## 1mmrea2019002 ## Source details **Canonical URL:** [1mmrea2019002](https://www.imf.org/-/media/files/publications/cr/2019/1mmrea2019002.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2019/1mmrea2019002.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2019/1mmrea2019002.pdf.json) --- ### Context - Economic momentum weakening despite favorable long-term prospects driven by demographic dividend, competitive labor force, and strategic location. - Humanitarian crisis in Rakhine state: over 700,000 refugees have fled to Bangladesh since August 2017; depressing foreign investor sentiment and donor financing. - Policy and institutional developments: - Myanmar Sustainable Development Plan (MSDP) launched in August 2018. - Second wave of reforms: easing FDI and interest rate restrictions, clarifying exchange rate regime and investment promotion framework. - National Economic Coordination Committee elevated and headed by State Counsellor Daw Aung San Suu Kyi. ### Recent developments — macro, external, and financial - Growth and demand: - Real GDP growth: about 6.8 percent in 2017/18 (from 5.9 percent in 2016/17); slowed to about 6.2 percent in 2018 (April–September 2018). - PMI: hit all-time high in March then fell to contractionary levels between April and October before recent recovery. - Tourist receipts and consumer goods imports decelerated; retail trade depressed; capital goods imports moderated. - Inflation and exchange rate: - Headline inflation averaged 4.0 percent in 2017/18; spiked to 8.3 percent y/y in November 2018 as fuel prices rose and kyat depreciated (14.5 percent since April 2018). - Real exchange rate depreciated by 5 percent since April 2018. - Fiscal and external: - Fiscal deficit: about 2.7 percent of GDP in 2017/18 (2.5 percent of GDP in 2016/17). - CBM financing of the deficit reduced to 3.5 percent of the previous year’s reserve money and below the targeted 30 percent share of domestic financing. - Current account deficit: 4.7 percent of GDP in 2017/18. - FDI inflows: 5.4 percent of GDP in 2017/18. - International reserves: around three months of imports (staff assessment of adequate reserves: five to six months of prospective imports). - Banking sector and macrofinancial spillovers: - Credit growth: fell from 34 percent in 2016/17 to 20 percent by September 2018. - State-owned banks’ share of total bank lending: 11 percent. - Foreign bank branches expanded FX lending to exporters; private-sector bank credit would be closer to single-digit levels excluding foreign bank activities. - Budget execution: - Preliminary data to September 2018 show small accumulation of government deposits at the CBM due to unusually low budget execution during the six-month transition budget. ### Outlook and risks - Near-term outlook: - Growth expected to remain below potential (estimated at about 7 percent to 8 percent). - Real GDP growth projected to accelerate slightly from 6.2 percent in 2018 to 6.4 in 2018/19, predicated on fiscal stimulus as government spending picks up. - Inflation expected to moderate in 2018/19 as oil prices and the exchange rate stabilize and decline supported by phasing out of monetary financing. - Credit growth expected to moderate further to low single digits. - Medium-term baseline (average FY2018–FY2023): - Real GDP growth: 6.7 percent. - CPI (period average): 6.5 percent. - Primary fiscal balance: -1.9 percent of GDP. - Net lending/borrowing: -3.6 percent of GDP. - Current account balance: -4.8 percent of GDP. - Import coverage: 3.0 months. - FDI: 4.1 percent of GDP. - Medium-term prospects and risks: - Growth expected to gradually rise close to 7 percent over the medium-term but slower than previously envisaged due to weaker FDI and bank restructuring spillovers. - Consolidated government revenues projected to decline due to depletion of natural gas reserves and SEE losses; potential improvement with new hydrocarbon discoveries and planned bidding round in early 2019. - Reserve coverage projected to fall and remain below adequate levels given weaker FDI and donor financing outlook. - Key downside risks: prolonged Rakhine humanitarian crisis (and potential EU GSP+ withdrawal), banking sector distress and delayed recapitalization, natural disasters (historically estimated losses around 2 percent of GDP annually between 2006–2015), and global risks (trade tensions, financial volatility, high crude oil prices, slowdown in China). - Scenario trade-offs: - Downside scenario: external financing reduced nearly half of baseline, forcing spending cuts and higher monetary financing, causing depreciation, higher inflation, and slower growth. - Upside scenario: progress on humanitarian crisis leads to higher external financing, rebuilding reserves, lower risk premia, crowding-in investment, and higher growth. ### A second wave of reforms and MSDP priorities - MSDP goals: consolidate economic stability, create environment for private sector-led growth, emphasize good governance to mobilize domestic revenues and promote efficient development. - Reform priorities: - Scale up infrastructure projects including regional connectivity and PPPs. - Invest heavily in human capital while managing fiscal risks. - Address regional disparities and conflict; resettlement in Rakhine state. - Improve business environment and transparency to attract private capital. - Companies Act 2017 reforms: opening retail/wholesale trade, education, finance companies, and insurance sector to full foreign ownership. ### Box 1 — Private Participation in Infrastructure Projects (summary) - Infrastructure gaps: - Public capital stock per capita low; infrastructure quality perceived at 2.4 (scale 1-7) vs 3.7 for emerging and developing Asia. - Limited experience with privately financed investment, mainly in electricity and ports. - Fiscal risks and project size: - Priority sectors: ports, roads, electricity described as "transformative projects" likely to create large fiscal commitments. - Ongoing and planned projects are very large and may create significant fiscal risks. - Public investment management and institutional reforms: - Project Bank Notification issued to screen projects above kyat 2 billion. - Capacity building underway in the Ministry of Planning and Finance. - Need for unified public investment management process linked to budget; Ministry of Planning and Finance as gatekeeper; improved reporting and legal framework updates. - Procurement and contract practices: - Large number of unsolicited proposals consume scarce capacities. - Recommend open tenders, due diligence, and use of model contracts to reduce costs and limit private partner bargaining power. ### Fiscal policy, SDGs, and medium-term fiscal framework - Fiscal strategy: - Direct fiscal policy towards SDG-related spending while lowering CBM financing and ensuring debt sustainability. - Myanmar’s tax-to-GDP ratio: "6.7 percent of GDP". - Comprehensive medium-term revenue strategy (MTRS) imperative given low tax base and projected decline in natural resource revenues. - External concessional financing vital to scale up spending without undue reliance on domestic debt or monetary financing. - SDG spending needs (selected estimates and drivers): - Aggregate additional spending to reach SDGs in 2030: about 13 percent of GDP; government spending needs: about 8 percent of GDP in social sectors; private sector spending: about 2.5 percent of GDP. - Health: total additional spending needed by 2030: 5.5 percent of GDP; total spending needed to reach SDG-high-performing peers: 9.6 percent of GDP in 2030; planned public health share: 52 percent by 2030 implies public health spending needed: 5 percent of GDP in 2030. - Education: current total education spending: about 2.5 percent of GDP; benchmarking suggests total education spending could reach 7.3 percent of GDP in 2030; under assumptions public spending on education would be 5.8 percent of GDP. - Water and sanitation: annual investment to achieve universal access: 0.6 percent of GDP. - Electricity: investment needed to reach near-universal access by 2030: about US$16 billion by 2030, or about 1 percent of GDP per year; authorities’ EMP cost estimates: between US$11 and 17 billion. - Roads: additional kilometers needed by 2030: about 34,000 km; average unit construction cost: US$304,000 per km; additional spending needed on roads: 1.3 percent of GDP per year over 2019–2030 (0.8 percent investment, 0.5 percent maintenance). - Aggregate reference figure from source: 10.8 percent of GDP (as part of presented figures). - Fiscal policy priorities and recommendations: - Phase out CBM financing steadily while raising domestic revenues and increasing market-based financing. - Recalibrate phasing out of monetary financing to a steadily declining path "as a share of the previous year’s reserve money" rather than domestic financing. - Implement MTRS, modernize and enact tax laws (TAPL, ITL with extractives chapter), move gradually towards a VAT, avoid tax amnesties until legal and administrative capacity strengthened. - Improve budget credibility and execution: integrate planning and budgeting, strengthen revenue forecasting, set realistic budget ceilings anchored on MSDP-linked MTFF. - PFM reforms: harmonized chart of accounts, unified Financial Information Reporting System for the Treasury (FIRST), automated reporting, strengthen transparency and internal controls. - PPP framework and fiscal risk management: appraise/prioritize projects via project bank, choose procurement/donor/PPP based on value-for-money, institute framework to manage/report PPP fiscal risks, use model contracts. - SEE restructuring and governance: improve SEE efficiency, implement EITI, electricity tariff reform to reduce losses at EPGE ("about 1 percent of GDP") with progressive schedule and social safety nets; staggered tariff adjustment with upfront revision "in early 2019". ### Fiscal outcomes and near-term projections (section 15) - 2017/18 revenue underperformance: "-1.7 percent of GDP relative to 2016/17" (broad based: SEEs non-tax revenue, income tax receipts, and grants declined). - Spending under-execution offset revenue shortfalls: current and capital spending declined by "-1.6 percent of GDP". - Result: lower-than-expected fiscal deficit in 2017/18; CBM financing reduced below targeted "30 percent of domestic financing". - 2018 transition budget deficit: "less than 2 percent of GDP"; revenues performed above target; capital spending struggled to adjust. - 2018/19 projection: fiscal deficit expected to rise to "3.5 percent of GDP". - Medium-term projection: fiscal deficit should reach "about 4 percent of GDP" with increased public investment and PPPs. - Market-based financing window: greater appetite for government securities as banks deleverage provides opportunity to raise issuance. - Goal: keep fiscal deficit to about "4 percent of GDP" to maintain low risk of debt distress, contingent on implementing MTRS and PFM reforms. ### Monetary policy, exchange rate, and inflation outlook - Monetary policy stance: - Phase out CBM financing to control inflation and reinforce confidence; maintain tight monetary conditions. - Inflation drivers: reserve money, exchange rate pass-through, food (rice), gasoline prices. - Inflation forecast: in 2019 and beyond, inflation expected to gradually moderate to "a range between 6 percent to 7 percent". - Market instruments and recommendations: - Pick up government securities issuance and deposit auctions to provide market-based financing, sterilization, prevent decline of interest rates below deposit floor, and help bank profitability. - CBM should consider articulating a medium-term inflation objective and introducing an interest rate on excess reserves (IOER) to provide a floor on market interest rates and review the interest rate corridor quarterly. - Continue exchange rate flexibility, deepen interbank market, develop FX intervention strategy, transition to asymmetric FX intervention (buying FX during inflows; selling only to avoid disorderly conditions). - Amendments to FX management law recommended to move FX transactions to formal market and facilitate hedging instruments. - Operational developments: - CBM issued a formal regulation on the new rate setting system on "February 5, 2019" (source references both February 4 and February 5 dates in text). - Allowing unsecured loans at higher rates capped at "six percentage points above the CBM bank rate effective February 1, 2019". ### Financial stability, banking sector measures, and supervision - Emerging fragilities and required steps: - Issues: lax lending standards, collateralization on over-valued real estate, significant evergreening via overdraft rollovers; many banks below minimum capital requirements. - New regulations require timebound conversion of overdrafts to term loans and introduce new capital regulations. - Recommended actions: improve compliance and loss recognition, credible recapitalization plans, prepare for bank resolutions, strengthen resolution capacity and set up a dedicated resolution team at CBM, develop financial safety net and emergency liquidity assistance framework. - January 2019 CBM order allowing minority foreign shareholding up to "35 percent of capital" may facilitate foreign capital injections; weaker banks may still require public recapitalizations. - Regulatory and supervisory reforms: - Steadfast implementation of Financial Institutions Law (FIL) regulations and Bank-Fund banking sector action plan (BSAP) developed in 2017. - Issue pending FIL and Companies Act regulations expeditiously (e.g., modalities for revaluation of fixed assets). - Strengthen credit risk management and risk-based supervision with IMF TA. - Decide on restructuring strategy for four SOBs based on World Bank diagnostic study. - Interest rate liberalization: allow unsecured loans capped at "six percentage points above the CBM bank rate effective February 1, 2019"; consider IOER and further liberalization over time. - Foreign entry to non-bank financial institutions and liberalization of foreign bank branches' lending activities announced in 2018. ### Financial supervision, AML/CFT, governance, and capacity development (section 27) - Supervision and resolution preparedness: - CBM emphasizes implementing prudential regulations and enforcement; timely loss recognition and recapitalization