More to be done for Myanmar's sustainable growth: World Bank

According to the World Bank's "East Asia and Pacific Economic Update", the bank noted that despite progress over the last four years, expansion of private business activity is now running into bottlenecks because of the lack of electricity supply, and lack of access to finance, land, and skilled Labour. Rural areas remain isolated by limited transport infrastructure, which restricts the ability of farmers and local nonfarm businesses to access markets.

“These factors are affecting the productivity of the private sector, which is struggling to compete with imports, including in Labour-intensive light manufacturing sectors. Therefore macroeconomic policies that are conducive to stability and low inflation are critical to not only offsetting loss of competitiveness, but also encouraging investments in infrastructure and supporting services,” the bank said.

Promoting these investments will not only require fiscal space, but also leveraging resources from the private sector. Power sector investment needs alone are projected at US$30 billion in the next 15 years. Although a gradual increase in public revenues, reprioritisation in the budget, and concessional financing from external donors may contribute to this, they will not be sufficient to plug major infrastructure gaps.

Economic growth in Myanmar has eased to 7 per cent in 2015–16 due to floods, inflationary pressures, and a slowdown in new investments.

Medium-term growth is projected to average 8.2 per cent per year in real terms. This reflects pent-up demand but also assumes continued progress on structural reforms, including measures to improve business regulations, continued expansion of access to financial services, and major investments in the power sector.

Pressures on Myanmar’s current account are likely to remain strong due to the drop in international commodity prices and the slowdown in China. The fall in oil prices has already started to feed through to Myanmar’s gas export prices, and production is unlikely to grow significantly over the medium term. The demand for and prices of mineral exports are likely to remain down. These developments may also put pressure on government receipts, though these are expected to be offset to some extent by gains from tax administration reforms.

Import growth in the first three quarters of 2015–16 has decelerated to 2.5 per cent compared to 25 per cent in the same period last year due chiefly to the decreasing demand for imported industrial raw materials. The overall trade deficit, however, will remain large due to a drop in exports. This is due to a combination of falling commodity prices, which have translated to a slight drop in the value of gas exports, and falling mineral exports.

The bank said that the historic elections of November 2015 have created a general sense of economic optimism. However, the floods contributed to rising food prices and slower private consumption growth. Private investment growth in 2015–16 has also slowed due to a combination of structural constraints and a moderation in new investments.

Following the Central Bank of Myanmar’s downward adjustment to the reference exchange rate in August 2015, the kyat has moved broadly in line with market forces. The kyat appreciated slightly at the beginning of 2016, largely due to seasonal factors, but has remained supportive of external competitiveness. At the end of March, the kyat’s official reference rate was 1,216 per US dollar, appreciating by 18 per cent from 1,027 a year earlier.

The depreciation of the kyat during the year led to a rapid rise in inflation, peaking at 16 per cent year on year in October 2015-16. Rice prices accordingly increased by 21 per cent while prices of other processed foods increased by around 25 per cent.

Myanmar experienced month-on-month deflation of 1.7 per cent in December and January.

In its Asian Development Outlook 2016, Asian Development Bank forecast Myanmar’s economic growth at 8.4 per cent in the 2016-17 fiscal year. It noted that positive political developments and structural reform programmes would help foster economic growth and investment.

"Though economic reforms implemented since 2011 have had positive outcomes, Myanmar's new government will face the challenges of advancing economic reform, addressing infrastructure and labour shortages, and making progress towards peace and social cohesion," said Winfried Wicklein, ADB Country Director in Myanmar. "Moreover, intensified efforts are needed to connect and develop rural areas to improve access to markets and services, and to generate opportunities and jobs."

Risks to Myanmar's economic outlook include thin external and fiscal buffers, the capacity of the government to maintain reform momentum, ethnic and sectarian tensions, and vulnerability to bad weather.

The ADO 2016 emphasises that Myanmar's transport infrastructure, after decades of under-investment, provides poor access to markets and services, perpetuates poverty and regional inequality, and hampers business development. ADB estimates that US$60 billion is needed through 2030 to upgrade transport systems to a standard seen in other countries at a similar stage of development.