IMF Gives Cautious Thumbs Up on Burma’s Growing Economy

By Simon Roughneen 22 May 2013

RANGOON — The International Monetary Fund (IMF) said Burma’s economy is on track to top 6 percent growth this year as the country’s “ambitious reform program is bearing fruit,” according to Matt Davies, the IMF’s deputy Asia and Pacific chief, speaking in Rangoon on Wednesday.

However the Burma government must balance two divergent challenges, warned the IMF—namely, addressing the country’s massive development needs while maintaining macroeconomic stability.

The country’s growth prospects—Burma is widely depicted as one of the world’s last “untapped markets”—could also be threatened by limited management capacity, which the IMF said could “be strained by the rapid, broad-based economic transition.”

With natural resources—particularly gas revenues—key to growth, the IMF said Burma’s economy will grow at almost 7 percent during the 2013-14 fiscal year. Davies cited construction as another key growth sector, as the Burma government weighs the need to spend on infrastructure and social services, on the one hand, against pressures on macroeconomic stability and the need to prevent inflation from rising above 5.5 percent.

“For now, I think the Myanmar authorities have this balance about right,” said Davies, who added that the government’s 5 percent budget deficit is workable for the meantime, though he warned that this could require revision should regional or global economic conditions change.

The IMF commended the government for increasing health and education spending in its 2013 budget, but when asked by The Irrawaddy if the IMF believes the government should curtail military spending as an additional means of macroeconomic stabilization, Davies said the matter had not been discussed during the delegation’s two weeks in Burma.

The military budget for this year, though down in relative terms compared with previous years, increased in absolute terms to US$2.4 billion in 2013—12 percent of total government spending.

Burma’s military retains a dominant position in the country’s reforming political structures and is guaranteed a veto-wielding 25 percent of seats in the national legislature.

Otherwise, acknowledging that Burma’s future growth is contingent on improvements to its notoriously rickety infrastructure, Davies said that there was “a clear commitment by government to divert resources to infrastructure, whether out of the public budget or through public-private partnerships.”

Unreliable electricity, poor Internet services and a lack of good roads remain a deterrent to foreign investors, whose inputs are crucial to the country’s future growth, the Burma government believes.

President Thein Sein called for increased American investment in Burma during his trip to the United States earlier this week, while on Tuesday the Burmese and US governments signed a new trade and investment promotion deal.

While Burma awaits more foreign investment, the government has increased its income by improving tax collection, said the IMF. This should help Burma offset its dependence on natural resources, over time, as takings increase.

“Sustained increases in tax revenues are crucial to boost expenditure,” said the IMF, adding that “this requires broadening the tax base and improving compliance.”

The IMF suggested that the Burma government limit the tax incentives it is offering as carrots to foreign investors, as potential investors are more likely to be swayed by improvements to infrastructure and curbs on bureaucracy.

Last year’s liberalization of Burma’s long-hazy foreign exchange system has had a positive impact on the local economy and the attractiveness of its investment climate, added Davies. Prior to the move, the kyat, Burma’s currency, traded at two massively divergent rates, with the official level way above the market price.

“Formal and informal markets have converged and this is a great achievement,” he said. A new Central Bank law is due in mid-2013, a development that should buttress these recent improvements in Burma’s monetary policy, the IMF hopes.