Myanmar's Economy to Slow 0.6 Percent, World Bank Says

By The Irrawaddy 14 December 2018

YANGON — Myanmar’s economic growth is expected to slow from 6.8 percent in 2017-18 to 6.2 percent in 2018-19 and face potential risks to recovery, according to the World Bank’s latest country report, released Thursday.

Growth is projected to recover to 6.6 percent by 2020-21, “helped by recent policy changes such as the adoption of the Myanmar Sustainable Development Plan, liberalization of wholesale and retail trade, implementation of the Myanmar Companies Law and large investments in infrastructure projects including those related to the Belt and Road Initiative,” the bank said.

But it warned that it foresaw risks from intensifying impacts of the Rakhine crisis, domestic macroeconomic imbalances and the possible repeal of the Generalized Scheme of Preferences by the European Union and a possible slowdown in global growth.

The World Bank said that from April through October macroeconomic volatility intensified in Myanmar. The kyat depreciated significantly — by 18 percent against the U.S. dollar — having an impact on inflation, which, the report said, “is expected to climb from 5.5 percent in 2017-18 to 8.8 percent in 2018-19, driven by exchange rate pass-through and rising food prices.”

According to the World Bank, “depreciation was triggered by global factors such as the possibility of faster-than-anticipated monetary policy normalization in the US. The depreciation was accelerated by Myanmar specific factors such as the continued reliance on FDI [Foreign Direct Investment] flows for financing the current account deficit and a thin foreign exchange market that means that few and relatively small transactions can significantly move the exchange rate.”

It said industrial growth was also “expected to moderate to 8.2 percent in 2018-19 from 9.4 percent in 2017-18, on the back of softening consumption, slowing investment including FDI, and rising production cost pressure from fuel price increases and the depreciation of the kyat.”

“Services sector growth is expected to moderate to 7.6 percent in 2018-19 from 8.3 percent in 2017-18. A slowdown in the tourism and transport sectors is offsetting continued robust growth in telecommunications services and wholesale and retail trade. Despite seasonal floods and landslides, agriculture output is projected to grow at 1.2 percent in 2018-19 with strong external demand driving up paddy prices.”

According to the World Bank, Myanmar’s “current account deficit has improved, supported by rising garment exports but also a slowdown in growth of imports. The current account deficit declined from 5.5 percent of GDP (US$ 3.5 billion) in 2016-17 to 2.6 percent of GDP (US$ 1.7 billion) in 2017-18 and is projected to narrow further in 2018-19. The trade deficit narrowed from 8.5 percent of GDP in 2016-17 to 5.7 percent of GDP in 2017-18, driven by rapid increase in exports from 16.8 percent of GDP to 20.2 percent of GDP, driven by rapid growth of garment exports.

“Imports increased marginally in the same period, with investment goods imports declining by 6 percent in 2017-18 due to declining industrial investment and moderation in construction activity, while the value of imports of petroleum products increased by 43 percent in 2017-18 due to higher fuel prices. Lower profit repatriation and higher (recorded) workers’ remittances also helped narrow the current account deficit.”

The World Bank said “new FDI commitments declined by 14 percent in 2017-18 compared to 2016-17, and by over 50 percent in the first half of 2018-19 as compared to the same period in 2017-18.” However, it added that it was too early to conclude that FDI commitments were in sustained decline.

“Investors and observers believe that the recent slowdown in commitments may reflect uncertainty in the investment climate related to the Rakhine crisis and weak reform momentum,” the report said.

However, the World Bank also predicted a medium-term macroeconomic recovery by 2020-21 “driven by an expected pickup in foreign and domestic investment responding to recent policy measures such as the opening of retail and wholesale sectors, services sector liberalization, loosening restrictions on foreign bank lending and continued implementation of the Companies Act.

“Construction activity is also expected to accelerate in response to a pickup in Belt and Road Initiative-related project activities.”

A recent survey by the European Chamber of Commerce in Myanmar found that 81 percent of responding firms had lost confidence in the government’s management of the economy.

According to World Bank’s latest ease of doing business index, Myanmar showed no improvement in its overall ranking, retaining the No. 171 spot it held last year and remaining the least favorable ASEAN member country in which to conduct business.

According to a second-quarter 2018 survey by the Union of Myanmar Federation of Chambers of Commerce and Industry, most of the businesses that responded said they were performing significantly worse than the year before. It also found that business confidence had dropped 25 percent over the past year.

The survey listed 10 main factors in the decline: higher taxation and tariffs; restrictions on financing and banking; depreciation of the kyat; unstable economic rules and regulations; lack of market demand; delays in import and export procedures; increases in local costs and inflation; foreign competition; a lack of skilled human resources; and poor infrastructure.