Lanka’s negative pharmaceutical trade balance to widen further

The country’s negative pharmaceutical trade balance is to widen further to $ 306 million or Rs. 32 billion in 2014, according to the Pharmaceuticals and Healthcare Report Q1 2011 — new market research report released recently.

It said that Sri Lanka is able to bask in a year of soaring investor interest and economic growth, which will see its GDP growth most likely come in at 7%. Healthcare spending in the country is expected to continue strengthening over the coming years, with BMI forecasting an increase from LKR201.44 bn (US$1.75 bn) in 2009, to LKR225.53 bn (US$1.99 bn) in 2010.

However, BMI forecasts a lower 6.2% GDP growth rate for 2011 than the Central Bank’s estimate of 8%. This is pertinent, as benchmark rate cuts will become increasingly difficult as inflation continues to grow in the country, jumping to a 21-month high in November 2010. Although healthcare inflation has slowed over 2010, since the beginning of the year, health inflation in November was 12.8% above the same month in the previous year. The growth in healthcare costs from July to November of 12-13% y-o-y is down on a growth rate of 22% y-o-y from January to June 2010, according to the Central Bank.

The government’s 2011 budget, outlined in November 2010, shortly after President Mahinda Rajapaksa was sworn in for his second term, could help reduce the cost of pharmaceutical products, however. Pharmaceutical products will be exempt from both import duties and VAT. The budget allocates as much as LKR900 mn (US$8.08 mn) to tackle non-communicable diseases in a three-year plan focusing on improvements in primary healthcare. It also allocates a total of LKR54 bn (US$485.01 mn) to both healthcare and education spending, up from LKR29.4 bn (US$264.06 mn) in the 2010 budget. Some observers worry that President Rajapaksa may become increasingly complacent in his relations with the country’s Tamil minority, having presided over the end of the island’s civil war in mid-2009.

The report said that Rajapaksa’s apparent attitude that the country’s economic boom will be his second triumph could see political changes neglected. This is especially important with regard to the country’s perceived corruption levels, which deter foreign direct investment. This could be all the more concerning, considering September 2010’s constitutional change that saw Sri Lanka’s two-term presidential term removed. Indeed, the most significant change in the country’s performance in BMI’s Pharmaceutical & Healthcare Business Environment Ratings (BERs) this quarter has been a substantial drop in its country risks score to 48, down from 63 in the previous quarter. Sri Lanka’s country risks score is now no longer above the regional average, which stands at 58 this quarter.

According to BMI’s drug expenditure forecast model, sales of pharmaceuticals in Sri Lanka are expected to increase from LKR38.97 bn (U$338 mn) in 2009, to LKR43.67 bn (US$386 mn) in 2010.

Due to the strengthening rupee, growth in 2010 will stand at 12.1% in local currency terms and 14.1% in US dollar terms. Meanwhile, Sri Lanka’s negative pharmaceutical trade balance is expected to widen over the next five years from LKR21, 171 mn (US$184 mn) in 2009 to LKR32, 096 mn (US$306 mn) in 2014.”