## 1mmrea2020005

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### Executive Board decision and financing
- Approved disbursement of SDR 86.1 million (about US$118.8 million or 16.67 percent of quota) under the Rapid Credit Facility (RCF).
- Approved purchase of SDR 172.3 million (about US$237.7 million or 33.33 percent of quota) under the Rapid Financing Instrument (RFI).
- Total approved SDR 258.4 million (50 percent of quota) on account of present and urgent balance of payments needs from the COVID-19 shock.
- Authorities expressed interest in exhausting the 100 percent of quota annual access limit under the RCF/RFI (about US$ 700 million).
- IMF emergency financing intended to catalyze additional support, including under the Debt Service Suspension Initiative (DSSI) supported by the G-20 and the Paris Club.
- Purchase and disbursement to be channeled to the CBM to be on-lent to the MOPFI for budget support; a Memorandum of Understanding between CBM and MOPFI related to uses of the funds and servicing financial obligations to the Fund has been signed.
- Myanmar has accepted the obligations of Article VIII of the IMF’s Articles of Agreement.

### Impact of COVID-19 — key findings and projections
- Health and cases:
  - As of June 11, 2020, Myanmar had reported 249 cases and 6 fatalities.
  - Epidemiological update as of June 14: reported number of confirmed COVID-19 cases is 261.
- Growth:
  - Real GDP growth expected to slow to 1.4 percent in FY2019/20 (5 percentage points below pre-COVID-19 estimates).
  - Growth projected to recover to 6 percent by end-FY2020/21.
  - Medium-term projections: 2021/22 Proj.: 6.2; 2022/23 Proj.: 6.3; 2023/24 Proj.: 6.4; 2024/25 Proj.: 6.5.
- Inflation:
  - Inflation fell to 6.6 percent in March from 8.8 percent at end-2019.
  - FY2019/20 inflation expected to decline to 5.9 percent.
  - CPI (end-period; base year from 2014/15=2012): 4.4 (2019/20), 7.2 (2020/21).
- External position and reserves:
  - Reserves edged up to US$6.1 billion as of May 2020.
  - CBM reserves (gross): 6,840 (2019/20), 7,733 (2020/21) (US$ millions).
  - Current account deficit projected to widen from 2.6 to 4.0 percent of GDP in FY2019/20.
  - External financing gap expected to be US$1.7 billion in FY2019/20 and US$0.8 billion in FY2020/21.
  - Without additional external support, reserve coverage would fall to below 4 months of imports and 12 percent of broad money.
  - Staff estimate optimal reserve coverage around 5−6 months of imports; target about 5 months of imports or 20 percent of broad money.
- Sectoral and social impacts:
  - Agriculture comprises a fifth of the economy and over half of employment.
  - Garments account for about one-fourth (28 percent noted elsewhere) of exports.
  - Tourism receipts have collapsed and remittances are expected to weaken (remittances expected to fall by 10 percent).
  - SMEs and vulnerable groups, including those in conflict regions, likely to bear disproportionate costs.

### Fiscal impact, financing needs, and CERP costs
- COVID-related spending and revenue effects:
  - Announced measures expected to raise expenditures by around 1 percent of GDP for the remainder of FY2019/20, and 1−2 percent of GDP in FY2020/21.
  - Weaker economic activity and falling gas prices will reduce revenues by nearly 1½ percent of GDP.
- Fiscal balances and debt:
  - Overall fiscal deficit projected to widen to 5.8 percent of GDP in FY2019/20 and FY2020/21 (an increase of nearly 2 percent of GDP relative to the previous year).
  - Public debt about 40 percent of GDP; assessed as sustainable with low risk of debt distress.
  - Consolidated public sector indicators: Total revenue 14.8 (2019/20), 14.7 (2020/21); Total expenditure 20.6 (2019/20), 20.5 (2020/21); Net lending (+)/borrowing (-): -5.8 (2019/20), -5.8 (2020/21); Total PPG debt: 42.7 percent of GDP (2019/20), 44.7 percent of GDP (2020/21).
- Projected financing gaps:
  - Total financing gap in FY2019/20: US$1,676 million (2.4 percent of GDP).
  - Total financing gap in FY2020/21: US$794 million (1.0 percent of GDP).
  - Identified financing for FY2019/20 includes IMF US$0.5 billion and DSSI US$0.5 billion; remaining unidentified financing US$0.6 billion.
  - Staff assessment: large BOP financing gap of about USD 2.5 billion over FY2019/20 and FY2020/21 (text notes); expected BOP financing gap of US$2−3 billion over FY2019/20 and FY2020/21.
- Estimated fiscal costs of CERP (US$ millions / % of GDP):
  - 2019/20 totals: Revenue relief 99 / 0.14; Expenditure 416 / 0.60; Health 115 / 0.16; Social assistance 302 / 0.43; On lending 186 / 0.27; Total 701 / 1.00.
  - 2020/21 totals: Revenue relief 213 / 0.28; Expenditure 501 / 0.66; Health 109 / 0.14; Social assistance 348 / 0.46; On lending 355 / 0.47; Total 1070 / 1.41.
- Financing gap response:
  - Authorities intend to prioritize external concessional borrowing to limit risks of excessive monetary financing.
  - Gross CBM financing of the fiscal deficit for FY2019/20 is capped at MMK 1.3 trillion (under 7 percent of previous years’ reserve money) per the latest supplementary budget.
  - Staff view: CBM financing should be limited to around 5 percent of previous year’s reserve money in FY2020/21 and gradually phased out thereafter.