key to confidence. - Authorities committed to moving down the resolution ladder; developing financial safety net and contingency plans; requested additional TA. - Near-term actions: clean up bank balance sheets, enhance external examinations, prepare contingency plans, operationalize emergency liquidity assistance. - Governance and anti-corruption: - Evidence points to governance and corruption vulnerabilities; progress made including amendments to anti-corruption law, fiscal transparency, clamping down on smuggling, and strengthening financial sector regulations. - ACA acknowledges systemic capacity weakness; multi-year strategy under MSDP planned; further amendments and implementation focus in 2019. - AML/CFT: - July 2018 APG assessment identified deficiencies; low ratings on effectiveness and technical compliance with over half of FATF 40 recommendations. - Subject to enhanced FATF attention; could be listed in February 2020 unless sufficient progress by end-2019. - National Risk Assessment published; amendments to AML/CFT legal framework expected by third quarter of 2019. - Recommendation: implement APG priority recommendations focusing on improving AML/CFT effectiveness. - Capacity development (CD) and structural issues: - CD aligned with MSDP priorities: upgrade infrastructure, access to finance, governance; priority constraints: unreliable power, lack of access to finance, deficient logistics. - Priorities to lower cost of doing business: contract enforcement, insolvency regime, trading across borders, permitting bank accounts in currencies of trading partners in border areas. ### Debt sustainability analysis (DSA) and public debt framework - Coverage and methodology: - DSA uses consolidated general government debt, government-guaranteed debt, and social security funds; SOE debt on-lent is included in public external debt. - Myanmar CI classification: medium. - Applicable thresholds: PV of debt-to-exports: 180; PV of total public debt-to-GDP: 55. - FY2018 debt stock and composition: - Total public debt: 38.5 percent of GDP. - Public domestic debt: 59.1 percent of total public debt. - PPG external debt: 58.2 percent of total public debt. - Total external debt (PPG + private): 28.4 percent of GDP. - PPG external debt by creditor (end-June 2018, USD millions and percent): Bilateral Loans: 8,108.88 — 81.6; Multilateral Loans: 1,795.41 — 18.1; Commercial: 38.1 — 0.4; Total: 9,942.3 — 100.0. - Contingent liabilities and recapitalization risk: - Contingent liabilities include potential banking system recapitalization; a shock covering 5 percent of GDP added to analysis. - PPP stock estimated at 1.42 percent of GDP (World Bank PPP database); LIC DSA PPP shock applicability requires PPP capital stock > 3 percent of GDP. - Baseline and scenario macro assumptions (FY2018–FY2023 averages): - Baseline: Real GDP growth 6.7; Inflation 6.5; Primary fiscal balance -1.9 percent of GDP; Overall fiscal balance -3.6 percent of GDP; Current account -4.8 percent of GDP; FDI 4.1 percent of GDP. - Low External Financing (Downside): Real GDP growth 5.2; Inflation 8.2; Primary fiscal balance -1.7; Overall fiscal balance -3.7; Current account -5.1; FDI 3.8. - High External Financing (Upside): Real GDP growth 7.2; Inflation 7.0; Primary fiscal balance -2.5; Overall fiscal balance -4.2; Current account -5.2; FDI 4.6. - DSA findings: - Risk of external debt distress: Low; overall risk of debt distress: Low. - PV of external PPG debt-to-GDP: 12.3 percent in FY2018; projected to grow then decline to around 10 percent. - Standardized stress tests: largest negative impact from shock to non-debt flows; natural disaster shock is major risk (direct economic loss estimated 1.82 percent of GDP annually 2006–15 average). - Stress-tailored shock: one-off natural disaster shock of 10 percentage points of GDP to debt-GDP ratio in second year; growth and exports lowered by 1.5 and 3.5 percentage points respectively in shock year. - Policy implications from DSA: - Build policy buffers: domestic revenues and foreign reserves. - Continue structural reforms, expand export base, advance gas exploration, maximize concessional borrowing, assess and limit PPP/SOE fiscal risks, strengthen debt management. ### Macroeconomic outlook, data, and TA - Recent indicators and updates: - Trade deficit narrowed to US$0.9 billion end-February; exports strengthened 5.4 percent y/y; imports weakened 4.9 percent y/y. - Gross reserves US$5.67 billion as of end-January 2019 (rose by US$0.11 million in period noted). - CPI inflation: 6.1 percent y/y in January 2019 (from 8.3 percent in November 2018); FY 2018/19 authorities expect around 5.1 percent over the year. - Kyat strengthened nearly 2.5 percent vs USD since end-December; CBM removed +/- 0.8 percent trading band and codified weighted-average transaction-based FX reference rate in February 2019. - Growth projections (authorities vs staff): - Transitional budget period real GDP growth estimated at 6.8 percent. - Authorities expect pickup to 7.4 percent in FY2018/19 driven by public spending, agriculture recovery, construction and manufacturing. - Staff baseline projects slight acceleration to 6.4 percent in 2018/19. - Data and statistical issues: - Major progress in CPI; national accounts and other statistics have shortcomings (annual dissemination only, base year 2010/2011, coverage gaps). - Ongoing TA and CD: CBM, revenue, PFM, statistics, banking supervision; e-GDDS mission planned to centralize data. - IMF technical assistance and capacity development: - Myanmar one of largest TA recipients; resident advisors and missions across central banking, financial supervision, revenue reform, PFM, statistics, macroeconomic management. - CD priorities include PFM reform (FIRST, chart of accounts), MTRS, monetary and financial market development, banking supervision, AML/CFT improvements, and statistical upgrades. *Source: 1mmrea2019002 - Myanmar — INTERNATIONAL MONETARY FUND (excerpt).* ### 1. Private Participation in Infrastructure Projects _______________________________________________ 20 ### 1. Private Participation in Infrastructure Projects ### Context - Economic activity is losing momentum despite favorable long-term prospects driven by demographic dividend, competitive labor force, and strategic location. - Humanitarian crisis in Rakhine state is depressing foreign investor sentiment and donor financing; over 700,000 refugees have fled to Bangladesh since August 2017. - Policy and institutional developments: - Myanmar Sustainable Development Plan (MSDP) launched in August 2018 as a medium-term economic roadmap. - Second wave of reforms includes easing FDI and interest rate restrictions, clarifying the exchange rate regime and investment promotion framework (see Appendix I). - National Economic Coordination Committee elevated to a national policymaking body headed by State Counsellor Daw Aung San Suu Kyi. ### Recent developments — macro, external, and financial - Growth and demand: - Real GDP growth: rebounded to about 6.8 percent in 2017/18 from 5.9 percent in 2016/17. - Growth slowed to about 6.2 percent in 2018 (April–September 2018, 6-month transition budget period). - PMI hit an all-time high in March but fell to contractionary levels between April and October before recovering recently. - Tourist receipts and consumer goods imports decelerated; retail trade depressed; capital goods imports moderated — signals of weak investment confidence. - Inflation and exchange rate: - Headline inflation averaged 4.0 perc ent in 2017/18 but spiked to 8.3 percent y/y in November as fuel prices rose and kyat depreciated (14.5 percent since April 2018). - Real exchange rate depreciated by 5 percent since April 2018. - Fiscal and external: - Fiscal deficit: about 2.7 percent of GDP in 2017/18 (compared to 2.5 percent of GDP in 2016/17). - CBM financing of the deficit reduced to 3.5 percent of the previous year’s reserve money and below the targeted 30 percent share of domestic financing. - Current account deficit widened marginally to 4.7 percent of GDP in 2017/18. - FDI financed continued inflows at 5.4 percent of GDP in 2017/18. - International reserves remain around three months of imports (staff assessment of adequate reserves: five to six months of prospective imports). - Banking sector and macrofinancial spillovers: - Credit growth fell from 34 percent in 2016/17 to 20 percent by September 2018 as banks reduced large exposures and increased placements in risk-free securities. - State-owned banks’ share of total bank lending fell to 11 percent. - Foreign bank branches expanded FX lending to exporters, partially offsetting domestic deleveraging. - Bank credit growth to the private sector would be closer to single-digit levels if foreign bank activities were excluded. - Budget execution: - Preliminary data to September 2018 show small accumulation of government deposits at the CBM due to unusually low budget execution during the six-month transition budget. ### Outlook and risks - Near-term outlook: - Growth expected to remain below potential (estimated at about 7 percent to 8 percent) in 2018/19. - Real GDP growth projected to accelerate slightly from 6.2 percent in 2018 to 6.4 in 2018/19, predicated on fiscal stimulus as government spending picks up after the transition budget. - Inflation expected to moderate in 2018/19 as oil prices and the exchange rate stabilize and decline supported by phasing out of monetary financing. - Credit growth expected to moderate further to low single digits, though structural factors mean credit and output in the baseline remain stronger compared to similar cases. - Medium-term baseline (average FY2018–FY2023) and related indicators (from staff table): - Real GDP growth: 6.7 percent (baseline average FY2018–FY2023). - CPI (period average): 6.5 percent (baseline average FY2018–FY2023). - Primary fiscal balance (in percent of GDP): -1.9 (baseline average FY2018–FY2023). - Net lending/borrowing (in percent of GDP): -3.6 (baseline average FY2018–FY2023). - Current account balance (percent of GDP): -4.8 (baseline average FY2018–FY2023). - Import coverage (in months): 3.0 (baseline average FY2018–FY2023). - FDI (in percent of GDP): 4.1 (baseline average FY2018–FY2023). - Medium-term prospects: - Growth expected to gradually rise close to 7 percent over the medium-term, though slower than previously envisaged due to weaker FDI inflows and macrofinancial spillovers from bank restructuring. - Consolidated government revenues projected to decline due to gradual depletion of natural gas reserves and SEE losses; longer-term prospects to improve with new hydrocarbon discoveries and planned bidding round in early 2019. - Current account deficit and external debt expected to be sustainable, but reserve coverage projected to fall and remain below adequate levels given weaker FDI and DP financing outlook (Appendix III). - Key risks (tilted to the downside): - Prolonged humanitarian crisis in Rakhine state, slow repatriation progress, potential withdrawal of GSP+ trade preferences from EU, reduced concessional donor financing — all could weaken fiscal space, exports, and investor confidence. - Banking sector distress and delayed recapitalization could produce severe macrofinancial spillovers. - Natural disasters: historically estimated losses around 2 percent of GDP annually (between 2006–2015), largest shocks affecting debt sustainability. - Global risks: trade tensions, global financial volatility, high crude oil prices, and slowdown in China. - Scenarios and policy trade-offs: - Downside scenario: reduction in external financing (nearly half of the level assumed in the baseline) and exports necessitates government spending cuts and higher monetary financing, causing depreciation pressures, higher inflation, and slower growth. - Upside scenario: progress on humanitarian crisis leads to resumption of higher external financing, higher SDG-related spending, rebuilding of international reserves to adequate levels, lower risk premia, crowding-in investment, and uplift in growth. ### A second wave of reforms and consolidating stability - MSDP goals: - Consolidate economic stability and create an environment for private sector-led growth; align with recommendations from the 2017 Article IV consultation. - Emphasis on good governance to mobilize domestic revenues and promote efficient development. - Reform priorities: - Scale up infrastructure projects including regional connectivity projects and PPPs to realize growth potential and create jobs. - Invest heavily in human capital while managing fiscal risks. - Address regional disparities and conflict to support peace and stability, including resettlement of refugees in Rakhine state. - Improve business environment and transparency to attract private capital. - Companies Act 2017 reforms: opening retail/wholesale trade, education, finance companies, and insurance sector to full foreign ownership described as a bold reform. ### Fiscal policy and the Sustainable Development Goals (SDGs) - Fiscal strategy: - Fiscal policy should be directed towards SDG-related spending while lowering CBM financing and ensuring debt sustainability. - With a very low tax-to-GDP ratio and projected decline in natural resource revenues, a comprehensive medium-term revenue strategy (MTRS) is imperative to finance SDG-related spending. - External financing on concessional terms remains vital as the country scales up spending without undue reliance on domestic debt issuance or monetary financing. *MYANMAR — INTERNATIONAL MONETARY FUND (excerpt).