Experts from the World Bank Group say they are optimistic about Myanmar’s economic growth prospects, but note immediate concerns about lagging infrastructure, including the electrical grid shrtfall, and the need for institutional reform of the banking sector.
Mizzima’s business reporter Aung Thura sat down this week to interview Mr Mathew A. Verghis, East Asia Manager and Mr Habib Rab, Senior Country Economist for the World Bank Group.
Mizzima: How do you view Myanmar’s economic prospects?
Mr Mathew A. Verghis: Myanmar’s economic prospects are very strong Myanmar has many natural advantages. A very important one is its location it is in the middle of the fastest growing region in the world. It has excellent natural resources and it has a young and growing population. All of these thing are advantages like countries like China, like Vietnam, like before that Thailand have used to grow very quickly. And we see no reason why Myanmar can’t do the same, so the prospects are very good.
The challenge is to take advantage of these natural resources that you have you have to make changes you have to prepare your economy in a way that allows to benefit from the natural advantage that you have. And I think that is the challenge the government and the people face going forward.
Are you optimistic about the prospects in Myanmar for long-term growth?
I am optimistic. I think the prospects for Myanmar are very good. But for this optimism to become reality the government has to implement its plans and I think this the main challenge facing Myanmar today. So you have to create an environment that allows your private sector to grow, you have to create an environment that allows you young people to get an education, you have to create an environment where people who are sick get healthy were electricity is available. So these are the thing that will allow optimism to become reality. But I am optimistic.
Do you think there are any problems with Myanmar’s current policies?
Well I think there has been a good start. It is easy to forget that al little as five years ago there had never been a published budget. Many things are now taking place in parliament an open discussion on new policies the openness to foreigners and the private sector, the openness to donors and the involvement of donors. These are all things I think can be very beneficial to Myanmar. So there has been a lot of progress and that is part of the reason why I am optimistic.
Having said that even though there has been progress there are still many things left to be done. There are many things left to be done to make the atmosphere for the private sector feel more welcoming and that will allow small Myanmar firms to grow and develop into world champions so there is a lot of work still to be done but that should not take away from the fact that a lot of things have already been done. So there has been a good start but lots of work still to be done.
Mizzima: Are there any important messages from the Economic Monitor 2016?
Mr Habib Rab: The first is the growing economic shocks, the second is increased vulnerability of the economy. I think I would highlight four main messages. The first one is in 2015, as you know, the economy faced a number of challenges including devastating floods, declining commodity prices which affected Myanmar’s exports and also a slowdown in investments. So this leads me onto the second message which is this highlighted a number of short term vulnerabilities and risks which started to emerge for the economy so we saw inflation rose very rapidly you have growing fiscal and external imbalances the trade deficit has grown the fiscal deficit has grown. This takes us to the third message of the MEM which is that this has posed some new challenges for policy making and for institutional responses some of which have been very positive for example the declining growth rate in government spending but in other areas it has been more challenging for example the monetary financing of the budget deficit adds to inflation. So the fourth message is that despite all this we think the prospects in the economy are very strong but with a premium of some macroeconomic management.
How do you view the infrastructure challenges including electricity?
I guess there are some short-term, immediate challenges in terms of maintaining macroeconomic stability through polices to contain monetary and fiscal expansion, whilst at the same time protecting the government’s ability to deliver public services, and this will require a mix of policies that involve both some adjustment through more efficient spending, for example, and also some improvements in tax collections as well, so that your fiscal deficit adjusts but you are still able to deliver public services in a non-inflationary way, in a way that maintains macro-economic stability.
But there are some more medium, longer-term issues that are also clearly very important. We have highlighted a few of them. Two of them are access to electricity, in particular how do you improve the financial viability of the power sector to attract investment in the power sector. And the second is on banking sector reform, in particular the reform of state-owned banks to enable greater stability and competitiveness in the financial sector.
You mention banking and electricity. What do you think are the most important things?
I think in the short-term, as I mentioned, maintaining stability through measures that help contain price pressures, to maintain stable inflation rates, which is important in terms of consumption, particularly of the poor, and also to maintain exchange rate flexibility and fiscal and monetary discipline. So these are the core macro-economic policy priorities, which as a short-term measure is necessary but sufficient measures to maintain inclusive growth in the long term.
For longer-term growth, the issues you mentioned, including access to electricity is clearly critical, but I would also add the access to education and building a strong labour force, by ensuring equitable access to educational opportunities is clearly very important. The banking sector, as you have already mentioned is a particular area of constraint to the private sector investment. But also land prices, land management, these issues are often noted as major restraint to profitable investment in Myanmar, which also needs to be addressed.
So are you optimistic about Myanmar?
Yes, we are optimistic. In an environment where the global economy is slowing down, the regional economy is slowing down, we are still projecting Myanmar to grow at 7.8 percent, which is quite optimistic. But of course that is subject to a number of different conditions, including some of the institutional and structural issues that we mentioned.