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Battling Disease and Debt: Financing Non-Communicable Diseases amidst Sri Lanka’s economic crisis

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By Sunimalee Madurawala

“The shortage of medicines will significantly impact medications for non-communicable diseases (NCDs). If NCD patients don’t receive their regular medication, their condition will worsen,” stated a Provincial Director of Health Services speaking on the implications of the economic crisis on NCDs. Over the last few decades, NCDs have emerged as a critical health challenge for Sri Lanka, placing a significant burden on the country’s healthcare system. More than 80 % of the total deaths that occurred in the country are due to NCDs. NCDs accounted for 38% of the country’s total health expenditure in 2019, amounting to USD 1,183 million. The economic impact is particularly challenging for households affected by chronic NCDs as they bear higher costs of medicines, pharmaceutical products, medical laboratory tests, and other ancillary services. With the current economic downturn, preventing and financing NCDs has become even more challenging for Sri Lanka.

An ongoing IPS study delves into the implications of the economic crisis on the country’s health system, with a specific focus on NCD prevention and financing. The study conducted an extensive analysis by gathering perspectives from various stakeholders. This blog is based on the information collected from these stakeholders.

Economic Crisis and Sri Lanka’s Health System

The COVID-19 pandemic has already put Sri Lanka’s health sector under intense pressure, and the ongoing economic crisis has added more stress to the sustainability of the country’s healthcare system. An economic crisis can directly and indirectly impact a health system. For instance, during times of economic crisis, it’s common for governments to reduce their social expenditures, and one area that could be affected is healthcare. This could result in cuts to health budgets. Furthermore, the demand for healthcare services will decrease, particularly in the private sector, where treatment costs could increase. Additionally, child and maternal nutrition and other health outcomes will deteriorate as with the increasing food prices, people opt to reduce food quantity and quality.

Once well-recognised for its strength and cost-effectiveness, Sri Lanka’s health system is now challenged by knowledge, capacity, and policy gaps. The economic crisis would undoubtedly worsen these gaps, even to the point of the collapse of the health system. The adverse impacts of the economic crisis could hinder the laudable progress achieved by the country over the years, leading to an increase in NCDs, malnutrition among children, communicable diseases, and mental health issues.

Implications on NCDs

The economic crisis in Sri Lanka has significant short-term and long-term implications for NCD prevention and financing. In the short term, the shortage of medical supplies has become the most pressing concern. Further, resource limitations have resulted in the delay or limitation of lab tests and surgeries, including non-essential and non-urgent surgeries at government hospitals. In addition, the fuel shortage which escalated last year has severely impacted preventive care services, curative care services, and administrative functions at all levels of the health sector, weakening the entire health delivery mechanism. Moreover, the government’s decision to limit capital expenditure would have serious negative repercussions on maintaining the existing NCD service delivery and catering to the increasing demand for NCD preventive (e.g., awareness campaigns and screening programmes) and curative (e.g., construction of hospitals and clinics) measures in the future.

Participating in one of our interviews, an officer from a Provincial Health Ministry stated that, in the long term,” the prevalence of risk factors will undoubtedly increase eventually, and individuals who already suffer from NCDs may find it challenging to manage their conditions.” For example, the prevalence of unhealthy dietary patterns – one of the NCD behavioural risk factors – is likely to become more prevalent. Even before the economic crisis, Sri Lanka’s nutrition indicators stood at a lower level and there was limited progress towards achieving the diet-related non-NCD targets. The high food prices have compelled people to either reduce or avoid consuming healthy foods or opt for cheap, unhealthy foods. This would “lead to a decline in earning and learning capacities for the next generation resulting in generational effects”, feared a Provincial Health Ministry officer.

Becoming More Resilient and Facing the Challenges – the Way Forward

Most stakeholders who participated in this study suggested that seeking external funding is the most suitable short-term strategy for Sri Lanka to finance NCDs to overcome the current crisis. “We (the country) should also aim to receive more foreign aid instead of loans, which requires close discussions with other countries and international organisations suggested a senior officer from the Ministry of Health.

While seeking external support as a short-term relief, it is crucial to focus on long-term strategies to improve the resilience of Sri Lanka’s healthcare system in handling future crises.Improving efficiency and strengthening the system are vital long-term strategies proposed by the stakeholders in building a more resilient healthcare system.

