Myanmar faces boom with big debt write-off

Myanmar has reached a deal with the Paris Club creditor countries to get special treatment to write off its nearly $6 billion in external debt - while the Asian Development Bank has announced a return to the country, paving the way for further reform. 

The remaining debt will be rescheduled over 15 years, including a 7-year grace period, according to a government press statement seen on state media yesterday.

This special arrangement results in debt relief of $5.92 billion,or over 60 per cent of total debt, immediately after meetings in Paris. Meanwhile, other bilateral donors were expected to follow suit and more debt cancellation was on the way in the next six months, it said.

Under the agreement, Norway has granted an exceptional full outright cancellation of all its claims amounting to $534 million, while Japan announced earlier its commitment to a substantial cancellation of its arrears worth over $3 billion, the statement said.

The Paris Club creditors, including the US, Australia, Japan and 14 European countries, took note and welcomed the Myanmar government’s commitment to economic reform and maintaining macroeconomic stability, while creating the institutions necessary to manage a rapid change in the economy.

Economic reform was supported by the International Monetary Fund (IMF), with a Staff Monitored Program (SMP) currently providing a framework for cooperation with the government. The IMF moved to support reform in Myanmar around the time President Thein Sein took the helm and pushed for reform in politics and the economy after years of military rule. 

The World Bank said on Sunday its board approved on January 22 a $440 million Reengagement and Reform Support Credit to Myanmar. 

The ADB, meanwhile, announced yesterday it was resuming operations in Myanmar, with an assistance package for social and economic development designed to build a solid foundation for further reforms to alleviate poverty and foster growth.

“This is a historic tipping point for Myanmar,” said Stephen Groff, Vice President of Operations for East Asia, Southeast Asia, and the Pacific. “To be sure the country’s best positioned to benefit from the resumption of donor aid, we are focusing first on the building blocks for stability and sustainability, which will ultimately lead to major investments in road, energy, irrigation and education projects, as well as other sectors.”

ADB’s first major assistance will help Myanmar develop a competitive economy by focusing on improved public finance, trade, investment, small and medium-sized enterprises, and financial sector development, building on significant measures the government has taken, including major reforms to its central bank and trade and investment liberalisation, the bank said in a statement.

In rural areas, where development has been hindered by lack of infrastructure, restrictions on land usage, poorly developed support services, and limited access to financial services for farmers, ADB funding will help develop a strategy to make banking services more widely available. It will also identify and address gaps in technical and secondary education access, enabling more of Myanmar’s people to prepare for and benefit from the country’s anticipated boom.

The $512-million loan, the first from ADB in almost 30 years, was made possible through bridge financing provided to the Myanmar government by the Japan Bank for International Cooperation (JBIC) on January 17. 

The loan will also be used to clear final arrears and sustain government efforts to revamp the national budget process and modernise tax administration. It will also support trade policy reforms and capacity development, improve the investment climate and small and medium-sized enterprise development.