The federal government has limited increments to the cost of pharmaceutical products and medicines at public health centers and dispensaries to 25 percent despite the fluctuations posed by the recent changes in the foreign exchange market.
Officials say they have allocated 9.8 billion birr towards pharmaceutical subsidies for the fiscal year in a bid to ease costs for consumers. The subsidies will apply primarily to medicines supplied through public health institutions.
“The price surge induced due to the floating has not yet been transferred to the end consumer because it’s being absorbed by the government subsidy,” said Solomon Niguessie, deputy director of the Ethiopian Pharmaceutical Supply Service (EPSS).
He disclosed the federal government has allocated close to 10 billion birr for subsidies to ease the growing costs of importing medicines as prices surge following the currency floating.
“The government has decided we shouldn’t add more than 25 percent in price increments on the end consumer,” he said.
EPSS is responsible for supplying medicine to all public health centers and a few private institutions. Many of the pharmaceutical products it supplies are purchased using funding from external donors, including HIV, TB, and malaria medications, as well as vaccines.
These medicines are supplied free of charge to the public.
However, EPSS buys the rest of the conventional medicines and pharmaceutical products it supplies to health centers. Much of these medicines are imported, and EPSS distributes them to hospitals, pharmacies, and health centers at a margin.
These health institutions buy medicines from EPSS branch offices either on cash or credit, with an obligation to pay out any receivables within two months of credit purchases.
Only public health centers are eligible to receive medicines on credit.
However, EPSS has been struggling to collect payments on the pharma products it has supplied on credit as its clients run short of the budgets or willingness needed to settle bills.
Solomon revealed EPSS finished the 2023/24 year with 1.9 billion birr in accumulated unpaid credit on its books.
“Of this, one billion birr is owed by 20 hospitals,” said the Deputy.
He observes the failure to settle payments has hobbled EPSS’ capacity to import additional medicines. This, in turn, has fueled medicine shortages across the country.
“We import medicine using dollars. When hospitals pay us our credit after a year, the value of the money has already dropped,” said Solomon.
The recent liberalization of the forex market has seen the birr’s purchasing power drop by half, further constraining the agency’s ability to import crucial medicines.
Solomon says EPSS is weighing its options on how to recover what it’s owed. The agency is considering legal proceedings to force the health institutions to settle their bills.
Another option is introducing a legal framework that would enable it to obtain court orders to withdraw receivables directly from clients’ banks accounts, in much the same way that customs officials do when businesses fail to pay their taxes and duties.
“The making of this legal framework is underway,” said Solomon.
The final alternative is entering into contracts with health institutions, tying their budgets for medicine procurement directly to EPSS. This is known as committed demand.
“We’re introducing committed demand to Ethiopia,” said Solomon.
His office plans to pilot the system at 32 health centers, which Solomon says are responsible for the majority of the unpaid credit.
The list includes Tikur Anbessa, St. Louis, MO St. Paul’s, and Zewditu hospitals in Addis Ababa and Felege Hiwot in Bahir Dar.
EPSS forecasts spending 28 billion birr on medicine imports for commercial distribution this year.
By Helen Tesfaye and Wanofi Solomon
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