Boston, MA -- (SBWIRE) -- 12/28/2012 -- Sri Lanka's negative pharmaceutical trade balance is expected to widen over the next five years. In an attempt to reduce medical costs, the government said in its 2011 budget that pharmaceutical products will be exempt from the port and airport levy, with the changes relating to drugs, medical devices and equipment. Although domestic manufacturing will struggle to compete with cheap medicines from India, we expect local producers to increase capacity considerably over the medium term..

Headline Expenditure Projections

- Pharmaceuticals: LKR50.68bn (US$458mn) in 2011 to LKR59.90bn (US$501mn) in 2012; +18.2% in local currency terms and +9.4% in US dollar terms.
- Healthcare: LRK250.62bn (US$2.27bn) in 2011 to LKR278.82bn (US$2.34bn) in 2012; +11.3% in local currency terms and +3.0% in US dollar terms.
- Medical devices: LRK11.20bn (US$101mn) in 2011 to LKR11.97bn (US$100mn) in 2012; +6.9% in local currency terms and -1.1% in US dollar terms.

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Risk/Reward Rating: According to our Q412 regional matrix, Sri Lanka is ranked 15th out of the 18 markets in surveyed, above Pakistan and Bangladesh. Sri Lanka's rewards and risks profiles are relatively evenly balanced, with low per capita expenditure on drugs and the modest overall market size some of key factors contributing to its low ranking.

Key Trends And Developments

In positive news, a study by researchers from Sri Lanka's Anti-Malaria Campaign and the UCSF Global Health Group has found Sri Lanka has succeeded in reducing the number of malaria cases in the country by nearly 99.9% since 1999, from 210,039 cases in 2000 to 175 cases in 2011.

A delegation of the Indian pharmaceutical companies visited Sri Lanka in the week ending August 18 2012 to discuss the possibilities of setting up a pharmaceutical manufacturing hub in Sri Lanka. The visit wass aimed at tapping the growing Sri Lankan pharmaceutical market,

BMI Economic View: The recent boom in foreign direct investment (FDI) into Sri Lanka has been nothing short of spectacular. Nonetheless, we believe that the country and its political leadership cannot simply expect FDI to continue flowing in at an ever-increasing pace, given the still-precarious shape of the global economy. In the event of a global economic crisis, or at least a much more prolonged period of global economic weakness which stalls the country's growth prospects, the FDI boom could quickly dissipate, given the island nation's still-mediocre business environment. Below, we highlight our thoughts on some of the key business environment issues.

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