## cr1891

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---

### Banking sector developments — Executive summary and key findings
- Latent banking sector risks are surfacing after a period of rapid credit growth and banks’ adjustment to updated financial regulations.
- Over time banks will need to:
  - enhance credit risk management;
  - reduce over-reliance on collateral values to safeguard lending.
- A banking system action plan has been developed to:
  - enhance banking system resilience;
  - strengthen supervisory and resolution framework.
- Ongoing overhaul of prudential framework and financial sector reforms will strengthen the banking sector and its role in supporting the economy.

### A. Banking structure, recent trends, and risks
- Credit and size metrics:
  - Credit to the private sector started to surge in 2009, peaking at nearly 70 percent per annum.
  - Credit growth remained rapid at 27 percent (y/y) in September 2017.
  - Ratio of loan assets to GDP is relatively low, at around 40 percent.
  - Private sector credit to GDP is currently around 25 percent of GDP (September 2017).
  - Private sector credit recovered to a modest pre-crisis level of just over 10 percent (post-2003 crisis, decade to recover).
- Banking system composition:
  - Four state-owned banks (SOBs).
  - 24 private banks.
  - 13 foreign bank branches (FBBs).
  - Five more private banks are in the process of being licensed by the Central Bank of Myanmar (CBM).
  - Private banks account for more than half of banking system assets.
  - The largest six private banks hold around 80 percent of private bank assets (as of March 2017).
- State-owned banks:
  - SOBs remain systemically important but have a smaller share of banking system assets and deposits than previously.
  - SOBs undertake quasi-fiscal operations through subsidized lending, mainly to the state and the agricultural sector.
  - Subsidized lending and inefficiencies have eroded SOB profitability and led to losses.
  - Authorities have embarked on an SOB restructuring program with World Bank assistance to reduce fiscal risks and improve competitiveness.
- Foreign bank branches (FBBs):
  - Licensed in 2015 and 2016 subject to restrictions.
  - Prohibition on paying interest on kyat deposits limits FBBs’ access to kyat deposit funding and ability to lend in kyat.
  - Foreign banks permitted to lend locally in partnership with a domestic bank; CBM has eased restrictions to allow foreign banks to provide trade finance to exporting firms.
  - Foreign banks are small in asset size but hold a disproportionate share of the banking system’s capital.
- Lending patterns and access:
  - Lending is a relatively small share of total assets; most private bank lending is to corporate borrowers.
  - Domestic banks are largely deposit-funded and lend mainly in domestic currency.
  - Around 95 percent of private sector lending is to business.
  - Households and SMEs have relied heavily on credit from nonbank and informal lenders at significantly higher interest rates.
- Prudential and supervisory concerns:
  - Much credit growth has been in the form of one-year overdrafts secured on real estate and fixed assets and continuously rolled over.
  - Lending must be collateralized by real estate or other immovable assets and have a maximum contractual maturity of one year (unless offset by matching long-term deposits).
  - Lending interest rate cap is 13 percent.
  - Deposit rate floors are 6 percent and 8 percent for call and term deposits, and a cap of 10 percent.
  - Controls have restricted banks’ ability to price risk and may have hindered development of risk management capabilities and capital accumulation.
  - Several banks are part of large conglomerates, raising related party and large exposure concerns.
  - Limited data available for prudential supervision; accounting and auditing practices need improvement.
  - Banking system capitalization is low even under current NPL loss recognition levels; CBM is working with banks to meet 2016 Financial Institutions Law (FIL) requirements.

### B. The evolving regulatory environment — reforms and implementation
- Institutional strengthening:
  - The 2013 Central Bank Law established an autonomous CBM with mandate for price and financial stability and authority over monetary policy and bank licensing, supervision, and regulation.
  - Strengthening of the foreign currency system and monetary policy framework and improved dissemination of financial sector data have been key achievements.
  - Supervisory capacity is improving but remains at a relatively early stage and under-resourced; additional staff recruited in late 2017.
- Financial Institutions Law (FIL) and regulations:
  - Four key regulations to implement the FIL were released on July 7, 2017: capital adequacy, large exposures, asset classification and provisioning, and liquidity requirements.
  - CBM issued a directive on credit risk management (March 2017).
  - CBM issued a directive allowing restructuring of viable overdrafts to term loans of up to 3 years, incorporating regular payments of interest and principal (November 2017).
  - Authorities intend to allow unsecured lending where adequate risk management frameworks are in place, with a proposed interest rate cap of 16 percent.
  - Under new regulations:
    - Minimum capital adequacy ratio requirements are 4 percent for tier 1 capital, and 8 percent for regulatory capital.
    - Large exposures are limited to no more than 20 percent of core bank capital.
    - All overdraft loans must be cleared each year for a period of two consecutive weeks.
- Implementation timing and transition:
  - Liquidity requirement and large exposure limit were effective July 7, 2017.
  - Minimum capital requirement and asset classification and provisioning requirements came into effect following a 6-month transition period.
  - Banks were given three years from July 7, 2017 to phase in their provisioning needs.
  - Banks will submit conversion plans (for large exposures, overdraft transformation) and capital improvement plans where necessary.
  - Key short-term challenge: restructure viable overdrafts into term loans and wind down large exposures in an orderly manner to avoid a credit crunch or excessive property price correction.
  - Recapitalization needs will need reassessment as banks submit conversion plans and recognize losses as loans become overdue.
  - CBM should handle compliance on a bank-by-bank basis, eschewing general forbearance.

### C. Banking System Action Plan (BSAP) — key recommendations
- BSAP developed in collaboration with the World Bank to implement new regulations and transition plans; it feeds into the broader financial system development strategy adopted in 2013.
- Key BSAP recommendations:
  - Issue remaining regulations and key directives as soon as possible, including regulations on related party transactions (including new reporting requirements), external auditors (including requirements to use IFRS), and directives on substantial interest, fit and proper criteria, and Boards of Directors.
  - Strengthen credit risk management in banks via supervisory guidance requiring robust credit policies, processes and controls, underwriting practices with affordability assessments for all loans through cash flow analysis, and restricting new loans with a maturity of greater than one year to those that are fully amortized (principal and interest repayments).
  - Move ahead with restructuring of SOBs, requiring state-owned banks to submit plans for remedial actions with associated timeframes and follow-up action plans.
  - Build supervisory capacity, including on recovery and resolution frameworks, resourcing the CBM to develop contingency plans for bank recovery and resolution, and enabling lender of last resort operations to solvent banks while avoiding public sector bailouts.
  - Increase bank capital; banks with capital shortfalls to be brought into compliance within realistic timeframes or face penalties. Gradual interest rate liberalization will help banks better price credit risks and raise capital through improved profitability. Capital can also be injected through foreign minority equity investments, following amendments to the Companies Act.
  - Carefully liberalize constraints on banks: continue financial sector and interest rate liberalization at a pace commensurate with CBM capacity to regulate and supervise; allow unsecured lending where adequate risk management is in place; permit foreign banks to provide retail export financing services; lift tiered interest rate caps gradually and liberalize foreign banks’ domestic lending activities once domestic banks are stronger.