Minimising wastage, changing attitudes, and fostering innovative thinking should be the key pillars of increasing efficiency, as indicated by the stakeholders. Likewise, system strengthening requires strong leadership, the use of technology, and paying more attention to budgeting, planning, and coordination. Additionally, exploring alternative financing ventures, restructuring the health financing system, and focusing on smarter spending are necessary as providing citizens with free healthcare becomes increasingly challenging for the government in a limited fiscal space. Such measures would make the country’s healthcare system robust which can withstand both the short-term and long-term consequences of a crisis, assured the stakeholders who participated in this study.

Despite the severe impact of the current economic crisis on NCD prevention and financing efforts, it provides an opportunity to understand the gaps in the existing system and develop a more sustainable and resilient healthcare system to cater to the increasing demand for NCD prevention and financing.

  • This study is carried out in collaboration with the Center for Policy Impact in Global Health (CPIGH) of Duke University with financial support from the Bill and Melinda Gates Foundation.

Link to blog: https://www.ips.lk/talkingeconomics/2023/04/20/battling-disease-and-debt-financing-non-communicable-diseases-amidst-sri-lankas-economic-crisis/

Sunimalee Madurawala is a Research Economist at IPS. Her research interests include health economics, gender and population studies. Sunimalee holds a BA (Economics Special) with First Class Honours and a Masters in Economics (MEcon) from the University of Colombo, Sri Lanka. (Talk to Sunimalee – sunimalee@ips.lk)



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Budget 2025: A spectrum of reactions and perspectives

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By Sanath Nanayakkare

The 2025 Government Budget has begun to attract multiple comments from the corporate sector, academics, the government ranks and the Opposition. Reproduced below are a few of them.

First Capital Research’s analysts pointed out that the budget heavily leant towards social welfare and infrastructure development significantly increasing government expenditure.

“The already announced tax revenue measures and the digitalization drive are expected to boost Government Revenue allowing the Budget Deficit to be contained at 6.7% of GDP. A significant portion of increased government spending has been directed towards social spending with increased public sector salaries and pensions, coupled with higher allocation for assistance programs such as Aswesuma and other additional social benefits. While this ensures financial relief for many households, it also influences overall economic behavior in ways that will be felt across society. Efforts have also been made to support the lagging economy via public investments with spending targeted towards road construction, water projects, housing and city developments,” First Capital said.

“Despite the extravagant spending increases, a substantial increase in revenue is also planned with bulk of the revenue increase expected from taxes on vehicles while VAT on digital services, the imposition of corporate income tax on the export of services, and an increase in the corporate tax on cigarettes/liquor, and gaming is expected support to achieve the target. Further support is anticipated via digitalization and the expansion in the economy where the Government expects to provide a boost through spending on infrastructure, with the aim to balance spending with fiscal discipline while fostering long-term economic stability,” First Capital noted.

Government

“The Opposition was helpless when the President presented a progressive budget that brings good times for the people of this country. It was the most successful budget when looking back at the budgets presented in the past few decades,” Deputy Minister of Fisheries Ratna Gamage said.

“The government has delivered the best salary increments for state employees. The basic salaries of all state employees have increased across the board in significant amounts. Deputy Minister of Labour, Mahinda Jayasinghe said.

Academics

“Sri Lanka needs new technology-driven production economy. For that the contribution of the private sector is needed. The budget has not focused on that aspect,” Economist Professor Wasantha Athukorale said.

“There is some risk emanating from the increase of state employee salaries which will cost Rs. 300 billion within the next three years. This is more than what is collected from PAYEE tax. Dhananath Fernando of Advocata said.

Opposition

“The Budget represented the voice of the IMF, the sovereign bondholders and the scam-laden super-rich,” Peratugami Activist Pubudu Jayagoda said.

“The Budget presented by President Anura Kumara Dissanayake was the mother of all deceptions”, SLPP General Secretary Sagara Kariyawasam said.

“When state employees get their salary in April, they will realize that they have been taken for a ride by the government, SJB MP Marikkar said.

Janasetha Peramuna leader Ven. Baththaramulle Seelarathan said the government which came to power through the massive support of Buddhist monks., has not made an allocation in the budget for enhancing the quality of education at Pirivenas although other areas of education had allocations.”

Udaya Gammanpila , Leader, Pivithuru Hela Urumaya said that they have identified 12 projects that no allocations were set apart for, through the budget.

Referring to a popular verse about wearing someone else’s pants and strutting about, Gammanpila said,” “The essence of the Budget reveals that the President is confidently adopting Ranil Wickremesinghe’s policies as if they were his own.

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‘Dependence on solar panels hindering national power grid stability’

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By Ifham Nizam

As Sri Lanka accelerates its transition to renewable energy, particularly through the widespread adoption of rooftop solar installations, it is encountering significant hurdles in maintaining the stability of its national power grid.

