The Myanmar economy expanded by 5.9 percent during the 2016-17 fiscal year, a rate slower than expected due to weak agriculture production and exports and the suspension of several construction projects in Yangon, according to the International Monetary Fund (IMF).
As a whole though, economic and monetary conditions have improved. Growth is expected to rebound in 2017-18, although its momentum could be held back by fewer domestic investments and a pullback in tourism as the humanitarian crisis in Northern Rakhine continues to unfold.
Backed by the recovering agriculture sector and exports, Myanmar should grow by 6.7pc in the current fiscal year, the IMF said. The economy is expected to improve further beyond 2017-18, expanding between 7pc and 7.5pc on the back of stronger foreign direct investments (FDI) and public spending.
Since taking office, State Counselor Daw Aung San Suu Kyi has worked to raise her government’s budget through higher tax revenues and more efficient spending. As a result, the budget deficit has fallen to about 3pc of GDP in 2016-17 compared to a high of 4.5pc of GDP the year before.
The narrower budget deficit won’t just give the government more room to invest in public infrastructure, healthcare and education. It will also help to reduce central bank financing of the deficit, allowing inflation to taper. Inflation was 6.8pc in 2016-17, almost halving from before.
The current account deficit (CAD), or trade deficit, hit 3.9pc of GDP in 2016-17 as imports continued to outpace exports. Compared to the previous year though, the CAD had narrowed from 5.1pc in 2015-16.
Strong FDI
While the IMF expects capital inflows from FDI to finance the deficit, Myanmar also has foreign reserves worth 3.2 months of projected imports. Meanwhile, the inflation-adjusted exchange rate is also seen as “broadly stable,” the IMF said.
Myanmar has already approved FDI totaling $4.35 billion in the first six months for the 2017-18 fiscal year, according to the Directorate of Investment and Company Administration. This includes $3.5 billion from 129 foreign companies as well as $214 million for the Thilawa Special Economic Zone. It also includes nearly $600 million in capital expansion by existing foreign enterprises.
Risks and reforms
Still, the economy is not without risk. While the impact of the Northern Rakhine humanitarian crisis “appears to have been largely localised so far,” prolonged conflict could affect financial stability and investor sentiment,” said Shanaka Peiris, the IMF’s Myanmar mission chief.
Last month, shareholders of large oil and gas companies including Malaysia’s Petronas, US-listed Chevron Corporation, Australia’s Woodside Petroleum, France’s Total and CNOOC received letters from investors urging them not to work with Myanmar if the crisis is not solved.
A letter was also sent to Tiffany & Co and other jewelry makers, urging them to investigate the source of their gems.
The other risks include the likelihood of natural disasters such as floods and volatile financial and commodity markets globally.
In the meantime, “a second wave of reforms should focus on agriculture, the banking system and gradual interest rate liberalisation,” to strengthen economic conditions in the country, said Mr Shanaka.
He added that the government should focus on better public financial management through more efficient use of taxes and restructuring of State Economic Enterprises. “State-owned banks should be restructured, while electricity tariffs need to be rationalised to reduce the subsidies to the state-owned electricity company while mitigating the impact on the poor.”
Source: Myanmar Times
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