### Box: The 2003 Banking Crisis — key facts and transmission
- Primary trigger: collapse of ‘informal finance companies’ in 2002, which:
  - Offered high rates of return (in excess of the bank deposit rate ceiling).
  - Engaged in highly speculative investments and were described as “little more... than ponzi schemes” (Turnell 2009).
- Confidence shocks:
  - Rumors including large-scale deposit withdrawals in the wake of new anti-money laundering legislation and a political scandal linked to one large bank weakened financial-system confidence.
- Crisis dynamics:
  - Heavy deposit withdrawals from five large private banks turned into a systemic deposit run.
  - Banks attempted to limit deposit withdrawals and recall loans in February; loan recalls aimed at "20 percent to 50 percent" repayment of outstanding balances, with a central bank-endorsed timetable for repayment (Turnell 2009).
  - The CBM attempted to quell the crisis through public reassurance and liquidity support (February 21), but the crisis continued.
- Macroeconomic and real-economy impacts (anecdotal reports):
  - Lack of access to deposits prevented firms from making payments to employees and suppliers, producing cascading effects.
  - Loan recalls led to asset fire sales.
  - Long-term effects on confidence in banks; recovery in the ratio of private sector credit to GDP took several years.

### Banking sector: adjustment, risks, and policy stance
- Latent banking sector risks are being addressed in the context of an ongoing overhaul of the regulatory and supervisory framework, which will strengthen the banking sector over time.
- New regulations need to be implemented in a manner that supports financial stability and deepening:
  - Realistic time frames for compliance.
  - Avoid general forbearance.
- Further development of supervision capacity is urgently needed.
- Over the medium term, gradual liberalization of banking system controls will be part of a move towards risk-based (as opposed to collateral-based) lending.
- Despite the banking sector’s small size, banking sector fragilities may pose risks to broader macroeconomic stability, as demonstrated by the 2003 crisis.

---

### Poverty dynamics and Sustainable Development Goals (SDGs) — overview and policy priorities
- Myanmar has achieved impressive poverty reduction over the last decade, but disparities across urban-rural areas have widened.
- Causes of poverty are multifaceted, including:
  - Weaker productive and financial asset base.
  - Inadequate access to social services.
- Policy prescription: Implementation of a second wave of reforms focused on financial reforms and inclusion, and raising public spending on infrastructure, education and health through enhanced revenue mobilization and external financing to help achieve the SDGs.

### A. Poverty dynamics — key findings and statistics
- Poverty headcount:
  - Poverty declined by 33 percent between 2004/05 and 2015, from 48.1 percent to 32.1 percent (national poverty line benchmarked to 2015 living conditions).
  - The poverty reduction was strongest in the post-2011 liberalization phase.
- Household expenditures:
  - A 31 percent or 2.8 percent annual rise in household expenditures using the new welfare aggregate.
- Internationally comparable extreme poverty:
  - An estimated 6.5 percent of people in Myanmar were poor in 2015 using an internationally comparable poverty line.

### B. Regional disparities and distributional patterns
- Urban vs rural poverty (headcount rates):
  - Urban poverty: fell from 24.8 percent in 2009/10 to 14.5 percent in 2015.
  - Rural poverty: fell from 48.5 percent in 2009/10 to 38.8 percent in 2015.
- Spatial concentration:
  - 87 percent of the poor live in farms and villages; the majority of the poor and the majority of people in Myanmar are in rural areas.
- Agro-ecological zone poverty (headcount rates):
  - Coastal: 43.9 percent (highest).
  - Hills and Mountains: 40 percent.
  - Delta: 26.2 percent.
  - Dry Zone: 32.1 percent (same as national average).
  - Despite lower poverty rates in Delta and Dry Zone, 65 percent of the poor live in these areas due to high population density.
- Income differences across State/Regions (Kyat per capita):
  - Yangon: 1,680
  - Other regions (values from source): 1,330; 1,284; 1,202; 1,085; 1,049; 956; 930; 895; 678; 629; 617; 596; 588; 409
  - Union average: 1027
- Drivers of regional income differences: concentration of natural resources (mining in Tanintharyi and Magwe), conflict-affected states, and higher incomes in central dry area (Magwe, Sagaing, Mandalay, Bago).

### C. Vulnerabilities and causes of poverty
- Near-poor and vulnerability:
  - Fraction of poor and near-poor declined from 61.9 percent in 2004/05 to 55.6 percent in 2009/10 using the new poverty measure.
  - 46 percent of the population lived under the near-poor line in 2015.
  - The bottom 40 percent of the population continues to be either poor or very vulnerable to falling into poverty.
- Financial vulnerability:
  - A fifth of all households are estimated to be heavily indebted.
  - Nearly one in five households has taken out a loan to cover basic food needs.
- Causes of poverty summarized:
  - Weaker productive and financial asset base.
  - Less integration into the formal economy and fewer formal claims to possessions and entitlements.
  - Less likely to own land, more likely to rent land, and cultivate smaller plots.
  - Disproportionate concentration in agriculture with less activity diversification.

### D. Human capital challenges — education and health
- Education:
  - High dropout rates remain in secondary education despite intergenerational improvements.
  - Historical education attainment:
    - Among those 60+ in 2015, 47 percent reported not having completed any formal education.
    - Share completing primary schooling increased from 45 percent among those aged 50+ to 48 percent for those aged 35-39 (born 1975-1979).
  - Substantial regional diversity in non-attendance among ages 15-24; nearly 25 percentage point gap between highest (Shan State) and lowest (Yangon).
  - Costs—both direct and indirect—are main reasons for school discontinuation.
- Health:
  - Infant and under-five mortality:
    - Out of every 100 children born in Myanmar, 6.2 die before their first birthday and 7.2 before their fifth.
  - Health-financing vulnerability:
    - Health treatments are costly and almost exclusively out-of-pocket.
    - 16 percent of households in the sample survey face catastrophic health care expenditures, accounting for more than 10 percent of total welfare.
    - 4 percent of labor days are lost due to sickness.

