Key takeaways from the latest (Oct 2019) World Bank ‘Asia Pacific Economic Update – Weathering Growing Risks’ pertain to using policy spaces available for the countries in order to boost and sustain growth; to continue trade openness, including through deeper regional integration (within ASEAN and R-CEP and other bilateral arrangements) and enact structural reforms to raise productivity, enhance trade and investment and encourage innovation.
Myanmar requires all these policy prescriptions. It is up to the policy makers in addressing the challenges of growth that is inclusive and provides dividends to all sections of people. Given that Myanmar has more fiscal space in terms of manageable debt and budget deficit, the need to expansionary cycle of public spending would be a logical policy route that can enhance the human resources as well as welfare of people. Equitable regional growth strategies, increased public spending on social sectors, and improvements in critical infrastructure (rural connectivity) can be the focus areas which can sustain the overall growth of the economy. A recently released public opinion survey by the International Republican Institute has also shown results in terms of overall satisfaction of the public on the direction of increased spending on rural infrastructure and social sectors.
The biggest challenge for Myanmar is execution of projects and programmes at the ground level as the Bank repeatedly highlights as an issue to be addressed in order to improve the performance of the government. This in fact is the litmus test for reposing public confidence on the government.
What are the specific pointers in relation to Myanmar in this recent Economic Outlook? While there is a overall continued slowdown of global economy and that of large economies around Myanmar in this region, the country is poised to maintain growth performance at the levels of 6.6% and 6.7% in 2019 and 2020. Spill over positive effect may be possible due to China-US trade tensions.
However, high inflation is a concern which erodes private incomes and it also impacts domestic trade, foreign trade and private consumption. Inflation reached 9.9% in June 2019, with increases in food, fuel and transport, and electricity tariffs. The expectation is that it would be contained as the monsoon season receded and domestic supplies would stabilize in the coming months.
Increase export growth and FDI are positive developments in Myanmar, reflecting to some extent the faith of the investors on the country, despite gloomy global perspective in terms of the geo-political and conflict situation. Cumulative approved FDI increased to USD 3.2 billion in Q3 of 2018/19, which is a rise compared to the same period of the previous year. Comfortable foreign exchange reserves position of the central bank is also a positive development.
World Bank Economic Outlook report points out the need for continued reforms in the financial and tourism sectors that the government has initiated in the recent years. This would encourage private investment. Lowering the cap on interest rate for micro-lending, expansion of tax base, easing tourism sector are some positive developments which would boost the growth.
What is the outlook? Growth is expected to pick up in Myanmar in the medium term. This is good news for the public as well as the political establishment. Agriculture sector activities need to be promoted by the government in order to sustain growth, or else it will be a drag on the economy and growth prospects. Encouragement given to insurance, tourism, construction and the energy sector are going to yield results in the coming years.
Inflation management is going to be a task for the government, which remains high in the medium term. It is mainly driven by supply side constraints and secondary effects of price rises in sectors like energy (electricity tariffs). Expansionary cycle of fiscal spending which at one level is important to boost the growth, may also lead to inflationary pressures. A delicate balance is required in terms of quality of spending. While fiscal deficit is manageable, revenue collection is expected to remain stagnant in the medium term – which would mean the government needs to take steps in addressing constraints related to domestic resource mobilization. Easing and reforms in the tax system is the need of the hour.
Myanmar continues to show a positive poverty reduction trend, however the growth and development need to be broad based and inclusive.
“Strong growth likely decreased poverty further, although unevenly across the country. Poverty is 2.7 times higher in rural areas than urban areas, and limited agriculture growth suggests that agriculture households to see slower progress,” the report says.
Balanced growth across states/regions is also needed. Reforms related to decentralization, devolution of more funds for state/regional governments can be attempted at this juncture.
Global uncertainty, slowdown of the major economies, and US –China trade tensions and other global trade disputes may act as downside risks for Myanmar in terms of its external sector. Apart from this, natural disasters also play a significant role almost annually which pulls down the agriculture sector to some extent. (This year monsoon floods displaced over 150,000 people). It is also pointed out that “frequent disasters can create considerable fiscal pressures and the government needs to have sufficient fiscal buffers and financing instruments available to appropriately respond to future shocks.” Domestic conflicts are also possible downside risks for the country in terms of investor sentiments. There is also uncertainty surrounding the possible revocation of preferential trade access for the EU market.
On the whole, the World Bank Economic Update (Oct 2019), points out the need for exercising policy options of structural transformation that would sustain growth and provides cautionary advice of monitoring the macro developments and also supply side constraints to address the economic stability and inflationary pressures in the system.