Falling kyat may put pressure on foreign debt

The falling value of the Myanmar kyat versus the US dollar could make repaying external debt harder for the government in the coming fiscal year.

In 2018-19, it is expected to repay K877 billion out of the $9 billion Myanmar owes to foreign creditors, according to the budget submitted for the period.

That amount may well end up being much higher, given that it was calculated when the exchange rate was still K1,360 to the dollar. It is now around K1,540, representing a difference of more than 13 percent.

“The exchange rate for foreign debt repayments is based on the market rate on the day of repayment, so the actual amount repaid will be different from when the repayments were first estimated six months ago, said Daw Si Si Pyone, director general of the Government Treasury under the Ministry of Planning and Finance.

U Than Soe, an economist, pointed out that “some of the external loans were taken at a time when the exchange rate was K900 to the US dollar. If the exchange rate remains at current levels, it will have a huge impact on the year’s repayments but also on foreign debts to be repaid in the future.”

When drafting budget, the government uses an estimate for the future value of the kyat versus the dollar. “So if there are unexpected events like abnormal weather or global uncertainty that have substantial impact on the value of the dollar, foreign debt repayments estimated under the budget will change,” said economist Dr Aung Ko Ko.

U Aung Min, deputy chair of the Joint Public Accounts Committee, said if the exchange rate remains at its current level or continues rising, the government has the option of submitting an additional budget to account for the higher repayments. “Due to changes in the exchange rate, we may need to approve a separate budget for the additional capital required to repay foreign debt,” he said.

Rising dollar

One of the reasons for the dollar’s sharp spike is heightened uncertainty from the ongoing trade war between China and the US, which has led investors to buy more dollar-denominated assets. Meanwhile, a domestic shortage of dollars has also contributed to the rise in value of the dollar.

The Central Bank of Myanmar has in recent months taken a slew of measures in attempts to place a floor under the kyat. These include selling millions of dollars from its foreign reserves to local banks, floating the exchange rate and launching a new currency swap facility.

Yet, the dollar has continued to rise. “Based on the current situation, we cannot expect the exchange rate to fall below K1,500 in the coming years,” said Dr Aung Ko Ko.

Under the debt management strategy for the medium term, the government is advised to opt for dollar-denominated foreign loans and conduct all expenditure in the local kyat to better manage its exposure to foreign currency risk. It should also ensure that its external debt does not exceed 50pc of its total debt.

“We are trying to formulate a Debt Sustainability Analysis with the assistance of the World Bank and IMF on whether the current government debt is sustainable or not,” Daw Si Si Pyone told The Myanmar Times.

The majority of Myanmar’s foreign debts are long term loans with repayments over 40 years or more. Interest on the loans is 1.85pc on average. As at March 2017, 16pc of the foreign debt is dollar denominated, 32pc is in euro, 25pc in Japanese yen and 13pc in Chinese yuan. Another 13pc is held under the IMF’s Special Drawing Rights.

Source:Myanmar Times

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