Burmese Kyat Weakens in Light of Trade Deficit, Shortfall of USD

By Kyaw Hsu Mon 13 May 2015

RANGOON — A shortfall of US currency and a growing trade deficit has weakened the Burmese kyat, bankers and businesspeople said, warning that demand for the dollar has pushed the country’s limited foreign currency into the hands of black market traders.

Burma’s Central Bank has set the country’s exchange rate at 1,082 kyats to the dollar, though prices on informal markets reached 1,135 kyats on Wednesday, the highest rate yet since the kyat was floated in 2012.

Bankers said the Central Bank is unable to meet local demand for US currency, resulting in trade manipulation that could lead to severe inflation. Foreign currency bought from private banks is being flipped on the black market and sold to businesspeople desperate for dollars at an increase of up to five percent.

Pe Myint, managing director of the Corporate Bank, told The Irrawaddy that Burma’s Central Bank recently summoned the nation’s private bankers to discuss a solution, warning them that selling dollars at an increased rate risked further inflation. Bankers demanding more dollars were told that the risk of inflation was preventing the Central Bank from releasing more funds.

“The Central Bank told us not to sell at a rate higher than 1,080 kyats per dollar and to follow the rules, but we know that the market rate is higher than what the banks are allowed to sell at,” he said. “Demand is very high but the supply can’t follow because some people are trying to raise the price and play the market.”

The Burmese kyat was floated in 2012, prior to which the government set the rate at a laughably inaccurate 6.4 kyats to the US dollar. Before the float, kyat was sold in the informal market for as much as 1,400 to the dollar, much closer to the 818 kyat value set at the time it was floated.

In the years since, the kyat has depreciated by about 32 percent, and it continues to drop.

“The rate was only 988 kyats in October of last year, then it increased to 1,040 in December,” Khin Maung, a currency trader in Rangoon, told The Irrawaddy on Tuesday. “It was stable for about three months, then it increased again, and last week it was significantly up. We’re selling normally right now, but in the black market the demand is getting higher.”

Bankers and businesspeople said the growing trade deficit is largely to blame. Following rapid political and economic changes since 2011, total trade volume has markedly increased, as has the trade deficit.

Burma imported more than $16 billion of goods during the 2014-15 fiscal year, while exports totaled only $11 billion, according to figures from the Ministry of Commerce, leaving the total trade deficit at about $4.9 billion

Dr. Maung Maung Lay, vice chairman of the Union of Myanmar Federation of Chambers of Commerce and Industry, said the government needs to find a way to tackle inflation without holding up finance or spending it on excessive government projects.

“The demand and supply are not balanced, and if the Central Bank can’t control it, the rate will go up and down,” Dr. Maung Maung Lay said. “There are many things factoring into the rising rates—among them the high import volume, the trade deficit—the government should also stop importing items for unnecessary projects around the country.”

If the kyat continues to fall against the dollar, consumers of imported goods could soon begin to see their purchasing power shrink. However, purveyors of Burma’s major exports—such as rice and garments—could benefit from the weakened kyat on global markets.