Concern among traders mounts as dollar continues rise against kyat

Local traders who import goods are concerned about the recent spike in the value of US dollar versus the Myanmar kyat. The exchange rate, which recently rose above K1,400, was fixed by the Central Bank of Myanmar (CBM) at K1,399 yesterday. The last time the dollar reached similar levels against the kyat was in 2016.

Traders are worried that the rising value of the dollar versus the local currency will soon result in more expensive imports of goods like petrol, medicines, basic foods and consumer goods.

“The appreciation of the dollar will mainly have an effect on importers, who will now have to pay more local currency in exchange for importing dollar-denominated goods,” said U Soe Tun, a local trader.

Goods like petrol and cooking oil, which are imported in bulk, will be the worst affected. “Also, if transportation costs rise as a result of higher petrol prices, the cost of goods in general, including commodities, will rise too,” U Soe Tun said.

Daw Saw Nay Nwe, deputy managing director of AA Medical Product, said the appreciation of the dollar will have a large impact on the price of imported medicines. “The rising value of the dollar will hugely impact medicine importers as we buy in dollars and pay duties in dollar terms as well,” she said.

But that’s not all. Imported medicines and medical equipment are typically purchased on credit. “So when local merchants pay up for the goods a month later, they are forced to shoulder the foreign exchange losses suffered when the dollar appreciates,” Daw Saw Naw Nwe said.

Why is the dollar rising? More importantly, is it temporary? Are traders looking at a stronger dollar over the long term?

Dollar shortage

One reason behind the dollar’s appreciation is a domestic shortage of the currency due to foreign direct investments in the country as investors wait out the uncertainty in Northern Rakhine, said U Than Lwin, senior advisor to Kanbawza Bank and formerly vice governor of the CBM.

Meanwhile, tax revenues have not improved. “The higher tax rates on changes in ownership of property or vehicles have led to a rise in the number of people evading tax instead,” he said.

Without sufficient tax revenue, the government has no income and that adds to the fiscal deficit. That, in turn, forces the government to borrow more heavily from the CBM, leading to inflation and dollar appreciation when the borrowed money is circulated into the economy.

But there are external reasons for the rising dollar, too. Spooked by uncertainty caused by the ongoing trade war between the US and some of its biggest trade partners, global investors are dumping riskier assets in favour of the dollar.

“The world seems to be entering further and further into instability. And, whenever there is instability, there is a flight to safe haven investments, of which by far are assets denominated in the dollar. Accordingly, demand for the dollar can only be expected to rise along with its price, or exchange rate,” said Sean Turnell, economic advisor to the current government.

How long will the dollar continue rising? While the kyat is likely to continue depreciating against the dollar, Myanmar has low levels of debt and is not so exposed to fluctuations of trade. As such, the local currency will probably be able to hold its value quite well against the dollar, Mr Turnell said.

CBM help needed

Still, exchange rate volatility is not a good sign for doing business and if unstable, investors will not come, traders said. “Trade is convenient if the dollar rate is stable. Also, a higher dollar leads inflation in commodity prices. As such, we urge the CBM to help keep the exchange rate as stable as possible,” said U Soe Tun.

Daw Saw Nay Nwe agrees. “The CBM used various policies over the last year to keep the exchange rate stable. This was convenient and beneficial for traders as well as consumers. Myanmar is an import-dependent country with every sector importing as much as 90percent of the goods involved. The strength of the dollar has a huge impact on the lives of the people,”she said.

Myanmar is an import-dependent country. In whichever sector, import constitutes 90pc and above. So, dollar rate have strong impacts on the people. It can increase commodity prices,” Dr. Saw Nay Nwe said.

For its part, the CBM has been in contact with local banks and authorised money changers in attempts to control the exchange rate. “However, we hear that the CBM is just calling to threaten the banks about the exchange rate. This is not the proper way. The CBM will need to pump more dollars into the economy to manage the situation,” said U Than Lwin.

Source: Myanmar Times

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