### Policy responses and IMF recommendations
- Fiscal policy:
  - Near-term fiscal spending should focus on containing the spread of the virus, boosting healthcare, and supporting the most vulnerable.
  - Prioritize external concessional financing and the DSSI to limit monetary financing risks.
  - When conditions permit, shift focus to enhancing revenue mobilization and public financial management (PFM) reforms.
- Monetary and exchange rate policy:
  - CBM cut the policy interest rate by a cumulative 300 bps since mid-March and temporarily reduced reserve and liquidity requirements.
  - Current accommodative monetary stance judged appropriate; monetary policy should actively manage inflation expectations and a liquidity squeeze.
  - Greater exchange rate flexibility recommended; continue adhering to FX intervention rules and strengthen external buffers when feasible.
- Financial sector policies:
  - Support bank lending while shortening forbearance in line with the duration of the slowdown; monitor NPLs and consider a comprehensive NPL resolution strategy.
  - Address gaps in the AML/CFT framework.
  - Require banks to develop liquidity contingency plans and set up an ELA to insolvent institutions on a secured basis.
- Governance and transparency:
  - Commitments to audit COVID-19 spending, publish quarterly consolidated GFS accounts, publish procurement contracts above MMK 100 million within 3 months, and have OAGM conduct a targeted audit within 6 months of the fiscal year end.
  - Continue PFM and revenue reforms: implement Tax Administration law, submit draft Income Tax Law (ITL) to Parliament in FY2020/21 to be effective in FY2021/22, and move to a unified chart of accounts by December 2020.

### Banking sector, liquidity, and debt sustainability risks
- Banking sector asset quality and liquidity:
  - Outbreak expected to weigh on asset quality and stall recapitalization progress; credit growth 13.9 percent y/y as of January 2019.
  - CBM extended phase-in period for prudential regulations by three years to end-August 2023.
  - Deposits have held up but liquidity risks remain; increased cash demand could pressure liquidity and market interest rates.
- Downside and adverse scenarios:
  - Risks tilted heavily to the downside; prolonged outbreak interacting with banking fragilities could require public recapitalization of one or more systemic banks.
  - In an adverse scenario, growth could fall by an additional 2½ percentage points in FY2019/20 as credit sharply declines.
- Debt sustainability:
  - Risk of external debt distress: Low; Overall risk of debt distress: Low.
  - Under baseline reflecting COVID-19 shock, external PPG debt indicators remain below policy thresholds.
  - Under an adverse scenario with contingent liabilities equal to 5 percent of GDP, PV of public debt-to-GDP could breach the 55 percent benchmark and risk rating could rise to moderate.

### DSSI, external financing, and IMF modalities
- Authorities intend to avail of the DSSI.
- DSSI estimated savings: US$322 million in FY2019/20 and US$67 million in FY2020/21 in external debt service; NPV neutral.
- DSSI would contribute 19 percent of the financing gap in FY2019/20.
- Immediate IMF access recommended:
  - 50 percent of quota under the RCF/RFI: SDR 258.4 million or about US$356.51 million.
  - Of this, 16.67 percent of quota (SDR 86.13 million) from PRGT resources and 33.33 percent of quota (SDR 172.27 million) from GRA resources.
  - This amounts to 21.3 percent of Myanmar’s external financing gap in FY2019/20.
  - Fund financing expected to unlock US$900 million in financing from other sources, including the DSSI, in FY2019/20.
- Repayment capacity:
  - Adequate capacity to repay the Fund; at peak, liabilities to the Fund would amount to 0.5 percent of GDP or about 5.6 percent of gross international reserves.
- Safeguards and reporting:
  - Authorities to undergo a safeguards assessment of the CBM before Executive Board approval of any subsequent arrangement and to provide central bank external audit reports to Fund staff.

### Administrative, transparency, and conditional commitments
- Publication and reporting commitments:
  - Publish quarterly consolidated GFS reports and quarterly budget monitoring reports identifying CERP-related spending within 3 months of each quarter end.
  - Disclose all government and government guaranteed debt contracted by the consolidated public sector to the IMF and World Bank Group.
  - Publish procurement contracts above Kyat 100 million within 3 months of being signed and ex post delivery validation reports.
  - OAGM to conduct a targeted audit of COVID-19 related spending and disseminate a report within 6 months of the end of the fiscal year.
- Other commitments:
  - Not to contract new non-concessional debt during the suspension period except as allowed under DSSI or in compliance with IMF Debt Limit Policy or WBG policy.
  - Authorization for IMF to publish the Letter of Intent and the staff report for the RCF/RFI request.