### Strategies to achieve the SDGs — key recommendations and financing needs
- Reforms and growth:
  - Sustain the growth takeoff and make growth more inclusive through a second wave of reforms and investments in human and physical capital.
  - A DSGE model calibrated to Myanmar’s macroeconomic trends and distributional household features shows that a combination of reforms could help achieve SDG 1.2 (reduce national poverty to 16 percent by 2030).
- Highest impact measures:
  - Financial reforms (particularly interest rate liberalization over the medium term outlined in chapter 2) would raise savings and investment through prudent credit expansion and lead to faster industrial sector growth and sharper decline in urban poverty.
  - Financial inclusion reforms would increase access to finance in rural areas and raise farm income.
  - Using revenue generated by financial reforms and broadening the tax base to increase investment in infrastructure can further boost growth and reduce poverty and nationwide inequality.
  - Infrastructure that benefits all economic sectors has a larger positive impact on economic activity; investing in rural infrastructure leads to a better distributional outcome for the country as a whole.
  - Combined scenario: a second wave of financial sector reforms plus a revenue-based scaling up of infrastructure particularly in agriculture would allow cumulative poverty reduction to achieve SDG 1.2.
- Nutrition, health, and education targets:
  - SDG 2: Prevalence of undernourishment in Myanmar (2014–2016): 14.2 percent.
  - DHS 2015–16: prevalence of stunting among children under 5 years is 29.2 percent.
  - SDG 3: In 2015 Myanmar’s maternal mortality ratio, under-five mortality rate and neonatal mortality rate were higher than the regional average (CSO 2017). In 2015–16, just over 60% of births were attended by skilled birth attendance.
  - Education spending needs (Box 1 estimates):
    - Education: EDA average additional spending needed = 1.5 percent of GDP; Myanmar estimated additional need = 2.5 percent of GDP.
    - Public health: EDA average additional spending needed = 0.9 percent of GDP; Myanmar estimated additional need = 2.4 percent of GDP.
- Financial inclusion targets (2014 baseline and 2020 targets, Myanmar authorities 2015):
  - Agriculture (farmers): size 12.1 mil; access in 2014 = 43%; target in 2020 = 51%.
  - MSME: size 7.2 mil; access in 2014 = 30%; target in 2020 = 40%.
  - Low income household: size 7.5 mil; access in 2014 = 15%; target in 2020 = 28%.
  - Other: size 13.0 mil; access in 2014 = 27%; target in 2020 = 36%.
  - Total: size 39.8 mil; access in 2014 = 30%; target in 2020 = 40%.
- Financing and implementation:
  - Authorities should aim at mobilizing official concessional financing and accelerating project annual disbursement rates which stand on average at 6 percent.
  - Reorient policies to raise incomes of the lowest decile, with special focus on Coastal and Hills regions and conflict zones.
  - Sharply increase public spending on education, health, and social protection, while improving spending efficiency.
  - Strengthen preparedness and adaptive capacity to climate-related hazards and natural disasters:
    - Natural disasters (2006–2015 average): around 27 persons per 100,000 people killed and missing annually; direct economic loss averaged 1.82 percent of GDP per year over the same period.
- Partnerships:
  - Continue partnerships with development partners (WB, UNDP, UNICEF) and pilot IMF monitoring of SDG-related macro-critical issues (gender equality, inclusive growth, climate change).

---

### Integrating into Global Value Chains (GVCs) — background and Myanmar’s position
- Background:
  - International trade increasingly dominated by global value chains (GVCs); integration can facilitate convergence, diversification of exports, productivity growth, skills upgrading, and inclusive growth through job creation and structural transformation.
- Role of FDI:
  - Empirical evidence and OECD (2013) identify FDI as a key enabler for low-income countries to link into GVCs, fostering growth, technological upgrading, human capital enhancement, and technology diffusion.

### C. Where Myanmar stands in GVCs — growth, trade composition, and FDI
- Growth and reform:
  - Since 2011 Myanmar has grown rapidly at 7.57 percent per year.
  - Trade volumes soared by an average of near 30 percent per year in 2010/11–2013/11, with continued double-digit growth in 2013/14–2014/15.
- Export and import composition:
  - Manufactured products comprised the largest portion of exports in 2016/17, accounting for one third of total exports; the garments industry has developed rapidly and become a significant export sector.
  - On the import side, manufactured goods, including machinery and transport equipment, accounted for the bulk of imports.
- FDI dependence and composition:
  - China has provided US$18.0 billion to Myanmar since 2005, followed by Singapore and Hong Kong SAR.
  - The oil and gas sector has received the most FDI, amounting to US$22.4 billion as of early 2017.
  - FDI were largely directed into oil and gas as well as manufacturing sectors.
  - The new Investment Law and the new Companies Act are expected to boost foreign investment.
- Special Economic Zones (SEZs):
  - Thilawa SEZ: as of late 2016, over 70 companies across 14 countries contracted with total investment of more than US$ 700 million; almost half of investors are from Japan.
  - Dawei SEZ: expected total costs of US$10 billion; initiated in 2008, postponed in 2013 due to financing constraints; expected to be resumed in 2018 with assistance of international development partners.

### D. Cross-country experiences and policy priorities (Cambodia and Vietnam lessons)
- Cambodia and Vietnam experience:
  - Both countries expanded rapidly as buyers and sellers in global trade, with foreign value-added in exports growing substantially since mid-1990s in non-commodity sectors such as electronics, apparel and footwear, and machinery and equipment.
  - Cambodia: garment industry contributes nearly one-tenth of GDP, accounts for a quarter of total FDI stock, generates more than 70 percent of export revenues, and 27 percent of manufacturing employment.
  - Vietnam: FDI at times approached 10 percent of GDP and foreign companies account for close to 70 percent of exports, mostly in electronics manufacturing and apparel.
- Links with China:
  - In Cambodia, fabric and other textile materials accounted for about 60 percent of imports from China.
  - In Vietnam, imports from China are predominantly investment goods (machinery, equipment, and steel) and intermediate inputs (electronic components and fabric).

