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Sunday January 29th, 2023

Sri Lanka needs to ramp up daily PCR testing to 40-50,000 a day: Dr Rannan-Eliya

ECONOMYNEXT – With up to 500 new COVID-19 cases reported every day, Sri Lanka ought to conduct 40,000 to 50,000 PCR tests a day, well above the current rate of less than 12,000, if it is to successfully contain the ongoing outbreak, a leading epidemiology expert said.

Executive Director and fellow of the Institute for Health Policy (IHP) Dr Ravindra Rannan-Eliya has called for increased testing in order to contain the outbreak without resorting to lockdowns.

“During the past six months, the World Health Organisation (WHO) has suggested various testing levels as being adequate, ranging from 1 test per 1,000 people each week to 30 tests for every positive case detection. These translate into rates of 3–15,000 tests/day in Sri Lanka currently. Our assessment is that these guidelines do not have a strong evidence base, and that these levels of testing are too low to achieve and maintain elimination, which needs to be our goal if we are to avoid lockdowns as desired by our President,” Dr Rannan-Eliya, a public health expert as well as an economist, wrote in a post written for the IHP blog yesterday.

EconomyNext spoke to Dr Rannan-Eliya via email yesterday on his expert views on Sri Lanka’s response to the new wave of COVID-19 that has now surpassed 10,000 cases in a period of just one month.
Excerpts follow, with some light editing for clarity.

EN: Do you think Sri Lanka can afford the economic losses that will occur from not increasing testing?

RR: The money [for increased testing] is available. The initial cost/forex requirement of expanding machine capacity (USD 7-10 million) can be easily financed by the current World Bank COVID project (USD 128 million). In the longer-term, this is not a cost. By keeping transmission at low levels, the additional profits that local business will generate by not having to endure lockdowns and reduced consumer confidence (and labour shortages as EconomyNext reported is occurring in the tea sector), and the additional income taxes and VAT that Treasury will collect will pay for the operating costs more than several fold.

There will, however, be a political cost for the Samagi Jana Balavegaya (SJB) and others. I note that President Trump almost certainly lost re-election because of mismanagement of COVID-19. It will be very bad news for the opposition if the government increases testing as we propose, and can get the economy back to growth as a result.

EN: What is your opinion on the antigen test? Will it help meet our testing requirements and be compatible with Sri Lankan requirements?

RR: The performance of antigen tests varies a lot between manufacturers and also depending on how they are used. Without proper testing, I cannot say how good the particular kit is that the Ministry of Health (MOH) has imported. Overall, they are not as good as PCR testing in detecting new cases, and performance also depends on how they are used. To slow transmission, we need to maximise our ability to detect cases.

Antigen tests will not be as good at doing this. So 1,000 antigen tests will be not as effective as 1,000 PCR tests. So, long term, we need to rely on PCR testing. However, we now have a serious problem because our PCR capacity is limited, so we have no option but to use other inferior methods such as antigen tests to compensate until the MOH installs the increased PCR capacity.

EN: Regarding the current situation in the country, do you think we are still not at the community spreading level? MOH Epidemiology Head Dr Sudath Samaraweera said even though the number of patients increased, the patient count in the Gamapaha district is dropping. What is your take on that?

RR: The Epidemiology Unit is using the term “community spread” as defined by WHO where it refers to whether the origin of cases can be identified. As I have explained before, I do not think that we should rely on the WHO classification, and as a scientist i do not find it helpful for COVID-19.

I would rather not get into this discussion because I think we and the media are pushing the MOH into a corner. They are probably afraid of the political implications of changing WHO categories. Frankly, if the MOH wants to use the term “community spread”, I think they would be smarter to defuse the situation by using the term to classify individual cases as, say, Australia does, and not try to pigeonhole us into a WHO category which may have political implications.

That is, they should in future simply report how many cases are (i) imported, (ii) local cases of known origin, and (iii) community spread cases where the origin is unknown. Then we can get on with focusing on the number of overall local cases and the level of transmission, which is what really matters.

Regarding the Gampaha question, the real issue is that we see no evidence of nationwide transmission slowing. We have been detecting a steady 400-500 new cases/day for some time, and we can also see that PCR testing has been stuck at about 10,000 tests/day. There is a possibility that the real number of new cases is increasing, but we are no longer able to detect this because we cannot increase PCR testing.

EN: How effective is the current strategy of the government? In your opinion, do we need to go for a different strategy?

RR: Some components are very good, but the overall strategy has clearly failed.