* ### 15. The fiscal deficit has remained moderate, allowing a reduction in CBM financing. ### 15. The fiscal deficit has remained moderate, allowing a reduction in CBM financing. ### Fiscal outcomes and near-term projections - 2017/18 revenue underperformance was substantial: "-1.7 percent of GDP relative to 2016/17", broad based (non-tax revenue from SEEs, income tax receipts and grants all declined). - Spending under-execution largely offset revenue shortfalls: current and capital spending declined by "-1.6 percent of GDP". - Result: a lower than expected fiscal deficit in 2017/18, reducing CBM financing below the targeted "30 percent of domestic financing". - The 2018 transition budget deficit appears to have been "less than 2 percent of GDP", with revenues performing above target and capital spending struggling to adjust to the fiscal year change. - 2018/19 projection: fiscal deficit expected to rise to "3.5 percent of GDP", providing a modest fiscal stimulus. - Medium-term projection: with increased public investment and PPPs to support the MDSP, the fiscal deficit should reach "about 4 percent of GDP". ### Fiscal policy priorities and recommendations - Primary objective: phase out CBM (monetary) financing steadily while raising domestic revenues and increasing market-based financing of the deficit. - Key facts motivating reforms: - Myanmar has one of the lowest tax to GDP ratios: "6.7 percent of GDP". - Non-tax revenue from SEEs is projected to further decline. - Phasing out monetary financing: - Phasing-out by "2020/21" as envisaged in the MSDP is important to reduce fiscal dominance. - Recommendation: recalibrate the targeted phasing out to a steadily declining path "as a share of the previous year’s reserve money" rather than domestic financing, to avoid an acceleration of monetary financing in transition years and to preserve external stability and control inflation. - Market-based financing window: - Greater appetite for government securities as banks deleverage provides an opportunity to raise government securities issuance and fund the deficit in an uncertain external financing environment. - Fiscal structural and governance reforms to scale up SDG-related spending while preserving debt sustainability: - SDG spending gaps in education, health and infrastructure for 2030 are estimated to be large in Myanmar (Appendix VII). - Goal: keep the fiscal deficit to about "4 percent of GDP" to maintain a low risk of debt distress. - Requirement: implement a comprehensive medium-to -long term revenue strategy (MTRS); higher concessional external financing and a temporarily higher deficit in line with the upside scenario could help while the MTRS develops. - Rebalance expenditure to social sectors, enhance spending efficiency, and improve public financial management (PFM). ### Specific policy measures recommended - Policies to strengthen revenue mobilization: - Implement the MTRS with medium-term tax revenue targets based on IRD’s second phase of revenue administration reforms, customs reforms and tax policy initiatives. - Modernize and enact tax laws including the Tax Administration and Procedures Law (TAPL) and the Income Tax Law (ITL) with a chapter on extractive resources and rationalization of incentives; move gradually towards a VAT. - Avoid tax amnesties until laws are enacted and IRD administrative capacity enhanced. - Policies to improve budget credibility and execution: - Better integrate planning and budgeting, improve absorptive capacity, strengthen revenue forecasting, and set realistic budget ceilings based on a robust medium-term fiscal framework (MTFF) anchored on the MSDP and linked to the macroframework. - PFM reforms to enhance spending efficiency and contain fiscal risks: - Build on progress with treasury operations and GFS-consistent reporting. - Develop a harmonized chart of accounts and unified Financial Information Reporting System for the Treasury (FIRST) to automate information and strengthen transparency. - PPP framework and fiscal risk management: - Appraise and prioritize large infrastructure projects via the project bank and choose procurement, donor financing, or PPPs based on value-for-money evaluation. - Institute a framework to manage, control and report fiscal risks related to PPPs and sovereign guarantees expeditiously as recommended by Fund TA. - Restructuring and governance of SEEs: - Improve SEE efficiency and corporate governance, including in natural resources and EITI implementation. - Electricity tariff reform is a macro-critical priority to reduce losses at the EPGE ("about 1 percent of GDP"), with a progressive tariff schedule to mitigate impacts on the poor and strengthening social safety nets. - Given additional generation capacity and return guarantees to IPPs in FX, a staggered tariff adjustment with an upfront revision "in early 2019" is urgent. - For extractive resources, adopt a competitive bidding process and a "model contract" based on Fund TA and ongoing DP assistance for the new bidding round. ### Authorities’ views on fiscal policy - Authorities reiterated commitment to steadily phase out monetary financing and maintain debt sustainability. - Agreed that spending could pick up in the new fiscal year following the transition budget under-execution. - Agreed that the targeted phasing out of monetary financing by "2020/21" should be recalibrated to a steady path as a share of reserve money rather than domestic financing and closely monitored to preserve external stability and control inflation. - Cabinet approved “project bank regulations” requiring all large infrastructure projects go through the same appraisal and approval process. - NECC intends to institutionalize a PPP gateway process and transparent reporting of fiscal risks, including utilizing “model contracts” in key sectors to the extent possible. ### Monetary policy, exchange rate, and inflation outlook - To control inflation and reinforce confidence, reliance on CBM financing should be phased out and monetary conditions kept tight. - Inflation drivers: reserve money, exchange rate pass-through, food (rice) and gasoline prices. - Inflation forecast: in 2019 and beyond, inflation is expected to gradually moderate to "a range between 6 percent to 7 percent", consistent with its historical average, as the exchange rate has stabilized since November 2018, monetary financing of the deficit is phased-out, and food and fuel prices moderate. - Recommendations to anchor market interest rates and strengthen monetary framework: - Pick up government securities issuance and deposit auctions to provide market-based financing and sterilization, prevent decline of interest rates below the deposit floor, and help banks improve profitability. - CBM should consider articulating a medium-term inflation objective and introducing an interest rate on excess reserves (IOER) to provide a floor on market interest rates and review the interest rate corridor quarterly (as recommended by Fund TA). - Well-anchored market rates would limit capital flight and speculative depreciation pressures. - Exchange rate regime developments: - CBM issued a formal regulation on the new rate setting system on "February 5, 2019". - Recommendation: continue exchange rate flexibility, deepen the interbank market, develop a FX intervention strategy, and transition to asymmetric FX intervention (buying FX during capital inflows and selling only to avoid disorderly conditions). - Amendments to the FX management law would help move FX transactions to the formal market and facilitate interbank FX market and hedging instruments development. ### Financial stability and banking sector measures - Emerging banking sector fragilities: - Lax lending standards, collateralization on over-valued real estate, and significant evergreening via overdraft rollovers have raised systemic risks. - New regulations require timebound conversion of overdrafts to term loans and introduce new capital regulations (Appendix V). - Required decisive policy steps: - Improve compliance, loss recognition and encourage recapitalization. Many banks are below minimum capital requirements. - Urgent need to review and update capital improvement plans to be credible and sufficiently ambitious. - On resolution: prepare for bank resolutions, strengthen capacity/policies/procedures, and set up a dedicated resolution team at the CBM. - Develop a financial safety net and operationalize an emergency liquidity assistance framework. - Some banks plan subordinated debt issuance; the January 2019 CBM order allowing minority foreign shareholding up to "35 percent of capital" may facilitate foreign capital injections. - Weaker banks with larger recapitalization needs may still require public recapitalizations. - Steadfast implementation of Financial Institutions Law (FIL) regulations and the Bank-Fund banking sector action plan (BSAP) developed in 2017: - Issue pending regulations under the FIL and Companies Act (e.g., modalities for revaluation of fixed assets) expeditiously to minimize connected lending and improve corporate governance. - Strengthen credit risk management and risk-based supervision at the CBM with IMF TA. - Decide on restructuring strategy for the four SOBs based on the World Bank diagnostic study. - Interest rate liberalization: - Gradual liberalization of retail bank interest rates will help banks price credit risk and raise capital through greater profitability. - A first step: allowing unsecured loans at higher rates capped at "six percentage points above the CBM bank rate effective February 1, 2019". - Consider further liberalization of lending and deposit rates, IOER, and indirect instruments. - Foreign entry to non-bank financial institutions and gradual liberalization of foreign bank branches' lending activities announced in 2018 could raise competition and broaden financial services over time. *Source: 1mmrea2019002 - 15. The fiscal deficit has remained moderate, allowing a reduction in CBM financing.* ### 27. The authorities are committed to improving financial supervision and addressing ### 1mmrea2019002 - 27. The authorities are committed to improving financial supervision and addressing ### Financial supervision, banking system, and systemic risks - The CBM noted the importance of seeing through the implementation of prudential regulations and their role in monitoring and enforcement. - Timely loss recognition and timely recapitalization will be key to maintain confidence in the banking system. - Weak accounting standards and large recapitalization needs of some banks pose a challenge to enforcing credible capital improvement plans. - Authorities are committed to moving down the resolution ladder. - A well formulated financial safety net and contingency plans are being developed; authorities requested additional TA to assist with these issues. - Recommendations and near-term actions: - Clean up bank balance sheets through proper diagnostics, loss recognition, and recapitalization. - Enhance external examinations of systemic banks. - Prepare contingency plans including a well formulated financial safety net. - Develop an emergency liquidity assistance framework operationalized to support banks facing temporary liquidity problems. ### Capacity development and structural issues - Capacity development (CD) remains crucial as the Myanmar economy transitions and is being aligned to the goals set in the MSDP. - The business environment would benefit from upgraded infrastructure, access to finance and strengthening of the overall governance framework. - Specific business-environment constraints identified: unreliable power supply, lack of access to finance, deficient logistics. - Priorities to lower the costs of doing business: contract enforcement, insolvency regime, and trading across borders with emphasis on trade facilitation. - Permitting bank accounts in the currency of Myanmar’s main trading partners, particularly in border areas, would help lower financial transaction cost. ### Governance and anti-corruption - Available evidence, in part from perceptions-based indicators, points to governance and corruption vulnerabilities. - The new administration has made progress on some indicators, including: - submitting amendments to the anti-corruption law, - enhancing fiscal transparency, - clamping down on smuggling, - strengthening financial sector regulations. - The anti-corruption agency (ACA) agreed that the overall severe corruption assessment reflects systemic capacity weakness and the country’s fragility. - Mission engagement aimed to develop a multi-year strategy leading to comprehensive improvements under the MSDP. - A number of amendments have been made to the anti-corruption law; the ACA is awaiting peer review and compliance assessment against UN standards. - Further amendments to the law and implementation of the anti-corruption framework could be a focus in 2019. ### AML/CFT regime - Deficiencies were identified by a July 2018 APG assessment. - Myanmar received low ratings on the effectiveness of its AML/CFT regime and in its compliance with over half of the FATF 40 recommendations. - As a result, Myanmar is subject to enhanced attention of the FATF and could be listed by the FATF in February 2020 as a jurisdiction with strategic deficiencies unless it demonstrates sufficient progress by the end of 2019. - Myanmar has published its National Risk Assessment and expects to finalize and enact amendments to the AML/CFT legal framework by the third quarter of 2019. - Recommendation: continue implementing the priority recommendations of the APG focusing on improving the effectiveness of the AML/CFT regime. ### Monetary, exchange rate, and financial market policies - Monetary conditions should be kept tight by stepping up the issuance of debt securities and reducing reliance on CBM financing. - Government securities issuances and deposit auctions are already being stepped up to steadily phase out monetary financing and drive market rates above the banks’ deposit interest rate floor. - The retail bank rate structure was clarified, including allowing unsecured lending at higher rates. - Authorities could consider further liberalizing lending rates as well as deposit rates, keeping the rate structure in line with policy needs when conditions permit. - The recently announced market-determined exchange rate reference system should continue to be followed allowing for exchange rate flexibility to cushion against shocks. ### Fiscal policy and public financial management - Fiscal policy should aim at promoting SDG-related spending, while lowering CBM financing and ensuring debt sustainability. - Policy priorities: revenue mobilization, budget credibility, and PFM reforms to reduce governance-related vulnerabilities. - Myanmar’s SDG spending gap in critical sectors is estimated to be large, requiring a gradual scaling up of expenditures. - Recommendations for public investment and fiscal risk transparency: - Subject carefully selected projects to open tender and the same appraisal and approval process. - Use ‘model contracts’ in key sectors, particularly extractives, to increase transparent reporting of