Accelerating Burmese Economy Risks Inflation: IMF

By Kyaw Hsu Mon 22 January 2014

RANGOON — The International Monetary Fund on Tuesday said Burma’s economic outlook was favorable, but warned that rising inflation loomed for the Southeast Asian nation amid ongoing economic reforms.

Matt Davies, team leader for an IMF delegation that wrapped up a 13-day visit to Burma this week, said at a press conference in Rangoon that real GDP growth for the fiscal year 2012-13 reached 7.3 percent, led by services and manufacturing. The IMF expects the country’s economy to grow a further 7.5 percent in 2013-14 and 7.75 percent in 2014-15.

However, Davies said in a statement that inflation is expected to exceed 6 percent by the end of the 2013-14 fiscal year and remain elevated in 2014-15. The inflation rate last year was 6 percent, according to the World Bank.

Maw Than, an economist and economic advisor to President Thein Sein, said that the IMF’s inflation prediction was reasonable, adding that Burma’s much-lauded reforms over the last few years were partially responsible for the rise.

“The main reason why the inflation rate is increasing in these years is rapid money flow and government expenditures, because now the government has raised its health and education sectors’ budgets this year, and also production costs in Burma have also increased,” Maw Than told The Irrawaddy. “If the government can cut out some expenses, it can control the increased inflation rate.”

The economist said Burma’s economic growth could be harnessed by enforcing a more stringent tax regime, explaining that improved collection of tax revenues would have the dual benefit of reducing government deficits and curbing inflation.

“If the government receives more tax by businessmen and the public, it can spend more money on its projects, monetization won’t occur. Now, if the government does not have enough money, it can easily produce more money by itself,” he said, referring to the practice of the national mint simply printing more money to make up for revenue shortfalls, a common precursor to inflation.

Khin Maung Nyo, an economist and editor in chief of the Burmese-language World Economic Journal, said that the predicted inflation was manageable and marked a significant stabilization of the country’s economy compared with the 1990s, when inflation rates stood at 20 to 30 percent.

“I don’t think 6 percent inflation would have a big impact on country’s economy growth, it [the government] can control that,” he said.

The IMF said that in addition to growth in credit and depreciation of the kyat, possible electricity rate increases could contribute to inflationary pressures.

The IMF delegation, part of a Staff-Monitored Program (SMP) for Burma, visited the country from Jan. 9-21. Overall, the team said “good progress” had been made in implementing an SMP economic reform program, citing the establishment of a newly independent central bank and Burma’s adoption of a floating exchange rate as positive developments over the last two years.

The mission met with Central Bank of Myanmar Governor Kyaw Kyaw Maung, Union Finance Minister Win Shein and other senior government officials, as well as representatives of the private sector and donors.