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Sri Lankan economic emergency gives sleepless nights to drug exporters
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Laxmi Yadav, Mumbai
September 21 , 2021
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The economic emergency declared in Sri Lanka on September 1 to arrest dwindling foreign exchange reserves and rising food prices is giving sleepless nights to pharmaceutical exporters as restrictions imposed by the island nation on imports and foreign currency are likely to cause payment problems.
Even though Sri Lankan importers have not yet defaulted on payments, exporters fear that such issues are imminent if the forex crisis is not resolved immediately.
Sri Lanka heavily relies on India for supply of a host of goods including pharmaceuticals. Indian pharmaceutical exports to Sri Lanka stood at US$ 242.17 million during 2020, according to the United Nations COMTRADE database on international trade.
Covid-19 pandemic has shattered the Sri Lankan economy relying heavily on tourism and exports of commercial crops like tea as travel restrictions hit tourism. Tourism industry normally provides jobs for more than 3 million people and accounts for about 5 per cent of GDP.
The island nation’s GDP shrank 3.6 per cent in 2020 and its foreign exchange reserves reduced by half in one year to just US$ 2.8 billion. This has led to a 9 per cent depreciation of the Sri Lankan rupee against the dollar over the past one year, making imports more costly.
Sri Lankan petroleum minister Udaya Gammapilla said the country did not have adequate cash to pay for oil imports.
To preserve foreign exchange, the government has curbed imports of non-essentials such as vehicles and put limitations on US dollar transactions.
Sri Lanka needs to make foreign debt payments worth US$ 3.7 billion this year, having paid US$ 1.3 billion so far. That’s in addition to local debt, according to the Central Bank. Its currency has been plummeting against other major currencies, making such repayments more costly.
Fitch Ratings has downgraded Sri Lanka to its CCC category, indicating a real possibility of default. It says the country’s foreign debt obligation will balloon to US$ 29 billion over the next five years.
To help rebuild its reserves, Sri Lanka received US$ 1.5 billion swap facility from China earlier this year. India offered US$ 400 million swap last month, according to the Central Bank.
Indian exporters who have already gone through tough times during the pandemic believe that multilateral agencies such as World Bank, WHO, SAARC need to extend line of credits to Sri Lanka especially to import medicines and cope up with the pandemic.
“Disruptions or shortages in the supply of essential medicines are the last thing that one may want to see a developing country going through at this point in time, and hence the pharmaceutical’s exports from India to Sri Lanka should continue. The economic emergency is a direct outcome of a medical/healthcare emergency, and we don’t want a reverse phenomenon occurring here as well,” said Sameer Kolhe, president, Maypharm Lifesciences.
“This though cannot come at the cost of losses, unsustainable cash flow of Indian exporters, who have already seen some very bad times during the pandemic. I believe that a small help from larger organizations like the World Bank, WHO, SAARC, which can extend line of credits to Sri Lanka especially to import medicines and try and maintain their fight against the pandemic, would do it for now. The exchange rate devaluation is a temporary phenomenon and surely these countries can pick up forward paying options to the global banks and manage the current monetary situation,” added Kolhe.
So far, no drug exporter has reached out to the Pharmaceuticals Export Promotion Council of India (Pharmexcil) seeking its intervention in resolving challenges faced by them in Sri Lanka.
When contacted, Pharmexcil director general Uday Bhaskar denied receiving any complaint from member companies exporting goods to the island nation.
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