Impact of US export tariffs on Sri Lankan economy, particularly healthcare industry

By Shan Hasan 

Introduction

In recent years, global trade dynamics have experienced significant shifts, with the United States implementing stringent export tariffs on various countries, including Sri Lanka. These tariffs, particularly the 44% levy on approximately $ 3 billion worth of Sri Lankan exports, have profound implications for Sri Lanka’s economy, with the healthcare industry being notably affected. This essay delves into the multifaceted impact of these US export tariffs on Sri Lanka, focusing on the healthcare sector, and explores potential strategies for mitigation and adaptation.

Overview of Sri Lanka’s economic landscape

Sri Lanka, has long been recognised for its robust healthcare system and a diverse economy encompassing agriculture, manufacturing, and services. However, the country has faced economic challenges, including a significant financial crisis due to a dollar shortage three years ago. Despite these setbacks, Sri Lanka has shown resilience, achieving a 5% economic growth last year, supported by a $ 2.9 billion bailout package from the International Monetary Fund (IMF).

The US export tariffs: A catalyst for economic strain

The recent imposition of a 44% tariff on Sri Lankan exports to the US marks a significant departure from previous trade policies that encouraged economic development through preferential trade terms. This tariff primarily targets Sri Lanka’s apparel industry, which constitutes over 70% of its exports to the US The immediate consequences include potential job losses, reduced foreign exchange earnings, and a disruption in the supply chain.

Direct impact on the healthcare sector

The healthcare industry in Sri Lanka is intricately linked to the broader economy, and the repercussions of the US tariffs are multifaceted.

Sri Lanka imports a significant portion of its medical supplies and equipment. The depreciation of the Sri Lankan rupee, coupled with the economic strain from reduced export revenues, has led to increased costs for these imports. Essential medicines and medical devices have seen price hikes, making them less accessible to the general population.

The government predominantly funds public healthcare services, which are offered free of charge to citizens. However, the reduced foreign exchange earnings due to decreased exports have strained the national budget, leading to challenges in maintaining the quality and accessibility of public healthcare services.

The economic downturn has also affected the development and maintenance of healthcare infrastructure. Delays in the procurement of medical equipment and construction materials have hindered the expansion and upgrading of healthcare facilities, affecting the delivery of services.

Indirect consequences on public health

Beyond the immediate economic impacts, the tariffs have indirect effects on public health.

With the rise in the cost of medical supplies, patients are increasingly required to bear the additional expenses. This situation exacerbates the financial burden on households, particularly those from lower-income groups, leading to increased out-of-pocket expenditures for healthcare.

Economic constraints have led to a reduction in the availability of certain medical services. For instance, specialised treatments and elective procedures have been postponed or cancelled due to the unavailability of necessary equipment and medications.

The economic challenges have disproportionately affected rural and underserved communities, exacerbating existing health disparities. These populations face greater difficulties in accessing quality healthcare services, leading to poorer health outcomes.

Broader economic implications

The ripple effects of the US tariffs extend beyond the healthcare sector.

The increased cost of imports, including medical supplies, contributes to overall inflation. This inflation erodes purchasing power, affecting the cost of living and further straining household budgets.

The apparel industry, a significant contributor to employment, faces potential downsizing due to reduced export opportunities. This situation could lead to increased unemployment rates, affecting the overall economy.

Sri Lanka’s reliance on foreign loans to finance development projects makes it vulnerable to currency fluctuations. The economic strain from reduced export revenues complicates the repayment of foreign debts, potentially leading to a debt crisis.

Strategic responses and mitigation measures

In response to these challenges, Sri Lanka has undertaken several strategic initiatives.

Efforts are underway to diversify export markets beyond the US, including strengthening trade relations with the European Union and neighbouring countries.

Investing in domestic production capabilities aims to reduce reliance on imports, particularly for essential medical supplies. This strategy includes promoting local manufacturing and improving supply chain efficiencies.

The Government is implementing policy reforms to enhance economic resilience, including fiscal adjustments, trade policy realignment, and measures to attract foreign investment.

Conclusion

The recent US export tariffs have posed significant challenges to Sri Lanka’s economy, with the healthcare sector experiencing both direct and indirect impacts. While the situation is daunting, Sri Lanka’s proactive strategies in trade diversification, domestic production enhancement, and policy reforms offer a pathway toward mitigating these challenges. Continued international cooperation and support will be crucial in navigating the complexities of the global trade environment and ensuring the sustainability of Sri Lanka’s healthcare system.

(The writer has held senior leadership positions in some of the leading blue chip conglomerates in Sri Lanka and served TMC’s Board of Management as its Vice President Administration).