fiscal risks. - Continue to seek concessional financing. - Consider increasing issuance of government securities, especially when banks are seeking safer assets. - Improve SEE efficiency and governance, including in natural resources and EITI implementation. ### Macroeconomic outlook and staff appraisal - Long-term growth prospects remain strong, but downside risks to the near-term outlook have risen. - Immediate downside risks include lower external financing and investor sentiment arising from a prolonged crisis in Rakhine state and possible revocation of trade preferences on human rights concerns. - Systemic risks from banking-sector fragilities are surfacing and need to be addressed quickly. - Medium-term growth projection: reaching close to 7 percent over the medium-term. - Economic policies to support peace and stability, including consistently durable progress on humanitarian crises, will help Myanmar realize its strong growth potential. - The MSDP will play a critical role in providing strategic direction to help achieve SDGs; investing heavily in physical and human capital while managing fiscal risks is necessary to harness demographic dividend and strategic location. - The Fund has enhanced alignment of CD with MSDP priorities; medium-term CD strategy covers governance weakness and institutional building. - Substantial progress has been made in improving macroeconomic statistics, but more remains to be done to improve the quality and timely dissemination of data; an e-GDDS mission planned for early 2019 is envisaged to help centralize and make available adequate data for surveillance. ### Exchange restrictions, MCP, and Article VIII - Myanmar maintains a MCP subject to the IMF’s jurisdiction under Article VIII, Section 3. - Authorities removed the exchange restriction arising from the tax certification requirement for transfers of net investment income abroad by revising the relevant provision in the new investment law and rules and by confirming that the practice conforms with the new provision. - The authorities should, prior to accepting Article VIII obligations, seek Fund approval of the remaining MCP if the criteria for approval are met, or remove the MCP by— for example—no longer using the two-way FX auction. - Recommendation: next Article IV consultation proposed to be held on the standard 12-month cycle. *Source: IMF staff report excerpt, 1mmrea2019002.* ### Box 1. Private Participation in Infrastructure Projects ### Box 1. Private Participation in Infrastructure Projects ### Context and infrastructure gaps - Myanmar intends to address large infrastructure needs through increased private sector participation. - Public capital stock per capita is comparatively low in Myanmar and access to infrastructure is limited. - Infrastructure quality in Myanmar is perceived to be 2.4 on a scale of 1-7, compared with 3.7 for emerging and developing Asia. - Myanmar has limited experience with privately financed investment, mainly in the electricity and ports sectors. - Improving public infrastructure is a priority of the Myanmar Sustainable Development Plan (MSDP). ### Infrastructure developments and fiscal risks - Priority sectors: ports, roads and electricity — described as "transformative projects" that are likely to create large fiscal commitments. - Ongoing and planned infrastructure projects are very large and may create significant fiscal risks to the government. ### Public investment management and institutional reforms - Authorities have started to improve the public investment management framework, including for PPPs: - The government issued the Project Bank Notification which aims at improving investment planning by identifying and screening infrastructure projects (above kyat 2 billion of investment). - Capacity building is underway in the Ministry of Planning and Finance to analyze and select infrastructure projects. - Additional efforts needed to strengthen infrastructure management and limit fiscal risks from PPPs: - Traditional public investment and PPPs should be prioritized on a level playing field through a unified public investment management process. - The unified process should be better linked to the budget process to ensure resource allocation is in line with fiscal constraints. - The Ministry of Planning and Finance should play a gatekeeper role to stop projects that do not provide efficiency gains or are not fiscally affordable, and to issue guarantees to PPP projects. - Reporting should be improved to promote informed decision making on resource allocation to infrastructure projects. - The legal framework should be updated to support these reforms and provide a more stable environment to prospective partners. ### Procurement, competition, and contract practices - The government should aim at ensuring competitive bidding and the use of model contracts. - Concerns and recommended actions: - A large number of unsolicited proposals consume scarce capacities and block government efforts to improve project preparation. - Open tenders and due diligence during project preparation are needed to bring down project costs. - Using model contracts for PPPs would facilitate competitive tendering, reduce government transaction costs and limit the bargaining power of the private partner. *Source: Box 1. Private Participation in Infrastructure Projects (from the provided IMF content).* ### Appendix I. Key Policy Recommendations from the 2017 Article ### Appendix I. Key Policy Recommendations from the 2017 Article ### Monetary and exchange rate policies - Objective: Keep inflation in check and maintain exchange rate flexibility. - Policy advice: - Maintain deposit auction volumes, pending further developments in inflation and liquidity; improve liquidity forecasting and further development of debt and interbank markets. - Phase out CBM financing of the deficit. - Formally adopt a new transactions-based mechanism for setting the exchange rate and continue to allow for exchange rate flexibility to help cushion against exogenous shocks, including an asymmetric FX intervention strategy. - Implementation status: - In progress. The CBM has stepped up deposit auctions and the MOPF has increased its reliance on market-based borrowing from the debt market driving market rates above the banks’ deposit interest rate floor. - CBM financing of the deficit in 2017/18 further declined to below the target ceiling of 30 percent. - The CBM issued on February 4, 2019, a formal regulation announcing the transaction-based exchange rate, as the new reference rate. ### Fiscal policy - Objective: Create fiscal space to finance development needs while maintaining macroeconomic stability and debt sustainability. - Policy advice: - Keep the fiscal deficit between 4 and 4.5 percent of GDP over the medium term. - Expenditure rebalancing towards social (education and health) and priority infrastructure spending to help achieve Sustainable Development Goals (SDGs). - Improvements in Public Financial Management (PFM), prioritizing fiscal transparency and reporting, incorporating an IT system for the Treasury, a stronger relationship between planning and budget, and better managing fiscal risks. - Continued domestic revenue mobilization, including through modernizing tax laws (including a review of natural resource contracts), developing staff capacity, improving customs administration and targeted administrative reforms. - Implementation status: - Achieved for 2017/18 (fiscal deficit target). - Expenditure rebalancing: In progress. - PFM reforms: In progress. The Cabinet approved “project bank regulations” that requires all large infrastructure projects go through the same appraisal and approval process. The change in fiscal year has been implemented along with data releases in line with GFS. - Revenue mobilization: In progress. Implementation of phase II of the IRD reform journey in progress. ### Financial sector - Objective: Maintain financial stability and improve financial sector regulation and supervision. - Policy advice: - Accelerate reform of state-owned banks. - Implement 2017 prudential regulations and issue pending regulation under FIL 2016. - Continue financial sector and interest rate liberalization at a pace commensurate with CBM's capacity. - Increase bank capital. - Form contingency plans to address emerging systemic banking risks and strengthen resolution capacity. - Implementation status: - Accelerate reform of state-owned banks: In progress. - 2017 prudential regulations / FIL 2016 regulations: In progress. A number of pending regulations under the FIL 2016 has been issued. - Interest rate liberalization: In progress. Effective February 1, 2019, CBM now permits unsecured lending. The lending rates on loans either with collaterals other than the ones mentioned above or without collateral are capped at six percentage points above the CBM rate (currently 10%+6%=16%). - Increase bank capital: In progress. - Contingency planning and resolution capacity: In progress. *Source: IMF Country Report No. 18/90.* ### Appendix VI. Supporting the Myanmar Sustainable Development ### Appendix VI. Supporting the Myanmar Sustainable Development Plan and IMF Capacity Development ### Background - The Myanmar Sustainable Development Plan (MSDP) was launched in August 2018 as a medium-term economic roadmap aligned with the SDGs and the Twelve Point Economic Policy of the Union of Myanmar. - MSDP structure: - Three pillars: (1) peace and stability; (2) prosperity and partnership; (3) people and planet. - Five goals, twenty-eight strategies and two hundred and fifty-one action plans. - National Economic Co-ordination Committee, headed by State Counsellor Daw Aung San Suu Kyi, is expected to facilitate MSDP implementation. - Pillar details: - Pillar one (peace and stability): two goals including economic stability and strengthened macroeconomic management; strategies include establishing appropriate fiscal, monetary and exchange rate policy, and fostering peace, national reconciliation, security and good governance. - Pillar two (prosperity and partnership): single goal of job creation and private sector-led growth; strategies include improving the business environment, reducing the cost of doing business, developing SMEs, increasing access to finance and building infrastructure. - Pillar three (people and planet): two goals addressing human resource development and conserving the environment; strategies include improving health, education and nutrition, expanding social safety nets, protecting rights, providing clean water and energy, combating climate change, and managing natural resources. ### Integrating IMF Capacity Development (CD) with the MSDP - CD is critical to implement MSDP reforms and achieve SDGs; meeting development needs requires: - Raising domestic revenues. - Increasing market-based financing of the fiscal deficit to scale up SDG-related spending while maintaining fiscal sustainability. - Well functioning markets including interbank money and FX markets to support reduced central bank financing and effective monetary policy. - Priorities for CD: - Prioritizing expenditure and strengthening public financial management (PFM) and its legal framework. - Providing more granularity on fiscal reporting of SEEs. - Building on progress in domestic revenue mobilization capacity. - Building and strengthening monetary policy framework and central bank implementation capacity. - Enhancing timely dissemination of macroeconomic statistics to strengthen policymaking and transparency. - IMF CD focus areas: building fiscal and monetary institutions, strengthening the legal framework (including tax, investment, and anticorruption laws), and improving macroeconomic statistics. - Delivery modalities: long-term resident advisors, regional advisors from CDOT, and STI, OAP, IMF HQ-based missions, and short-term experts; coordination through COFTAM and MMSCG. ### Bolstering the MSDP Pillars — Fiscal Sector - PFM program emphasis: - Improved budget planning and fiscal risk management; strengthened budget execution. - Continued support on cash management, treasury operations, internal audit. - Assistance with PFM Law, Financial Rules and Regulations, internal controls, internal audit functions, gradual IT introduction, and production of fiscal accounts consistent with GFS reporting standards. - Current priorities: - Developing a harmonized chart of accounts. - Developing a unified Financial Information Reporting System for the Treasury (FIRST) to automate information and strengthen transparency. - Upcoming assistance considered for improving corporate governance practices of State Owned Enterprises (SEEs), particularly in the natural resource sector, and setting up a PPP framework. - Objective: better measure and report contingent liabilities to improve transparency and minimize fiscal risks. - Revenue mobilization: - Recommendation for a comprehensive medium-term revenue mobilization strategy aligning revenue goals with SDG expenditure needs, per recent TA recommendations. - CD assisting IRD’s first phase of reforms: strategic reform direction, project management and governance framework, new function-based organization at IRD headquarters, new office for large taxpayers. - CD assisting Myanmar Customs Department (MCD): strategic reform planning, compliance risk management, ICT strategy, HR management, organizational structure. - Second phase revenue strategy should align more closely with SDG spending and emphasize governance and integrity of revenue staff, taxpayers, and importers. - Greater clarity and transparency of extractives revenues and tax expenditures noted as key features. - Ongoing TA on the petroleum and mining fiscal regime; CD to reform fiscal regime for natural resources and address shortcomings in the EITI progress report is being considered. - Planned automation enhancements for IRD and MCD to improve transparency of taxpayer and importer account entries and standardize procedures nationwide. - Modernized tax and customs legislation intended to provide clarity and certainty, minimizing opportunities for discretion and negotiation. ### Bolstering the MSDP Pillars — Monetary and Financial Sector - Central bank framework and operations: - CBM is transitioning to a reserve money targeting framework in line with its price stability mandate and the government’s commitment to