### E. Myanmar’s further integration into GVCs — constraints and policy implications
- Current openness and concentration:
  - Myanmar’s trade openness ratio, at 37 of GDP as of 2017, is much lower than most other Asian low-income countries.
  - Exports are highly concentrated within a small set of products and trading partners.
- Labor and human capital:
  - Median age is 27 and about 55 percent are under the age of 30.
  - 2014 consensus reported nearly 90 percent of those aged 15 and over could read and write.
  - Despite low expenditure on education, a fairly literate labor force exists; wage surveys (JETRO) show wage competitiveness over Vietnam and Cambodia in manufacturing.
  - Human capital development is a priority: government spending on health and education remains low compared with other low-income countries (IMF 2018); increases in investment and improvements in technical and vocational skills are needed to move upstream in GVCs.
- Infrastructure and business climate:
  - Myanmar lags in infrastructure; ranked low in the overall logistics performance index; urgent needs in transport and electricity.
  - McKinsey (2013) estimated Myanmar would need US$320 billion to build basic infrastructure and that the infrastructure sector would grow from US$10.5 billion in 2010 to US$48.8 billion in 2030.
  - The World Bank’s Doing Business Ranking places Myanmar at 167 out of 189 countries; poor performance in enforcing contracts, getting credit, and trading across borders.
  - Weak domestic supply chains, poor access to electricity, transport services, affordable financing, and corruption are major impediments.
- Policy implications:
  - Prioritize infrastructure development, particularly transport and electricity.
  - Improve the business environment: streamline regulations, strengthen legal and institutional frameworks, and enhance transparency and stability to attract FDI.
  - Invest in education, health, and technical and vocational training to enable movement up the value chain and participation in the digital economy.
  - Improve rural access to finance (including trade finance) and provide support to local economic activities to leverage trade for inclusive growth.

### F. Regional integration, connectivity, and strategic projects
- Strategic geographic position:
  - Myanmar’s proximity to China, India, and ASEAN offers potential to link into “Factory Asia” and benefit from regional production networks.
- Belt and Road Initiative (BRI) projects linked to Myanmar:
  - US$2.45 billion oil and gas pipeline (first phase completed and went into operation in April 2017), linking PetroChina’s Kunming refinery with the Bay of Bengal.
  - US$7.2 billion deep-sea port of Kyauk Pyu (under negotiation).
  - US$2.3 billion Industrial zone (development began in early 2016).
- India–Myanmar connectivity:
  - India is the fifth largest trading partner and the tenth largest investor of Myanmar.
  - The US$ 120 Million Sittwe port was financed by India; feasibility studies to establish the Sittwe SEZ are under preparation.
  - Two countries seek to enhance road, sea and air connectivity, including direct shipping lines, direct air connectivity, and new border trade points.
- Regional integration progress and trade shares:
  - In 2014, the CLMV accounted for 10.4 percent of total intra-ASEAN trade, an increase from 7.6 percent in 2007.
  - For extra-ASEAN trade, the CLMV accounted for 15.2 percent in 2014, up from just 8.0 percent in 2007.
  - Bilateral trade grew to US$ 2.18 billion in 2016/17.
  - Approved investment from India reached US$ 740.64 million as of mid-2017, mostly in the oil and gas sector.
- Thailand–Myanmar links and SEZs:
  - Thailand has been playing an increasingly active role in promoting investment integration with the CLMV, with more than 10 percent of outward FDI destined to these countries.
  - Myanmar is building an SEZ surrounding the Dawei port, which is expected to generate up to 65,000 new jobs on completion.
- Conclusions and fiscal caution:
  - Integration into global value chains can support diversification and employment and act as engines of inclusiveness and poverty reduction.
  - Key policy and structural reforms will be required to share benefits from trade among a broader populace.
  - Fiscal risks need to be closely monitored; infrastructure projects should be well designed and managed with fiscal risks fully recognized.

*International Monetary Fund — content unit from cr1891.*

### References ____________________________________________________________________________ 11

### References ____________________________________________________________________________ 11

### BOX: The 2003 Banking Crisis
- Box title appears in the contents as "The 2003 Banking Crisis" (page 10).

### POVERTY DYNAMICS AND SUSTAINABLE DEVELOPMENT GOALS (SDGs)
- Sections listed in contents:
  - A. Poverty Dynamics
  - B. Regional Disparities
  - C. Vulnerabilities and Causes of Poverty
  - D. Strategies to Achieve the SDGs
- Boxes mentioned:
  - Box 1. Estimating Spending Needs to Achieve the Education and Health SDGs (page 20)
  - Box 2. Financial Inclusion in Myanmar (page 21)

### INTEGRATING INTO THE GLOBAL VALUE CHAINS
- Sections listed in contents:
  - A. Background
  - B. GVC Participation and the Role of FDI
  - C. Where Myanmar Stands in Global Value Chains
  - D. Experiences from Cambodia and Vietnam
  - E. Myanmar’s Further Integration into GVCs Based on Cross-Country Lessons
  - F. Regional Integration and Myanmar’s GVC Participation
  - G. Conclusions

### BANKING SECTOR DEVELOPMENTS — Executive summary and key findings
- Latent banking sector risks are surfacing after a period of rapid credit growth and banks’ adjustment to updated financial regulations.
- Over time banks will need to:
  - enhance credit risk management;
  - reduce over-reliance on collateral values to safeguard lending.
- A banking system action plan has been developed to:
  - enhance banking system resilience;
  - strengthen supervisory and resolution framework.
- Ongoing overhaul of prudential framework and financial sector reforms will strengthen the banking sector and its role in supporting the economy.

### A. Background — Structure, recent trends, and risks
- Credit and size metrics:
  - Credit to the private sector started to surge in 2009, peaking at nearly 70 percent per annum.
  - Credit growth remained rapid at 27 percent (y/y) in September 2017.
  - Ratio of loan assets to GDP is relatively low, at around 40 percent.
  - Private sector credit to GDP is currently around 25 percent of GDP (September 2017).
  - Private sector credit recovered to a modest pre-crisis level of just over 10 percent (post-2003 crisis, decade to recover).
- Banking system composition:
  - Four state-owned banks (SOBs).
  - 24 private banks.
  - 13 foreign bank branches (FBBs).
  - Five more private banks are in the process of being licensed by the Central Bank of Myanmar (CBM).
  - Private banks account for more than half of banking system assets.
  - The largest six private banks hold around 80 percent of private bank assets (as of March 2017).
- State-owned banks:
  - SOBs remain systemically important but have a smaller share of banking system assets and deposits than previously.
  - SOBs undertake quasi-fiscal operations through subsidized lending, mainly to the state and the agricultural sector.
  - Subsidized lending and inefficiencies have eroded SOB profitability and led to losses.
  - Authorities have embarked on an SOB restructuring program with World Bank assistance to reduce fiscal risks and improve competitiveness.
- Foreign bank branches (FBBs):
  - Licensed in 2015 and 2016 subject to restrictions.
  - Prohibition on paying interest on kyat deposits limits FBBs’ access to kyat deposit funding and ability to lend in kyat.
  - Foreign banks permitted to lend locally in partnership with a domestic bank; CBM has eased restrictions to allow foreign banks to provide trade finance to exporting firms.
  - Foreign banks are small in asset size but hold a disproportionate share of the banking system’s capital.
- Lending patterns and access:
  - Lending is a relatively small share of total assets; most private bank lending is to corporate borrowers.
  - Domestic banks are largely deposit-funded and lend mainly in domestic currency.
  - Around 95 percent of private sector lending is to business.
  - Households and SMEs have relied heavily on credit from nonbank and informal lenders at significantly higher interest rates.
- Prudential and supervisory concerns:
  - Much credit growth has been in the form of one-year overdrafts secured on real estate and fixed assets and continuously rolled over.
  - Lending must be collateralized by real estate or other immovable assets and have a maximum contractual maturity of one year (unless offset by matching long-term deposits).
  - Lending interest rate cap is 13 percent.
  - Deposit rate floors are 6 percent and 8 percent for call and term deposits, and a cap of 10 percent.
  - Controls have restricted banks’ ability to price risk and may have hindered development of risk management capabilities and capital accumulation.
  - Several banks are part of large conglomerates, raising related party and large exposure concerns.
  - Limited data available for prudential supervision; accounting and auditing practices need improvement.
  - Banking system capitalization is low even under current NPL loss recognition levels; CBM is working with banks to meet 2016 Financial Institutions Law (FIL) requirements.

