IMF Staff Completes 2019 Article IV Visit to Myanmar
December 20, 2019
End-of-Mission press releases include statements of IMF staff teams that convey preliminary findings after a visit to a country. The views expressed in this statement are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Board. Based on the preliminary findings of this mission, staff will prepare a report that, subject to management approval, will be presented to the IMF's Executive Board for discussion and decision.
- Economic growth has been stable in recent years but is below potential.
- Despite favorable long-term dynamics, the medium-term outlook remains subdued: risks are tilted to the downside.
- Upgrading the monetary and fiscal policy framework and comprehensive financial sector reforms are needed to bolster macro-financial stability.
- Building on recent successful reforms, full implementation of the Myanmar Sustainable Development Plan (MSDP) and the targeted scaling up of infrastructure and human capital spending can help achieve the SDGs and boost sustainable growth.
An International Monetary Fund (IMF) team led by Mr. Shanaka J. Peiris visited Myanmar from December 4 to 19, 2019, to conduct discussions for the 2019 Article IV consultations. At the conclusion of this visit, Mr. Peiris issued the following statement:
"Growth is estimated at 6.5 percent in 2018/19, up slightly from 6.4 percent in 2017/18 on account of continued good export performance, particularly of garments and gas, despite global headwinds. A modest fiscal stimulus supported growth although domestic demand was mostly weaker reflecting slowing credit growth, a correction in real estate prices and declining investment. FDI inflows as well as project approvals remain lower than in recent years as large projects have been completed and foreign investors remain cautious ahead of the 2020 elections. The fiscal deficit widened slightly to 3.5 percent of GDP in 2018/19, compared to 3.0 percent in 2017/18 with central bank financing of the deficit higher than last year. The current account deficit halved in 2018/19 to 2.0 percent of GDP largely reflecting a contraction in imports and was matched by FDI and other inflows, keeping international reserves and the kyat stable. Headline inflation stood at 8.6 percent as of end-September largely due to one-off factors such as higher electricity tariffs, food, and fuel prices.
"Although long-term prospects remain favorable driven by positive population dynamics and Myanmar’s strategic location, medium-term growth is likely to remain below potential. For 2019/20, growth is expected to be broadly stable with higher government spending largely offset by pre-election uncertainty and weaker private demand. Inflation is expected to fall to 6-7 percent in the medium term as the one-off impact from higher electricity tariff ends and pressures from rising food prices abate.
"Risks to the outlook are tilted to the downside. On the domestic front, growth could underperform if fiscal spending does not accelerate sufficiently. Delayed restructuring and recapitalization of the banking system could increase systemic risks with large macro financial spillovers. A deterioration of the security situation and continued humanitarian issues in Rakhine could weigh on sentiment. Global risks include rising trade tensions and global market volatility, higher crude oil prices and spillovers from a slowdown in China.
"Fiscal policy should aim to raise tax revenues that remain very low by international standards and boost SDG-related spending. A modestly higher fiscal deficit would still maintain debt sustainability but needs to be fully financed through the issuance of market-based securities and concessional external loans, while central bank financing is gradually phased out. A public private partnership (PPP) framework should be instituted to improve project selection and ensure value-for-money through competitive bidding, building on the project bank regulation. Strengthening profitability and the governance of state economic enterprises is macro critical. A new bidding round for petroleum production sharing contracts should rely on a revised model contract to help maximize revenues and ensure transparency. The process for finalizing new power purchase agreements should be expedited through enhanced inter-ministerial coordination with due regard to cost competitiveness and fiscal risks.
"Continued exchange rate flexibility will help cushion the economy from external shocks. The active control of monetary conditions and the fading out of one-off supply side pressures should reduce inflation. Further upgrading the monetary and FX operational framework, including by allowing greater interest rate flexibility, will anchor inflationary expectations and strengthen the monetary transmission mechanism. In the context of upcoming reviews by the Asia-Pacific Group in 2020, the authorities should continue to work on ensuring full compliance with international standards on anti-money laundering and combating the financing of terrorism.
"Sustained growth will require that the banking sector is sufficiently capitalized, regulated, and supervised in order to support lending to productive sectors. Bank restructuring should follow the new prudential regulations and a comprehensive financial sector reform strategy would minimize the eventual clean-up costs and risks of negative spillovers to the rest of the economy.
"We welcome recent reforms such as the increase in electricity tariffs, the liberalization of the financial sector including opening to foreign insurance companies and banks, and the move to greater exchange rate flexibility. Continuing reforms to improve governance and reduce the cost of doing business will help attract private investment. A consistent implementation of structural reforms and a scaling up of needed infrastructure plus a faster resolution of security and humanitarian issues would support higher external financing and more sustainable development. In turn, this would allow greater SDG-related spending and a steady build-up of international reserves. Continued capacity development to support reform implementation and institution building is critical to achieving the goals set in the MSDP."
