 19.6% in the last 12 sessions.

“We are seeing a lot of volatility in the market today due to profit taking in the key shares that gained in the last 11 sessions,” a market analyst said.

“Profit-taking also returned after the CSE (Colombo Stock Exchange) published the last set of June reports that showed some counters having done very while some not so much, therefore, there is a significant reaction for that.”

In the last few sessions, the market was mostly driven by Lanka IOC and the plantation sector.

However, ahead of the fuel price revision, LIOC moved to red.

“There was a bit of profit taking on anticipation of price cuts. However, unless fuel prices are cut sharply, LIOC will continue to move,” the analyst said.

At the start of the month, CPC cut fuel prices by 10 rupees based on the price formula.

Globally, crude oil prices have dropped hence there is strong speculation that fuel prices will be cut further.

Last week, Sri Lanka announced a 75 percent electricity tariff hike.

Investors previously feared the move would drag the market down due to possible higher costs for manufacturing firms.

However, the political stability after four months of protest is seen as the catalyst for the market gain, dealers said.

The government also tabled an interim budget last week, revising the budget presented last year as the country is going through an unprecedented economic crisis amid plans on a four-year IMF loan programme, debt restructuring, fiscal reforms, and dealing with loss-making state-owned enterprises.

Sri Lanka already declared sovereign debt default on April 12 this year and failed to pay its first sovereign debt in May amid a deepening economic crisis which later turned into a political crisis and led to a change in the president, cabinet, and government.

The more liquid S&P SL20 index moved up, closing at 0.82% or 25.28 points stronger at 3,097.30.

Sri Lanka is facing its worst fuel and economic crisis in its post-independence era and the economy is expected to contract 7 percent this year.

The main ASPI gained 18.8 percent in August so far after gaining 5.3 percent in July. It lost 9.3 percent in June, 23 percent in April, and 14.5 percent in March.

The market index has lost 24.8 percent so far this year after being one of the world’s best stock markets with an 80 percent return last year when large volumes of money were printed.

Sri Lanka’s sovereign debt default on April 12 has already led the country to be rated with restricted/selective default rating by rating agencies, which has weighed on investor sentiment.

Net foreign outflow was 117 million rupees on Monday while the total net foreign outflow so far this year is 1.3 billion rupees.

Investors are also concerned over the steep fall of the rupee from 203 to 370 levels so far in 2022.

Ceylinco Insurance which pushed the ASPI, closed 11.9 percent up at 2,143.2 rupees a share. Browns Investment closed 8.5 percent up at 8.9 rupees a share, and John Keells Holdings gained 2.5 percent to 129.7 rupees. (Colombo/Aug15/2022)

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