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Saturday December 10th, 2022

Sri Lanka in drug shortages, due to price controls, forex crisis, NMRA delays

ECONOMYNEXT – Sri Lanka’s price controls by the regulator compounded by a worsening forex crisis is creating shortages of drugs as importers found it difficult to open letters of credit and foreign principals declined to supply at controlled prices, industry officials said.

The Sri Lanka Chamber of Pharmaceuticals Industry says reluctance of banks to open letters of credit was making it difficult to import drugs, importers were exposed to currency risk from suppliers’ credit and of late fuel is being prioritized over drugs.

The National Medical Regulatory Authority was delaying registration and re-registration of drugs further contributing to supply disruptions in addition to price controls.

Price Controls

About 5 percent of drugs regulated with the National Medical Regulatory Authority were in short supply including paracetamol.

“There are around 7300 medicines registered with National Medicines Regulatory Authority and according to the retailers currently there is a shortage about 5 percent of those medicines in the market,” Sanjiva Wijesekera President of the Sri Lanka Chamber of Pharmaceuticals Industry said.

“The last increase of price was in August 2021 when the spot (US dollar) was at 194 rupees, but now it has increased up to 203 rupees.”

“So the suppliers are not willing to supply medicines for those prices.”

“Paracetamol, drugs for diabetes, high blood pressure, cholesterol are some of the medicines that are short in the market currently.”

NMRA was delaying in granting the re-registration of products which have been available in the market for a considerable period as well as new product registration, which is further delaying imports.

There has been criticism that the NMRA was creating monopolies in some drugs.

The NMRA was set up by the ousted Yahapalana administration to control prices and put more regulatory barriers between medicines and the people instead of restraining the central bank’s ability to print money to keep prices down.

Price control agency was set up according to a plan proposed by Senaka Bibile, a Marxist.

At the time analysts warned that it was a Marxist ‘social democrats’ style Weimar Republic move for which people will pay a heavy price.

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The SLCPI said ceiling prices should be raised because the exchange rate has depreciated, fuel costs are up, and interest costs were also rising.

The current administration in a progressive move removed price controls on most consumer goods, as shortages and black markets appeared but so far no action had been taken to remove price controls on drugs as the central bank printed money.

The regulator has also been given court orders to revisit the price controls but no action has been taken so far.

“We cannot change prices from consignment to consignment. Not having a price mechanism is one of the biggest issues we have,” Wijesekara said.

“We are not saying to get rid of the control price. We are asking to give us at least a temporary solution for this until a proper price mechanism take place.”

Forex shortages

SLCPI said, the private sector importers need 25 -30 million US dollars per month to import the necessary medicine products to the country.

Adrian Basnayake, the Past President and Council member of the SLCPI said, the commercial banks are refusing to issue letters of credit for the importers and asks the importers to buy dollar from exporters through at much higher price than the 203.

“If we take the lack of Paracetamol, it is not because the drug is not available. But according to the price we have, suppliers are not ready to give us,” Basnayake said. “It is similar for most medicines.”

Sri Lanka is facing a severe forex shortage due to money printed to enforce low interests rates after giving reserves for imports.

The country has a large budget deficit with salary hikes given to state workers in January needing higher interest rates. When money is printed to keep rates down, excess imports are triggered, creating forex shortages.

Commercial banks are reluctant to open letters of credit with no assurance that they can settle them on the stipulated date.

“When we go to banks to get dollar, there are no dollars to get,” Basnayake explained. “They say, if you can, go to exporters and get some dollars from them. When we contact them they agree to get give dollar not at 203 rupees but 245 rupees.”

Un-hedged Forex Risk

Importers have also brought drugs on supplier credit, and were exposed to forex risk if the rupee depreciated further.

“Let’s say we get to open a LC for 203 rupees,” Basnayake said. Usually we settle prices after around 3 months after importing the medicine. But if the Dollar rate has increased to 245 rupees within that three months, who has to bear that cost.”

“We do not have the capacity to cover that cost. Due to this, importer stop importing and that is another reason for the lack of medicine in the market. Considering all this, we are concerned about the future situation that can affect patients.”

Government Hospitals

SLCPI said the LC issue is affecting the medicine imports on government tenders as well.

“There is a delay in LC opening in government tenders as well,” M Prathabanthe, Senior Vice President of SLCPI said.

“Because of that there will be medicine shortage in government hospitals as well.”