*Source: IMF Executive Board decision and staff report excerpts contained in 1mmrea2020005.*

### 356.5 million emergency assistance for Myanmar under the Rapid Credit Facility and the

### 356.5 million emergency assistance for Myanmar under the Rapid Credit Facility and the Rapid Financing Instrument

### Executive Board decision and financing
- Approved disbursement of SDR 86.1 million (about US$118.8 million or 16.67 percent of quota) under the Rapid Credit Facility (RCF).
- Approved purchase of SDR 172.3 million (about US$237.7 million or 33.33 percent of quota) under the Rapid Financing Instrument (RFI).
- Total approved SDR 258.4 million (50 percent of quota) on account of present and urgent balance of payments needs from the COVID-19 shock.
- The authorities expressed interest in exhausting the 100 percent of quota annual access limit under the RCF/RFI (about US$ 700 million).
- IMF emergency financing intended to catalyze additional support, including under the Debt Service Suspension Initiative (DSSI) supported by the G-20 and the Paris Club.

### Impact of COVID-19 on Myanmar — key findings and projections
- Health and cases: As of June 11, 2020, Myanmar had reported 249 cases and 6 fatalities.
- Growth:
  - Real GDP growth expected to slow to 1.4 percent in FY2019/20 (5 percentage points below pre-COVID-19 estimates).
  - Growth projected to recover to 6 percent by end-FY2020/21.
- Inflation:
  - Inflation fell to 6.6 percent in March from 8.8 percent at end-2019.
  - FY2019/20 inflation expected to decline to 5.9 percent.
- External position and reserves:
  - Reserves edged up to US$6.1 billion as of May 2020.
  - Current account deficit projected to widen from 2.6 to 4.0 percent of GDP in FY2019/20.
  - External financing gap expected to be US$1.7 billion in FY2019/20 and US$0.8 billion in FY2020/21.
  - Without additional external support, reserve coverage would fall to below 4 months of imports and 12 percent of broad money.
  - Staff estimate optimal reserve coverage around 5−6 months of imports; target about 5 months of imports or 20 percent of broad money.
- Sectoral and social impacts:
  - Agriculture comprises a fifth of the economy and over half of employment.
  - Garments account for about one-fourth of exports.
  - Tourism receipts have collapsed and remittances are expected to weaken.
  - SMEs and vulnerable groups, including those in conflict regions, likely to bear disproportionate costs.

### Fiscal impact and financing needs
- COVID-related spending and revenue effects:
  - Announced measures expected to raise expenditures by around 1 percent of GDP for the remainder of FY2019/20, and 1−2 percent of GDP in FY2020/21.
  - Weaker economic activity and falling gas prices will reduce revenues by nearly 1½ percent of GDP.
- Fiscal balances and debt:
  - Overall fiscal deficit projected to widen to 5.8 percent of GDP in FY2019/20 and FY2020/21 (an increase of nearly 2 percent of GDP relative to the previous year).
  - Public debt about 40 percent of GDP; assessed as sustainable with low risk of debt distress.
- Projected financing gaps (Text Table highlights):
  - Total financing gap in FY2019/20: US$1,676 million (2.4 percent of GDP).
  - Total financing gap in FY2020/21: US$794 million (1.0 percent of GDP).
  - Identified financing for FY2019/20 includes IMF US$0.5 billion and DSSI US$0.5 billion; remaining unidentified financing US$0.6 billion.
- Policy stance on financing:
  - Authorities prepared to take contingency fiscal measures, including delays in lower priority capital spending, if unidentified financing needs cannot be filled.

### Policy responses and IMF recommendations
- Fiscal policy:
  - Near-term fiscal spending should focus on containing the spread of the virus, boosting healthcare, and supporting the most vulnerable.
  - Prioritize external concessional financing to limit risks associated with excessive monetary financing.
  - When conditions permit, shift focus to enhancing revenue mobilization and public financial management (PFM) reforms.
- Monetary and exchange rate policy:
  - The Central Bank of Myanmar cut the policy interest rate by a cumulative 300 bps since mid-March and temporarily reduced reserve and liquidity requirements.
  - Current accommodative monetary stance judged appropriate; monetary policy should actively manage inflation expectations and a liquidity squeeze.
  - Greater exchange rate flexibility recommended to help cushion external shocks; strengthen external buffers in line with the FX intervention rule when feasible.
- Financial sector policies:
  - Authorities announced policies to support bank lending; forbearance should be shortened in line with the duration of the COVID-related economic slowdown.
  - Monitor nonperforming loans (NPLs) and consider a comprehensive NPL resolution strategy.
  - Address gaps in the AML/CFT framework.
- Governance and conditionality:
  - Authorities committed to implementing targeted governance, transparency and accountability measures to ensure appropriate use of emergency financing.
  - Continued engagement on capacity development and technical assistance with the IMF and other development partners.

### Modalities of IMF support and program context
- Eligibility and modality:
  - Staff assesses Myanmar meets eligibility requirements for the blend RCF/RFI and supports a purchase and outright disbursement of SDR 258.4 million (50 percent of quota).
  - Myanmar is a presumed blender based on income criteria; RCF/RFI resources will blend in the ratio of 1:2.
  - Access level would cover 21 percent of the external financing gap and is expected to catalyze multilateral and bilateral support.
- Repayment capacity:
  - There is adequate capacity to repay the Fund.
- Other:
  - Myanmar has accepted the obligations of Article VIII of the IMF’s Articles of Agreement.