### C. Banking System Action Plan (BSAP) — Key recommendations
- BSAP developed in collaboration with the World Bank to implement new regulations and transition plans; it feeds into the broader financial system development strategy adopted in 2013.
- Key BSAP recommendations:
  - Issue remaining regulations and key directives as soon as possible, including regulations on related party transactions (including new reporting requirements), external auditors (including requirements to use IFRS), and directives on substantial interest, fit and proper criteria, and Boards of Directors.
  - Strengthen credit risk management in banks via supervisory guidance requiring robust credit policies, processes and controls, underwriting practices with affordability assessments for all loans through cash flow analysis, and restricting new loans with a maturity of greater than one year to those that are fully amortized (principal and interest repayments).
  - Move ahead with restructuring of SOBs, requiring state-owned banks to submit plans for remedial actions with associated timeframes and follow-up action plans.
  - Build supervisory capacity, including on recovery and resolution frameworks, resourcing the CBM to develop contingency plans for bank recovery and resolution, and enabling lender of last resort operations to solvent banks while avoiding public sector bailouts.
  - Increase bank capital; banks with capital shortfalls to be brought into compliance within realistic timeframes or face penalties. Gradual interest rate liberalization will help banks better price credit risks and raise capital through improved profitability. Capital can also be injected through foreign minority equity investments, following amendments to the Companies Act.
  - Carefully liberalize constraints on banks: continue financial sector and interest rate liberalization at a pace commensurate with CBM capacity to regulate and supervise; allow unsecured lending where adequate risk management is in place; permit foreign banks to provide retail export financing services; lift tiered interest rate caps gradually and liberalize foreign banks’ domestic lending activities once domestic banks are stronger.

*February 22, 2018 — MYANMAR, INTERNATIONAL MONETARY FUND (cr1891 - References)*

### 13.      The banking sector is in a period of adjustment, following strong credit growth and

### 13.      The banking sector is in a period of adjustment, following strong credit growth and

### Banking sector: adjustment, risks, and regulatory overhaul
- Latent banking sector risks are being addressed in the context of an ongoing overhaul of the regulatory and supervisory framework, which will strengthen the banking sector over time.
- New regulations need to be implemented in a manner that supports financial stability and deepening:
  - Realistic time frames for compliance.
  - Avoid general forbearance.
- Further development of supervision capacity is urgently needed.
- Over the medium term, gradual liberalization of banking system controls will be part of a move towards risk-based (as opposed to collateral-based) lending.
- Despite the banking sector’s small size, banking sector fragilities may pose risks to broader macroeconomic stability, as demonstrated by the 2003 crisis.

### Box 1. The 2003 Banking Crisis — key facts and transmission
- Primary trigger: collapse of ‘informal finance companies’ in 2002, which:
  - Offered high rates of return (in excess of the bank deposit rate ceiling).
  - Engaged in highly speculative investments and were described as “little more... than ponzi schemes” (Turnell 2009).
- Confidence shocks:
  - Rumors including large-scale deposit withdrawals in the wake of new anti-money laundering legislation and a political scandal linked to one large bank weakened financial-system confidence.
- Crisis dynamics:
  - Heavy deposit withdrawals from five large private banks turned into a systemic deposit run.
  - Banks attempted to limit deposit withdrawals and recall loans in February; loan recalls aimed at "20 percent to 50 percent" repayment of outstanding balances, with a central bank-endorsed timetable for repayment (Turnell 2009).
  - The CBM attempted to quell the crisis through public reassurance and liquidity support (February 21), but the crisis continued.
- Macroeconomic and real-economy impacts (anecdotal reports):
  - Lack of access to deposits prevented firms from making payments to employees and suppliers, producing cascading effects.
  - Loan recalls led to asset fire sales.
  - Long-term effects on confidence in banks; recovery in the ratio of private sector credit to GDP took several years.

### Poverty dynamics and Sustainable Development Goals (SDGs) — overview
- Myanmar has achieved impressive poverty reduction over the last decade, but disparities across urban-rural areas have widened.
- Causes of poverty are multifaceted, including:
  - Weaker productive and financial asset base.
  - Inadequate access to social services.
- Policy prescription: Implementation of a second wave of reforms focused on financial reforms and inclusion, and raising public spending on infrastructure, education and health through enhanced revenue mobilization and external financing to help achieve the SDGs.

### A. Poverty Dynamics — key findings and statistics
- Poverty headcount:
  - Poverty declined by 33 percent between 2004/05 and 2015, from 48.1 percent to 32.1 percent (national poverty line benchmarked to 2015 living conditions).
  - The poverty reduction was strongest in the post-2011 liberalization phase.
- Household expenditures:
  - A 31 percent or 2.8 percent annual rise in household expenditures using the new welfare aggregate.
- Internationally comparable extreme poverty:
  - An estimated 6.5 percent of people in Myanmar were poor in 2015 using an internationally comparable poverty line.