Meanwhile people were stocking up on drugs adding to shortages.

“In the last 2-3 months our sales increased greatly,” Basnayake said. “We could have been happy about that but when our stocks are getting depleted and there are issues in importing, we realize the problem.”

Azam Jaward the Vice President, SLCPI said the industry has been de-prioritized to a certain extent due to the current power crisis where fuel is given priority.

“What coming is not good,” Jaward said. “Delays in NMRA, price control is causing a problem along with the dollar crisis.”

“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.”

Latin America Soft-peg

Sri Lanka has a Latin America style central bank set up by a US money doctor, and inflation and currency depreciation has worsened since rule based policy was in favour of ‘flexible’ inflation targeting involving ‘data driven’ policy to target an output gap, which worsened to Modern Monetary Theory in 2020.

Now reserves are being given for imports and they are sterilized with new money.

“It is not possible to import goods freely when a soft-peg collapses because there will be forex shortages due to sterilized intervention,” EN Economic Columnist warned as far back as 2018 when highly discretionary policy was started.

“Import controls may also come.

As the cost of fuel or electricity goes up if prices are not raised, more money will be printed to subsidize energy, pushing the currency down.

“In Latin America, energy price controls have led to money printing and rationing. There can be power cuts and fuel shortages.

“In Sri Lanka because of price controls of the National Medicines Regulatory Authority medicines, drugs can go off the shelves.” (Colombo/Mar02/2022)

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Sri Lanka opposition MP sees racist agenda behind behind pro-China demonstration

TNA MP Shanakiya Rasamanickam – Image credit: Facebook

ECONOMYNEXT – A protest held outside the Chinese embassy in Colombo against opposition legislator Shanakiyan Rasamanickam was likely the work of a paid group with little knowledge of Sri Lanka’s crisis and pushing someone else’s racist agenda, the MP said.

Rasamanickam told EconomyNext on Saturday December 10 that the protestors were peddling a familiar narrative of racism.

“These people are clearly on a racist agenda. We know how this agenda plays out and we know who is behind it from before, so it’s not anything new. People can connect the dots and figure out who might be behind this protest,” he said.

The hurriedly put together demonstration seemed to be against Rasamanickam’s controversial warnings of anti-China protests in Sri Lanka over Beijing’s purported reluctance to restructure the crisis-hit island nation’s debt.

A small group of protestors including a number of Buddhist monks had gathered outside the embassy premises on Friday December 09 condemning Rasamanickam’s statement in parliament that people will take to the streets against China in a “go home, China” wave of protests similar to the “go home, Gota” protests that unseated Sri Lanka’s powerful former president Gotabaya Rajapaksa.

“I was actually very happy to see a protest happening against me in Colombo. This is the first time there was a protest held against me,” said Rasamanickam.

I”f you look at the group that were protesting, they are quite unaware of the current economic situation in the island,” he added.

One banner displayed by the pro-China protestors contained the words “let us strongly condemn the ‘Go home China’ statement by separatist Rasamanickam” in Sinhala, though the organisers had been careful to omit the word ‘separatist’ in the English translation of the slogan.

It is unclear at present who was behind the protest, but a placard carried by one of the protestors read “is this going from anti-Gota to anti-China”, indicating the possible involvement of pro-Rajapaksa elements.

“It looked like a paid  group of people who came with no knowledge of the country’s situation and was completely under the agenda of somebody else,” said the MP.

The Batticaloa district lawmaker claimed that some people had offered to organise a counter-protest against the pro-China demonstrators but he declined the offer.

“I refused it because the citizens aren’t silly. They are aware of their surroundings and what is going on, so we need not protest in that way,” he said.

A commotion also ensued at the demonstration when a woman started recording it on her mobile phone, prompting some of the protestors to demand that she leave. Words were exchanged, with the visibly agitated woman yelling at the protestors that they were conspiring to sell Sri Lanka to China.

What triggered the protest was an explosive remark by MP Rasamanickam on December 02 that if China were a true friend of Sri Lanka’s, it would agree to either write off the island nation’s 7.4 billion dollar debt or at least help restructure it.

Nearly a fifth of Sri Lanka’s public external debt is held by China, according to one calculation.

“If China, who has nearly 20,000 billion dollars, is truly Sri Lanka’s friend… offering 9 million litres of diesel or half a million kilos of rice isn’t real help,” said Rasamanickam, speaking in Sinhala.

