Myanmar’s recovery waylaid by second wave, but rebound expected later: World Bank

The second wave of the COVID-19 pandemic will delay the recovery of the Myanmar economy, leading to the growth of just 1.7 percent in fiscal 2019-20, according to the World Bank’s Myanmar Economic Monitor 2020 released December 16. This is down from growth of 6.8pc in fiscal 2018-19, mainly due to a contraction in manufacturing and construction, which accounts for a third of the Myanmar economy. This was a result of disruptions to supply chains, site closures, and reduced demand on the back of COVID-19.

Recovery in the services sector will also be delayed due to pandemic restrictions, which has had a severe impact on tourism and domestic mobility, incomes, and employment. That, in turn, has weighed on retail trade, food, and accommodation services across the country. The poor have been the most affected as a result of the pandemic’s impact on the economy, with ongoing restrictions rolled out under the second wave putting more
households at risk of poverty.

With limited savings, many poor households are being forced to reduce their food and non-food consumption in order to cope with income and job losses. Between August and October, the share of households experiencing moderate to severe food insecurity increased from 12 pc to 25pc. Being unable to service their debts is also an emerging issue for poorer households. Due to the slowdown in economic growth, poverty rates are forecast to increase from 22.4pc in fiscal 2018-19 to 27pc in fiscal 2020-21. “In the absence of a substantial policy response, poverty is expected to return to its pre-crisis level in fiscal 2021-22 at the earliest,” the World Bank report said.

Trade has slumped as a result of COVID-19. The trade deficit widened to 2pc of GDP during fiscal 2019-20 with imports down due to reduced demand and in spite of a stronger Myanmar kyat. Meanwhile, exports have shrunk in the second half of the year. The fiscal deficit has also widened with more government borrowing and spending. Revenue collections are expected to decline The deficit is projected to widen to 8.1pc of GDP in fiscal 2020-21 from 7.1pc of GDP in the previous year. Revenue collections should become harder due to ongoing economic weakness, declining
commodity prices and tax deferrals and exemptions.

Against that backdrop, the economy is projected to grow by just 2pc this fiscal year, with domestic economic activity gradually recovering from the second quarter onwards as mobility restrictions are relaxed and cases of local transmission slow, the World Bank said.

Things look brighter over the longer term though, with growth estimated to recover to 7pc, supported by new investments in construction and industry and road transport and communications infrastructure, better access to the power supply, and the increased use of digital technology, which could boost productivity across a broad range of sectors, the World Bank said.

Still, risks to that outlook are high given continued uncertainty arising from the pandemic. In the absence of a widely distributed vaccine or treatment, new waves of the pandemic could result in prolonged and potentially more severe restrictions and continue to dampen domestic activity. Meanwhile, financial risks could heighten as borrowers in the most affected sectors face debt servicing challenges, which would impact the asset quality and loan portfolio of the banking system.

As such, once the spread of the virus has been contained and economic activity gradually resumes, measures to stimulate the economy and establish the foundations for longer-term growth must be prepared beforehand and rolled out in a timely manner. Importantly, Myanmar should focus on rolling out well-designed policy responses that target the poor and most vulnerable, as this would allow it to avoid poverty increases in the current fiscal year and speed up the return to a steady poverty reduction path.

“Myanmar needs to act fast in implementing its COVID-19 response plans to support the economy and mitigate increases in poverty,” said Mariam Sherman, World Bank Country Director for Myanmar, Cambodia, and Lao PDR. “In the short term, the government should focus on measures that slow the spread of the virus, provide relief and food security to the poor and most vulnerable, and support economic activity. Over the longer term, public investments in infrastructure and digital technologies can increase domestic demand and employment, while boosting the productive capacity of the economy,” she added.

Maintaining financial stability is a priority, given the risks around the debt servicing challenges faced by businesses and households. Myanmar could also explore economic opportunities in the areas of pharmaceutical production, value-added food products, ships, and vessel maintenance and servicing as well as insurance, health, and educational services. Over the longer term, there are several steps the government could take to create fiscal space, spend better, and ensure fiscal sustainability. These include widening the tax base with more progressive taxation and a review of tax holidays, improving budget planning processes, enhancing budget flexibility, and widening social protection, and monitoring the debt burden and fiscal risks.

“These measures would all help to ensure the government is in a strong position to respond to future shocks. In the health and education sectors, it is critical to find ways to spend more and better, avoid disruptions to the delivery of essential services, and at the same time continue efforts to contain COVID-19,” the World Bank said.

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Source: Myanmar Times

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