### B. Regional disparities and distributional patterns
- Urban vs rural poverty (headcount rates):
  - Urban poverty: fell from 24.8 percent in 2009/10 to 14.5 percent in 2015.
  - Rural poverty: fell from 48.5 percent in 2009/10 to 38.8 percent in 2015.
- Spatial concentration:
  - 87 percent of the poor live in farms and villages; the majority of the poor and the majority of people in Myanmar are in rural areas.
- Agro-ecological zone poverty:
  - Headcount rates by zone:
    - Coastal: 43.9 percent (highest).
    - Hills and Mountains: 40 percent.
    - Delta: 26.2 percent.
    - Dry Zone: 32.1 percent (same as national average).
  - Despite lower poverty rates in Delta and Dry Zone, 65 percent of the poor live in these areas due to high population density.
- Income differences across State/Regions (Kyat per capita):
  - Yangon: 1,680
  - [Other region values shown in source]: 1,330; 1,284; 1,202; 1,085; 1,049; 956; 930; 895; 678; 629; 617; 596; 588; 409
  - Union average: 1027
- Drivers of regional income differences: concentration of natural resources (mining in Tanintharyi and Magwe), conflict-affected states, and higher incomes in central dry area (Magwe, Sagaing, Mandalay, Bago).

### C. Vulnerabilities and causes of poverty
- Near-poor and vulnerability:
  - Fraction of poor and near-poor declined from 61.9 percent in 2004/05 to 55.6 percent in 2009/10 using the new poverty measure.
  - 46 percent of the population lived under the near-poor line in 2015.
  - The bottom 40 percent of the population continues to be either poor or very vulnerable to falling into poverty.
- Financial vulnerability:
  - A fifth of all households are estimated to be heavily indebted.
  - Nearly one in five households has taken out a loan to cover basic food needs.
- Causes of poverty summarized:
  - Weaker productive and financial asset base.
  - Less integration into the formal economy and fewer formal claims to possessions and entitlements.
  - Less likely to own land, more likely to rent land, and cultivate smaller plots.
  - Disproportionate concentration in agriculture with less activity diversification.

### D. Human capital challenges — education and health
- Education:
  - High dropout rates remain in secondary education despite intergenerational improvements.
  - Historical education attainment:
    - Among those 60+ in 2015, 47 percent reported not having completed any formal education.
    - Share completing primary schooling increased from 45 percent among those aged 50+ to 48 percent for those aged 35-39 (born 1975-1979).
  - Substantial regional diversity in non-attendance among ages 15-24; nearly 25 percentage point gap between highest (Shan State) and lowest (Yangon).
  - Costs—both direct and indirect—are main reasons for school discontinuation.
- Health:
  - Infant and under-five mortality:
    - Out of every 100 children born in Myanmar, 6.2 die before their first birthday and 7.2 before their fifth.
  - Health-financing vulnerability:
    - Health treatments are costly and almost exclusively out-of-pocket.
    - 16 percent of households in the sample survey face catastrophic health care expenditures, accounting for more than 10 percent of total welfare.
    - 4 percent of labor days are lost due to sickness.

### Strategies to achieve the SDGs — policy recommendations
- Sustain the growth takeoff and make growth more inclusive through:
  - A second wave of reforms and investments in human and physical capital.
  - Scaling up investments in infrastructure and human capital to boost inclusive growth and job creation and address regional disparities.
- Governance and planning:
  - Increased private sector consultation.
  - Development of a structured and strategic medium-term development plan with a fiscal framework to provide strategic direction and facilitate reform implementation.
- Monitoring:
  - Progress on SDGs is being supported by a monitoring framework, including the “Baseline Report: Measuring Myanmar’s Starting Point for the Sustainable Development Goals.”

*International Monetary Fund — content unit from cr1891 (chapter/section).*

### 16.      A deeper focus on the extreme poor would leave Myanmar well placed to make a

### 16.      A deeper focus on the extreme poor would leave Myanmar well placed to make a substantial dent in the SDG related to poverty but would need to address regional disparities to ensure no one is left behind

### Poverty and SDG 1: status and targets
- SDG 1.1: eradicate extreme poverty by 2030 using the international poverty line updated in 2015 to $1.90 a day in 2011 prices.
- In 2015, 6.5 percent of people in Myanmar were below the extreme poverty rate.
- National poverty rate in 2015: 32.1 percent.
- SDG 1.2 implies reducing national poverty from 32.1 percent in 2015 to 16 percent by 2030, i.e., about a 16-percentage-point reduction.
- Bottom decile: growth appears to have been more limited than for average households and those around the poverty line; in rural areas there is evidence of no clear improvements over time.
- Most of the extreme poor live in the Coastal and Hills regions, including conflict zones; policies must focus on these areas to raise incomes of the lowest decile.

### Pathways to halve poverty by 2030: reforms and model results
- A second wave of catalytic reforms, particularly narrowing the rural-urban divide, would be required to achieve SDG 1.2.
- A DSGE model calibrated to Myanmar’s macroeconomic trends and distributional household features shows that a combination of reforms could help achieve SDG 1.2.
- Historical precedent: several fast growing Asian emerging markets (e.g., China, Indonesia and Vietnam) achieved large poverty reductions in the second decade of liberalization through a new wave of reforms (text chart cited).

### Financial reforms, inclusion, and infrastructure: highest impact measures
- Financial reforms (particularly interest rate liberalization over the medium term outlined in chapter 2) would:
  - raise savings and investment through prudent credit expansion;
  - lead to a faster industrial sector and a sharper decline in poverty in urban areas.
- Financial inclusion reforms would:
  - increase access to finance in rural areas;
  - raise farm income.
- Using revenue generated by financial reforms and broadening the tax base to increase investment in infrastructure can further boost growth and reduce poverty and nationwide inequality.
- Investment effects:
  - Infrastructure that benefits all economic sectors has a larger positive impact on economic activity.
  - Investing in rural infrastructure leads to a better distributional outcome for the country as a whole.
- Combined scenario: a second wave of financial sector reforms plus a revenue-based scaling up of infrastructure particularly in agriculture would allow cumulative poverty reduction to achieve SDG 1.2.

### Nutrition and health (SDG 2 and SDG 3)
- SDG 2: end hunger and achieve food security by 2030; undernourishment and childhood malnutrition are key concerns.
  - Prevalence of undernourishment in Myanmar (2014–2016): 14.2 percent (above the global average over that period).
  - DHS 2015–16: prevalence of stunting among children under 5 years is 29.2 percent.
- SDG 3 targets: reduce maternal mortality, neonatal and under-five deaths.
  - In 2015 Myanmar’s maternal mortality ratio, under-five mortality rate and neonatal mortality rate were higher than the regional average (CSO 2017).
  - In 2015–16, just over 60% of births were attended by skilled birth attendance.

