IMF lowers Myanmar’s growth forecast

Yongzheng Yang, IMF deputy division chief for Asia and the Pacific, who led the Fund’s mission to Myanmar from October 14-28, said growth had softened in the first half of this fiscal year because of slowing demand from major trading partners and weak commodity prices.
“There are a number of factors. For example, the construction sector slowed down, and the agriculture sector is facing challenges because of flooding and low prices of rice,” he said.
However, he was optimistic about the nation’s economic rebound in the second half of fiscal 2016-17, on expected increases in foreign direct investment and aid inflows.
“The economies around the world will be up and down over time. But we expect growth to be stronger than 6.5 [per cent] next year,” he said. 
Yang warned about inflationary pressures and macroeconomic imbalances. He said inflation remained high and was projected to stay at around 9 per cent, while the external current-account deficit continues to rise to 7.6 per cent of GDP. Additionally, Myanmar’s fiscal deficit has significantly increased.
He said Myanmar still faced a lot of bottlenecks such as infrastructure, electricity and transport and capacity constraints, which may lead to a surge in production costs.
“For example, we experienced a number of blackouts during our discussions in May,” he said.
Yang noted that the administration needed to prioritise macroeconomic stability by bringing down inflation, strengthening Myanmar’s external position, and fortifying the banking sector.
He also noted that the kyat had been depreciating against the US dollar for the past few weeks, but also pointed out that a lot of currencies in the region are also suffering from the greenback’s appreciation. He urged Myanmar to allow the exchange rate to be flexible in line with market conditions. 
He believes phasing out central-bank financing of fiscal deficits should be a priority, and regulations should be issued soon to safeguard financial stability and improve financial inclusion. State banks need urgent reforms to reduce risks to public finance and the financial system.
Yang said Myanmar must focus on domestic revenue mobilisation by rationalising tax exemptions and investment incentives as well as enacting the draft Tax Administration Procedure Law.
“You should invest in public education on the importance of taxation. State economic enterprises need more reforms, and the financial sector needs further liberalisation to improve financial inclusion, especially for agriculture and small and medium enterprises,” he said.
Despite the current slowdown, Yang maintains his optimism about the nation’s future. He said the recent termination of the United States’ sanctions would have positive impacts on banking-sector functions, and thereby improve trading, accelerate financial-sector reforms, and boost investment in the nation’s special economic zones.
He is also happy with the government’s efforts to streamline business regulations. He said the authorities had taken the right steps such as the enactment of the Financial Institutions Law and Myanmar Investment Law, and continued improvements in revenue administration. 
“It will take some time, but we are confident as the authorities are making good efforts,” he said.