IMF: economy is ‘overheating’


IMF country representative Yasuhisa Ojima (far right)- (Photo credit-IMF)
 

Although Myanmar’s economy is set for growth and increasing inflation over the coming financial year according to the IMF’s recent Article IV Report, a number of issues still remains to be addressed.

New IMF country representative Yasuhisa Ojima told Mizzima that the government should forcefully address the signs of ‘bottlenecking,’ which refers to the congestion in Myanmar’s current macroeconomic situation.

“This is all the more important given the risks Myanmar is facing now—declines in natural gas prices, growth slowdown in China, and election-related economic uncertainty, which could dent investor confidence,” said Mr. Ojima.

He continued, “A policy tightening may reduce GDP growth somewhat in the short run, but a more stable economy will benefit growth and poverty reduction in the longer term.”

The report has said that the downside to growth and stability in the near term has increased due to the drop of natural gas prices and the recent catastrophic floods that have affected every state and region in Myanmar.

Trade is also to be affected as China’s economy begins to slow down, also as the tightening of the US monetary policy puts a downward pressure on the kyat it could lead to an increase in inflation and a “widening of the current account deficit.”

The report noted that risks exist with the country’s inclusion of foreign banks. Myanmar economics expert, Sean Turnell said on social media that the IMF’s attitude to foreign banks is “sanguine.”

“It assumes the new banking law in place is to guard against financial sector instability. But this will not be in place. Moreover, most banks ignore prudential directives anyway. Significant vulnerabilities here remain,” he said.

While also taking a swipe at the IMF’s advice of “monetary tightening.”MrTurnell notes,

“IMF urges monetary tightening. This misses the major issue, which is not monetary in nature, but fiscal. The budget deficit is driving monetary creation, but this in turn is driven by excessive spending on Burma's coercive apparatus.”

Despite the few negative concerns from the IMF it says that a clean and fair election could encourage more FDI into Myanmar. In the past commentators have noted that regardless of the political situation investment is set to come as long as people want to purchase.

“It gives a lot of investors a pause now and if we pass them [the elections] peacefully and democratically it will be yet another major achievement of this country it will definitely help and it is true there are investors who are not sure yet, it certainly has potential to really create a significant delay if, if the process is not seen as un-transparent or undemocratic there will be a very heavy price to pay,” Edwin Vanderbruggen, partner at VDB-Loi told Mizzima in June.

Sean Turnell was also critical of the IMF not mentioning anything about the government’s spending on the military saying, “Military spending...not a word from the IMF!”

Mr. Ojima responded by saying:

“As a practice, we do not comment on military spending as this is out of areas of our expertise. Our advice is that Myanmar should continue to give priority to social spending (e.g., health and education) and improvements in key infrastructure as Myanmar ranks relatively poorly on these fronts among low-income countries.”

The government announced in it’s 2015 budget that it would spend US$2.5 billion on the military, in 2014 it spent close to a quarter of the yearly budget on military.

In contrast, in 2013, only 0.5% of GDP was reserved for health according to the World Bank website.

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