Major Reforms Around the Corner, Says Key Economic Adviser to Suu Kyi
By Nan Lwin 21 August 2018
YANGON—Amid criticism of the government from the business community over sluggish growth and a lack of economic direction, the economic adviser to Myanmar State Counselor Daw Aung San Suu Kyi on Friday addressed the problems the administration has had implementing its reform plan, while highlighting the progress it has already made and insisting that major new reforms are on the way.
Addressing the seminar “Myanmar’s Economy 2018: progress, problems, possibilities” at the Novotel Yangon, Sean Turnell, the special economic consultant to the Myanmar state counselor, said the main problems include bureaucratic sclerosis across government departments, the current account deficit, structural problems in the banking system, weak infrastructure, the crisis in Rakhine State and global economic uncertainty due to the U.S.-China trade war.
Turnell said the Myanmar government continues to struggle with a current account deficit, meaning the value of the goods and services it imports exceeds the value of those it exports. The current account deficit could push the government to print money, which would cause inflation in the country, he said.
In fiscal 2016-17, Myanmar’s trade deficit stood at around USD5.5 billion, equivalent to 3.9 percent of GDP. Imports totaled USD17.2 billion, versus USD11.6 billion for exports. In 2015-16, the trade deficit was USD5.4 billion, equivalent to 3.2 percent of GDP. In 2014-15 it totaled USD4.9 billion, or 1.2 percent of GDP.
Myanmar’s financial system is undergoing reform to remove structural problems such as the locking up of assets in a stalled real-estate market. A lack of infrastructure is also a source of frustration among investors, he pointed out.
The banking system remains one of the most outdated in the region, despite reforms having begun in 2011, including allowing private banks to conduct foreign exchange transactions and set up ATMs. In 2016, the National League for Democracy (NLD)-led government passed the Financial Institutions Law of Myanmar, seen as a major step toward modernizing the sector. In March, the government permitted seven foreign banks to provide export-financing services.
But financial experts said there are many reforms still needed in the banking sector, such as the adoption of a fully free-floating exchange regime, laws on mobile financial transactions and further liberalization of the private banking sector.
Turnell emphasized that the Rakhine crisis remains a significant hurdle for the NLD government’s economic reform effort, as it is scaring off tourists and investors, especially from the West.
“The impact is huge… a huge direct impact,” he said. “Hundreds of millions of dollars are not here, because of Rakhine basically.”
He said that while people had expected to see more U.S. investment flow into Myanmar under the democratic government, many U.S. firms and financial institutions had stayed away due to international pressure over the human rights situation. The Rakhine crisis had also negatively impacted tourism from Western countries, he said.
Turnell said global uncertainty over the U.S.-China trade war had also affected the Myanmar economy, especially in terms of exchange rate volatility. The government has been criticized for failing to stem the kyat’s slide against the dollar, which has lasted for over three months, but Turnell said, “It is a global story, not a Myanmar story.”
The trade war has caused financial instability everywhere in the world, and many people are angry about it, he said.
He warned that hierarchical and bureaucratic processes within government departments were another serious obstacle to reform.
Turnell said he had witnessed some progress on the macroeconomic front under the NLD-led government.
He said that most macroeconomic indicators are stable and headed in the right direction, citing examples such as continued annual gross domestic product (GDP) growth, the inclusion of more people in the financial system, a stable inflation rate and decreased reliance on the practice of printing money to pay down budget deficits.
Turnell said that due to the global instability, Myanmar’s economic growth would likely be 6.9 percent this year, lower than the 7 percent predicted earlier. However, he pointed out that 6.9 percent is high compared with other countries in the region. Moreover, inflation is stable at 5.9 percent, or possibly 6 percent due to exchange rate fluctuations. The government is taking various steps to control inflation, he said.
In the past, governments in Myanmar have often resorted to funding themselves by printing money, rather than collecting taxes. This has made controlling inflation very difficult. The previous government printed money annually to fill budget gaps. Central bank records show that former President U Thein Sein’s government printed money to fund 70 percent of its budget deficits.
This had dropped to 30 percent under the NLD-led government, Turnell said.
According to Turnell, Myanmar’s financial inclusion rate — which measures the proportion of adults with access to at least one formal financial services product — increased from 30 percent in 2013 to 48 percent in 2018. This means 6 million more adults have access to formal financial services now than in 2013.
The banking system is slowly being modernized, while the state banking sector is also being reformed. Turnell praised the Central Bank of Myanmar’s decision to remove the trading band on the exchange rate as a step in the right direction.
In May, the Republic of the Union of Myanmar Federation of Chambers of Commerce and Industry (UMFCCI) short-term business sentiment survey showed that business confidence had declined compared with last year, with a majority of businesspeople citing a lack of clear economic policies from the government.
However, Turnell assured the audience that major reforms are on the way, particularly the Myanmar Sustainable Development Plan (MSDP), which will give the economy a fiscal boost and liberalize key sectors, particularly the financial sector, to stimulate economic growth.
He acknowledged that people had many questions about the government’s economic direction and vision, but said the MSDP will answer all their concerns.
“It will come in couple of weeks. It is already done,” Turnell said.
The economic adviser praised the current activities of the Planning and Finance Ministry, which is drawing up the MSDP, a roughly 250-point action plan for Myanmar’s long-term economic development.
Turnell reiterated that Myanmar needed to resolve the Rakhine crisis in order to improve the economy and attract investment and financial-sector assistance from the West.
As another example of the NLD government’s economic achievements, he cited the fact that the renewal of the China-backed Kyauk Phyu project agreement had not resulted in Myanmar owing a single dollar to China.