phase out central bank financing of the deficit. - CD to improve liquidity forecasting, develop indirect monetary instruments (e.g., use of repos) and the money market. - Assistance to improve deposit and treasuries auctions; training in liquidity management and forecasting remains essential. - TA to align accounting and audit practices with international standards and build staff capacity; TA to help fully transition to IFRS by 2021 and adopt risk-based audit procedures continues. - 2017 regulation on large exposure limits provides safeguards; CD may help finalize and issue five regulations related to financial institutions (Board of directors, related party transactions, appointment of external auditors, Fit and Proper and directives on substantial interest). - Consideration to assist CBM set up a monetary policy committee and a technical working group. - Interbank and FX market development: - Medium-term priorities: deepen the interbank market and develop a FX intervention strategy. - CBM has issued a regulation clarifying the mechanism for setting the exchange rate regime going forward. - CD to design amendments to the FX management law to address regulatory gaps and facilitate development of interbank FX markets and hedging instruments through gradual recalibration of net FX open positions. - Banking system reform (BSAP): - BSAP recommendations cover prudential regulations, supervisory capacity, recovery and resolution, SOB restructuring among others. - Ongoing CD to transition banks to risk-based lending, modernize CBM’s regulatory and supervisory framework and train staff on risk-based supervision. - Accounting software and the new real time gross settlement system are operational; procedures are being implemented. - Immediate priorities: assist CBM to issue key prudential regulations, strengthen supervisory capacity, train staff to follow up on full-scope bank examinations, and rigorously enforce the Financial Institutions Law. - CD on bank recovery and resolution and developing a policy framework for emergency liquidity assistance will be considered. - Other plans: TA on banking system structure to provide analytic background for supervision and ongoing state-owned bank reform work by the World Bank; supervision of nonbank credit institutions (mainly finance companies). - AML/CFT: - Myanmar received low ratings on effectiveness and technical compliance from the APG assessment and is subject to enhanced attention of the FATF. - A National Risk Assessment has been published; amendments to the AML/CFT legal framework are expected to be finalized and enacted by third quarter of 2019. - IMF assistance will review the recent Mutual Evaluation Report to identify recommendations for strengthening the legal framework. ### Bolstering the MSDP Pillars — Data and Training - Macroeconomic statistics progress and needs: - Major progress: improving the CPI; progress in external sector statistics using sources such as Foreign Exchange Transactions. - Fiscal data releases are now in line with GFS and reflect the change in fiscal year. - Monetary and Financial Statistics (MFS) data published, but issues remain with consistency and coverage of Financial Soundness Indicators (FSIs). - Planned CD on price statistics to develop the GDP deflator. - Continued improvement expected for monetary statistics (e.g., total bank assets and financial data of nonbank financial institutions). - As CBM supervision capacity improves, greater attention to balance sheet data is needed to analyze macro-financial linkages and consolidated supervision. - Recent e-GDDS mission will help centralize and make adequate data available for surveillance. - Training and analytical capacity: - CD for training and analysis is a long-term process including customized courses, specialized workshops (including during TA missions) and training in surveillance methodologies. - Inter-agency core macroeconomic group (led by CDOT) meets regularly to develop, update, and operationalize a macroeconomic framework for Myanmar. - Group members and other officials receive training from CDOT and STI on quantitative skills and forecasting, financial programming and policies, macroeconomic diagnostics, and the debt sustainability framework. - Linking the macro framework and the medium-term fiscal framework (MTFF) is expected to strengthen macro-fiscal analysis and forecasting. - Despite progress, capacity in macroeconomic analysis and policy coordination remains low. - Needed: stronger inter-connectivity of the macro-framework with MTFF, DSA, liquidity forecasting/reserve money targeting to build staff policy design capacity. ### Selected MSDP Actions and IMF CD Engagement (excerpt from Table 1) - Exchange rate and balance of payments actions and IMF CD engagement: - 2.1.1 Allow the kyat to float more freely in response to market supply and demand — TA for FX auction operation to clear the markets and provide a market-clearing exchange rate. - 2.1.2 Ensure greater exchange rate flexibility as the CBM moves from a foreign exchange auction to an interbank transaction-based mechanism for setting the reference rate — Develop interbank foreign exchange market and progressively attach a greater weight to interbank transactions in setting the reference rate. - 2.1.3 Stabilize high volatility of the exchange rate — Maintain an adequate level of foreign exchange reserves and exchange rate consistent with medium term funtamentals. - 2.1.4 Develop an exchange rate intervention mechanism — Clear FX intervention strategy that is consistent with the chosen FX regime and well-understood by markets and the public. - 2.1.5 Stabilize inflation both from a monetary and fiscal policy perspective — Reduce CBM financing of the budget deficit and develop domestic debt market; continued exchange rate flexibility and phasing-out of CBM financing of the fiscal deficit will strengthen monetary policy independence. - 2.1.8 Develop the currency swap auction market — Develop capacity to implement FX operations efficiently and in a manner consistent with the chosen monetary policy FX regime; implement policy regarding provision of FX liquidity outside of the spot FX market while adequately managing associated risks. - 2.2.1 Continue monetary policy prudence with a view to stabilizing inflation — Gradually move to a reserve money targeting framework with a flexible exchange rate regime. - 2.2.3 Continue enforcing reserve requirement instructions on banks with flexibility to account for seasonality — Upgrade monetary operations; recommendations made for holistic review of credit facilities and support for bi-weekly implementation of deposit auctions. *Source: Appendix VI. Supporting the Myanmar Sustainable Development Plan and IMF Capacity Development (excerpt).* ### introduction of IOER. ### introduction of IOER ### Monetary market development and monetary stability - 2.2.4 Strengthen treasury securities auctions and expand public understanding of bonds, bills and similar instruments - Further strengthen the primary government securities market and develop secondary market. Develop a yield curve. - Recommendations have been made for establishing the securities market committee to involve market participants as stakeholders. - Development of repo market is also being discussed. - Relevant directives issued by the CBM for securities transactions need to be fundamentally revised. - 2.2.6 Develop the interbank money market, and ultimately liberalize bank interest rates based on borrower risk profiles - Monetary operations and market development. Utilize the interbank transaction data collected by the CBM with the aim of publishing key interest rates. - Utilizing the collected interbank money market transactions data to better understand market activity and upgrade reporting quality. - As interbank money market becomes becomes more transparent and easier to use for market participants, including the CBM, it improves banks' capacity to manage their liquidity. - The next step wil be the revision of the supporting directive issued by the CBM and tabulating the results from the November 2018 survey. - 2.2.7 Develop the REPO market through which the CBM can absorb excess liquidity from the market through open market operations, including possibly REPO auctions - Implement roadmap to liberalize interest rates commensurate with the CBM’s capacity to supervise financial system as well as calibrate macro-financial developments and implement market-based operations. - Interest rates become more market-determined, improving the scope and effectiveness of monetary operations. Possible introduction of repos. - 2.2.9 Strengthen BOP shock absorptive capacity and build up foreign exchange reserves to support a more favourable BOP position - Capacity development in external sector statistics. Improved quality of BOP and IIP data, in terms of : (1) improved coverage, particularly for DI, remittances, and external debt; (2) consistency with MFS - To develop the capacity of the authorities to implement FX operations efficiently and in a manner consistent with their chosen monetary policy FX regime - Currently, CBM's work on reserve money targeting is supported in the areas of target setting methods, liquidity monitoring/forecasting, and the reserve requirement. - A reserve money targeting framework is being put in place, with deposit auctions as the main tool for liquidity management. - In support, a liquidity forecasting framework has been put in place and the database of banks' balance sheet information has been established. ### Taxation, revenue mobilization and public financial management - 2.3 Increase domestic revenue mobilisation through a fair, efficient and transparent taxation system - 2.3.1 Reform the structure and governance mechanisms of IRD and other relevant entities, and establish functionally based departments organized to best administer the tax system for different groups of taxpayers - Support activities in the Operations Management, Design and Monitoring, and Tax Reform directorates. - 2.3.3 Implement new information technology systems for registration, processing, accounting, and case work - ICT implementation - 2.3.4 Develop modern tax laws, including a new Tax Administration Law, a new Income Tax Law and a new VAT Law - Development of new model production sharing contract (PSC) for petroleum. Income Tax Law including a specialized chapter on extractive industries. - 2.3.5 Introduce anti-corruption and tax evasion counter- measures to protect the integrity and reputation of the tax system, including expanding the focus of internal audit and establishing an Internal Affairs Unit - 2.4 Strengthen public financial management to support stability and the efficient allocation of public resources - 2.4.1 Significantly increase overall budget transparency, including the continued publication of Citizen Budgets, presentation of tax expenditures in annual budgets and other measures - PFM programs covering Myanmar: Supporting Improved Treasury Management and Modernization of Financial Management Systems; FMIS strategy and Financial Information Reporting System for the Treasury (FIRST) implementation. - Improving the accounting policies and regulations and reconciliation procedures, including training of government accountants towards the adoption of a double-entry accounting system. Chart of Accounts (COA) modernization. - Phase I of Financial Information Reporting System for the Treasury (FIRST) developed; Time lag of budget execution reports and financial reports shortened; Format of fiscal reports more aligned with international standards. - Automated financial reporting and reconciliation by Treasury covering Union and States financial accounts. Development of fiscal database. Developing readiness for budget and financial reporting integration. Developing capacity for medium-term FMIS development. - Double-entry accounting system initiated in government. Harmonized administartive classification. Streamlined economic classification aligned with GFS and STA-CDOT support in this area. ### Financial sector strengthening and access to finance - 3.5 Increase broad-based access to financial services and strengthen the financial system overall - 3.5.1 Strengthen the capacity of domestic financial institutions - Develop and strengthen banking regulations and prudential norms and more efficinet use of supervisory resources to better oversee key risks in their banking systems. TA to focus on Banking supervision and regulation including off-site supervision. - 3.5.4 Continue liberalisation of the banking sector including through plans and regulations for the Financial Institutions Law (FIL) and Foreign Exchange Management Law (FEML) - Modernize Foreign Exchange Management Law. - 3.5.8 Introduce measures that enable Myanmar banks to ensure full compliance with applicable prudential standards - 3.5.14 Increase financial transparency, including by enforcing existing regulations on financial reporting and the introduction of additional transparency-related regulations for financial institutions - Strengthen the CBM's institutional capacity to conduct financial management operations and ensure the integrity of its financial reporting - The CBM has established the basis of a modern accounting framework. Capacity development will be aimed at financial management, accounting and internal audit. ### SDG spending needs (Appendix VII) - Context and baseline - Myanmar’s development strategy anchored on achieving the SDGs via the 2018–2030 Myanmar Sustainable Development Plan (MSDP). - The MSDP includes 251 action plans aligned with SDGs indicators. With UNDP support, authorities published the SDG baseline report covering local and international data for 60 percent of the 321 SDG indicators. - Myanmar’s SDG global ranking is 113 out of 156 (with 1 being the best). - SDG performance highlights - Health (SDG 3) - SDG index for health: 55 (implies 45 percent short of reaching this SDG). - Median of low income and developing countries (LIDCs) for SDG 3: 48. - Healthy life expectancy at birth: 66.6 years. - HIV prevalence: (reported as above peers). - Health insurance or public health system coverage: 1.5 percent of the population. - National Health Plan objective: universal access to basic health services (2017–2021). - Maternal mortality rate: 186 per 100,000 live births. - Under-five