“I say to China and the Chinese embassy that, as 22 million Sri Lankans irrespective of ethnic or religious differences got together to say ‘Go home, Gota’, don’t push us to a place where we will be saying ‘China, go home’,” he said.

Whatever the agenda behind Friday’s protestors, they are not alone in their opposition to Rasamanickam’s strong words against China. Main opposition Samagi Jana Balawegaya (SJB) MP Harsha de Silva was strongly critical of the statement, insisting that Sri Lanka cooperate with all countries.

Rasamanickam told EconomyNext that his words were misrepresented.

“What I said was ex President Gotabaya Rajapaksa didn’t listen to the voices of the people and people ended up saying ‘Gota Go Home’ and if the Chinese fail to address the issues and act in the interest of the Sri Lankan community, naturally people will start opposing them also. If that happens, I simply said that I will support them because for us our country and our people are the priority,” he said, adding that his speech had raised awareness among the public of the situation.

The MP has been raising his voice in parliament and elsewhere in recent days over what he claims is a hesitance on the part of China to assist in Sri Lanka’s debt restructuring efforts. The 2.9 billion dollar extended fund facility (EFF) that the International Monetary Fund (IMF) has offered to extend to the island nation is contingent upon the successful restructure of this outstanding in addition some stringent reforms that experts say are long overdue.

Colombo has been vague at best on the status of ongoing restructure talks with Sri Lanka’s creditors, and opposition lawmakers and others have expressed concern over what seems to be a worrying delay. Rasamanickam and others have claimed that China, Sri Lanka’s largest bilateral creditor, is the reason for the apparent standstill.

Meanwhile, IMF Chief Kristalina Georgieva has called on China to speed up restructuring of debt in Sri Lanka and Zambia following a meeting with the leaders of the country.

“We had a very fruitful exchange, both on the G20 Common Framework and on some specific cases,” she said in a statement after the meeting.

“We need to build on the momentum of the agreement on Chad’s debt treatment and accelerate and finalize the debt treatments for Zambia and Sri Lanka, which would allow for disbursements from the IMF and multilateral development banks,” she said. (Colombo/Dec10/2022)

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IMF chief calls on China to speed up Sri Lanka, Zambia debt overhaul

ECONOMYYNEXT- International Monetary Fund Chief Kristalina Georgieva has called on China to speed up restructuring of debt in Sri Lanka and Zambia following a meeting with the leaders of the country.

“We had a very fruitful exchange, both on the G20 Common Framework and on some specific cases,” she said in a statement after the meeting.

“We need to build on the momentum of the agreement on Chad’s debt treatment and accelerate and finalize the debt treatments for Zambia and Sri Lanka, which would allow for disbursements from the IMF and multilateral development banks.”

Sri Lanka is discussions with the Export Import Bank of China as the lead lender to the island, State Minister Shehan Semasinghe told parliament.

China has informed Sri Lanka that they will also hold bilateral discussions with the IMF and World Bank he said.

China has been asking questions from Sri Lanka and lenders were trying to assess the impact on credits to other countries as well as the domestic economy, he said.

China is a top lender to Sri Lanka along with Japan, the Asian Development Bank and Japan.

Some of China’s infrastructure loans have also been questioned for lack of proper feasibility, though a coal plant is generally acknowledged to be best investment the country has made since the 1980s and is enough to cover many since.

But China gave several so-called ‘cover up loans’ to Sri Lanka which was not linked to infrastructure or economic reforms when the country ran into forex shortages under ‘flexible inflation targeting/output gap targeting’ compounding borrowings from sovereign bond investors.

Sri Lanka calls such monetary instability linked borrowings ‘bridging finance’.

The World Bank and Asian Development Bank or Japan does not give such ‘bridging finance’ or budget support loans without reforms to expand economic activities.

Sri Lanka central government net debt (after deducting foreign reserves) which was 17 billion US dollars after almost 65 years of foreign borrowings shot up to 32 billion US dollars over 7 years of extreme monetary instability. Meanwhile foreign reserves became negative.

Resorting foreign borrowings to meet foreign repayments comes from a Mercantilist fallacy known as the ‘transfer problem’, analysts have said.