The border closure in March, which I should point out was only put in place at the urging of medical experts like myself and the Government Medical Officers Association (GMOA), was a good decision. The very effective quarantine facilities and contact tracing and isolation led by the military and intelligence services have been world class, and we should be grateful. But there has been one consistent and enormous failure in the overall strategy, which will undermine all the other good efforts. That is the failure to build up PCR testing capacity after April as other countries did, and the failure to start routine testing of all patients with respiratory symptoms, coughs, colds or fever. There has been enormous resistance in many parts of the MOH and in my profession, to the idea that high levels of testing were needed for COVID-19 control, and this resistance has cost us dearly.

EN: What is your position on not conducting PCR tests on people who have passed the 14-day quarantine period?

RR: The risk that international arrivals who have not displayed symptoms for 14 days in quarantine are not infectious is low, but the scientific evidence does not exist that allows us to say with 100 percent confidence that the risk is zero. Some countries that have had 14-day quarantine with PCR testing have had outbreaks which they suspect were caused by undetected cases getting through quarantine. So in a situation where the goal is elimination and we have PCR testing capacity, then it is safer to err on the side of caution and test. I note that New Zealand continues to do this. However, we have now run out of PCR testing capacity. Given this we may need to prioritise, accept increased risks for now, and use our limited testing capacity instead for detecting community cases.

EN: Does the new coronavirus lose its ability to infect other people after 10-14 days of infection?

RR: In cases where the person is very sick, infectiousness can last a lot longer than 14 days, and this has been well documented since at least March. But I think you are referring to cases where the person has no symptoms or only mild symptoms, where the risk of infection after 14 days is very low.

However, as I explained, we do not have scientific evidence to say that it is zero. I think some doctors are pointing to a recent US CDC assessment that it is zero. However, if you read the CDC document carefully, their conclusion is based on one Taiwanese study which did not have a large sample, and so was not able to conclusively determine that the risk was zero. The CDC also noted one other Chinese study which suggested that people could remain infectious for much longer.

The way I would interpret this is that the CDC is primarily trying to provide guidance in a country – the USA – where the virus is rampant, infecting hundreds of thousands every day, and where the President’s own Chief of Staff is on record as saying they have given up trying to control the virus. In this context, they only worry about minimising risk and not about getting risk to zero, so they can afford to accept a low level of risk. As a country which until recently had near zero cases, we need to take a harder look at the same evidence. (Colombo/Nov10/2020)

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Sri Lanka operators seek higher renewable tariffs, amid exchange rate expectations

ECONOMYNEXT – Sri Lanka’s renewable companies say they need tariff of 40 to 45 rupees a unit to sell power to the Ceylon Electricity Board and the agency owes them tens of billions of rupees for power sold in the past.

The association has strong exchange rate expectations based on the country’s dual anchor conflicting monetary regimes involving flexible inflation targeting with a reserve collecting target.

“In the coming year of course because of the rupee devaluation, I think the solar energy sector might require tariffs closer to RS 40 or RS 45, hydropower will also require tariffs on that scale,” Prabath Wickremasinghe President of the Small hydropower Developers Association told reporters.

“I think right now what they pay us is averaging around RS 15 to RS 20.”

Some of the earlier plants are paid only 9 rupees a unit, he said. The association there is potential to develop around 200 Mega Watts of mini hydros, 700 to 1000MW of ground mounted soar and about 1,000 rooftop solar.

In addition to the rupee collapse, global renewable energy costs are also up, in the wake of higher oil prices in the recent past and energy disruption in Europe.

The US Fed and the ECB have tightened monetary policy and global energy and food commodity price are now easing.

However in a few years the 40 to 45 rupee tariffs will look cheap, Wickremesinghe pointed out, given the country’s monetary policy involving steep depreciation.

From 2012 to 2015 the rupee collapsed from 113 to 131 to the US dollar. From 2015 to 2019 the rupee collapsed from 131 to 182 under flexible inflation targeting cum exchange rate as the first line of defence where the currency is deprecated instead of hiking rates and halting liquidity injections.

From 2020 to 2022 the rupee collapsed from 182 to 360 under output gap targeting (over stimulus) and exchange rate as the first line of defence.

“The tariffs are paid in rupees,” Wickremasinghe said. With the rupee continuing to devalue in other 5 years 40 rupees will look like 20 rupees.”

Sri Lanka has the worst central bank in South Asia after Pakistan. Both central banks started with the rupee at 4.70 to the US dollars, derived from the Reserve Bank of India, which was set up as a private bank like the Bank of England.

India started to run into forex shortages after the RBI was nationalized and interventionist economic bureaucrats started to run the agency. Sri Lanka’s and Pakistan’s central bank were run on discretionary principles by economic bureaucrats from the beginning.