mortality rate: 50 per 1,000 live births. - SDG targets: maternal mortality 70, under-five mortality 25. - Education (SDG 4) - SDG index for education: 64. - Median for LIDCs: 54. - Mean years of schooling: 4.7 years. - National Education Strategic Plan objective: extend basic education system to 13 years (2016–2021). - Net primary enrollment rate: close to 100 percent. - Water and sanitation (SDG 6) - SDG score: 77 (median for LIDCs: 67). - 2015 access to improved drinking water: 81 percent of population. - 2015 access to improved sanitation: 80 percent of population. - Freshwater withdrawal: 3.7 percent of total renewable water resources per year (world average: 65.4 percent). - Electricity and infrastructure (SDG 7 and SDG 9) - Access to electricity: 33 percent of the population. - Per capita electricity consumption: 333 kwh per year (emerging and developing Asia average: 3,048 kwh). - Road infrastructure per capita: 0.8 km per 1,000 people (LIDCs average: 3.6 km per 1,000 people). - Estimated spending needs (selected sectors) - Health - Total additional spending needed by 2030: 5.5 percent of GDP (compared to 2015). - Current health spending: about 4.1 percent of GDP. - Current government health expenditure: around a quarter of total health spending (1.1 percent of GDP). - Total spending needed to reach SDG-high-performing peers: 9.6 percent of GDP in 2030. - Planned expansion assumption: public spending share of total health spending rises to 52 percent by 2030. - Under that assumption, needed public spending on health: 5 percent of GDP in 2030; private spending: 4.6 percent of GDP. - Quantity drivers: increase medical professionals from 0.6 to 0.9 doctors per 1,000 people; from 2.3 to 4.3 other medical staff per 1,000 people. - Doctors’ wages change noted from 6.9 percent to 10.4 percent of GDP per capita. - Education - Current total education spending: about 2.5 percent of GDP. - Current public education spending: 1.8 percent of GDP. - Benchmarking suggests total education spending could reach 7.3 percent of GDP in 2030. - Cost drivers: reduce students-per-teacher ratio from 25 to around 15; increase enrollment rate from preprimary to tertiary from 63 to 80; raise teacher wages ratio to GDP per capita from 1.4 to 2.1. - Assumption: public share of total education spending rises from 70 percent to 80 percent from 2019–2030. - Under that assumption, public spending on education would be 5.8 percent of GDP; private spending would rise from 0.7 percent to 1.5 percent of GDP. - Water and sanitation - Annual investment to achieve universal access: 0.6 percent of GDP. - Electricity - Investment needed to reach near-universal access in 2030 per EMP: about US$16 billion by 2030, or about 1 percent of GDP per year. - EMP target: close to universal access (96 percent of households) and per capita consumption of 1,124 kwh (high scenario). - Authorities’ EMP investment cost estimates: between US$11 and 17 billion. - Roads - Additional kilometers needed by 2030: about 34,000 km to raise the Rural Access Index to at least 75 percent. - Average unit construction cost: US$304,000 per km. - Additional spending needed on roads: 1.3 percent of GDP per year over 2019–2030, of which 0.8 percent is investment and 0.5 percent of GDP is annual maintenance costs. - Aggregate spending needs - Total additional spending to reach the SDGs in social and infrastructure sectors: about 13 percent of GDP in 2030, mostly corresponding to public spending. - Government spending needs: about 8 percent of GDP in the social sectors. - Private sector spending: about 2.5 percent of GDP. - Note: Assuming spending needs on electricity, water and sanitation and roads are undertaken by the public sector, the total annual public spending needs would amount to *Source: 1mmrea2019002 - introduction of IOER.* ### 10.8 percent of GDP. ### 10.8 percent of GDP. ### Estimates of Additional Total Spending for Sustainable Development Goals in 2030 - Estimates (presented in the source figure) of additional total spending for Sustainable Development Goals in 2030 are expressed in percent of GDP. - For education and health, estimates reflect the difference between the share of GDP in spending consistent with high performance in 2030 and the current level of spending as a share of GDP. - For roads and electricity, estimates reflect the annualized additional spending to close the infrastructure gap between 2019 and 2030 expressed in percent of 2030 GDP. - Aggregate reference figure from the source: 10.8 percent of GDP. ### Fund Relations, Quota, and SDRs - Membership Status: Joined on January 3, 1952; Article XIV. - Quota: 516.8 100 - Fund holdings of currency (Exchange Rate): 516.8 100 - Reserve Tranche Position: 0 0 - Net cumulative SDR allocation: 245.76 100 - SDR holdings: 0.10 0.04 - Outstanding Purchases and Loans: None - Latest Financial Arrangements (historical entries): - Stand-By: Jun 12, 1981 – Jun 11, 1982; Amount Approved/Drawn: 27.00 SDR Million - Stand-By: Jul 28, 1978 – Jul 27, 1979; Amount Approved/Drawn: 30.00 SDR Million - Stand-By: May 06, 1977 – May 05, 1978; Amount Approved/Drawn: 35.00 SDR Million - Overdue obligation and projected payments (Charges/Interest; SDR Million): 2019: 2.70; 2020: 2.71; 2021: 2.71; 2022: 2.71; 2023: 2.71 - Article IV Consultation: Myanmar is on the standard 12-month cycle; last consultations were conducted on November 29– December 13, 2018. The Executive Board concluded the 2018 Article IV consultation on March 15, 2019. ### Exchange Rate Arrangement and FX Developments - De jure exchange rate arrangement: managed float. - De facto exchange rate regime classification: other managed, effective April 20, 2018. - Historical policy: kyat had been pegged to the SDR at K 8.5057 per SDR since May 2, 1977; on April 1, 2012 authorities replaced the official peg with a managed float and introduced daily two-way multiple-price foreign currency auctions. - 2016–2018 operations: auction trading volumes declined in 2016; in 2018 the CBM allowed market forces greater role; FX reference rate largely followed a formula consisting of a weighted average of FX interbank and bank-customer market rates. - Exchange rate movement: the exchange rate depreciated by 14.5 percent between April and December (2018). - Policy changes: CBM abolished the trading band (reference rate +/- 0.8 percent) in August 2018; CBM issued on February 4, 2019 a formal regulation announcing the transaction-based exchange rate as the new reference rate. - CBM retains the right to intervene to moderate excessive exchange rate volatility. ### Technical Assistance and Capacity Development - Myanmar is one of the largest recipients of IMF technical assistance (TA); delivery through resident advisors, regional advisors based in CDOT, and short-term HQ and expert missions. - Key TA focus areas: - Central Banking: resident foreign exchange advisor and monetary operations advisor; assistance to strengthen accounting framework and systems. - Financial Sector Supervision: resident advisor in Yangon; AML/CFT TA; banking supervision support. - Revenue Reform: resident tax administration advisor; support for a Medium-Term Revenue Strategy; customs advisor for compliance, audit, and anti-smuggling strategies; preparation of new income tax law. - Public Financial Management: capacity development of the Treasury Department; work on public investment management, budgeting, and fiscal risks from PPPs. - Statistics: external sector and government finance statistics advisors based in CDOT; development of price statistics; a rebased CPI released in August 2016. - Macroeconomic Management: advisor in CDOT developing macro framework and analytical tools. - Coordination: IMF coordinates closely with other development partners; assisted CBM in developing a framework for coordination of international TA in the financial sector. - Resident Representative: Mr. Yasuhisa Ojima, stationed in Yangon since September 2015. - CDOT Director: Mr. David Cowen, Director since September 2015. - The source lists extensive TA missions and topics across months in 2018 (e.g., monetary operations, GFS, PPI, IRD support, Treasury automation, FEML, PPP fiscal risk assessment). ### Statistical Issues and Data Adequacy for Surveillance (As of January 31, 2019) - General assessment: Data provision has serious shortcomings that significantly hamper surveillance. Data are not provided in a timely manner; official and independent estimates of key macroeconomic variables differ widely. - National Accounts: - Myanmar’s national accounts follow the 1968 System of National Accounts; data available only annually (quarterly compiled but not disseminated). - Base year: 2010/2011. - Significant discrepancies exist between production and expenditure approaches. - GDP estimated at producer prices rather than market prices. - Quality hampered by inadequate source data and lack of relevant price indexes (e.g., producer price index). - Informal sector activity not completely accounted for; activity estimates in agriculture, construction, and public administration need major improvement. - ADB providing TA to improve national accounts and implement the 2008 SNA. - Price Statistics: - IMF STA provided TA since March 2013; new CPI covering whole country released in August 2016. - New CPI based on the 2012 Household Income and Expenditure Survey (HIES); includes 274 products and services (previously 158). - Recommendation: develop a producer price index. - Government Finance Statistics (GFS): - No comprehensive monthly or quarterly fiscal compilation; monthly cash-based budget execution data available in local language but not published. - Annual comprehensive data in GFSM format compiled, but financing data incomplete; some State Economic Enterprise transactions recorded partly on accrual and partly on cash basis. - Fiscal and monetary data are not consistent; recording of debt statistics is not comprehensive. - Myanmar participates in a three-year Japan-funded program to improve GFS with a long-term GFS advisor based in CDOT. - Monetary and Financial Statistics: - Monetary survey covers CBM and all commercial banks; standardized report forms established in January 2012. - Nine finance companies and various deposit-taking microfinance institutions established in 2013–14 not included in monetary statistics. - Recommendations to improve quality: expand institutional coverage; monitor consistency of reciprocal/interbank accounts; adopt electronic data capture; consider market or fair value-based valuation of financial instruments in due course. - Financial Sector Surveillance: - Authorities submitted quarterly FSIs to STA for dissemination in March 2017, with data back to beginning of 2016. - CBM reports nine core and four encouraged FSIs for deposit takers with a lag of more than one quarter; reporting of one core and three encouraged FSIs was discontinued since Q3/2016. - External Sector Statistics: - BOP and IIP compiled on BPM6 since 2016; quarterly figures reported to STA. - Participated in CDIS, first submission to STA in November 2017. - Coverage gaps remain (trade in goods, remittances, private non-bank financial transactions and positions). - Revaluation of the national currency in April 2012 caused a large break in BOP and IIP series. - Myanmar is beneficiary of STA three-year project on Improvement of External Sector Statistics in Asia-Pacific (August 2017–July 2020). ### Data Dissemination and Indicator Table (As of January 31, 2019) - Participation: Myanmar began participating in GDDS in November 2013; e-GDDS in 2015. - No data ROSC available. - Table of Common Indicators Required for Surveillance (selected latest observations and reporting frequency): - Exchange Rates: Latest Observation 01/19; Date Received 01/19; Frequency: D/D/D - International Reserve Assets and Reserve Liabilities: Latest Observation 09/18; Date Received 11/18; Frequency: M/M/I - Reserve/Base Money: 09/18; 11/18; M/M/M - Broad Money: 09/18; 11/18; M/M/M - Central Bank Balance Sheet: 09/18; 11/18; M/M/M - Consolidated Balance Sheet of the Banking System: 09/18; 11/18; M/M/M - Interest Rates: Latest Observation 12/18; Date Received 01/19; Frequency: M/I/M - Consumer Price Index: 12/18; 01/19; M/M/M - Revenue, Expenditure, Balance and Composition of Financing—General Government: FY 2018; 11/18; A/I/NA - Revenue, Expenditure, Balance and Composition of Financing—Central Government: FY 2018; 11/18; A/I/NA - External Current Account Balance: Q3/18; 11/18; Q/Q/Q - Exports and Imports of Goods: 12/18; 1/19; M/M/M - GDP/GNP: FY 2018; 11/18; Q/A/A - Gross External Debt: FY 2018; 11/18; A/I/I - International Investment Position: Q2 2018; 11/18; Q/Q/Q ### Debt Sustainability Analysis (Staff Findings) - Risk of external debt distress: Low - Overall risk of debt distress: Low - Application of judgement: No - Key assessments and recommendations: - Under the new low-income country debt sustainability framework, Myanmar’s debt carrying capacity has improved. - All external debt and total public debt indicators remain below their respective indicative thresholds under baseline scenarios and stress tests. - External debt indicators are most vulnerable to shocks to nondebt flows and exports, reflecting the importance of FDI flows to the external position. - Public debt indicators are most sensitive to a natural disaster shock; underscores the importance of strengthening buffers to enhance resilience. - Policy recommendations to maintain debt sustainability: - Continue revenue mobilization measures and build international reserves. - Expand external borrowing mainly on concessional terms for large infrastructure projects under the Myanmar Sustainable Development Plan. - Increase the export base, maximize concessional loans, and improve primary deficits. - Target infrastructure projects with high returns; finance with concessional financing. - Assess fiscal risks of PPPs to limit and report contingent liabilities. - Strengthen the business environment and governance, including in the natural resource sector, to raise investment outlook and potential growth. *Source: Myanmar—Staff Report for the 2018 Article IV Consultation (Informational Annex), Prepared by Asia and Pacific Department; February 25, 2019.