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Sri Lanka debt crisis trapped in spurious Keynesian ‘transfer problem’ and MMT: Bellwether

Policy makers believe that a current account surplus is magically required to make foreign repayments and not higher interest rates to curtail domestic investments and consumption which make resources available to meet such payments which will in turn reduce the imports and any current account deficit. (Colombo/Dec10/2022)

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Sri Lanka has excess rice amid malnutrition: President

ECONOMYNEXT – Sri Lanka is to harvest a good rice harvest in the upcoming main (Maha) cultivation season but paddy stocks from two previous seasons are still with farmers and collectors, President Ranil Wickremesinghe said.

“I see now that we will get a good harvest in the Maha season,” President Ranil Wickremesinghe told parliament.

“That is also a problem, because we have some leftover rice stocks from the recent Yala (minor) season and the previous Maha season.”

“Now there can be situation of excess rice, we have to protect the farmers. On the other had we will have food to reduce malnutrition.”

Sri Lanka’s rice farmers do not grow and internationally traded grade of rice and bumper harvests do not lead to export booms but calls for trade restrictions on the hungry and helpless to ‘protect’ their incomes.

Rough rice (paddy) prices have fallen to around 80 rupees a kilogram, from over 120 rupees at the height of the crisis earlier in the year when large volumes of money was injected to the banking system to sterilize interventions and pay state workers.

Food Price Crisis

Though supplies are coming back to normal, because soft-pegging macro-economists destroyed the rupee from 200 to 360 to the US dollar by printing money for two years to keep interest rates down, prices are double before from the liquidity injections or ‘stimulus’ started.

The malnutrition is coming from monetary instability involving the collapse of the anchor-conflicting ‘flexible exchange rate and not a problem in the real economy as excess food supplies show.

Related Impoverished Sri Lankans are selling assets, eating less: WFP

Sri Lanka’s chicken farmers are also looking for export opportunities.

Related Sri Lanka chicken farmers eye exports as domestic prices drop

Sri Lanka is now in the worst the worst currency crisis triggered it the history of its intermediate regime (flexible exchange rate) central bank.

With salaries not keeping pace, incomes many sectors, mostly salaried workers including daily wage earners are too low to afford food whether or not they are plentiful, leading to malnutrition especially of the children of poor families.

The phenomenon has a been a recurring problem in the country after the soft-pegged central bank was set up 72 years ago.

Before 1980, when depreciation became fashionable in Washington policy making circles (now called a flexible exchange rate and BBC policy at that time), import controls were the main threat to food supplies, not soaring prices and lagging wages.

Food Trade Controls

In the 2022 currency crisis soft-pegging macro-economist in a mistaken strategy then banned ‘open account imports’ threatening food supplies ranging from lentils to onions and sugar to wheat that usually come from South Asia and Dubai, driving up prices.

But Wickremesinghe then opened account imports, preventing a real food crisis from taking place, allowing money flowing through traditional gross settlement systems (Undiyal/Hawala) to be easily prioritized for food.

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Food imports in Sri Lanka are only around 100 to 150 million dollars a month which is about third of monthly worker remittances and about 10 percent of total exports.

However the central bank under Governor Nandalal Weerasinghe took the required action to liberalize rates allowing credit to slow and stabilize the external sector.

The government also raised energy prices to keep in line with flexible exchange rate collapse (also a recurring phenomenon) and raised taxes to reduce domestic credit (also recurring action).

President Wickremesinghe and his advisors focused their efforts on getting loans from foreign lenders to buy fertilizer for farmers after he took over as Prime Minister and later President.

Fertilizer supplies are important in a currency crisis not just to produce food as normal but the construction sector usually has to be smashed to stop balance of payments deficits and to stop the rupee from falling further.

When rural workers engaged in construction return home to farming areas availability of fertilizer will help them keep in employment.

Open Market Injections

Construction and other sectors undergo an artificial boom when a soft-pegging central bank suppresses rates with its open market operations and sells downs reserves when the currency peg comes under pressure.

Selling reserves and printing money through open market operations to stop rates going up – an action called ‘sterilized intervention’ – effectively injects what classical economists called ‘fictitious capital’ into banks and artificially pushing up credit and imports further by effectively re-financing private sector activities with central bank credit.

The new money to sterilize interventions over-extending a credit cycle and encourages more imports.

In the current crisis Sri Lanka’s Consumer Affairs Authority, by imposing price controls, disrupted sectors like poultry sector and created black markets.

President Wickremesinghe has so far not taken any actions to abolish the CAA or its price controlling powers which goes against his ‘social market economy’ strategy. (Colombo/Dec09/2022)

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