Burma Economy Set to Boom: EIU Report

By Charlie Campbell 15 May 2012

Burma’s economy looks set for rapid expansion although concerns over inflation, infrastructure and political stability remain, according to an Economist Intelligence Unit (EIU) report.

The EIU released its latest report on Burma this week which predicts the national economy will expand by 5.2 percent in 2012-13—dwarfing expected growth in the austerity-hit EU and US—but inflation will likely rise to six percent and democratic reforms remain shaky.

The influential UK-based group predicts imports to rise as foreign firms flood into the country in the wake of easing international trade sanctions, and then exports to follow suit as production capacity increases on the back of this extra investment.

“Relatively strong regional demand for Myanmar’s largest exports, natural gas and gems, will underpin export revenue in 2012,” says the report. “Revenue from sales of natural gas is expected to rise sharply in 2013 when new fields come on stream. Revenue from other important exports, such as pulses and timber, with also strengthen in line with greater regional demand.”

The EIU predicts that the end to Western sanctions will see trade links expand beyond Asia, leading to export revenues to increase to around 12 percent in 2014-16. The textiles business is also expected to increase—the formerly booming industry was crippled by the initial introduction of trade restrictions—while natural gas will continue to be Burma’s largest export in pure value terms.

However, there is a note of caution over fears of a backlash from government hardliners after opposition leader Aung San Suu Kyi’s National League for Democracy (NLD) party won 43 parliamentary seats in the April 1 by-elections.

“The challenge now is how the administration will work with the small but growing democratic opposition in Parliament,” says the report. “The government is all too aware that it faces another national election in 2015—the recent by-election results suggest that, on a level playing field, the USDP would all but disappear as a political force, leaving the NLD in control of Parliament—albeit with 25 percent of seats still set aside for the military.”

Although an expected decline in global food prices means that Burma’s import inflation will remain low this year, a January rise in petrol prices of 30 percent, coupled with a hike in electricity costs of 40 percent in late 2011, will likely keep inflation at around 5.7 percent in 2012.

“[Strengthening domestic demand] will be particularly influential, as transport and warehousing infrastructure has suffered years of underinvestment and will prove inadequate to meet demand for the movement and storage of goods. We expect inflation to average 6.2 percent a year in 2013-16.”

The kyat is also predicted to strengthen on the back of foreign investment with average exchange rates of 815 kyat per US dollar in 2012-13 and 790 kyat in subsequent years, claims the EIU.

“Increased investment, which will boost imports, will have a negative impact on the trade account, but the positive effect of higher investment flows on the capital account will outweigh this, resulting in an overall gradual appreciation of the local currency,” says the report.

The EIU is a leading resource for economic and business research, forecasting and analysis. It aims to provide accurate and impartial intelligence for companies, government agencies, financial institutions and academic organizations around the globe.