* ### 1. The coverage of public sector debt used in the DSA is consolidated general ### 1mmrea2019002 - 1. The coverage of public sector debt used in the DSA is consolidated general ### Coverage of public sector debt - Coverage used in the DSA: consolidated general government debt, government-guaranteed debt and social security funds. SOE debt is on-lent and is therefore included in the coverage of public external debt. - There is no outstanding debt to the IMF. - By component (as applied in this DSA): - Central government: included - State and local government: included - Social security fund: included - Guarantees (to other entities in the public and private sector, including to SOEs): included - Non-guaranteed SOE debt: excluded - External debt definition used in this DSA is based on residency. ### Changes in debt-carrying capacity methodology and applicable thresholds - New LIC DSF uses a composite indicator (CI) based on a weighted average of factors including real GDP growth, remittances, international reserves, world growth and the CPIA score. - Myanmar CI classification for this DSA: medium (based on both the 2018 April WEO and 2018 October WEO data). - Threshold changes (comparisons vs previous DSF): - PV of debt-to-exports threshold increased from 100 percent to 180 percent. - Debt service-to-exports and debt service-to-revenue thresholds remain unchanged. - Indicative threshold for the PV of total public debt-to-GDP increased from 38 to 55 percent of GDP. - Applicable thresholds used in the exercise: - PV of debt in percent of exports: 180 - Debt service in percent of exports: 15 - PV of total public debt in percent of GDP: 55 - Debt service in percent of revenue: 18 - GDP benchmark: 40 ### Background on debt stock and composition (FY2018) - Total public debt: 38.5 percent of GDP as of FY2018. - Public domestic debt: 59.1 percent of total public debt in FY2018. - Public and publicly guaranteed (PPG) external debt: 58.2 percent of total public debt in FY2018. - Domestic debt instruments: T-bills and T-bonds, a large share of which—mostly 3-month T-bills—is held by the central bank. - PPG external debt creditors (end-June 2018, in USD millions and percent): - Bilateral Loans: 8,108.88 — 81.6 - Paris Club: 3,875.83 — 39.0 - of which: Japan: 2,419.52 — 24.3 - Non Paris Club: 4,233.04 — 42.6 - of which: China: 3,848.03 — 38.7 - Multilateral Loans: 1,795.41 — 18.1 - of which: ADB: 556.9 — 5.6 - of which: IDA: 1,220.0 — 12.3 - Commercial: 38.1 — 0.4 - Total: 9,942.3 — 100.0 - Total private external debt: 12.3 percent of GDP as of FY2018. - Total external debt (PPG external + private external): 28.4 percent of GDP as of FY2018. ### Contingent liabilities and banking sector recapitalization risk - Contingent liabilities include potential recapitalization needs of the banking system. - Banking system adjustment to 2017 prudential regulations: converting overdraft to term loans, deleveraging and recognizing previously unreported non-performing loans. - Banking sector vulnerabilities: uneven loan loss recognition, inadequate provisions, large exposures, and low capital positions in most private banks indicate systemic concerns. - A shock covering 5 percent of GDP has been added to the analysis to account for potential recapitalization needs. - Coverage of contingent liabilities used in the framework (percent of GDP): - Other elements of general government not captured: 10.0 - SOE's debt (guaranteed and not guaranteed by the government): 0.0 (By law: SOEs cannot borrow directly) - PPP: 0.00 - Financial market (default value): 5 - Total (2+3+4+5): 5.0 ### Financing plans, PPPs, and investment plans - Authorities plan to increase reliance on external borrowing for infrastructure projects supporting the Myanmar Sustainable Development Plan (MSDP), including: - China-Myanmar Economic Corridor projects (e.g., Kyaukpyu port) - ODA from India (Sittwe port; India-Myanmar-Thailand trilateral highway) - Japan (Thilawa special economic zone; Mekong-Japan Connectivity Initiatives) - Multilateral donor projects (East-West corridor) - Financing strategy: continue to seek external borrowing on concessional terms while limiting commercial-term financing to high-return projects. - Authorities intend to use Public-Private Partnerships (PPPs) more extensively; recent measures include the Project Bank Notification and capacity building at the Ministry of Planning and Finance. - PPP fiscal risk note: Myanmar PPP stock is estimated to be 1.42 percent of GDP (World Bank PPP database); LIC DSA PPP shock applicability requires PPP capital stock > 3 percent of GDP. ### Baseline macroeconomic assumptions (FY2018–FY2023 average unless noted) - Real GDP growth: expected to gradually rise close to 7 percent over the medium-term; baseline value reported as 6.7 (in table: 6.7). - Inflation: headline inflation recently spiked; inflation projected to rise temporarily due to kyat depreciation and higher oil prices. - Current account: projected to increase to around 5 percent of GDP deficit over the short to medium term. - External financing: multilateral financing expected to remain stable; bilateral financing projected to pick up from 2021 onwards. FDI inflows expected to slow to slightly below 4 percent of GDP. - Fiscal outlook: fiscal deficit for FY2018/19 projected to increase as budget execution improves; primary deficit expected to increase over the medium term to help close SDG gaps. - Realism: shift in PPG external debt-to-GDP ratio vs the DSA from five years ago arises from large debt relief received earlier; projected growth path aligns with a fiscal multiplier of 0.2. ### Staff scenario analysis — baseline, downside (Low External Financing), upside (High External Financing) - Scenario assumptions summary (Key Macroeconomic Assumptions: FY2018 - FY2023 average) - Baseline: - Real GDP growth (in percent): 6.7 - Inflation (percent change, y/y): 6.5 - Primary fiscal balance (in percent of GDP): -1.9 - Overall fiscal balance (in percent of GDP): -3.6 - Current account (in percent of GDP): -4.8 - FDI (in percent of GDP): 4.1 - Low External Financing (Downside): - Real GDP growth (in percent): 5.2 - Inflation (percent change, y/y): 8.2 - Primary fiscal balance (in percent of GDP): -1.7 - Overall fiscal balance (in percent of GDP): -3.7 - Current account (in percent of GDP): -5.1 - FDI (in percent of GDP): 3.8 - High External Financing (Upside): - Real GDP growth (in percent): 7.2 - Inflation (percent change, y/y): 7.0 - Primary fiscal balance (in percent of GDP): -2.5 - Overall fiscal balance (in percent of GDP): -4.2 - Current account (in percent of GDP): -5.2 - FDI (in percent of GDP): 4.6 - Previous DSA comparators included: Real GDP growth 7.3; Inflation 6.0; Primary fiscal balance -2.4; Overall fiscal balance -4.1; Current account -5.8; FDI 6.0. - Box 1 medium-term assumptions specifics: - Low financing scenario: - External financing from multilateral official donors reduced by approximately half (as share of GDP). - FDI reduced by 0.4 percent. - Export shock: reduction in exports of goods by US$500 million on average annually. - Government project spending reduced by 0.2 percent of GDP. - Central bank financing of the deficit increased, raising domestic interest payments by 20 percent over the medium term. - Exchange rate depreciation: 6 percent on average. - Increase in inflation expectations: 2.5 percent on average. - Growth expected to be around 5 percent over the medium term. - High financing scenario: - FDI increases by 0.5 percent of GDP on average. - Increased financing from major multilateral and bilateral donors by 0.6 percent of GDP. - Project spending increases by 0.7 percent of GDP. - Exchange rate depreciates and inflation increases, but less than in the low financing scenario (by 1.0 percent and 0.7 percent respectively). - Growth higher on average by 0.8 percent in medium term. ### Debt sustainability findings and stress tests - External PPG debt indicators remain below policy-relevant thresholds in the baseline. - PV of external debt-to-GDP: 12.3 percent in FY2018; expected to grow gradually and then decline to around 10 percent over the projection period. - Standardized stress tests highlight the largest negative impact from a shock to non-debt flows, affecting: - PV of debt-to-GDP ratio - PV of debt-to-exports ratio - Debt service-to-revenue ratio - Debt service-to-exports ratio is sensitive to an exports shock, underscoring the need to expand the export base and the importance of gas explorations. - PV of total public debt-to-GDP ratio remains comfortably below the public debt benchmark in the baseline. - Standardized sensitivity analysis indicates the largest shock pushing PV of public debt-to-GDP in FY2028 to reach 40 percent of GDP is the natural disaster shock. - Natural disasters estimated direct economic loss: 1.82 percent of GDP every year (2006–15 average). - Natural disaster shock specification: one-off shock of 10 percentage points of GDP to debt-GDP ratio in the second year of the projection period; Real GDP growth and exports lowered by 1.5 and 3.5 percentage points respectively in the year of the shock. ### Assessment of risks and policy implications - Key vulnerabilities: - Banking sector recapitalization needs and contingent fiscal cost (5 percent of GDP shock included). - Declining investor sentiment and donor financing related to the humanitarian crisis in Rakhine, with negative implications for concessional financing and FDI. - Exposure to export shocks, especially to the European market. - Natural disaster risk with recurring economic losses averaging 1.82 percent of GDP annually. - Policy recommendations and priorities implied by analysis: - Build policy buffers, particularly domestic revenues and foreign reserves. - Continue structural reforms to improve growth potential, resilience, and economic diversification. - Expand the export base and advance gas exploration projects. - Enhance preparedness and response ability to climate-related and natural disasters by addressing weaknesses in ex-ante resilience and ex-post adaptive capacity. - Manage fiscal risks from PPPs and SOE-related contingent liabilities through strengthened project appraisal, investment planning, and capacity building. *Source: IMF staff calculations and Myanmar DSA text.* ### 13. The DSA under the new LIC DSF framework suggests that Myanmar’s risk of external ### 13. The DSA under the new LIC DSF framework suggests that Myanmar’s risk of external ### Assessment of debt distress and outlook - The DSA under the new LIC DSF framework suggests that Myanmar’s risk of external debt distress is low as is the overall risk of debt distress. - The overall debt outlook remains positive—the total public debt and the total PPG external debt are expected to remain below their respective thresholds and benchmarks over the projection period. - Several vulnerabilities exist that could alter this outlook: - A shock to FDI (non-debt flows). - A shock to exports. - Aftermath from a natural disaster. - Larger than expected contingent liabilities arising from the banking system. ### Policy recommendations and risk mitigation - Increase the export base. - Maximize concessional loans. - Improve policy buffers to help keep the debt burden contained. - Strengthen debt management capacity. - Remain cautious about borrowing that leads to a rapid debt buildup. - Target infrastructure projects with high returns and concessional financing. - Assess fiscal risks of PPPs to limit and report contingent liabilities. - Remain mindful of liquidity risks, despite debt service-to-exports and debt service-to-revenue ratios remaining well below the thresholds. - Monitor the balance sheets of banks as they conform to new regulations to address surfacing fragilities in the banking system. ### Macroeconomic and financial vulnerabilities - Limited financing options imply that even a moderate increase in the deficit implies a recourse to central bank financing. - Central bank financing creates inflationary pressures and raises broader macro-stability concerns. - In-year challenges of foreign exchange availability for lumpy external debt repayments, coupled with thin foreign exchange markets: - Could put pressure on the Kyat. - Could raise financing challenges. ### Structural and governance measures - Strengthen the business environment and governance, including in the natural resource sector, to raise the investment outlook and potential growth. - Progress on the Rakhine state crisis will be closely watched by the international community and will affect the outlook for investment inflows and donor financing. - Over the long term, strengthen economic resilience by increasing fiscal and external buffers to bolster debt sustainability. *Source: IMF staff assessment as presented in the DSA under the new LIC DSF framework.