Burma’s Inflation Pains Sharpest for Poor Majority: World Bank

By Simon Roughneen 23 January 2014

RANGOON — The World Bank has added its voice to concerns about Burma’s surging inflation, saying price rises prompted by a growing economy would likely have a greater impact on the country’s less well-off.

Kanthan Shankar, the World Bank’s Burma country manager based in Rangoon, told The Irrawaddy on Thursday that “certainly it [inflation] is a concern and especially if it is to do with food prices, it tends to affect the poorest.”

The International Monetary Fund (IMF), a sister organization to the World Bank, said earlier this week that while Burma’s economy would likely grow between 7-8 percent over the coming three years, the current 6 percent inflation rate would likely persist.

“If you have high growth you have to be concerned that you don’t have high inflation, which disproportionately affects the poor,” Shankar said, explaining that high inflation could hinder Burma’s majority from benefitting from the country’s expected robust growth rates in years to come, an expansion that could see the country’s economy quadruple is size by 2030, according to a 2013 report by McKinsey Global.

A projected increase in budget spending and a drop in the value of the kyat, which was floated in 2012, are other factors likely to fuel inflation

Burma’s transitional economy—coming out of years of sanctions and often quixotic government policy—means that some typical methods used to curb inflation, such as tax increases, might either be difficult to implement or lack the impact that similar measures might have when implemented in more developed economies.

“Tax revenue is growing quickly but remains low; to enable increased spending it should be boosted though broadening the tax base and improving compliance,” the IMF said in its Jan. 21 statement on Burma’s economy.

Tinkering with interest rates, which in Burma have been higher than in neighboring countries in recent years, is another gambit typically attempted by governments seeking to tackle inflation.

However attempts to change interest rates in Burma often prompt divisions among businesspeople and bankers, and Than Lwin, deputy chairman of Kanbawza Bank, said that because Burma’s current interest rate of 8 percent is above the inflation level of 6 percent, there is no need for now for an adjustment.

“Because the interest rate is above inflation, there is no need for a change right now to the interest rate,” he told The Irrawaddy, while also voicing concerns that if the interest rate is cut to below the inflation level, it could prompt savers to withdraw cash from local banks and deposit overseas.

Either way, inflation is set to remain a problem for the majority of Burma’s estimated 50-60 million population, as well as posing a challenge for the Burma government, which said it would prioritize job-creating investment and policies to benefit the country’s poor, such as increasing health and education spending.

In early January, Burma President Thein Sein sought increased spending for education and health care, increasing their respective budget shares from 5.43 percent to 5.92 percent, and 3.15 percent to 3.38 percent, both still much less than the 12 percent of budget spending sought by the military.

But even increased spending on social sectors such as health and education, ostensibly benefitting Burma’s less well-off, could fuel inflation, which disproportionately impacts the poor.

“Rather than a few people being able to benefit, the benefits [of growth] need to be spread more to the population at large,” Shankar said.

The World Bank representative was speaking at the launch of Channel News Asia’s Burma bureau, the Singapore-based agency’s 13th overseas office. CNA is the 10th international news agency to set up shop in Burma, where it has a partnership with SkyNet, a private Burmese TV company. CNA estimates its current audience in Burma at around 200,000 households, out of a total 50 million across the region.