Central bank's role must be strengthened: IMF

“It is very important to further strengthen the role of the central bank in foreign reserve management. All of the foreign reserves are still held by state banks. I think it is the role of the Central Bank to integrate other management of foreign reserves so that they can control the overall supply and demand of the foreign reserves in the country,” said Shinohara in an exclusive interview with Myanmar Eleven.

In its latest report, the IMF warned of low international reserves, elevated inflation, and underdeveloped monetary policy tools as the short-term risks to the economy in its recent report.

“Part of the budget deficit is financed by the central bank. I think it is very important to introduce, for example, treasure bill markets so that they can fight against inflation pressures better in the future.”

In the interview on the sideline of the Asean Finance Ministers’ meeting, Shinohara said the CBM will have to deal with two things – inflationary pressure which normal for a fast-growing economy as well as liquidity. Autonomy will thus be important to maintain macroeconomic stability.

“As the economy grows fast, there is always pressure for price increases. In order to avoid that, the central bank must have a sufficient instrument to fight against inflation - instrument to move up liquidity of the market, instrument to supervise their activities, etc.”

He said that Myanmar must find new ways to finance infrastructure spending, with less reliance on the CMB’s help.

“There is a huge demand for infrastructure, both physical and social. For example, construction of roads, education, health, there is a huge demand for government spending. But at the same time, tax revenue is very small,” said Shinohara. “They have to find ways to expand their tax bases and increase of tax revenues in order to meet the needs for government expenditures.”

As the country is bracing for more reforms, he said that key institutions’ capacity must be enhanced. 

 “I guess there is always a risk that institutional capacity doesn’t catch up with the reality,” he said. Though, he is optimistic about the future of the country’s economy.

“Myanmar’s economy outlook is very good. We are expecting strong growth to continue for the time being. The growth will be around 7.8 per cent this year, which is a little higher than the previous year,” said Shinohara, adding that the government needs to tackle the challenges, in order to achieve smooth economy growth in the future.

On this outlook, the inflation is expected to exceed 6 per cent in the 2013/14 fiscal year and remain elevated in the next year. Yet, the current account deficit could rise to about 5 per cent, while reserves are less than 3 months of imports. 

To Shinohara, the country needs a sound market economic management to support the economic growth.

“Sound, stable market economic management will be the most important. The government needs to avoid inflation. The government needs to avoid excessive borrowing,” he concluded.