YANGON—Myanmar’s Union Parliament on Tuesday approved a proposal to seek US$700 million (about 982 billion kyats) in loans from the International Monetary Fund (IMF) to plug budget deficits resulting from increased spending on economic recovery, social security and health sector improvements due to the COVID-19 pandemic.
Myanmar expects budget deficits to widen this fiscal year (FY2019-20) and next due to the extra spending needed to mitigate the impact of COVID-19 on the economy.
U Maung Maung Win, deputy Union minister for planning, finance and industry, said the government needs to increase stimulus spending to revive the economy, as well as spending to upgrade the health sector and provide cash and food for low-income households and others, even as its income declines due to a relaxation of commercial taxes and license fees, and declines in foreign direct investment (FDI), export earnings (including from natural gas), remittances and income from the tourism sector due to COVID-19.
Myanmar has recorded budget deficits for the past five fiscal periods, posting shortfalls of 3,237.082 billion kyats in FY2015-16; 2,295.551 billion kyats in 2016-17; 2,704.619 billion kyats in 2017-18; 1,563.268 billion kyats in 2018 (April-September 2018 was a transitional fiscal year); and 2,955.740 billion kyats in 2018-19.
U Maung Maung Win said the ministry’s initial planning called for a deficit of 6,555 billion kyats for the current fiscal year. However, that figure was expected to grow by 2-3,000 billion kyats as the country’s GDP growth is now expected to decline significantly in the upcoming fiscal year.
The Planning, Finance and Industry Ministry is currently working out the additional spending with the other ministries. The actual budget deficit will have to be finalized at the end of the current fiscal year in September, according to the ministry.
The minister said the government would need several hundred billion kyats for the economic relief plan, the details of which are currently being worked out between government departments.
“We are prepared for stimulus spending [to ease the impact of COVID-19] of up to 5 percent of GDP,” U Maung Maung Win said.
Launched in late April, the government’s COVID-19 Economic Relief Plan (CERP) seeks to mitigate the economic impact of the global pandemic by implementing new measures and response plans ranging from monetary reforms and increased government spending to steps to strengthen the county’s health-care system.
Among steps aimed at easing the impact on private sector firms, the government set up a 100-billion-kyat COVID-19 fund for local businesses, particularly small and medium-sized enterprises, and the CMP (garment and manufacturing), and hotel-and-tourism sectors, offering loans at a 1-percent interest rate. In line with the CERP, the fund size will increase to 200-500 billion kyats, depending on the market response, by the end of 2020. Under the plan, the government will also establish a separate 100-billion-kyat fund by the end of 2020 for designated commercial banks to promote financing of trade in all types of products.
As part of the CERP, the government has already eased deadlines for tax payments and introduced tax exemptions for Myanmar-owned businesses. It has also announced that businesses will be exempt from paying the 2-percent advance income tax on exports until the end of the current fiscal year on Sept. 30.
The IMF loans will be provided under its Rapid Credit Facility (RCF) and Rapid Financing Instrument (RFI) program, which offers rapid and low-access financial assistance to member countries facing an urgent balance of payments need, without the need to have a full-fledged program in place.
U Maung Maung Win said that currently, the Myanmar government is drawing up a Letter of Intent (LOI) for the loans. The loan proposal will be submitted to the IMF board at the end of June.
The Union Parliament approved borrowing of US$50 million from the World Bank last week to upgrade hospitals and the capacity of health workers across the country to battle COVID-19.
Parliament is also debating whether to access a US$200-million loan program from the World Bank’s International Development Association (IDA) for food and agriculture development, 30 billion yen from the Japan International Cooperation Agency (JICA) for economic policy development to ease the impact of COVID-19, and US$60 million from the Asian Development Bank to assist small and medium-sized enterprises.
In early May, Deputy Minister of Planning, Finance and Industry U Set Aung said Myanmar would receive around US$2 billion from international development organizations to implement the CERP.
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