IMF says Myanmar’s economy is losing steam

Imf Says Myanmar’s Economy Losing Steam
Mandalay street market
© Arno Maierbrugger

The International Monetary Fund (IMF) expressed concern about the Myanmar economy which “appears to be losing momentum,” citing the fallout from the Rakhine crisis and weaknesses in the banking sector.

The IMF warning comes as the ruling National League for Democracy party concluded their third year in office. Approved foreign direct investment between October 2017 and September 2018 has fallen to the lowest since 2014. The authorities passed a slew of new laws intended to improve the business environment, but poor implementation has put off investors.

Despite favourable long-term prospects, growth is estimated to “remain below potential” this year due to weakening export demand and subdued private construction activity. The growth trajectory is subject to downside risks related to the Rakhine crisis. External uncertainties include trade tensions, high crude oil prices and spillovers from exposure to China.

The IMF said that failure to address the humanitarian catastrophe in Rakhine or the refugee repatriation process would hurt the country economically.

“A prolonged humanitarian crisis and any withdrawal of trade preferences could reduce concessional donor financing and investment leading to lower growth,” the organisation said. The European Union is considering initiating a withdrawal process of the trade privileges it has offered Myanmar, owing to the human rights violations in northern Rakhine.

The fragility of the banks presents another risk, the IMF added. Macroeconomic spillovers from the ongoing banking sector restructuring process may become more severe if banks delay recapitalisation. There is a need to improve compliance and loss recognition.

Headline inflation was moderate in the fiscal year 2017-18 (October 2017 to September 2018), with four per cent on average, but has been rising from increased fuel prices and a depreciating kyat. The kyat has lost value against the US dollar of 14.5 per cent since April 2018.

The IMF expects economic growth of 6.4 per cent in the fiscal year 2018-19 if government spending picks up. This compares with an annualised 6.2 per cent in the six months to September 2018. It is forecast to pick up in the medium term (6.6 per cent in 2019-20 and 6.7 per cent in 2020-2021), albeit at a slower pace than previously envisaged.

In a first reaction, Sean Turnell, economic adviser of Myanmar’s State Counsellor Aung San Suu Kyi, said the IMF’s concerns about risks regarding Rakhine are valid, but “relate not just to the internal effects of such crises, but also those that might come from counter-productive international responses to them.”

On the issue of banking sector fragility, he emphasised that risks were about legacy structural issues surrounding the banks bequeathed to the current administration, and reform was “well underway.”

“Of course, as in so many areas, it’s going to take time to clear up these legacy problems in banking, and the whole process is not without its challenges,” Turnell told The Myanmar Times.

He added that economic slowdown was “very much a global story” and the IMF’s estimates that Myanmar’s growth will be “well above global norms and as fast as China’s.”

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Mandalay street market © Arno Maierbrugger The International Monetary Fund (IMF) expressed concern about the Myanmar economy which “appears to be losing momentum,” citing the fallout from the Rakhine crisis and weaknesses in the banking sector. The IMF warning comes as the ruling National League for Democracy party concluded their third year in office. Approved foreign direct investment between October 2017 and September 2018 has fallen to the lowest since 2014. The authorities passed a slew of new laws intended to improve the business environment, but poor implementation has put off investors. Despite favourable long-term prospects, growth is estimated to...

Imf Says Myanmar’s Economy Losing Steam
Mandalay street market
© Arno Maierbrugger

The International Monetary Fund (IMF) expressed concern about the Myanmar economy which “appears to be losing momentum,” citing the fallout from the Rakhine crisis and weaknesses in the banking sector.

The IMF warning comes as the ruling National League for Democracy party concluded their third year in office. Approved foreign direct investment between October 2017 and September 2018 has fallen to the lowest since 2014. The authorities passed a slew of new laws intended to improve the business environment, but poor implementation has put off investors.

Despite favourable long-term prospects, growth is estimated to “remain below potential” this year due to weakening export demand and subdued private construction activity. The growth trajectory is subject to downside risks related to the Rakhine crisis. External uncertainties include trade tensions, high crude oil prices and spillovers from exposure to China.

The IMF said that failure to address the humanitarian catastrophe in Rakhine or the refugee repatriation process would hurt the country economically.

“A prolonged humanitarian crisis and any withdrawal of trade preferences could reduce concessional donor financing and investment leading to lower growth,” the organisation said. The European Union is considering initiating a withdrawal process of the trade privileges it has offered Myanmar, owing to the human rights violations in northern Rakhine.

The fragility of the banks presents another risk, the IMF added. Macroeconomic spillovers from the ongoing banking sector restructuring process may become more severe if banks delay recapitalisation. There is a need to improve compliance and loss recognition.

Headline inflation was moderate in the fiscal year 2017-18 (October 2017 to September 2018), with four per cent on average, but has been rising from increased fuel prices and a depreciating kyat. The kyat has lost value against the US dollar of 14.5 per cent since April 2018.

The IMF expects economic growth of 6.4 per cent in the fiscal year 2018-19 if government spending picks up. This compares with an annualised 6.2 per cent in the six months to September 2018. It is forecast to pick up in the medium term (6.6 per cent in 2019-20 and 6.7 per cent in 2020-2021), albeit at a slower pace than previously envisaged.

In a first reaction, Sean Turnell, economic adviser of Myanmar’s State Counsellor Aung San Suu Kyi, said the IMF’s concerns about risks regarding Rakhine are valid, but “relate not just to the internal effects of such crises, but also those that might come from counter-productive international responses to them.”

On the issue of banking sector fragility, he emphasised that risks were about legacy structural issues surrounding the banks bequeathed to the current administration, and reform was “well underway.”

“Of course, as in so many areas, it’s going to take time to clear up these legacy problems in banking, and the whole process is not without its challenges,” Turnell told The Myanmar Times.

He added that economic slowdown was “very much a global story” and the IMF’s estimates that Myanmar’s growth will be “well above global norms and as fast as China’s.”

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