### Education and lifelong learning (SDG 4) and social spending needs
- Literacy:
  - Labor Force Survey (2015): almost 89.6 percent of the population was literate (men 92.3 percent; women 87.3 percent).
- Participation in education and training:
  - Youth (15–24 years) participation in formal, non-formal education and training in 2015: 22.4 percent.
  - Adult participation: 0.5 percent.
- Secondary schooling: enrollment and completion have increased but dropout ratio remains high and quality/access uneven across regions.
- To achieve SDGs in social sectors, Myanmar will need to sharply increase public spending on education, health and social protection.
- Box 1 estimates spending needs to reach best-performing country outcomes:
  - Education: EDA average additional spending needed = 1.5 percent of GDP; Myanmar estimated additional need = 2.5 percent of GDP.
  - Public health: EDA average additional spending needed = 0.9 percent of GDP; Myanmar estimated additional need = 2.4 percent of GDP.
- Financing: authorities have progressed on strategies for financing development outcomes; Myanmar should aim at mobilizing official concessional financing and accelerating project annual disbursement rates which stand on average at 6 percent.

### Financial inclusion: current gaps, targets, and policy levers (Box 2)
- Banking and financial depth:
  - Private credit and deposits have grown but remain low compared with frontier and developing Asia (FD Asia) and far below emerging Asia (EM Asia).
- Account ownership and usage (FinScope 2013):
  - 30 percent of adults use regulated financial services.
  - 6 percent of adults use more than one service.
- Uneven access: bank branch networks disproportionately benefit urban areas such as Yangon.
- Segment access (2014 baseline and 2020 targets, Myanmar authorities 2015):
  - Agriculture (farmers): size 12.1 mil; access in 2014 = 43%; target in 2020 = 51%.
  - MSME (Micro, Small and Medium Enterprise): size 7.2 mil; access in 2014 = 30%; target in 2020 = 40%.
  - Low income household: size 7.5 mil; access in 2014 = 15%; target in 2020 = 28%.
  - Other: size 13.0 mil; access in 2014 = 27%; target in 2020 = 36%.
  - Total: size 39.8 mil; access in 2014 = 30%; target in 2020 = 40%.
- Constraints to access:
  - narrow collateral base (mainly land and buildings);
  - inadequate credit guarantee system;
  - limited availability of financial products (e.g., fractional term loans, leasing and factoring finance);
  - underdeveloped risk management skills (e.g., premature credit-scoring system).
- Mobile banking as a priority:
  - CBM regulatory frameworks in 2013 (bank-based model) and 2016 Regulation on Mobile Financial Services (non-bank-based model) permit MNOs and providers to expand payments and kyat-denominated services with interoperability, agent networks, KYC/CDD, and customer protection.
  - Rapid smartphone penetration and falling telecom costs create potential to “leapfrog” in financial inclusion, though physical infrastructure and a solid banking system remain important.

### Cross-cutting policy recommendations and priorities
- Reorient policies to raise incomes of the lowest decile, with special focus on Coastal and Hills regions and conflict zones.
- Implement a second wave of catalytic reforms emphasizing:
  - financial reforms (interest rate liberalization and broader financial sector reforms);
  - financial inclusion policies that expand credit access for agriculture and MSMEs;
  - revenue mobilization and broadening the tax base to finance infrastructure investment.
- Prioritize infrastructure investment that benefits agriculture and rural areas to improve distributional outcomes and reduce national inequality.
- Sharply increase public spending on education, health, and social protection, while improving spending efficiency.
- Mobilize official concessional financing and accelerate project disbursement rates (current average annual disbursement rate = 6 percent).
- Strengthen preparedness and adaptive capacity to climate-related hazards and natural disasters to protect development gains:
  - Natural disasters (2006–2015 average): around 27 persons per 100,000 people killed and missing annually; direct economic loss averaged 1.82 percent of GDP per year over the same period.
- Continue partnerships with development partners (WB, UNDP, UNICEF) and pilot IMF monitoring of SDG-related macro-critical issues (gender equality, inclusive growth, climate change).

*Source: IMF staff. (Content unit: cr1891 - Chapter/section 16.)*

### Part 02 Poverty Profile.

### Part 02 Poverty Profile.

### A. Background
- International trade increasingly dominated by global value chains (GVCs); production broken into components allowing countries to specialize in stages where they have comparative advantages.
- Integration into GVCs can facilitate convergence, diversification of exports, productivity growth, skills upgrading, and inclusive growth through job creation and structural transformation.
- The paper is organized into sections on the role of GVC participation and FDI (Section B), Myanmar’s position in GVCs (Section C), experiences from Cambodia and Vietnam (Section D), policies to further integrate Myanmar into GVCs (Section E), regional integration (Section F), and policy implications.

### B. GVC Participation and the Role of FDI
- GVC participation typically begins with labor-intensive, low-value-added activities and can lead to specialization in higher value-added tasks over time, aided by investment, knowledge, and technology.
- Empirical evidence and OECD (2013) identify FDI as a key enabler for low-income countries to link into GVCs, fostering growth, technological upgrading, human capital enhancement, and technology diffusion.

### C. Where Myanmar Stands in Global Value Chains
- Growth and reform
  - Since 2011 Myanmar has grown rapidly at 7.57 percent per year.
  - Trade volumes soared by an average of near 30 percent per year in 2010/11–2013/11, with continued double-digit growth in 2013/14–2014/15.
- Export and import composition
  - Manufactured products comprised the largest portion of exports in 2016/17, accounting for one third of total exports; the garments industry has developed rapidly and become a significant export sector.
  - On the import side, manufactured goods, including machinery and transport equipment, accounted for the bulk of imports.
- FDI dependence and composition
  - China has provided US$18.0 billion to Myanmar since 2005, followed by Singapore and Hong Kong SAR.
  - The oil and gas sector has received the most FDI, amounting to US$22.4 billion as of early 2017.
  - FDI were largely directed into oil and gas as well as manufacturing sectors.
  - The new Investment Law and the new Companies Act are expected to boost foreign investment.
- Special Economic Zones (SEZs)
  - Thilawa SEZ: as of late 2016, over 70 companies across 14 countries contracted with total investment of more than US$ 700 million; almost half of investors are from Japan.
  - Dawei SEZ: expected total costs of US$10 billion; initiated in 2008, postponed in 2013 due to financing constraints; expected to be resumed in 2018 with assistance of international development partners.

### D. Experiences from Cambodia and Vietnam
- Cambodia and Vietnam participation
  - Both countries expanded rapidly as buyers and sellers in global trade, with foreign value-added in exports growing substantially since mid-1990s in non-commodity sectors such as electronics, apparel and footwear, and machinery and equipment.
- Links with China
  - In Cambodia, fabric and other textile materials accounted for about 60 percent of imports from China.
  - In Vietnam, imports from China are predominantly investment goods (machinery, equipment, and steel) and intermediate inputs (electronic components and fabric).
- Role of FDI
  - Cambodia: garment industry contributes nearly one-tenth of GDP, accounts for a quarter of total FDI stock, generates more than 70 percent of export revenues, and 27 percent of manufacturing employment.
  - Vietnam: FDI at times approached 10 percent of GDP and foreign companies account for close to 70 percent of exports, mostly in electronics manufacturing and apparel.