*Source: IMF Executive Board decision and staff report, Washington, DC – June 26, 2020.*

### 9.      Risks to debt sustainability remain contained. Despite the increase in the budget and

### 9. Risks to debt sustainability remain contained. Despite the increase in the budget and

### Debt sustainability and external/public debt risks
- External and public debt should remain robust to shocks given relatively low starting levels.
- External and public debt are expected to stay below their respective risk thresholds, keeping the overall risk of debt distress low.
- Under an alternative adverse scenario accounting for a prolonged pandemic interacting with banking sector fragilities, the risk of debt distress would rise to moderate.

### Banking sector asset quality and liquidity risks
- The outbreak is expected to weigh on asset quality and stall progress on bank recapitalization.
- Prior to the outbreak banks had been making uneven progress on legacy loans, loan classification, provisioning and capitalization.
- The CBM extended the phase-in period for compliance with prudential regulations by three years to end-August 2023 to support bank credit.
- Extended regulatory forbearance plus deterioration in debt repayment capacity could raise NPLs and recapitalization costs and potentially limit access to finance for vulnerable groups.
- Credit growth remains fairly robust at 13.9 percent y/y as of January 2019.
- Increased cash demand could pose pressure on bank liquidity and market interest rates.
- Banks’ deposits have held up thus far, but liquidity risks remain.

### Downside risks and adverse scenario
- Risks are tilted heavily to the downside.
- A more prolonged outbreak with community spread and more severe lockdowns would constrain activity further with large economic and human costs.
- Protracted disruptions interacting with banking system fragilities could:
  - Further depress demand and credit growth.
  - Potentially require public recapitalization of one or more systemic banks.
  - Compromise reserve coverage.
- In such an adverse scenario, growth could fall by an additional 2½ percentage points in FY2019/20 as credit sharply declines.
- Effects would be long-lasting with slow recovery of output relative to baseline and other countries in the April 2020 WEO scenario box.
- On the external front, a prolonged global outbreak could keep external demand subdued, extend supply chain disruptions, and produce weak FDI and tighter and more volatile financial conditions.

### Fiscal policy — immediate priorities and CERP measures
- Near-term fiscal spending should focus on containing the virus, boosting healthcare, and providing transfers to affected and vulnerable groups.
- Leverage development partner support given limited capacity to absorb and implement planned increases in health and social spending.
- Announced CERP measures include (status noted where provided):
  - Reallocation of up to 10 percent of budgeted expenditures to COVID-19 related spending within line ministries and the COVID-19 Contingency Fund (in progress).
  - Tax relief and deferments, duty suspensions on medical goods and supplies imports, and partial exemption of household electricity tariffs (implemented).
  - Expansion of quarantine facilities; immediate import of required medical-related products; improving health sector human resources; upgrading existing health facilities partly funded by emergency health financing projects by the ADB, UN and the World Bank (in progress).
  - Establishing cash and/or in-kind transfer programs covering all possible regions, including informal workers through mobile payments, with the first phase based on the food rationing scheme database (in design stage).
  - A MMK 500 billion fund to provide soft loans to the private sector for working capital through the state-owned Myanmar Economic Bank (MEB) (in progress).
  - A credit guarantee scheme for SMEs and high growth sectors to be established conditional on maintaining employment (in design stage with ADB assistance).
  - Prioritizing ready, high impact public investments, and streamlining approvals for private investments and PPPs (in progress).

- Financing gap response:
  - Authorities intend to prioritize external concessional borrowing to limit risks of excessive monetary financing.
  - Gross CBM financing of the fiscal deficit for FY2019/20 is capped at MMK 1.3 trillion (under 7 percent of previous years’ reserve money) per the latest supplementary budget.
  - Staff view: CBM financing should be limited to around 5 percent of previous year’s reserve money in FY2020/21 and gradually phased out thereafter to avoid inflation and exchange rate spiral risks.
  - Contingency planning required to rationalize expenditures and mobilize revenues if financing is not forthcoming or adverse scenario materializes; careful tracking of spending execution emphasized.

### Estimated fiscal costs of major action plans of CERP (Text Table 3)
- 2019/20 — US$ millions / % of GDP:
  - Revenue: Tax waiver and credits, household electricity tariff relief — 99 / 0.14
  - Expenditure — 416 / 0.60
  - Health: Health facilities, medical products for COVID-19 — 115 / 0.16
  - Social assistance: Cash transfers, food, cash-for-work, pension support, health benefit extension — 302 / 0.43
  - Other: Support for productivity enhancement in businesses — 0 / 0.00
  - On lending: On lending to support SME, MFI, small farmers, trade financing — 186 / 0.27
  - Total — 701 / 1.00
- 2020/21 — US$ millions / % of GDP:
  - Revenue: Tax waiver and credits, household electricity tariff relief — 213 / 0.28
  - Expenditure — 501 / 0.66
  - Health: Health facilities, medical products for COVID-19 — 109 / 0.14
  - Social assistance: Cash transfers, food, cash-for-work, pension support, health benefit extension — 348 / 0.46
  - Other: Support for productivity enhancement in businesses — 44 / 0.06
  - On lending: On lending to support SME, MFI, small farmers, trade financing — 355 / 0.47
  - Total — 1070 / 1.41

### Debt Service Suspension Initiative (DSSI) and debt transparency
- Authorities intend to avail of the DSSI.
- DSSI estimated savings: US$322 million in FY2019/20 and US$67 million in FY2020/21 in external debt service; NPV neutral.
- DSSI would contribute 19 percent of the financing gap in FY2019/20.
- Under the DSSI, authorities commit to contract no new non-concessional debt during the suspension period while meeting reporting requirements.
- Staff assessment: increase in gross financing needs after DSSI expiration would be manageable.

