Rapid depreciation of the kyat devastating Myanmar consumers and businesses


YANGON- Rapid depreciation of the kyat huge caused significant price hikes, shuttered many local businesses, and has led to shortages. Price of essential foods, medicines, and fuel have increased substantially over the past few weeks.

The value of one US dollar in Myanmar kyat in local foreign exchange market increased from Ks1,331 in January 2021 to Ks1,750 in September 2021.  Currency depreciation has exacerbated in recent days, reaching a record high of around Ks2,700 on September 28th.  In local market, some were even trading with nearly Ks3,000 per dollar. 

However, the value decreased to around Ks2,400 per dollar on September 30 as the US dollar index reached around 94 points.

In 2021, the Myanmar kyat against US dollar was valued at around Ks1,300 per dollar in January. But the value of the kyat has depreciated significantly since March reaching a record high of Ks2,700 on September 28. 

However, this rate stabilized to Ks2,400 on September 30th and Ks2,430 on October 1st. 

When it comes to local gold prices in Myanmar, the academy gold price jumped to Ks2,250,000 on September 28. Meanwhile, local fuel prices rocketed to over Ks1,500 per letre in all kinds seeing an increase of 100% to 130%.  

The unstable foreign exchange market, fluctuating gold prices and high fuel prices have greatly impacted local consumer goods market and public consumers. Consequently, many of local businesses have stopped their operation. 

“Businesses have closed one after another. Small shops have closed one after another. It sounds as though we were in a mud. The more we move, the more we get stuck in the mud,” a local businessman murmured. 

A lot of bakeries announced on their Facebook pages that they would suspend their operation at the end of September as they ran out of raw materials. 

Some entrepreneurs say that it is better for the importers and businesses dependent upon foreign exchange to stop their operations and sit idle if they want to avoid losses. 

“I made a profit of Ks50,000 when I sold a kind of medicine yesterday. But I made a loss of Ks100,000 today when I bought it to resell. I am watching the market situation while selling the remaining stock. But now, I am closing my shop temporarily,” said a drug store owner in Thingangyun Township, Yangon. 

The rise and fall of foreign exchange rate affects demand and supply of foreign currency. The main factors are foreign exchange market situation, national trade volume, national economic growth rate, budget situation and prices of goods and services. 

Rising dollar exchange rate has triggered hikes in the prices of imported goods, especially fuels, medicines and food. 

In September, prices of rice and cooking oil in food categories increased, but onion prices in kitchen crops did not increase significantly, according to Bayint Naung Wholesale Center in Yangon.  

“Prices of almost all goods are increasing. A 5-litre container of sunflower cooking oil was priced at Ks19,000 last month. But I have bought it for Ks22,000 now. All prices have increased including meat and vegetables,” said a Yangon housewife. 

A poultry seller said the wholesale price of CP chicken was now Ks4,500 per viss although it was previously sold for Ks2,000 to 2,500. And the duck price was Ks7,500 per viss now, but stock was scarce these days, he commented. 

A taxi driver also said: “I have never seen such skyrocketing prices of fuels. The taxi fare for a route worth Ks2,000 has increased to Ks2,500 or 3,000. Still, we have to struggle to get the enough amount of money for our owners.” 

A local businessman, Dr Soe Tun, said it was not fair to say that dollar price hikes do not concern prices of locally-produced goods because cost of production also includes imported items. 

“For example, watercress and rice are locally grown. But agricultural inputs such as fertilizers and pesticides have to be imported. So, cost of production also increases. We also need to consider other costs such as transport charges,” he said. 

Most of the consumer goods in Myanmar are imported. They include medicines, edible oil and fuels. 

In order to reduce foreign exchange rate and keep foreign exchange reserves, the Central Bank of Myanmar is running a foreign exchange auction market. In September alone, the bank sold US$63 million in five rounds including the latest sale of US$15 million on September 27. However, dollar exchange rate in local market is still around Ks2,400. The country is in a crisis of currency depreciation. 

“First, the Myanmar kyat value against one dollar increased to Ks1,600 or 1,700. The Central Bank sold its earnings while selling bucks at reduced prices through eight money changers. At that time, the value decreased to around Ks1,400. This time also, they are doing so. A lot of things emerged. Rumours spread about new banknote circulations and the demonetization of the 5,000-kyat notes and 10,000-kyat notes. Export is also scarce. For dollar sales due to export deficit, the Central Bank is right. But, people want to buy bucks which should extensively be sold at the money changers. To reduce prices, the bank is selling dollars as a fixed price of Ks1,750 per dollar. But it is supposed to have sold its dollars to only three or four fuel importers. Then they are asked to sell their products at reduced prices. These are my personal views. I don’t know if I am right or not,” Dr So Tun said. 

“According to the nature of market economy, we don’t need to sell at reduced prices. We should sell at ongoing market prices. But, sales must be shared with all those who can afford. If possible, we must consider retail sales. Public trust will increase. Now, it is losing. We cannot sell our things to three or four customers only. There are hundreds of thousands of buyers. If we sell our products only to three people, they will get them all secretly. Others have to pay more as they didn’t have the chance to buy. Their system is a bit wrong. The bank has sold a lot of dollars. But the price has not decreased,” he added. 

Some businesspeople have said they are facing lots of difficulties such as instable currency market, bank restrictions on cash withdrawals and outside cash withdrawals through brokers.  

“The dire situation we are facing is that we cannot withdraw our cash from the banks on an unlimited basis and that we cannot make bank payments. Unless the banking system and currency problems could be solved, our businesses will never be recovered,” said a local businessman.  

Banking and monetary systems are built with public trust. Only if the unnecessary restrictions are eased, will the banking system and businesses be able to revive.