### E. Myanmar’s Further Integration into GVCs — Cross-Country Lessons and Policy Priorities
- Current openness and concentration
  - Myanmar’s trade openness ratio, at 37 of GDP as of 2017, is much lower than most other Asian low-income countries.
  - Exports are highly concentrated within a small set of products and trading partners.
- Labor and human capital
  - Median age is 27 and about 55 percent are under the age of 30.
  - 2014 consensus reported nearly 90 percent of those aged 15 and over could read and write.
  - Despite low expenditure on education, a fairly literate labor force exists; wage surveys (JETRO) show wage competitiveness over Vietnam and Cambodia in manufacturing.
  - Human capital development is a priority: government spending on health and education remains low compared with other low-income countries (IMF 2018); increases in investment and improvements in technical and vocational skills are needed to move upstream in GVCs.
- Infrastructure and business climate
  - Myanmar lags in infrastructure; ranked low in the overall logistics performance index; urgent needs in transport and electricity.
  - McKinsey (2013) estimated Myanmar would need US$320 billion to build basic infrastructure and that the infrastructure sector would grow from US$10.5 billion in 2010 to US$48.8 billion in 2030.
  - The World Bank’s Doing Business Ranking places Myanmar at 167 out of 189 countries; poor performance in enforcing contracts, getting credit, and trading across borders; weak domestic supply chains, poor access to electricity, transport services, affordable financing, and corruption are major impediments.
- Policy implications (implicit from cross-country lessons)
  - Prioritize infrastructure development, particularly transport and electricity.
  - Improve the business environment: streamline regulations, strengthen legal and institutional frameworks, and enhance transparency and stability to attract FDI.
  - Invest in education, health, and technical and vocational training to enable movement up the value chain and participation in the digital economy.

### F. Regional Integration and Myanmar’s GVC Participation
- Strategic geographic position
  - Myanmar’s proximity to China, India, and ASEAN offers potential to link into “Factory Asia” and benefit from regional production networks.
- Belt and Road Initiative (BRI)
  - China launched the BRI in 2013; nearly 70 countries engaged; cumulative investment is expected to reach $1 trillion within a decade.
  - The BRI focuses on infrastructure development and trade facilitation, financial connectivity and integration, policy coordination, joint research, and people-to-people exchange.
  - Myanmar projects linked to the BRI include:
    - US$2.45 billion oil and gas pipeline (first phase completed and went into operation in April 2017), linking PetroChina’s Kunming refinery with the Bay of Bengal.
    - US$7.2 billion deep-sea port of Kyauk Pyu (under negotiation).
    - US$2.3 billion Industrial zone (development began in early 2016).
- India–Myanmar connectivity
  - India is the fifth largest trading partner and the tenth largest investor of Myanmar.
  - The US$ 120 Million Sittwe port was financed by India; feasibility studies to establish the Sittwe SEZ are under preparation.
  - Two countries seek to enhance road, sea and air connectivity, including direct shipping lines, direct air connectivity, and new border trade points.

*Prepared by Yiqun Wu. Source: Part 02 Poverty Profile.*

### 22.      Regional integration between the CMLV and other ASEAN countries has proceeded at

### cr1891 - 22.      Regional integration between the CMLV and other ASEAN countries has proceeded at

### Regional integration progress and trade shares
- The ASEAN Economic Community (AEC) has facilitated integration among ASEAN countries.
- A recent ASEAN 2025 blueprint further promoted a dynamic integration process in the next decade from various perspectives, including trade, investment, and migration.
- The CLMV has played an increasingly significant role in intra-regional trade and trade outside the region.
- Key statistics:
  - In 2014, the CLMV accounted for 10.4 percent of total intra-ASEAN trade, an increase from 7.6 percent in 2007.
  - For extra-ASEAN trade, the CLMV accounted for 15.2 percent in 2014, up from just 8.0 percent in 2007.
- Myanmar’s efforts to implement its commitments under the AEC initiative will greatly facilitate its integration into regional production networks and global supply chains.

### Economic links between Thailand and Myanmar; investment and connectivity
- Economic links between Thailand and Myanmar have been stepped up.
- Thailand’s exports and imports market share in CLMV countries increased rapidly.
- Thailand has been playing an increasingly active role in promoting investment integration with the CLMV, with more than 10 percent of outward FDI destined to these countries.
- Thailand is developing its Eastern Economic Corridor (EEC) into a leading regional economic zone. A major focus of the EEC is to improve existing connectivity, including creating sea routes from Thailand’s eastern seaboard to Myanmar’s Dawei deep-sea port project.
- Myanmar is building an SEZ surrounding the Dawei port, which is expected to generate up to 65,000 new jobs on completion.
- Additional figures and notes from the source:
  - Bilateral trade grew to US$ 2.18 billion in 2016/17.
  - Approved investment from India reached US$ 740.64 million as of mid-2017, mostly in the oil and gas sector.
  - Thailand Outward FDI (In percent of total) shown by country series for 2012–2016: Cambodia, Lao PDR, Myanmar, Vietnam (chart referenced in source).

### Conclusions: integration into global value chains, inclusiveness, and fiscal risk
- Myanmar needs to integrate itself further in the global value chains.
  - With the new government’s export-promoting strategy and ASEAN countries’ regional integration initiatives, Myanmar’s participation in GVCs could support diversification and employment.
- Integration into global value chains can be engines of inclusiveness and poverty reduction.
  - Diversification into manufacturing, market-oriented agriculture and trade in services would help deduce over-reliance on natural-resource industries that often offer few employment but provoke social tensions.
  - Key policy and structural reforms will be required to share benefits from trade among a broader populace.
  - Improving rural access to finance (including trade finance) and providing support to local economic activities would help leveraging trade to underpin inclusive growth and poverty reduction.
  - Improvement in infrastructure can amplify the positive impact on inclusive growth (World Bank 2016; IMF, 2017b).
- Fiscal risks need to be closely monitored.
  - To capitalize on the opportunities from further regional integration and connectivity, infrastructure projects should be well designed and managed with fiscal risks fully recognized.

*International Monetary Fund — excerpt from chapter titled “Regional integration between the CMLV and other ASEAN countries”*

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_Source: https://www.imf.org/-/media/files/publications/cr/2018/cr1891.pdf_