Poor fiscal deficit management may spur inflation

 

Soe Thein, a retired deputy director general from the budget department, estimated annual shortfall of government revenue by Ks 3 trillion. 

“There should be no problem if the deficit does not exceed 5 per cent of GDP,” he said.

He noted that good management of the fiscal account is the key, particularly when inflation is on the rise. The deficit forces the government to borrow to finance its expenditures.

To tackle the fiscal deficit, the government can either issue government treasury bonds and treasury bills, which come with long and short maturity, respectively. While the government may need to offer 8.75-9.5 per cent per annum for the bonds, it will have to pay only 4 per cent per annum for treasury bills, he noted. The Central Bank of Myanmar may need to step in if the securities could find no buyers, he said.

“In this case, the CBM is printing new money and this explains why inflation is on the rise. A deficit can be OK under good management,” he said. 

He added that taxation is the key to maintain fiscal disciplines, as budget deficits are normal for a country in the transition period. The government is required to invest in several projects. Another is how to balance income and expenditure. Within these years, the ratio of the fiscal deficit to GDP is four to five per cent, which is not high compared to the international rate.

He urged the government to come up with a long term budget plan, which will cover a period of 3 to 5 years. 

In the latest East Asia and Pacific Update, the World Bank estimated that the budget deficit would rise from 3.9 per cent of GDP in the fiscal year 2012/2013 to 4.9 per cent in the last fiscal year, which ended last month. The deficit is also expected to hit 5.8 per cent of GDP in the fiscal year 2015/2016.

Meanwhile, inflation which was zero per cent before 2012 spiked to 5.8 per cent in the previous fiscal year. This will not further rise, to 6.9 per cent in the fiscal year 2015/2016, the World Bank estimated.

Economist Aung Ko Ko said that the government should consider cutting unnecessary expenditures. 

He noted that Myanmar has more than 30 ministries and some of them are unnecessary. 

“The budget should be spent wisely and efficiently. Myanmar has many ministries. The expenditure is more than income as the budget is being wasted. Germany has fewer than 20 ministries,” he said.

The government announced that total revenue rose by Ks 710 billion from the fiscal year 2012/2013 to Ks 3.42 trillion (US$3.42 billion) in the previous fiscal year. Government revenue increased sharply from Ks 1.22 trillion ($1.22 billion) in the fiscal year 2010/2011, Ks 1.53 trillion ($1.53 billion) in the fiscal year 2011/2012 and Ks 2.71 trillion ($2.71 billion) in the fiscal year 2012/2013. 

The Internal Revenue Department will make public the top 1,000 taxpayers. The top 50 individual and corporate taxpayers will be awarded. 

In the 2012/2013 fiscal year, top corporate taxpayers were Myanmar Brewery, Rothmans of Pall Mall Myanmar Pte Ltd, Dagon Beverages Co Ltd, IBTC Co Ltd, Myanmar CP Livestock Co Ltd, City Mart Holding Co Ltd, Premier Coffee Co Ltd, Yathar Cho Industry Ltd, Max Myanmar Construction Co Ltd Limited and Straits Greenfield Ltd. 

Since May 2013, all income earners will face scrutiny by the Scrutinising and Monitoring of Tax Collection Board. It is tasked to ensure proper payments of taxes on service, trade and production.