The staff team met with the Governor and Deputy Governors of the Central Bank of Myanmar, the Union Minister and the Deputy Ministers of Ministry of Planning, Finance and Industry, senior government officials, members of parliament, private sector business and financial representatives, and development partners. We thank the authorities for their kind cooperation and hospitality.
|
2015/16 |
2016/17 |
2017/18 |
2018/19 |
2019/20 |
2020/21 |
2021/22 |
||
|
Act. |
Est. |
Proj. |
Proj. |
Proj. |
Proj. |
Proj. |
||
|
Output and prices |
||||||||
|
Real GDP 2/ |
6.4 |
5.8 |
6.4 |
6.5 |
6.4 |
6.0 |
6.2 |
|
|
CPI (end-period; base year from 2014/15=2012 ) |
3.9 |
3.4 |
8.6 |
9.5 |
7.7 |
6.6 |
6.2 |
|
|
CPI (period average; base year from 2014/15=2012) |
9.1 |
4.6 |
5.9 |
8.6 |
7.9 |
6.9 |
6.4 |
|
|
Consolidated public sector 3/ |
(In percent of GDP) |
|||||||
|
Total revenue |
19.6 |
18.3 |
18.8 |
18.0 |
18.1 |
18.1 |
18.4 |
|
|
Tax revenue |
7.1 |
7.1 |
7.1 |
6.8 |
6.9 |
7.2 |
7.5 |
|
|
Social contributions |
0.1 |
0.1 |
0.1 |
0.1 |
0.1 |
0.1 |
0.1 |
|
|
Grants |
0.5 |
0.4 |
0.3 |
0.6 |
0.4 |
0.4 |
0.4 |
|
|
Other revenue |
11.9 |
10.6 |
11.3 |
10.4 |
10.6 |
10.4 |
10.4 |
|
|
Total expenditure |
23.4 |
21.0 |
21.8 |
21.5 |
22.2 |
22.5 |
22.8 |
|
|
Expense |
16.0 |
14.6 |
14.7 |
14.7 |
14.9 |
15.1 |
15.3 |
|
|
Net acquisition of nonfinancial assets |
7.4 |
6.4 |
7.1 |
6.8 |
7.3 |
7.4 |
7.6 |
|
|
Gross operating balance |
3.5 |
3.7 |
4.1 |
3.3 |
3.1 |
3.0 |
3.2 |
|
|
Net lending (+)/borrowing (-) |
-3.9 |
-2.7 |
-3.0 |
-3.5 |
-4.1 |
-4.4 |
-4.4 |
|
|
Domestic public debt |
22.0 |
23.3 |
26.3 |
22.8 |
23.0 |
23.5 |
24.0 |
|
|
Money and credit |
(Percent change) |
|||||||
|
Reserve money |
10.4 |
8.0 |
4.6 |
11.3 |
9.2 |
8.7 |
8.6 |
|
|
Broad money |
16.5 |
21.4 |
18.6 |
15.4 |
12.6 |
10.5 |
10.8 |
|
|
Domestic credit |
30.1 |
22.3 |
21.4 |
18.4 |
14.5 |
11.1 |
11.7 |
|
|
Private sector |
33.9 |
27.4 |
21.2 |
16.4 |
12.9 |
6.4 |
6.9 |
|
|
Balance of payments 4/ |
(In percent of GDP) |
|||||||
|
Current account balance |
-4.2 |
-6.5 |
-4.2 |
-2.0 |
-3.4 |
-3.7 |
-4.2 |
|
|
Trade balance |
-4.4 |
-7.5 |
-5.1 |
-3.0 |
-3.8 |
-4.3 |
-4.7 |
|
|
Financial account |
-6.6 |
-8.4 |
-5.9 |
-3.4 |
-3.6 |
-4.0 |
-4.7 |
|
|
Foreign direct investment, net 5/ |
-5.1 |
-5.8 |
-4.8 |
-2.9 |
-3.1 |
-3.2 |
-3.5 |
|
|
Overall balance |
0.0 |
0.5 |
0.5 |
0.3 |
0.2 |
0.3 |
0.5 |
|
|
CBM reserves (gross) |
||||||||
|
In millions of U.S. dollars |
4,835 |
5,141 |
5,462 |
5,667 |
5,830 |
6,091 |
6,549 |
|
|
In months of prospective GNFS imports |
3.3 |
3.2 |
3.6 |
3.6 |
3.5 |
3.5 |
3.3 |
|
|
Total external debt (billions of U.S. dollars) |
12.7 |
12.3 |
18.3 |
18.0 |
18.0 |
18.3 |
18.9 |
|
|
Total external debt (percent of GDP) |
21.0 |
20.0 |
29.8 |
26.3 |
24.1 |
22.4 |
21.1 |
|
|
Exchange rates (kyat/$, end of period) |
||||||||
|
Official exchange rate |
1,226.1 |
1,357.7 |
1,551.5 |
1,533.0 |
… |
… |
… |
|
|
Parallel rate |
1,238.4 |
1,350.9 |
1,563.6 |
1,533.1 |
… |
… |
… |
|
|
Memorandum items: |
||||||||
|
GDP (billions of kyats) |
74,216 |
82,700 |
92,789 |
105,012 |
120,872 |
138,076 |
157,026 |
|
|
GDP (billions of US$) |
60.4 |
61.5 |
67.1 |
68.5 |
74.8 |
81.8 |
89.5 |
|
|
GDP per capita (US$) |
1,210 |
1,267 |
1,279 |
1,242 |
1,321 |
1,440 |
1,593 |
|
|
Sources: Data provided by the Myanmar authorities; and IMF staff estimates and projections. |
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|
1/ The fiscal year is from April 1 to March 31, up to 2017/18. From 2018/19 onwards the fiscal year is from October 1 to September 30. |
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|
2/ Real GDP series is rebased to 2015/16 prices by the authorities. |
||||||||
|
3/ Union and state/region governments and state economic enterprises. Revised to reflect Government Finance Statistics Manual 2014 classification. |
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|
4/ The balance of payments data has been revised according to the BPM6 methodology. |
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| 5/ FDI from 2017/18 onwards reflects improved forex transaction data collection, which has caused a break in the data series. | ||||||||
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