While the country’s commitment to sustainability aligns with global trends, the increasing reliance on intermittent sources like solar energy has introduced complex challenges, especially during periods of low industrial demand such as weekends and holidays.

A senior electrical engineer, speaking to The Island Financial Review, raised alarm over the escalating frequency fluctuations and instability in the power system, particularly on sunny Sundays when energy demand plummets. The high penetration of non-despatchable renewable energy (NCRE), such as solar power, has reduced system inertia, putting the grid at a heightened risk of failure during these low-demand periods.

He said one critical example was on September 22, 2024, when the national grid registered its lowest demand of 670 MW at 10:53 AM. To keep the grid stable, the Ceylon Electricity Board (CEB) had to curtail 160 MW of solar power and other NCRE sources between 10:00 AM and 3:00 PM. This action was taken to elevate the grid demand to 820 MW, thus ensuring the dispatch of higher-inertia power plants that provide more stability.

Despite these efforts, the CEB has warned that continued low demand could lead to more frequent instances of under-frequency load shedding (UFLS). In extreme cases, the instability could even result in the tripping of large thermal power plants, such as the Lakvijaya Power Plant in Norochcholai.

The CEB has identified a series of interventions aimed at mitigating these risks and ensuring the power grid remains stable:

New Tariff Structures for Industries: The CEB proposes incentivized electricity rates for industries during weekends and holidays to encourage higher electricity consumption, helping to balance demand fluctuations.

Hydropower as a Stability Solution: Large hydroelectric plants, including Victoria, Kothmale, and Samanalawewa, could be operated in synchronous condenser mode, which would allow them to provide reactive power support without generating electricity, bolstering grid stability.

Gas Turbine Generators for Inertia Support: The operation of the Kelanitissa Gas Turbine 7, with its high inertia, in synchronous condenser mode is being considered to provide further grid stability.

Fast Frequency Response and Energy Storage: Investments in energy storage technologies such as battery energy storage systems (BESS), flywheel storage, and fast-acting gas turbines are seen as critical for stabilizing frequency fluctuations quickly.

NCRE Control Desk Implementation: A dedicated monitoring and forecasting unit for renewable energy generation will help to manage the fluctuating supply of renewable energy more effectively.

Review of Spinning Reserve Requirements: The CEB is reassessing the adequacy of the current hot spinning reserve of 5%, considering the growing proportion of renewable energy on the grid.

Regulatory Framework for NCRE Curtailments: The establishment of a regulatory mechanism to control the dispatch of renewable energy, particularly from plants larger than 5 MW, will be essential in ensuring grid stability.

Optimization of Power Plant Operations: The CEB is exploring ways to optimize the operations of hydro and thermal power plants, particularly concerning their minimum operating power levels and ramp rates, to increase the overall inertia of the system.

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Sri Lanka Bank’s Association welcomes budget as “Positive,” stresses importance of implementation

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Sri Lanka’s banks have welcomed the maiden budget of the new government, describing it as “positive” and one that seeks to maintain policy consistency, especially on the fiscal path.

In a statement, the Sri Lanka Banks’ Association (SLBA), which represents all licensed banks in Sri Lanka, commended the budget proposals presented to Parliament by President Anura Kumara Dissanayake in his capacity as Minister of Finance, Planning and Economic Development.

In particular, the SLBA commended the budget’s emphasis on digitization, the proposed establishment of Credit Guarantee Institute for Small and Medium Enterprises (SMEs), and the focus on export orientation, and said the key to achieving the envisaged outcomes would be effective and consistent implementation of the proposals in both “letter and spirit.”

Pointing out that the banking sector contributed about 10% of government revenues in 2024 and continues to play a significant role in the growth agenda of the country, the SLBA said the country’s banks remain committed to supporting the implementation of the proposals in the budget.

The Association noted that Point-of-Sale (POS) machines at every VAT registered business entity would lead to transparent business transactions in digitized form, reducing the use of physical cash, and that this would result in a greater percentage of cash-flows being captured in the banking channels.

“Increased digitalization of the financial economy would also increase investments from the financial institutions into digital infrastructure to drive online transactions, tighten anti-money laundering procedures, improve surveillance, and control cyber-crime,” the SLBA said.

It said the establishment of a credible Credit Guarantee Institute for the SMEs and establishing a development bank through the infrastructure of an existing state bank are positive steps that should enhance the segment’s capacity to secure credit and improve the quality of its relationship with the banking sector.

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