### Fiscal governance, PFM and structural reforms
- Urgent need to strengthen social safety nets and build on progress in public financial management (PFM) reforms.
- Explore full operationalization of the 2012 Social Security Law.
- Leverage 2020 PEFA findings to catalyze development partner assistance and efficient budget execution.
- Key fiscal-structural reforms to accelerate:
  - Enact a FY2020/21 budget with greater appropriations to social sectors and COVID-19 relief.
  - Publish quarterly consolidated GFS accounts with economic classification, and quarterly budget monitoring reports identifying CERP-related spending on the MOPFI website within 3 months of the end of each quarter with World Bank and Fund CD.
  - Improve cash management and coordination between Treasury and CBM to support debt management and reduce surges in monetary financing.
  - Strengthen procurement transparency: publish, within 3 months of being signed, on the MOPFI website procurement contracts above MMK 100 million with details including names of awarded companies and their beneficial owners, goods and services procured, price per unit, overall contract amount; publish ex post delivery reports.
  - Enhance auditing: OAGM to conduct a targeted audit of COVID-19 related spending and disseminate a report within 6 months of the end of the fiscal year (supported by ADB and World Bank TA and internal audit teams).
  - Continue publishing comprehensive public debt data through annual Government Debt Report in accordance with the Public Debt Management Law.
  - MOPFI to track government external loans and guarantees and strengthen fiscal risk management capacity.
  - Incorporate competitive bidding processes for the new project bank by setting up a PPP unit in MOPFI and annually report performance via a fiscal risk report to Parliament beginning FY2020/21.

- Revenue mobilization and PFM reforms to continue as recovery sets in:
  - Implement recently enacted Tax Administration law.
  - Submit draft Income Tax Law (ITL) to Parliament in FY2020/21 to be effective in FY2021/22.
  - COVID tax relief measures should be temporary with a sunset clause by end-FY2020/21.
  - Move to second phase of automation to unify budget and financial reporting, with Fund and World Bank assistance, including a unified chart of accounts by December 2020.

### Monetary and exchange rate policy
- CBM actions:
  - Bank rate cut thrice by a cumulative 300 bps; deposit rate floor and lending rate caps moved downward proportionally.
  - Temporarily lowered reserve requirement ratio from 5 to 3.5 percent up to end-September 2020.
  - Paused deposit auctions.
  - Raised weight of long-term government securities in banks’ liquidity ratio calculations to facilitate domestic debt issuance and liquidity.
- Staff view:
  - Current policy (bank) rate of 7 percent is sufficiently accommodative.
  - Further interest rate reductions should be assessed against macro developments and financial stability.
  - FY2019/20 CBM financing ceiling of 6.7 percent of reserve money is above recent levels but unlikely to raise inflationary pressures given contained reserve money growth.
  - CBM should clarify operational framework for credit auction and discount window facilities and strengthen liquidity forecasting to guide interbank rates.
- Exchange rate policy:
  - Exchange rate flexibility will help cushion external shock.
  - Continue adhering to recently introduced FX intervention rules to limit excessive exchange rate volatility and build reserves when opportunity arises.

### Financial sector policies and recommended actions
- Authorities announced policies to support bank lending:
  - Banks allowed to restructure and reschedule MSME loans without classifying these as NPLs if interest and principal are received on a timely basis.
  - Phase-in period for full compliance with prudential regulations on capital adequacy, NPL provisioning, and large exposures extended by three years.
  - CERP intends to partially guarantee new loans to SMEs and severely impacted sectors; proposes an AMC to absorb troubled assets.
- Funding to affected groups should be delivered mostly via public interventions such as guarantees and publicly-funded loans.
- State guarantee agency establishment (with ADB help) is at infancy; operationalization and sound underwriting need attention.
- Staff recommendations on prudential compliance and NPLs:
  - Phase-in period should be aligned with COVID-19 impact; uphold asset classification requirements.
  - While extension is warranted, the three-year extension appears excessive and could be shortened in line with duration of COVID-19 slowdown.
  - CBM to closely monitor banks’ progressive steps toward full compliance and preclude misuse of COVID-19 related restructuring provisions.
  - Banks to be provided incentives to fully comply ahead of schedule.
  - Banks’ loan portfolios should be examined to avert further deterioration of asset quality and solvency.
  - Any NPL clean-up or recapitalization mechanisms should be consistent with reducing fiscal costs and in consultation with World Bank and Fund.
- AMC considerations:
  - AMC is one option but could entail large fiscal costs and is less desirable than other options.
  - Asset transfers require transparent market-based valuation and specialized expertise and tools currently lacking in Myanmar.
  - Timely and credible capital restoration plans and comprehensive asset quality reviews (AQRs) are prerequisites.
- Liquidity and contingency measures:
  - Authorities should closely monitor banks’ liquidity and advance contingency arrangements to address potential banking sector stress.
  - Require banks to develop liquidity contingency plans and set up an ELA to insolvent institutions on a secured basis.
- AML/CFT:
  - Authorities reaffirm commitment to addressing AML/CFT gaps in response to FATF Grey Listing.
  - Implementation period extended by four months due to COVID-19, but progress made on time bound remedial Action Plan with Asia Pacific Group; positive rerating on five technical compliance areas.