* ### 14. The authorities broadly agreed with staff's assessment of the debt sustainability ### 14. The authorities broadly agreed with staff's assessment of the debt sustainability analysis ### Authorities' response and policy stance - The authorities broadly agreed with staff's assessment of the debt sustainability analysis. - They are carefully considering large infrastructure projects to benefit from the demographic dividend and Myanmar's strategic location while ensure debt sustainability. - Projects under CMEC and other regional connectivity will be scrutinized and subject to open tender. - The cabinet approved the Project Bank Notification requiring all large infrastructure projects go through the same appraisal and approval process. - Regarding the crises in Rakhine state, the authorities noted international scrutiny and possible implications to investor sentiment including from a reduction in external financing. - The authorities appreciated the downside scenario and policy trade-offs outlined by staff. - They reiterated their commitment to steadily phase-out monetary financing and noted that spending could pick up in the new fiscal year following the transition budget under-execution. ### Debt sustainability indicators and key projections (selected) - External debt (nominal) series (2015–2038, percent of GDP as shown): 21.1, 20.6, 26.7, 28.4, 27.5, 25.1, 22.9, 20.5, 18.9, 14.8, 15.9, 15.9, 20.3 - Of which: public and publicly guaranteed (PPG) external debt (percent of GDP): 15.9, 15.6, 13.8, 16.0, 15.3, 14.4, 13.4, 12.5, 11.8, 11.0, 14.6, 13.1, 12.6 - Change in external debt (percent of GDP): 2.3, -0.6, 6.1, 1.7, -0.9, -2.4, -2.2, -2.3, -1.7, -0.4, 0.3 - Identified net debt-creating flows (percent of GDP): 1.3, -2.0, -1.8, -2.4, -1.1, -0.6, -0.5, -0.4, -0.3, -0.5, -0.3, -2.5, -0.7 - Non-interest current account deficit (percent of GDP): 4.8, 4.0, 4.0, 3.5, 4.0, 4.1, 4.1, 4.1, 4.2, 4.1, 3.7, 2.1, 4.0 - Exports (percent of GDP): 22.1, 20.7, 21.9, 22.3, 24.9, 23.7, 22.9, 21.5, 20.6, 22.7, 23.5 - Imports (percent of GDP): 27.1, 25.8, 27.3, 26.6, 29.6, 28.2, 27.5, 26.0, 25.3, 27.3, 27.9 - Net FDI (negative = inflow, percent of GDP): -5.8, -5.2, -5.4, -5.0, -4.2, -3.9, -3.8, -3.7, -3.8, -4.0, -3.4, -3.9, -4.0 - Endogenous debt dynamics (percent of GDP): 2.2, -0.8, -0.4, -0.8, -0.9, -0.8, -0.8, -0.8, -0.7, -0.6, -0.6 - Contribution from nominal interest rate (percent of GDP): 0.4, 0.3, 0.6, 0.9, 0.9, 0.8, 0.7, 0.6, 0.6, 0.4, 0.3 - Contribution from real GDP growth (percent of GDP): -1.4, -1.2, -1.3, -1.7, -1.9, -1.7, -1.5, -1.4, -1.3, -1.0, -0.9 - Residual (percent of GDP): 1.1, 1.5, 7.9, 4.1, 0.2, -1.8, -1.7, -1.9, -1.4, 0.1, 0.5, 3.5, -0.4 - PV of PPG external debt-to-GDP ratio series shown: 12.3, 12.3, 12.7, 11.7, 10.7, 9.8, 9.1, 8.1, 10.8 - PV of PPG external debt-to-exports ratio series shown: 56.1, 55.2, 51.0, 49.3, 46.7, 45.7, 44.2, 35.7, 45.9 - PPG debt service-to-exports ratio series shown: 28.2, 27.6, 5.4, 5.1, 4.5, 5.0, 5.1, 5.0, 4.8, 3.3, 3.2 - PPG debt service-to-revenue ratio series shown: 32.6, 31.2, 7.1, 6.4, 6.6, 6.9, 6.9, 6.2, 5.5, 3.9, 3.5 - Gross external financing need (Million of U.S. dollars) series shown: 3,191.0, 2,865.6, 3,560.8, 3,278.1, 4,159.7, 4,402.0, 4,654.4, 4,849.4, 4,695.0, 4,437.4, 7,027.8 ### Public debt framework (selected) - Public sector debt (percent of GDP): 36.3, 36.5, 34.7, 38.5, 38.3, 38.0, 37.8, 37.4, 37.0, 34.5, 29.7, 32.9, 36.8 - Of which: external debt (percent of GDP): 15.9, 15.6, 13.8, 16.0, 15.3, 14.4, 13.4, 12.5, 11.8, 11.0, 14.6, 13.1, 12.6 - Change in public sector debt (percent of GDP): 3.9, 0.2, -1.8, 3.8, -0.1, -0.3, -0.2, -0.4, -0.4, -0.6, -0.5 - Identified debt-creating flows (percent of GDP): 3.3, 1.0, -1.8, 2.1, -0.1, -0.3, -0.2, -0.4, -0.4, -0.6, -0.5, -1.3, -0.2 - Primary deficit (percent of GDP): 3.1, 1.2, 1.3, 0.8, 1.9, 2.2, 2.3, 2.1, 1.9, 1.5, 1.1, 1.5, 1.8 - Revenue and grants (percent of GDP): 19.5, 18.8, 17.1, 18.1, 17.3, 17.4, 17.4, 17.7, 17.7, 18.1, 19.6, 21.8 - Primary (noninterest) expenditure (percent of GDP): 22.7, 20.0, 18.3, 18.9, 19.2, 19.6, 19.8, 19.9, 20.1, 21.1, 22.9 - Automatic debt dynamics (percent of GDP): 0.2, 0.0, -3.0, 1.4, -2.0, -2.4, -2.5, -2.5, -2.3, -2.0, -1.6 - PV of public debt-to-GDP ratio series shown: 33.0, 36.3, 36.0, 35.6, 35.3, 34.9, 34.5, 31.7, 26.1 - PV of public debt-to-revenue and grants ratio series shown: 193.4, 200.4, 208.2, 204.9, 202.7, 197.0, 190.4, 161.3, 119.9 - Debt service-to-revenue and grants ratio series shown: 26.3, 25.6, 29.8, 29.9, 43.5, 54.8, 64.0, 68.6, 71.9, 46.2, 25.9 - Gross financing need series shown: 8.4, 5.8, 6.3, 6.2, 9.4, 11.6, 13.4, 14.3, 14.9, 10.5, 6.7 ### Stress tests, tailored and bound tests (high-level) - Figures and tables present multiple stress tests and tailored tests, including: - Historical scenario, Commodity Prices shock, Natural Disasters, Combined contingent liabilities, Market Financing (where applicable), and combinations (e.g., B6 Combination of B1–B5). - The most extreme stress test is defined as the test that yields the highest ratio in or before 2028. - Note: All additional financing needs generated by the shocks under the stress tests are assumed to be covered by PPG external MLT debt in the external DSA. - Default terms of marginal debt are based on baseline 10-year projections. - Thresholds and benchmarks shown in sensitivity tables: - PV of debt-to-GDP threshold: 40 (table context) - PV of debt-to-exports threshold: 180 (table context) - Debt service-to-exports threshold: 15 (table context) - Debt service-to-revenue threshold: 18 (table context) - Public debt benchmark (for public debt sensitivity tables): 55 (shown as repeated "5" digits representing benchmark lines) ### Realism tools, drivers of debt dynamics, and fiscal-growth interactions - Figures illustrate drivers of debt dynamics (contributions from real GDP growth, nominal interest rate, price and exchange rate changes, current account + FDI, and other flows) across vintages. - Realism tools assess contribution of government and private investment to real GDP growth and show fiscal adjustment scenarios under different fiscal multipliers (Multiplier = 0.2, 0.4, 0.6, 0.8). - Fiscal adjustment distribution: projected 3-year adjustment and historical distribution for Fund-supported programs for LICs are presented; a 3-year PBadjustment greater than 2.5 percentage points of GDP is in approx. top quartile. ### Key macroeconomic assumptions (selected) - Real GDP growth (in percent): 7.0, 5.9, 6.8, 6.7, 6.4, 6.6, 6.7, 6.9, 6.9, 7.0, 6.5 - GDP deflator in US dollar terms (change in percent): -14.9, 0.1, -1.2, -1.6, -8.0, 2.0, 2.5, 2.8, 2.6, 2.7, 2.4 - Effective interest rate (percent): 1.9, 1.7, 3.2, 3.4, 3.2, 3.3, 3.1, 3.0, 3.0, 2.7, 2.4 - Growth of exports of G&S (US dollar terms, in percent): -5.8, -0.5, 11.6, 2.3, 9.3, 3.2, 5.8, 3.2, 5.5, 9.0, 8.6 - Growth of imports of G&S (US dollar terms, in percent): 11.0, 1.0, 11.9, -2.3, 8.9, 3.8, 6.6, 3.8, 7.0, 9.3, 8.8 - Grant element of new public sector borrowing (in percent): 43.3, 45.2, 45.6, 40.0, 38.2, 33.3, 29.1, 26.6, 35.7 (series presented with ellipses in some years) ### Memorandum and other items - Nominal GDP (Million of US dollars) entries shown: 59,687; 63,240; 66,721; 67,054; 65,665; 71,403; 78,124; 85,857; 94,227; 150,910; 372,491 - Nominal dollar GDP growth series shown: -9.0, 6.0, 5.5, 0.5, -2.1, 8.7, 9.4, 9.9, 9.7, 9.8, 9.0 - PV of external debt series (memorandum): 25.1, 24.7, 24.8, 22.4, 20.2, 17.8, 16.2, 11.8, 12.1 *Source: IMF staff estimates and projections; country authorities (as presented in the staff report).* ### 1. The latest activity indicators suggest a modest recovery in 2018/19 as expected: ### 1mmrea2019002 - 1. The latest activity indicators suggest a modest recovery in 2018/19 as expected: ### Recent activity and external sector - Manufacturing activity: PMI rose further to expansionary levels in February, suggesting a continued pick up in manufacturing activity. - Trade balance and flows: - Trade deficit narrowed to US$0.9 billion end-February. - Exports strengthened 5.4 percent year-on-year. - Imports weakened 4.9 percent year-on-year due to lower capital goods imports. - FDI: FDI project approvals remain sluggish relative to historical trends, albeit showing some improvement in the last few months. - Current account and reserves: - Current account deficit edged up to 4.7 percent of GDP during the transitional budget period (driven by imports and financed by FDI). - Gross reserves have risen by US$0.11 million to US$5.67 billion as of end-January 2019. - Foreign exchange reserves remained broadly flat at over three months of imports (period referenced in text). ### Inflation, exchange rate, and monetary conditions - Exchange rate: - The kyat has strengthened nearly 2.5 percent against the U.S. dollar since end-December. - The CBM removed the +/- 0.8 percentage trading band around the kyat-USD reference rate. - In February 2019, the CBM codified its daily FX reference rate methodology as a weighted average of interbank and bank-customer spot transactions. - Inflation: - Inflation fell sharply to 6.1 percent year-on-year in January from 8.3 percent in November 2018. - CPI inflation spiked at 8.6 percent y/y in September 2018, then moderated thereafter. - FY 2018/19 authorities expect inflation to remain manageable at around 5.1 percent over the year. - Monetary stance and operations: - Monetary conditions have remained tight; treasury bill and deposit auction rates have continued to increase in 2019, with the market-determined rate structure now comfortably above the inflation rate. - Decline in central bank deficit financing and a step-up in deposit auctions in 2018 contributed to a tighter monetary stance. - CBM remains on track to phase out deficit financing by FY 2020/21 and concurs with staff recommendation to link the target ceiling on deficit financing to reserve money. - Recent move to allow unsecured lending at higher interest rates as a step towards interest rate liberalization. - CBM is actively considering TA recommendations, including introducing an interest rate on excess reserves. ### Macroeconomic outlook and risks - Growth: - Real GDP growth during the transitional budget period is estimated at 6.8%. - In FY 2018/19, authorities expect a pickup in growth to 7.4 percent driven by higher public spending, recovery in agriculture, and robust construction and manufacturing activity. - Fiscal: - Fiscal policy remained prudent in 2017/18; lower-than-budgeted deficit of 2.5 percent of GDP (expenditure restraint and budget under-execution). - Central bank financing accounted for about a quarter of this deficit, below the CBM-imposed ceiling of 30 percent. - 2018/19 budget envisages a projected deficit of around 4.8 percent of GDP with rebalancing toward health, education, and growth-enhancing capital expenditure. - Risks: - Near-term risks are elevated and tilted to the downside. - External headwinds: potential spillovers from growing trade frictions, developments in major trading partners such as China and the EU, uncertainties relating to external financing, and the risk of further capital flow pressures if global financial conditions tighten. - Domestic: need to carefully manage the ongoing banking system restructuring process to avoid undue macrofinancial impact. - Long-term prospects: considered strong given Myanmar’s young population, natural resource wealth and strategic location within Asia. ### Fiscal structural and public financial management priorities - Revenue mobilization: - Myanmar’s tax-to-GDP ratio is low compared to regional and peer comparators. - Authorities committed to enhancing equity, efficiency and transparency of the tax system; recent FAD mission on a medium-term revenue strategy viewed as valuable. - Tax administration reforms yielding results: Large Taxpayer Office registering strong revenue increases. - Key reform milestones: Tax Administration Law (under consideration by Parliament) and a new Income Tax Law to be rewritten with IMF Legal Department assistance. - Public investment and project selection: - November 2018 project bank regulation creates centralized and rigorous process for project evaluation, assessing strategic value and environmental and social implications. - Emphasis on strengthening procurement, enforcing transparent and competitive bidding, and use of model contracts to manage fiscal risks from PPPs. ### Financial sector reforms and supervision - Prudential reforms: - In 2017 CBM issued prudential regulations raising standards for bank capital, liquidity, asset classification and loan loss provisioning, and large exposures, with subsequent implementation guidance. - CBM enforcing cleanup of banks’ balance sheets and rebuilding capital cushions; capital improvement plans of systemic banks are being reviewed and implementation monitored. - Regulations issued to liberalize foreign minority shareholdings in domestic banks and facilitate issuance of subordinated debt; further guidance on revaluation of fixed assets forthcoming. - Authorities requesting Fund TA on bank resolution and contingency planning. - Market opening and inclusion: - November 2018: CBM broadened permissible activities for foreign banks to include lending to domestic corporates. - January 2019: authorities announced plans to permit foreign insurers to operate through joint ventures and subsidiaries. - Interest rate liberalization measures expected to incentivize more risk-sensitive lending and catalyze credit to SMEs. - Myanmar’s first credit bureau licensed by CBM in May 2018 and expected to go live in 2019. - Supervision and standards: - CBM building risk-based supervisory and enforcement capacity with Fund support. - Measures in pipeline include regulations on corporate governance, related party lending, fit and proper criteria, bank directorships, and acquisitions of substantial interest. ### Structural, governance, and institutional reforms - Business environment: - New Ministry of Investment and Foreign Economic Relations formed in November 2018 to promote and facilitate investment. - New Companies Law reforms: - Allows foreign entities to take up to a 35 percent stake in domestic companies. - Liberalizes foreign investment in formerly-closed sectors such as retail/wholesale trade and insurance. - Enables foreign participation in the Yangon Stock Exchange. - Strengthens corporate governance and transparency; streamlines company registration and administration, including an electronic register of companies. - Governance and anti-corruption: - Progress on anti-corruption framework including enhancements to the Anti-Corruption Law in 2018. - Authorities concur with need to reinforce fiscal governance and natural resource management. - Myanmar part of Extractive Industries Transparency Initiative (EITI); validation process commenced in July 2018. - AML/CFT: - Cross-agency working group formed to address deficiencies identified in the APG mutual evaluation report. - Key priorities: reinforcing operational independence of the Financial Intelligence Unit; strengthening preventive (supervisory) and enforcement capacity. - Authorities aim to effect amendments to the AML/CFT legal framework by 3Q 2019. ### Data, statistics, and implementation capacity - Data improvements: - Authorities began publishing fiscal data in line with the Government Finance Statistics Manual (GFSM) framework in 2018. - Implementation of e-GDDS underway; National Summary Data Page scheduled to go live by end-March 2019. - Capacity constraints: - Authorities recognize limitations in domestic implementation capacity and emphasize the importance of development partner assistance and IMF capacity development aligned with the Myanmar Sustainable Development Plan (MSDP). *Statement by Mr. Keng Heng Tan, Alternate Executive Director, and Ms. Chengyi Ong, Advisor to the Executive Director; March 15, 2019.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2019/1mmrea2019002.pdf_