Uncertainty Looms Over Myanmar Economy: World Bank
By Hein Htoo Zan 10 February 2023
Myanmar’s economy remains subject to significant uncertainty, with ongoing conflict disrupting businesses, according to a World Bank report.
The Myanmar Economic Monitor published on January 30 said while some firms show signs of resilience, household incomes remain weak and Myanmar’s potential for growth has been severely weakened by recent shocks.
“Although business conditions improved toward the end of 2022, the recent economic indicators are mixed,” said Mariam Sherman, the World Bank’s country director.
“While conflict remains, families suffer from insecurity and violence. Firms, particularly those in the agriculture sector, are experiencing higher costs and delays,” she said.
The World Bank expects that a gradual economic recovery could be seen in the near term and growth is estimated at 3 percent for the fiscal year ending in September. However, economic activity continues to be adversely affected by conflict, electricity shortages and changing regulations, with per-capita gross domestic product expected to remain about 13 percent below pre-Covid levels.
The depreciating kyat, high global prices and ongoing logistics constraints have caused import costs to rise sharply and these shocks fuel inflation and further reduce real incomes, said the report.
In July and August 2022, almost half of the surveyed households in Myanmar reported income losses and families have been reducing consumption in response, it said.
The World Bank said economic recovery from the shocks of Covid and military rule is likely to be constrained by macroeconomic and regulatory uncertainty. Frequent changes to regulations increase uncertainty around access to foreign exchange and imports, reducing confidence in payment systems and delaying customs processes.
The World Bank said some businesses are finding ways to cope, through access to favorable exchange rates or exemptions from junta regulations. Others have switched to informal channels for payments and trade.
“Funding for critical health and education services is falling, and lack of trust in public services is increasing. These problems will hinder Myanmar’s long-term economic prosperity,” Sherman said.
The World Bank forecast risks, including the possibility that conflict may intensify, while geopolitical tensions could escalate and growth is expected to suffer in the medium to long term as resources are taken from competitive and export-oriented areas.
“Lost months of education, with rapid increases in unemployment and internal displacement, will reduce already low levels of human capital and productive capacity over the long term,” the report said.
The World Bank said Myanmar’s junta could strengthen growth by reconsidering its foreign exchange policy, which causes high inflation, fiscal deficits, weak exports and low growth rates. The report recommends a more unified and market-oriented foreign exchange system, which would help stabilize the economy, reduce inflation, boost trade and minimize market distortions.