Trade Deficit, Salary Rises Set to Push Up Consumer Prices: Economists

By Kyaw Hsu Mon 26 March 2015

RANGOON — Economists have warned that Burma’s inflation rate is set to continue its rise, with a dramatic increase in government salaries and a looming trade deficit threatening to eclipse the country’s strong GDP growth over the next 12 months.

On Thursday, the Union government announced a salary increase for civil servants starting from the new financial year on Apr. 1. Minimum monthly salaries rose from 75,000 to 120,000 kyats (US$72.50-$121), while the maximum salary doubled from 250,000 to 500,000 kyats ($241.50-$483) for civilian employees. Military salaries have also increased, with remuneration for the commander-in-chief rising from 1.2 million to 3 million kyats ($1160-$2900).

In total, the government expects spend $2.8 billion on public employees across the country for the 2015-16 fiscal year.

Economics columnist Khin Maung Nyo said that the government’s salary rise would cause an immediate inflationary impact, with traders likely to take higher spending power into consideration when pricing goods.

Dr Maung Maung Lay, the vice chairman of the Union of Myanmar Federation of Chambers of Commerce and Industry echoed Khin Maung Nyo’s concerns, but said any inflationary impact from salary increases would likely be overshadowed by an increase to the trade deficit, necessitating a broader change in fiscal policy.

“Basic commodity prices will be increased, which will impact the inflation rate, but the government can take measures to control this,” he told The Irrawaddy.

With economic reforms leading to a boom in infrastructure spending, the import of materials for ongoing development projects has led to a widening of the trade deficit. Figures from the Ministry of Commerce show imports of $16 billion and exports worth $11 billion for the 2014-15 fiscal year, a dramatic blowout from the $866 million trade deficit of 2013-14. The imbalance has been exacerbated by the resurgence of the US dollar, rising in value from 1030 to 1090 kyats over the first three months of the year.

“Deficit can lead to inflation, that’s why government needs to handle this issue cautiously,” said Maung Maung Lay. “It could raise the Central Bank’s interest rate or increase tax rates to dampen consumer spending, which would help bring the inflation rate down.”

Last Tuesday, the Asian Development Bank (ADB) released its annual development outlook, which forecast GDP growth in Burma of 8.3 percent in the 2015-16 fiscal year, with inflation likely to accelerate from 5.9 to 8.4 percent on the back of higher fiscal outlays and domestic demand, before easing back to 6 percent in the 2016-17 financial year.

“The ADB also expects growth to remain over 8 percent in fiscal year 2016, propelled by investments stimulated by the ongoing reforms, an improved business environment, and the country’s integration into Southeast Asia,” said Peter Brimble, Deputy Country Director in Myanmar.