Burma

World Bank: Myanmar Must Push Deeper Reform for Inclusive Economic Growth

By Nan Lwin 19 February 2020

YANGON—The World Bank’s latest research says Myanmar needs deeper reforms to achieve strong and continuing economic growth, including steps to strengthen financial management, promote peace and enhance environmental sustainability.

The new World Bank report “Myanmar: Economic Transition Amid Conflict; A Systematic Country Diagnostic,” says the government needs to implement these deeper reforms to ensure long-lasting and inclusive growth across the country.

According to the report, Myanmar’s existing reforms have generated immediate gains by reducing fiscal deficits and supporting a more independent central bank to lower inflation and unify the exchange rate. They have also opened up telecommunications and manufacturing sectors to foreign investors as a means to increase employment rates.

However, the World Bank said that Myanmar’s reforms also need to support infrastructure and efficient markets in order to secure long-term economic progress.

According to the bank, these reforms will be harder to implement but the benefits can be longer lasting—reforms such as raising electricity tariffs to cost-recovery levels while protecting low-income users; following through on well-regulated foreign investment in the banking, insurance and retail sectors; and gradually deregulating bank interest rates

The bank said these reforms will stimulate the private sector by increasing competition and connecting people to services and markets regardless of region and demographic.

The research found that the momentum of Myanmar’s transition has slowed recently and said the government must push strong policies to accelerate growth and ensure that benefits are shared more widely.

The bank said that Myanmar’s weak responses to the Rakhine crisis and heightened violence in Kachin, Shan and Chin states have illustrated major challenges to inclusive development.

World Bank data on relative share of new investments by sector, comparing foreign investments to domestic companies. / World Bank

According to the bank, economic growth decelerated from 8 percent in 2014-15 to 6.2 percent in 2017-18.

The report also warned that the exchange and inflation rates remain volatile. Fiscal resources remain extremely limited, with Myanmar’s tax-to-GDP ratio among the lowest in the world. State Economic Enterprises (SEEs) provide the largest share of public revenues, but they have now become net loss-makers, contributing to the fiscal deficit.

The potential for agricultural growth, however, is still unfulfilled despite the fact that the sector is key for poverty reduction. Agriculture accounts for about 70 percent of jobs in rural areas and among poor households, and income from agriculture has contributed to at least half of poverty reduction in the last decade.

The bank pointed out that thin input markets, low-quality physical infrastructure and poor institutional infrastructure affecting irrigation, extension and marketing services have constrained agricultural growth. Infrastructure investment has not followed the pace of development, the bank said.

Myanmar has one of the lowest electrification rates in Southeast Asia (42 percent in 2018) and the average annual consumption per capita (193 kilowatt-hours per person in 2016) is 3.5 times lower than the average for developing countries in the East Asia and Pacific region.

The bank said that the Myanmar government’s investment in human capital remains insufficient. The global Human Capital Index (HCI) estimates that children born in Myanmar today can expect to be only 47 percent as productive, economically, when they grow up as they would be with access to internationally-recognized high-quality health, nutrition and education services.

The bank noted that firms have cited a lack of skilled employees as one of the main constraints on their growth.

The World Bank also noted that progress on the Nationwide Ceasefire Agreement (NCA) peace process has stalled and violence in Myanmar’s internal conflicts has intensified. Little progress has been made to address the underlying causes of violence and exclusion in Rakhine, including the lack of freedom of movement, and there is no viable pathway to citizenship for Rohingya communities.

World Bank data comparing foreign investments by sector over time, showing increasing investments in oil and gas, manufacturing and transportation and communication. / World Bank

Exclusion along ethnic, religious and geographic lines has fueled grievances that at times have resulted in violence in many states, underscoring the Union’s fragility.

The bank suggested that Myanmar needs to focus on inclusion in order to take full advantage of opportunities to promote peace, build shared prosperity and reduce poverty.

The report warned that inequality in welfare and access to basic services, based on location and identity, has fueled grievances that at times turn violent.

According to the World Bank, the government could help stabilize the country by creating more representative institutions and more equitable fiscal arrangements that balance power and responsibility between Myanmar’s political and economic centers and the states and regions. The bank also suggested the government cooperate with non-state providers of services in conflict-affected areas.

In terms of natural resources, the World Bank warned that current usage and exploitation are a risk to sustainable growth. Reliance on nonrenewable assets and mismanagement of natural resources are depleting natural capital, including minerals, fisheries and forests. The report found that benefits from natural resources are going primarily to a small elite without generating gains for the population at large.

The bank stressed that deforestation in Myanmar is among the fastest in the world. The current use of natural resources, together with challenges emerging from steady urbanization, is accelerating environmental degradation and affecting water quality, with consequences for livelihoods and health. According to the bank, the country needs more equitable legal frameworks for the use of land, forests and fisheries.

The bank suggested that enhancing environmental sustainability and managing disaster risks are also critical for long-lasting and inclusive growth. The bank suggested that Myanmar needs to increase its preparedness for weather and climate-related shocks and other natural disasters such as earthquake and their consequences.

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