### Modalities of IMF support under the RCF/RFI
- RCF/RFI considered essential to address immediate sizable BOP needs from COVID-19 shock.
- An upper credit tranche (UCT) facility not feasible at present given shock uncertainty and near-term stabilization focus.
- IMF support expected to catalyze additional financing from multilateral institutions and bilateral creditors and allow Myanmar to avail of the DSSI.
- Myanmar has no arrears to external bilateral, multilateral, or private creditors.
- Immediate access recommended:
  - 50 percent of quota under the RCF/RFI: SDR 258.4 million or about US$356.51 million.
  - Of this, 16.67 percent of quota (SDR 86.13 million) from PRGT resources and 33.33 percent of quota (SDR 172.27 million) from GRA resources.
  - This amounts to 21.3 percent of Myanmar’s external financing gap in FY2019/20.
  - Fund financing expected to unlock US$900 million in financing from other sources, including the DSSI, in FY2019/20.
  - Staff view current access level appropriate; further IMF assistance may be sought if financing needs increase significantly next fiscal year.
- Debt sustainability and capacity to repay:
  - Myanmar assessed as having a low risk of debt distress and an adequate capacity to repay the Fund.
  - At peak, liabilities to the Fund would amount to 0.5 percent of GDP or about 5.6 percent of gross international reserves.
- Disbursement and safeguards:
  - Purchase and disbursement will be channeled to the CBM to be on-lent to the MOPFI for budget support.
  - Authorities commit to undergoing a safeguards assessment of the CBM before Executive Board approval of any subsequent arrangement.
  - Authorities to provide Fund staff with most recent central bank external audit reports and authorize CBM external auditors to hold discussions with staff.
  - A Memorandum of Understanding between CBM and MOPFI related to uses of the funds and servicing financial obligations to the Fund has been signed.

*Source: IMF staff report excerpt (chapter/section 9–Modalities of IMF Support under the RCF/RFI) contained in 1mmrea2020005.*

### 31.      The COVID-19 outbreak presents large human and economic costs for Myanmar. Given

### 1mmrea2020005 - 31.      The COVID-19 outbreak presents large human and economic costs for Myanmar. Given

### Impact and near-term projections
- The COVID-19 outbreak presents large human and economic costs for Myanmar.
- Weaknesses in the healthcare system, and already low international reserves and heightened financial sector vulnerabilities, increase risks.
- The measures undertaken to contain the spread of the virus, in conjunction with subdued global demand, would result in Myanmar’s growth contracting sharply to 1.4 percent in FY2019/20.
- As a result, the fiscal and current account deficits would widen, resulting in sizable BOP and fiscal financing needs over the next 18 months (about 2.4 percent of GDP in FY2019/20).

### Near-term policy focus and staff support
- Staff supports the authorities’ policy intentions as outlined in the LOI.
- In the near term, efforts should be focused on:
  - containing the spread of the virus,
  - directing policies to boosting health and social spending,
  - providing relief to affected sectors,
  - safeguarding external and financial stability over the medium term.

### Measures to enhance spending efficiency and engagement
- The authorities’ commitments on:
  - auditing,
  - debt and procurement transparency,
  - consolidated GFS fiscal reporting,
  together with continued engagement with Fund CD and development partners, should enhance spending efficiency.

### Medium-term priorities and contingency planning
- Over the medium term, efforts should continue to:
  - address fragilities in the banking system,
  - raise tax revenues,
  - strengthen reserve coverage,
  - prepare contingency measures in the event of future stress.

*Source: https://www.imf.org/-/media/files/publications/cr/2020/english/1mmrea2020005.pdf*

### 33.      Staff supports the authorities’ request for a disbursement/purchase under a 1:2 blend

### 33. Staff supports the authorities’ request for a disbursement/purchase under a 1:2 blend of the RCF and RFI of SDR 258.4 million (50 percent of quota)

### Staff recommendation and rationale
- Staff supports the authorities’ request for a disbursement/purchase under a 1:2 blend of the RCF and RFI of SDR 258.4 million (50 percent of quota).
- Staff assesses the COVID-19 shock as having a severe impact on Myanmar’s economy, creating actual and urgent BOP needs.
- Direct budget support would enable the government to quickly marshal resources towards the healthcare response and effectively target vulnerable groups.
- Fund financing would catalyze additional external financing and allow Myanmar to avail of the DSSI.
- Despite significant uncertainty around the outlook, Myanmar’s debt remains sustainable and its capacity to repay the Fund is adequate under the policies committed by the authorities in the LOI.

### Health sector assessment (key findings from Figure 1)
- Myanmar’s COVID-19 case count is relatively low, although testing has been limited.
- Health care provision is inadequate and the health care system preparedness is assessed as low.
- Health and social spending still lag behind peers.
- The economy is characterized by a high degree of informality.

