Uncertainty weighs on Myanmar’s economy, says World Bank

Uncertainty weighs on Myanmar’s economy, says World Bank


Call it a double-whammy. When assessing the current dire state of the Myanmar economy, two factors stand out. Firstly, close to three years of response to the COVID-19 pandemic saw a combination of lockdowns, social distancing, masking and travel restrictions hammer the economy, particularly small to medium businesses, and the livelihood of day workers. Secondly, the 2021 military coup and its aftermath rattled people’s daily lives and added to the uncertainty.

These are the key elements of the latest World Bank report entitled “Myanmar Economic Monitor: Navigating Uncertainty” – published on 30 January - that looks into the Myanmar economy and business over the last year.

The Myanmar Economic Monitor is published twice a year.

In simple terms, the economy could be 30 per cent larger with the absence of the coup and the response to the Covid pandemic. The Gross Domestic Product (GDP) is expected to grow just 1 per cent after last year’s 18 per cent contraction.

To some extent, the World Bank tends to tip-toe around the elephant in the room, namely the Myanmar crisis prompted by the generals seizing power on 1 February 2021 from Aung San Suu Kyi’s elected civilian government, though the effects are there for all to see in the worsening of poverty, a growing downturn in business and foreign investment, worsening unemployment and a spike in the numbers of post-Covid legal and illegal exits by migrant workers seeking income abroad.

Myanmar’s economy remains subject to significant uncertainty, with ongoing conflict disrupting business operations, the report notes, including significant macroeconomic volatility over the past six months, the report summary notes.

Naturally, certain areas of the country – such as Sagaing, Magway and Chin State – have been more negatively affected by fighting, with the resulting negative effects on the local economies. 

While some firms are showing signs of resilience, household incomes remain weak, and Myanmar’s potential for inclusive growth has been severely weakened by the recent shocks. 

Gradual economic recovery is expected in the near term and growth is estimated at 3 percent for the fiscal year ending September 2023, the report says. Even so, economic activity continues to be adversely affected by conflict, electricity shortages, and changing rules and regulations, with per capita GDP expected to remain about 13 percent below its pre-COVID-19 level. 

The depreciating kyat, combined with high global prices and ongoing logistics constraints, has caused import costs to rise sharply – all this happening, it should be noted, against a backdrop of increasing US and other international sanctions.

The cumulative impact of these shocks fuels inflation and further reduces real incomes. In July and August 2022, almost half of all households in the country reported income losses. Families have been reducing food and non-food consumption in response.

The number of people living below the poverty level is on the increase. 

As the report indicates, the situation is mixed.

“Although business conditions improved toward the end of 2022, the recent economic indicators are mixed,” said World Bank Country Director for Myanmar, Cambodia, and the Lao PDR, Mariam Sherman. “While conflict remains, families suffer from insecurity and violence. Firms, particularly those in the agriculture sector, are experiencing higher costs and delays. Funding for critical health and education services is falling, and lack of trust in public services is increasing. These problems will hinder Myanmar’s long-term economic prosperity.”

What is happening globally also matters to Myanmar. Economic recovery from the shocks of COVID-19 and the military coup is likely to be constrained by macroeconomic and regulatory uncertainty. The gloomy global economic outlook, which affects Myanmar’s major trading partners including the United States, the European Union, and China, will further weigh on the country’s growth prospects.

Frequent changes to rules and regulations have led to greater uncertainty around access to foreign exchange and imports, reducing confidence in payment systems and delaying customs processes. Some businesses are findings ways to cope with the challenging conditions, through access to favorable exchange rates or exemptions from regulatory requirements. Others have switched to informal channels for payments and goods trade.

The World Bank, while not getting into the specifics of the conflict, notes the coming months could be problematic. 

In the absence of more shocks, the economy is expected to expand slowly beyond 2023, but at rates well below those observed before the pandemic. Downside risks include the possibility that conflict may intensify in 2023, while geopolitical tensions could escalate. Growth is likely to suffer in the medium to long term as resources are taken from competitive and export-oriented areas. 

The Covid pandemic and the ongoing civil war have hammered many people, particularly the young generation – or Generation Z – many of whom are unemployed or have joined the armed ranks of the resistance. 

As the report notes, lost months of education, with rapid increases in unemployment and internal displacement, will reduce already low levels of human capital and productive capacity over the long term.

Myanmar junta mismanagement of the economy and regulations is having a negative effect. 

As the World Bank notes, Myanmar could strengthen economic growth by reconsidering its exchange rate policy, which causes high inflation, fiscal deficits, weak exports and low growth rates. The report recommends a more unified and market-oriented exchange rate system, which would help stabilize the economy, reduce inflation, boost trade, and minimize market distortion.