Myanmar & COVID-19

Poor to Bear Brunt of Impact as COVID-19 Slows Myanmar’s Economy: World Bank

By Nan Lwin 1 April 2020

YANGON—Myanmar’s GDP growth is projected to slow to between 2 and 3 percent in the current fiscal year due to the COVID-19 pandemic, with the brunt of the outbreak’s economic impact likely to be borne by poor and vulnerable households across the country, the World Bank warned.

In its latest report released Wednesday, “East Asia and the Pacific in the Time of COVID-19”, the bank said Myanmar’s growth is facing strong headwinds due to its exposure to the COVID-19-related slowdown in China and around the world.

The World Bank said manufacturing activity and exports are expected to slow throughout the remainder of the fiscal year.

FY2019-20 started on Oct.1, 2019 and ends on Sept. 30.

With travel and border trade restrictions in place, the impact will be felt in Myanmar’s tourism-related services, agricultural exports to China, and in supply-chain disruptions to the manufacturing sector, particularly for garments, which account for 13 percent of exports, the bank said.

It said income from hotels, restaurants and transport activities, which are partly supported by tourism, represent 16 percent of GDP and have been significantly impacted.

“The impact of short-term economic fluctuations related to the COVID-19 pandemic is likely to disproportionately harm poor and vulnerable households. [Some] 68 percent of the poor work in agriculture and can suffer from declines in production and prices associated with a reduction in exports to China,” the World Bank warned.

Chinese nationals accounted for 20 percent of tourist arrivals in 2018-19, while agricultural exports represent 19 percent of total exports, or 4 percent of GDP, roughly half of which are sold to China.

The agriculture sector is also the biggest employer in Myanmar, accounting for as much as 78 percent of the rural labor force, while 27 percent of urban laborers work in tourism-related activities.

Moreover, the bank said layoffs in the garment manufacturing sector, which accounts for 500,000 jobs, could affect household incomes and domestic remittances, especially if China’s supply chain disruptions are prolonged.

Those holding low-wage jobs are likely to see income shortfalls, the bank said.

“The slowdown in the manufacturing and related services could hit poor households hard,” the bank said.

Last week, the Confederation of Trade Unions of Myanmar said nearly 15,000 workers have already lost their jobs as garment factories have been forced to close due to a lack of raw materials from China.

The Myanmar Garment Manufacturers Association also expects more garment factories will be shut down this week, following the cancellation of large numbers of orders from European Union countries last week. Europe has become the epicenter of the virus outbreak.

The Myanmar Tourism Federation said the outbreak is expected to cut tourism revenue by as much as 50 percent.

U Myo Yee, the president of the Union of Myanmar Travel Association’s Mandalay Zone, told The Irrawaddy, “The tourism sector has completely stopped. Now, the companies are starting to struggle to pay staff salaries. Many companies are already laying people off, while some have cut back working hours. In the long term, we could face the worst—we might have to lay off all staff and shut down all the companies.”

“We are all in a crisis. The biggest problem is how we are going to pay salaries,” U Myo Yee said.

The bank said the country’s persistently high inflationary pressure and potentially higher food prices will hurt the poor the most, as poor households tend to be net buyers of food and to devote a higher share of their expenditures to food.

In its February inflation report, Myanmar’s Central Statistical Organization revealed that inflation rose to 9.06 percent in January this year from 8.81 percent in December.

The bank said Myanmar’s current account deficit is likely to widen to an average of 3.8 percent in the medium term from 3.3 percent in FY2019-20 as exports suffer from lower global demand and lower energy prices.

The kyat appreciated against the US dollar by 9 percent between October 2019 and March 2020, putting added pressure on Myanmar’s exporters, who are already affected by input supply disruptions related to COVID-19, according to the bank.

Fiscal revenue collection continues to decline, while COVID-19-related healthcare spending could drive up the fiscal deficit, the bank warned, adding that careful financial planning is needed.

The COVID-19 outbreak has elevated global economic uncertainty and limited global demand, raising the likelihood of a global recession, which is likely to have a material impact on Myanmar through trade, foreign direct investment (FDI), tourism and commodity prices, it said.

In mid-March, the secretary of the Myanmar Investment Commission (MIC), U Thant Sin Lwin, told the media that the virus could hamper FDI inflows, hitting the manufacturing sector, which relies on labor and imports of raw materials.

So far this fiscal year, the MIC has approved US$2.9 billion (about 4 trillion kyats) worth of FDI.

“Myanmar could lose the gains in poverty reduction achieved in the last decade with an increase in households’ vulnerability and potentially in unemployment.” the bank warned.

The World Bank’s suggestion for possible economic policy responses include addressing the immediate impact of the outbreak through targeted measures for impacted sectors and the vulnerable population, and using available fiscal policy space to accelerate spending on capital projects.

The bank suggested that Myanmar could also promote exports and associated imports of inputs by further removing licensing restrictions and making customs procedures more efficient.

Economic reform momentum may slow down in the lead-up to elections, due by November 2020, the bank said.

In January 2020, the World Bank forecast Myanmar’s growth would reach 6.4 percent for 2019-20 from 6.3 percent in 2018-19, due to growing investment in transport and telecommunications and other planned infrastructural spending ahead of the 2020 general election.

In October last year, it forecast Myanmar’s GDP growth would pick up gradually to 6.8 percent in FY2021-22, driven by investment in the manufacturing, insurance and construction sectors. According to the bank, in FY2018-19, Myanmar’s GDP growth slowed to 6.5 percent from 6.8 percent in FY2017-18, reportedly due to a slowdown in the services sector.

In an effort to cushion the impact of COVID-19 on the country’s economy, the government last week announced an initial stimulus package, including 100 billion kyats worth of loans, eased deadlines for tax payments, and tax exemptions for Myanmar-owned businesses that have been hit by the global pandemic.

The Central Bank of Myanmar has cut its key interest rate twice in the past two weeks in response to a slowing of the country’s overall economy due to COVID-19. The two cuts, the most recent of which takes effect on April 1, have lowered the rate by a combined 1.5 percentage points in an effort to spur economic growth.

“The initial package won’t be enough for all of the sectors that have been hit the hardest by COVID-19. I understand that our government doesn’t have enough funds to support all businesses. The tourism sector is quite different from other sectors. The manufacturing sector, like garment makers, can restart again as soon as the crisis is over. Because clothing is essential for the people,” U Myo Yee of the Union of Myanmar Travel Association said.

“People will definitely lose income during the crisis. So, they won’t be able to spend on travel even when the crisis is over. It will take at least six months to one year to revive the tourism sector. So, we have to prepare for the worst in this crisis,” he said.

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