Bright outlook despite some negative reports

The Ministry of Hotels and Tourism announced last week that visitor arrivals to Myanmar would reach a record high of 4.5 million this year.

ANZ, one of 9 foreign banks winning licenses to operate restricted banking services, said Myanmar has the potential to grow its economy by 10 per cent per annum and recoup the lost decades in the next five years.

Despite some bad news that overshadows the progress, economic success after years of reforms has continued to boost consumer confidence in Myanmar in the second half of last year.

The MasterCard Index of Consumer Confidence, released last month, showed that Myanmar is the most optimistic market in Asia Pacific, with 97.2 index points. In the previous survey conducted in the first half of 2014, it was the second after Indonesia, with confidence at 94.1 points.

Respondents were asked to give a six-month outlook on five economic factors including the economy, employment prospects, regular income prospects, and their quality of life.

Within Southeast Asia, consumer confidence is also high: Vietnam, 85.3 points; Thailand, 83.6; the Philippines, 77.1; Singapore, 60.9; and Malaysia, 49.9.

In the recent past, Myanmar has witnessed a structural change in its economy.

In 2011, services and domestic trade generated 37 per cent of GDP, up from 31 per cent in the previous year. Manufacturing sector's contribution also rose from 7 per cent to 22 per cent. Meanwhile, agriculture contribution dropped from 60 per cent to 37 per cent. Foreign direct investment last year alone was over US$5 billion, while the economic growth rate has been staying above 7 per cent for years.

Challenges remain, though. One lies in the financial sector reform.

The International Monetary Fund has praised Myanmar's economic reforms, including giving autonomy to the central bank and adopting a floating rate for its kyat currency. The central bank awarded licenses to foreign banks for the first time in decades, while the stock exchange is slated to open in October.

But many in the country remain deeply suspicious of the banking system after decades of economic mismanagement and isolation under the junta, and large swathes of the population deal only in cash.

This may explain the failure of the first Treasury bond sale under the reformist regime last month. The Central Bank of Myanmar aimed at raise US$50 million but sold only $20.8 million of the bonds.

"I think it was successful. This is the first time and I think we can do better next time," Thuzar Win, a Central bank official involved in the auction process, told AFP.

Myanmar economics expert Sean Turnell said that while the incomplete bond sale was "not ideal", it was a "good and necessary step forward".

He added shortfalls were not uncommon even in developed markets and that the 8 per cent yield was "not a bad rate to achieve for Myanmar government debt in the present environment".

"Now we just need (the) government to get its fiscal policy right, and so reduce the pressure to sell such bonds to finance government spending," he told AFP.

Myanmar has initiated a series of political and economic reforms in recent years that have seen most international sanctions lifted and a surge of investor interest in the long-isolated nation.

The country, which is due to hold crucial elections this year, has scaled up government spending in an effort to begin rehabilitating public services that were chronically neglected by the previous junta.

In the 2015-16 fiscal year, it plans to run a budget deficit of over Ks 3.8 trillion. Expenditures are set at Ks 20.83 trillion, against revenue of Ks 17 trillion. The 2015-16 fiscal year, to start on April 1, is the fifth budget year for the current government.

The deficit will be about 5 per cent of gross domestic product (GDP), from 4.5 per cent in the current fiscal year. Budget deficit stood at 5 per cent in 2013-14, 3.7 per cent in 2012-13, and 4.6 per cent in 2011-12.

The country has been careful in borrowing new foreign loans. Meanwhile, the current government has not issued any bonds until last month. Some economists criticised that it only printed money to finance the budget deficit, which may be a cause of high inflation.

To AFP, Rajiv Biswas, Asia-Pacific chief economist at IHS, said the establishment of a government bond market "is an important long-term financial sector reform".

"Myanmar is still a new frontier market economy that has only recently begun reforming its financial system, and is still largely a cash-based economy, with debit cards first issued in 2012, so it will take time for the financial system to deepen," he told AFP.

Myanmar has issued government bonds before - in 1993 and 2010 - with both done through state-owned banks, he added.