### Macroeconomic developments (highlights from Figure 2 and Table 1)
- Tourism inflows have come to a halt and domestic demand will slow as containment measures set in.
- Declining global commodity prices and domestic developments have led inflation to weaken.
- Exports held up in the first half of the fiscal year, but there is evidence of broad-based import compression as the kyat has appreciated and reserves have held up.
- Selected indicators (2019/20 Est.; 2020/21 Proj. shown where available):
  - Real GDP growth: 1.4 (2019/20), 6.0 (2020/21)
  - CPI (end-period; base year from 2014/15=2012): 4.4 (2019/20), 7.2 (2020/21)
  - Total revenue: 14.8 percent of GDP (2019/20), 14.7 percent of GDP (2020/21)
  - Tax revenue: 6.0 percent of GDP (2019/20), 6.1 percent of GDP (2020/21)
  - Total expenditure: 20.6 percent of GDP (2019/20), 20.5 percent of GDP (2020/21)
  - Net lending (+)/borrowing (-): -5.8 percent of GDP (2019/20), -5.8 percent of GDP (2020/21)
  - Total public and publicly guaranteed (PPG) debt: 42.7 percent of GDP (2019/20), 44.7 percent of GDP (2020/21)
  - CBM reserves (gross): In millions of U.S. dollars: 6,840 (2019/20), 7,733 (2020/21)

### Macrofinancial impact and scenarios (from Figure 3)
- Baseline: GDP growth is expected to remain below the pre-COVID-19 baseline over the medium term.
- Adverse scenario: GDP could fall more sharply if banking sector fragilities crystalize.
- Policy response: Retail rates have declined as the CBM cut the policy rate, shifting real deposit and lending rates downward; deposits and credit growth have remained somewhat robust.
- Inflation and real interest rates: downward pressures observed in the near term.

### Macro-fiscal and monetary developments (from Figure 4 and Tables 2–6)
- Tax revenue is low relative to peers and social spending has been limited.
- CBM financing had been declining over the last few years, while government securities auction volumes have gradually increased as rates move in line with inflation.
- Monetary aggregates have been declining; interbank liquidity has held up thus far.
- Fiscal operations (selected consolidated kyat figures, 2019/20 Est. and 2020/21 Proj.):
  - Revenue: 16,758 (2019/20 Est.), 18,852 (2020/21 Proj.)
  - Taxes: 6,794 (2019/20 Est.), 7,774 (2020/21 Proj.)
  - Grants: 452 (2019/20 Est.), 513 (2020/21 Proj.)
  - Expenditure: 23,300 (2019/20 Est.), 26,283 (2020/21 Proj.)
  - Net lending/borrowing: -6,542 (2019/20 Est.), -7,431 (2020/21 Proj.)
  - Of which: Exceptional financing (RCF/RFI): 577 (2019/20 Est.), 0 (2020/21 Proj.)
  - Of which: Exceptional financing (DSSI): 520 (2019/20 Est.), 113 (2020/21 Proj.)

### Balance of payments and external sector (from Table 4)
- Current account balance (in millions of US$, and percent of GDP):
  - 2019/20: -2,785 (-4.0 percent of GDP)
  - 2020/21: -3,218 (-4.2 percent of GDP)
- Trade balance deterioration and import compression observed:
  - Merchandise exports f.o.b.: 9,165 (2019/20), 10,302 (2020/21)
  - Merchandise imports f.o.b.: 11,560 (2019/20), 13,239 (2020/21)
- Capital and financial account (financial account net decrease):
  - 2019/20: -3,282 (-4.7 percent of GDP)
  - 2020/21: -4,046 (-5.3 percent of GDP)
- Overall balance with program and reserves:
  - Overall balance with program: 0.7 percent of GDP (2019/20), 1.1 percent of GDP (2020/21)
  - Gross reserves (end of period, US$ millions): 6,840 (2019/20), 7,733 (2020/21)
- Financing notes:
  - Accessed under the RCF/RFI at 50 percent of quota (SDR 258.4 million or about US$356 million).

### Monetary developments (from Table 5)
- Central Bank of Myanmar and monetary aggregates (selected levels, end-period):
  - Reserve Money: 22,083 (2019/20 Proj.), 25,080 (2020/21 Proj.)
  - Broad money: 71,744 (2019/20 Proj.), 82,569 (2020/21 Proj.)
  - Net foreign assets (CBM): 8,721 (2019/20), 9,583 (2020/21)
  - Net domestic credit (monetary survey): 59,914 (2019/20), 69,487 (2020/21)
- Growth rates (y/y percent change):
  - Reserve money (y/y percent change): 14.5 (2019/20), 13.6 (2020/21)
  - Broad money (y/y percent change): 14.1 (2019/20), 15.1 (2020/21)
  - Credit to private sector (y/y percent change): 14.4 (2019/20), 13.2 (2020/21)

