Economy outlook positive pending reform acceleration, says World Bank

After a period of volatility during the six-month transition period between April and September 2018, growth in Myanmar has stabilised and the economy is expected to expand at a rate of 6.5 percent in the current 2018-19 fiscal year, according to the World Bank’s June 2019 Myanmar Economic Monitor.

Supported by higher productivity in the sectors currently undergoing liberalisation, such as the retail and wholesale and insurance sectors, and backed by a continuous roll-out of the state reform agenda, growth should accelerate to 6.7pc by fiscal 2020-21, said Hans Anand Beck, lead economist at the World Bank.

“Building reform momentum now is critical. There are signs that market sentiment is rising as the reforms promised under the Myanmar Sustainable Development are gradually being passed. For instance, insurance liberalisation, tax reform and transparent investments in the power sector,” he said.

Mr Beck added that implementation of mega projects under the China Myanmar Economic Corridor as well as a pickup in the transport, energy and manufacturing sectors should help sustain the pace of growth in the coming quarters. He warned though, that the agriculture sector is underperforming because of reducing external demand for commodities produced in Myanmar.

Melvyn Pun, Chief Executive Officer at Yoma Strategic Holdings, shared the World Bank’s view, saying on a panel that “the government has willingly decided to focus on economic development and implementing reforms recently. On the other hand, there are barriers to growth, such as the power shortage, which deters investment in the country,” he said.

Although foreign direct investments (FDI) commitments began to pick up slightly in the first-half of the current fiscal year compared with the same period last year, it remains at just a third of annual FDI commitments totaling US$5.8 billion in 2017-18.

To be sure, despite substantial progress achieved over the past decade to develop energy infrastructure and deliver electricity access, the power supply gap remains substantial with rolling blackouts taking place across Myanmar this summer.

To address its rapidly growing electricity demand, Myanmar needs to invest twice as much and implement projects three times faster, supported by higher electricity tariffs, according to the World Bank. “According to recent estimates, consumption will grow at an average annual rate of 11 pc until 2030. Peak demand is expected to reach 8.6 gigawatts(GW) by 2025 and 12.6 GW by 2030, which is a significant increase from the current level of 3.6 GW.,” the report said.

“To cater to this demand, overall investment requirements are estimated to be around US$2 billion per year, which is double historic levels. By 2025, 5 GW of new generation capacity need be added, equivalent to roughly three times what was built over the same period in the past.”

As such, investments into the sector should be facilitated by higher electricity tariffs and measures to reduce the cost of system inefficiencies, Mr Beck said.

The other issue raised in the report is a persistent deterioration in state spending. According to the World Bank, the budget deficit for 2018-19 is projected to be considerably lower than the target of 5.4 pc of GDP. Indicative data suggests that actual spending was nearly 20pc less than the half-year spending target, with capital spending just above 55oc of the half-year target for the fiscal year.

Daw Thet Thet Khine, Member of Parliament of Pyithu Hluttaw, conceded that a lot more spending and investments in infrastructure are needed for further growth and development. “With the government focused on reducing its reliance on the Central Bank to finance the budget deficit, foreign investors are needed for a lot of these investments. The government has to create an attractive business environment and help to make doing business in the country easier,” she said.

On balance though, the economic outlook for Myanmar is positive. “The government has been too slow with its policies and reform, such as preparing the Myanmar Sustainable Development Plan,” said Professor Khin Maung Nyunt, senior research fellow at the Myanmar Development Institute. He added though, that things should improve with better public finance management and more comprehensive regulatory frameworks on Public Private Partnerships.

Mr Pun agreed. He said “investors with billions of dollars are waiting at the door of the country. The government needs to move quickly with reform and remove barriers such as redtape and power shortages.” If things are done right, Mr Pun sees FDI commitments “rebounding within the next six months.”

Source: Myanmar Times

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