RANGOON — A strengthening US dollar on global currency markets, coupled with Burma’s growing trade imbalance, has pushed the local currency’s exchange rate above 1,000 kyats per US dollar this week.
Since Burma’s reformist government floated the kyat in April 2012, the currency has dropped nearly 23 percent. Burma’s Central Bank put the exchange rate at 1,004 kyats to the dollar on Tuesday, up from 818 kyats/dollar when the local currency was floated on April 2, 2012.
Than Lwin, the vice chairman of Kanbawza (KBZ) Bank, said the US currency has made a stronger showing as its economy has bounced back from the global financial crisis of 2008.
“The US dollar value’s rise in the market is not due to the local economic situation, it’s following the world markets,” Than Lwin said.
Since Oct. 28, 2013, the US dollar has risen 7.9 percent against a basket of currencies known as the US Dollar Index, according to Bloomberg. The dollar’s rise on the index indicates strong performance over the last year across six major currencies meant to gauge the greenback’s value globally.
Than Lwin said Burma’s trade deficit was also influencing the kyat’s weakened position.
“Another factor in the local market is that the import volume is higher than the export volume currently, so US dollars are being demanded more than in the past,” Than Lwin said.
As the country’s economy has undergone major changes following the installation of a nominally civilian government in 2011, total trade volume has increased, but a widening trade imbalance has emerged. In the first half of the current fiscal year from April to the end of September, Burma ran a trade deficit of about US$3 billion, importing some $9 billion in goods and exporting only $6 billion, according to local media, which cited the Ministry of Commerce.
“Imported goods are rising so US dollar demand follows,” Than Lwin said.
Burma’s main imports are electronics, agriculture-based equipment, automobiles, refined oil products, processed foods and machinery. The country’s biggest exports are rice, timber, jade and gems, oil and gas, and beans and pulses.
The kyat was floated in 2012, prior to which the government set the rate at a laughably inaccurate 6.4 kyats to the US dollar. Despite the official rate, the black market put the kyat much closer to the rate it was officially floated at, though it was as weak as about 1,400 kyats to the dollar on the black market at the height of anti-government protests and the political turmoil that accompanied them in September 2007.
Maw Than, a senior economist and retired professor from the Yangon Economic Institute, said the trade gap between imports and exports was a major factor in the US dollar demand’s growth in the local market.
“Businesspeople will pay in US dollars for imported goods … so as long as imports are increasing, the local [dollar] demand will also rise,” he said.
Central Bank spokesperson Set Aung could not be reached by The Irrawaddy for comment on Tuesday, but he told Reuters that the weak kyat was following regional trends.
“The kyat is very strong compared to other currencies,” Set Aung told Reuters. “Since the kyat is floating, it will move in accord with the trend in the international market.”
The kyat’s fall against the dollar will negatively impact consumers of imported goods, who will see their local currency purchasing power shrink. But purveyors of Burma’s major exports, including rice and garments, will benefit from the weak kyat on global markets.
Additional reporting by Thit Nay Moe.