The Central Bank of Sri Lanka was set up with a peg with gold acting as the final restraint on economic bureaucrats, but it started to depreciated steeply from 1980 as the restraint was taken away.

Now under so-called ‘exchange rate as the first line of defence’ whenever the currency comes under pressure due to inflationary policy (liquidity injections to target an artificially low policy rate or Treasuries yields) the currency is depreciated instead of allowing rates to normalize.

Eventually rates also shoot up, as attempts are made to stabilize the currency which collapses from ‘first line of defence’ triggering downgrades along the way.

After the currency collapse, the Ceylon Electricity Board, finances are shattered and it is unable to pay renewable operators.

Unlike the petroleum, which has to stop delivery as it runs out of power, renewable operators continue to deliver as their domestic value added is higher.

However they also have expenses including salaries of staff to pay.

The CEB which is also running higher losses after the central bank printed money and triggered a currency collapse, has not settled renewable producers.

“In the meantime, we have financial issues with the investors and CEB owns more than 45 million rupees in the industry,” Warna Dahanayaka, Secretary of Mini Hydro Association, said at the conference.

“We can’t sustain because we can’t pay the salaries and we can’t sustain also because of the bank loans. Therefore, we are requesting the government to take the appropriate action for this matter.”

Sri Lanka and Pakistan have identical issues in the power sector including large losses, circular debt, subsidies due to depreciating currencies.

In Sri Lanka there is strong support from the economists outside government for inflationary policy and monetary instability.

The country’s exporters, expatriate workers, users of unofficial gross settlement systems, budget deficits and interbank forex dealers in previous crises have been blamed for monetary instability rather than the unworkable impossible trinity regime involving conflicting domestic (inflation target) and external targets (foreign reserves).

The country has no doctrinal foundation in sound money and there is both fear of floating and hard peg phobia among opinion leaders on both sides of the spectrum regardless of whether they are state or private sector like any Latin American country, critics say.

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South Asia, Sri Lanka currency crises; only 2-pct know monetary cause: World Bank survey

A World Bank survey last year found that only 2 percent of ‘experts’ surveyed by the agency knew that external monetary instability was generated by the central bank. Most blamed trade in severe knee jerk reaction. (Colombo/Jan29/2023)

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Sri Lanka top chamber less pessimistic on 2023 GDP contraction

ECONOMYNEXT – Sri Lanka’s top business chamber said it was expecting an economic contraction of up to 2 percent in 2023, which is much lower than projected by international agencies.

“The forecast of 2023 is quite negative in terms of the international forecasters,” Shiran Fernando Chief Economist of Ceylon Chamber of Commerce told a business forum in Colombo.

“Our view is that there will be some level of contraction, may be zero to two percent. But I think as the year progresses in particular the second half, we will see consumption picking up.”

The World Bank is projecting a 4.2 percent contraction in 2023.

In 2022 Sri Lanka’s economy is expected to contract around 8 to 9 percent with gross domestic product shrinking 7.1 percent up to September.

Most businesses have seen a consumption hit, but not as much as indicated, Fernando said.

“Consumption is not falling as much as GDP in sense and we are seeing much more resilient consumer,” he said.

Sri Lanka’s economy usually starts to recover around 15 to 20 months after each currency crisis triggered by the island’s soft-pegged central bank in its oft repeated action of mis-targeting rates through aggressive open market operation or rejecting real bids at Treasuries auctions. (Colombo/Jan28/2023)

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Acuity Knowledge Partners with Sri Lanka office to be bought by Permira

ECONOMYNEXT – Permira, an investment fund with operations in Europe, US and Asia is buying a majority stake in Acuity Knowledge Partners, which has a 500 seat center in Sri Lanka for a undisclosed sum.

Equistone Partners Europe, from which Permira is buying the stake will remain a minority investor, the statement said.

In 2019, Equistone backed a management buyout of Acuity from Moody’s Corporation.

Acuity Knowledge Partners says it serves a global client base of over 500 financial services firms, including banks, asset managers, advisory firms, private equity houses and consultants.

“Despite the current challenges for the financial services sector, we have experienced continued growth and a strong demand for our solutions and services,” Robert King, CEO of Acuity Knowledge Partners, said.

“Given the significant demand within the financial services sector for value-added research and analytics, and the need for operational efficiency, with Permira’s deep experience in tech-enabled services and its global network, I am confident the business will continue to flourish.”

London headquartered Acuity has offices in the UK, USA, India, Sri Lanka, Costa Rica, China and Dubai, UAE.

Equistone was advised on the transaction by Rothschild & Co and DC Advisory, and Latham & Watkins acted as legal counsel. Robert W. Baird Limited served as financial advisers to Permira, and Clifford Chance is acting as legal counsel.

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