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COUNTRY REPORT – MYANAMAR

AN EXPORT DESTINATION ?

September 2013.

 

 

Introduction

Good economic growth has been maintained over the past years and is expected to rise to 6.7% (GDP) in 2012/13 as compared with an average growth rate of 5% in the previous five years.

In 2013/14 the authorities have expectations that growth will accelerate to more than 8% mainly as a result of rising gas production and investment, construction and services. This should now be supported by a recovery in agricultural production as the sector recovers from the floods in mid-2012. Global commodities prices however are forecasted to decline.

The Current Account

This is expected to widen in to 4.4% in 2012/13 as a result of increased importation of capital goods. International reserves have now risen to USD4.6 billion as at the end of March 2013and this covers 3.75 months imports. Those readers who have attend the Auspacific Institute Export Import and Transaction Course would remember from the Country Risk Module the importance of this ratio.

Inflation

Inflation has increased to 4.7% in 2012/13 but has been moderate. The drivers of inflation in the economy include fuel price increases, food and rent.   There is also a growing build up of wage costs with increases in asset prices. The authorities expect inflation in 2013/14 to be contained at around 5.3%.

Fiscal policy

The authorities are committed to working towards the goal of inclusive, sustainable and equitable development so that the standard of living of the Myanmar people can be improved. A broad based fiscal reform program is planned which will include a broadening of the tax base and administrative support, improved accountability and a more simple structured tax base. As part of this will be the establishment of a large taxpayer office which is expected to further strengthen the tax administration revenue steam.

Exchange rate

The authorities are strongly working towards liberalisation of the foreign exchange regime and concur with IMF recommendations to rapidly move down this path. The target is a flexible exchange rate policy without any specific targeted levels, but at the same time smoothing fluctuations and ensuring that there is an adequate level of international reserves.

Since April 1, 2013 a managed float system has been implemented with the support of the IMF. There is now a system of auctioning foreign exchange while the previous foreign exchange certificate system is being phased out, but gradually, to ensure exchange rate stability is maintained and a goal of exchange rate unification is achieved.

Monetary policy

The authorities have accepted that there is need to move towards increased access to financial services as this would be an important future driver of economic growth.   Reform measures the authorities are committed to, to achieve this, include, liberalization of the interest rate on deposits, an easing of restrictions on eligible collateral, a lifting of the deposit top capital ratio and capital requirements for branch expansion and foreign exchange operations to private banks.

There is also recognition by the authorities that it is important that the Central Bank of Mynamar (CBM) receive operational autonomy so it can carry out its core central bank functions.

Plans are in hand for the CBM to review the existing Financial Institutions of Myanmar Law, 1990 so that there can take place an orderly development of the Myanmar financial sector.

There is a strong commitment by the authorities to develop monetary policy tools which are critical for the development and achievement of program goals. An example of this is the implementation of holding bi-weekly deposit auctions including a new structural benchmark

Financial sector

Rapid modernization and growth is taking place in this sector of the economy. The authorities are in strong agreement that the existence of modern, well regulated and supervised financial sector is critical to financial investment which should reduce monetarization and enhance the effectiveness of the CBM’s monetary policy transmission. Key Measures implemented by the authorities to enhance the sectors part in supporting economic reform include:

             Eligible collateral has been expanded to include key agricultural export goods and this should further enhance access top credit

             there has been a liberalization of deposit rates and an easing of capital requirements for new branches

             there has been the an introduction of ATM’s and credit cards

             a payment union for banks has been established

                Joint-ventures

In the future the CBM will allow foreign bank entry to participate in the banking sector in the form of JOINT-VENTURES.   This is a further liberalization of the financial sector. Policy process is still to be finalized here for admittance as one concern is the ability of domestic banks to competed effectively with foreign entrants

Overall in this sector the financial position of the banking sector is sound with high capitalization levels, adequate liquidity buffers, improved performance in profit earnings and a manageable NPL level

A draft Counter Terrorism Law has been finalized and is in the process of being submitted to Parliament. A new Control of Money Laundering Law is also being drafted.

Conclusion

Significant progress has been made and there is a favourable growth outlook, the authorities in Myanmar are aware of challenges in the future, in particular in the area of institutional capacity building. It is important that although reform processes are pursued, they need to be commensurate with the implementation capacity of the authorities and have in place appropriate preconditions and safeguards. The need for appropriate sequencing of measures is not to be underestimated so that reform process’s move forward smoothly and macroeconomic stability is maintained at all times

References: Statistics and other relevant material have been sourced from the IMF (June Report) and latest World Bank Report

John Brooks

Trade Economist

The Auspacific Institute

www.auspacificinstitute.com