Burma’s living standards and development could take off with the right government policies, according to an annual economic assessment of the country by the the International Monetary Fund (IMF).
The report—which includes the Burmese government’s responses to the IMF’s suggestions and is the first that has ever been publicly released in the country—predicts that Burma’s GDP growth will increase from 5.3 percent in 2010-11 to six percent this year (2012-13).
“Myanmar could see strong growth if it pursues the necessary reforms to take advantage of its rich natural resources, young labor force and proximity to some of the world’s most dynamic economies, including China and India,” said IMF mission chief Meral Karasulu.
The report welcomed Burma’s tentative financial reforms, like the managed flotation of the Burmese kyat, but added: “Unleashing Myanmar’s high growth potential will require cross-cutting reforms and substantial technical assistance.”
To improve Burma’s economic prospects, the government should “enhance the business and investment climate, encourage financial sector development, and further liberalize trade and foreign direct investment,” the report said.
In reply, the government said it expected “to have a plan ready by mid-2012 to gradually lift all remaining restrictions on current international payments and transfers.”
The report also noted that the Central Bank of Myanmar is drafting a new central bank law with technical assistance from the IMF.
In response to the IMF’s recommendation that the tax system be reformed to generate more revenue, the government said this “would require broader tax education and improved tax administration.”
The government said more income could be generated by privatizing state-owned enterprises, but admitted that the most profitable state enterprises had already been privatized.
Noting that present growth depends mainly on the energy and agriculture sectors, the report also recommended rural land reform. “Land titles can be used as collateral for borrowing, a key impediment for private bank lending to agriculture,” it said.
To support rural areas, the authorities said they planned to double harvest loans to farmers in 2012 and are “considering jointly with the private sector to establish a rice purchase program to stabilize farm gate prices.”
Apart from financial advice, the IMF also recommended a focus on poverty reduction and building human capital. It said spending on health and education should “go further and should aim at narrowing large regional differences.”
The authorities said they plan to reduce military spending from 23.5 percent to 14.5 percent while increasing “social spending” from 5.4 percent to 7.5 percent. They also pledged more spending on transport infrastructure.
But Karasula cautioned: “Drastic, over-reaching reforms in many policy areas may not be realistic, given the capacity constraints and the need to coordinate across various institutions.”
The IMF believes that the reforms need to be “appropriately paced” and its economists believe that rapid reforms on a large scale could make any mistakes very costly.
Discussions between the IMF and the Burmese authorities took place in Naypyidaw and Rangoon in January. The IMF report did not name its Burmese collaborators.