Myanmar’s economy is set to slow down this year after a solid rebound in 2018, but could accelerate in the medium-term if the government continues reforms aimed at improving regulations, encouraging investor sentiment, and ending its decades-long isolation.
Kristian Rouz — The International Monetary Fund (IMF) has issued its updated GDP forecast for Myanmar, saying the South Asian economy is set to expand steadily this year, but is facing the risks of rising fiscal deficits and an overall slowing growth due to global factors. Among the main risks facing Myanmar, the Fund named is its excessive reliance on agricultural exports, insufficient investment, and a depreciating national currency.
According to the IMF, Myanmar’s economy posted a robust 6.8-percent GDP growth last year, driven by a rebound in the agricultural sector, and supported by steady exports. The nation’s inflation held firm at 4.0 percent, while its budget deficit rose to 2.7 percent of GDP.
This year, however, Myanmar is facing the risks of the rising fuel costs — driven by an increase in international oil prices — as well as the persistent downward pressure on its national currency, the kyat. A possible devaluation could make imports more expensive, while rendering Myanmar’s exports even more competitive on international markets.
However, the IMF’s lowered projections of global economic growth suggest international demand for agricultural goods could slow this year, which could negatively affect Myanmar’s exports. Last year, the South Asian nation saw a sustainable inflow of foreign investment, mainly from China, however, its trade deficit came in at roughly 5 percent of GDP.
According to the Myanmar Investment Commission, the nation struck $3.4 billion worth of deals with foreign companies between April 2018 and February 2019 — a 35-percent drop from the previous year, and a third consecutive year of declines. Officials say the lack of basic infrastructure — such as electricity, roads, and running water — is making it harder to launch projects in Myanmar.
In a separate report, the Asian Development Bank (ADB) said Myanmar’s economy could expand 6.6 percent this year, and hit last year’s growth rate of 6.8 percent again in 2020.
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“Prospects for Myanmar’s economic growth for 2019 and 2020 look positive as the country opens up the retail and wholesale sectors and continues to modernise corporate governance and management in Myanmar”, ADB’s Newin Sinsiri said.
ADB economists said Myanmar’s ongoing economic reforms — known as the Sustainable Development Plan — could boost development of the country’s manufacturing and services sectors, allowing Myanmar to diversify its sources of economic growth.
For its part, the IMF also expressed a modestly positive view of the nation’s economy in the medium-term, despite the mounting pressure of overseas risks. The Fund’s economists said governmental spending has been subdued over the past few years, but could increase in 2019, contributing to the widening fiscal deficit.
Still, the ongoing reforms could generate additional budget revenues, particularly in the tourism and services sectors.
“I hope that it is now obvious that Myanmar is committed to creating not only a favourable, but also a predictable, facilitative and friendly, investment environment”, Myanmar State Counselor Aung San Suu Kyi said.
Yet, experts say, these industries require additional investment — and, as private-sector investors have yet to gain appetite for Myanmar’s assets, the government could step up its efforts to improve national infrastructure.
European officials, meanwhile, are urging a greater openness of Myanmar to international companies, which they say could boost investment in the country due to its cheap workforce and loose regulations. They say the years of political isolation, along with the 2017 security crisis in Rakhine State, have hindered the nation’s economic development.
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“In ministries, there are a lot of people who really do want to change things, but they are still stuck in the inheritance of years of isolation”, Filip Lauwerysen of the European Chamber of Commerce in Myanmar said.
Lauwerysen said, however, foreign companies that have already established their presence in Myanmar are likely to continue doing business in the country. He stressed Myanmar has a huge potential for industrialisation, and could become a major producer of consumer goods, such as textiles and clothing, for example — just like its neighbour Bangladesh.
Additionally, Myanmar’s strategic location between India and China creates additional opportunities for the development of pipeline infrastructure. The main challenge the country is facing is updating its regulatory framework to make it more predictable, efficient, and business-friendly.