Experts Warn Floods, Political Instability Will Hit Local Economy

By Kyaw Hsu Mon 14 August 2015

RANGOON — Ructions within the ruling party and recent nationwide flooding are likely to hinder economic growth in the coming months, business leaders and analysts warned on Friday.

Following the overnight purge of Shwe Mann and supporters of the parliamentary speaker from the leadership of the Union Solidarity and Development Party (USDP), black market foreign exchange rates spiked in Rangoon, the country’s commercial capital.

Local brokers said that the US dollar exchange rate jumped to 1280 kyats on Friday. The Central Bank raised the official exchange to 1256 kyats on the same day, a jump from 1239 kyats the previous day.

Myat Thin Aung, chairman of the Hlaing Tharyar Industrial Zone and vice chairman of Yoma Bank, said that the move against Shwe Mann’s faction had made local traders anxious on the back of other worrying recent developments in the national economy.

“The political change came suddenly and the exchange rate increased in response—political instability is definitely having an impact,” he said. “Many issues have come together at the same time. Trading is cooling down because of the rainy season, the people are suffering from the floods, exports have declined. We’re concerned about the situation.”

“In the short term, we can expect the price of daily commodities to increase. For the long term, there might be delays in foreign investment,” he added.

In the wake of torrential floods, Burma is expected to see a massive drop in agricultural export revenues, with the inundation of up to 1.3 million acres of farmland, and as authorities impose export controls to prevent rice and other staple crops from leaving the country.

“For the time being, rice exports are being halted,” Dr Maung Aung, an advisor to the Ministry of Commerce, told The Irrawaddy. “There will be a definite impact on export volume but we can’t guess yet how big it will be.”

Prior to the floods, the Ministry of Commerce projected total agricultural export revenues would reach US$2.9 billion in the 2015-16 fiscal year. Dr Soe Tun, joint secretary of the Myanmar Rice Federation, said that the export halt would have a tangible effect on the country’s persistent trade deficit, which stood at $4.9 billion in the fiscal year to April 2015.

Soe Tun said that on the back of weaker economic data and the week’s events in Naypyidaw, foreign investors were likely to be doubly cautious before committing to new spending in Burma.

“Many foreign investors are already taking a ‘wait and see’ approach to the upcoming election,” he said. “If the election is free and fair, many will come after the new government starts its term.”

Economist Aung Ko Ko warned that the Burmese government would face budgetary pressure in coming months as a result of declining revenues and increased expenditure for long-term flood relief and rehabilitation efforts.

He suggested the government take efforts to shore up local industry by ensuring that Burmese businesses were preferred suppliers for flood relief goods.

“The government should buy local products with its budget outlays and the cash contributions from international donors. They should buy things, either clothes or foodstuffs, needed for local relief,” he said. “This would strengthen local producers while the agricultural industry is in decline.”

Additional reporting by Thit Nay Moe.