### Medium-term projections (from Table 6)
- Real GDP (staff working estimates):
  - 2019/20 Est.: 1.4
  - 2020/21 Proj.: 6.0
  - 2021/22 Proj.: 6.2
  - 2022/23 Proj.: 6.3
  - 2023/24 Proj.: 6.4
  - 2024/25 Proj.: 6.5
- Consolidated public sector (percent of GDP):
  - Total revenue: 14.8 (2019/20), 14.7 (2020/21), rising to 16.6 (2024/25)
  - Total expenditure: 20.6 (2019/20), 20.5 (2020/21), 20.8 (2024/25)
  - Net lending (+)/borrowing (-): -5.8 (2019/20), -5.8 (2020/21), improving to -4.2 (2024/25)
  - Total PPG debt: 42.7 percent of GDP (2019/20), 44.7 percent (2020/21), projected 49.4 percent (2024/25)
- External outlook:
  - Current account balance: -4.0 percent of GDP (2019/20), -4.2 percent (2020/21), broadly -4.1 percent thereafter
  - CBM reserves (gross, US$ millions): 6,840 (2019/20), 7,733 (2020/21), projected 11,326 (2024/25)

### Indicators of capacity to repay the Fund (Table 7 summary)
- Access and outstanding IMF obligations:
  - Total outstanding Fund obligations based on existing and prospective credit (in millions of SDRs): 258.4 (2020), declining to 0.0 (2030)
  - In millions of U.S. dollars: 356.9 (2020), 358.5 (2021), 359.8 (2022), 330.7 (2023), 211.0 (2024), 121.0 (2025), 96.8 (2026), 72.6 (2027), 48.4 (2028), 24.2 (2029), 0.0 (2030)
  - In percent of IMF quota: 50.0 (2020), 50.0 (2021), 50.0 (2022), 45.8 (2023), 29.2 (2024), 16.7 (2025), 13.3 (2026), 10.0 (2027), 6.7 (2028), 3.3 (2029), 0.0 (2030)
- Repayment schedule (selected lines, in millions of SDRs):
  - Total Principal: 0.0 (2020), 0.0 (2021), 0.0 (2022), 21.5 (2023), 86.1 (2024), 64.6 (2025), 17.2 (2026–2030 each year)
  - Total Charges and interest: 1.0 (2020), 1.8 (2021–2023), 1.4 (2024), 0.5 (2025), 0.0 (2026–2030)
- Memorandum items (selected):
  - Exports of goods and services (in millions of US$): 12,360.2 (2020), 13,418.3 (2021), 15,095.3 (2022), rising to 33,192.5 (2030)
  - Government revenue (in millions of US$): 10,372.3 (2020), 11,155.8 (2021), 12,601.3 (2022), rising to 29,619.2 (2030)
  - Gross international reserves (in millions of US$): 6,840.4 (2020), 7,733.4 (2021), 8,217.0 (2022), rising to 18,197.9 (2030)
  - IMF quota (in millions of SDR): 516.8 (2020–2030 each year)

*International Monetary Fund staff report: 33. Staff supports the authorities’ request for a disbursement/purchase under a 1:2 blend of the RCF and RFI of SDR 258.4 million (50 percent of quota).*

### Annex I. Risk Assessment Matrix 1/

### Annex I. Risk Assessment Matrix 1/

### Economic impact and outlook
- The novel coronavirus COVID-19 global pandemic has impacted the Myanmar economy through a sharp decline in tourist arrivals and remittances and supply chain disruptions, resulting in layoffs and factory shutdowns.
- Tourism has come to a standstill with no clarity on its normalization.
- Demand for exports will remain weak as Europe and other Asian economies recover only gradually.
- Agriculture comprises a fifth of the economy and over half of employment and is expected to be hit.
- Sharp decline in gas prices affects government revenues and exports.
- GDP growth in FY2019/20 is uncertain and could fall significantly, with a slow recovery thereafter.
- The outlook is subject to sizable downside risks, depending on the duration and severity of the pandemic.

### Balance of payments and financing needs
- Exports expectations:
  - Garments sector (cut, make, pack) account for 28 percent of exports and are expected to decline sharply.
  - Gas accounts for 23 percent of exports and faces low international gas prices.
- Remittances are expected to fall by 10 percent.
- Current account deficit will widen significantly.
- FDI investment will slow as projects are delayed.
- Expected BOP financing gap of US$2−3 billion over FY2019/20 and FY2020/21.
- Expected fiscal financing gap of US$2−3 billion over FY2019/20 and FY2020/21.

### Fiscal position and policy priorities
- COVID-19 is expected to cause a shortfall in revenues and necessitate urgent increased spending.
- The fiscal deficit is expected to widen by about 2 percentage points of GDP over the next 2 years.
- Priority to urgently increase fiscal spending to boost health and social spending, and support priority sectors, vulnerable households, and SMEs.
- External financing is critical; domestic banks should not finance a much larger budget deficit to avoid crowding out credit and excessive monetization.
- Aim to limit central bank financing to about MMK 1.3 trillion in FY 2019/20 and continue to gradually phase out monetary financing thereafter.

### COVID-19 Economic Relief Plan (CERP) measures (as announced April 27)
- A Supplementary Budget for FY2019/20 and directive reallocates up to 10 percent of 2019/20 Budget Estimate (except of loans and grants) to COVID-related spending within line ministries’ and the COVID-19 Contingency Fund.
- Immediate waiver of specific goods tax, customs duty and commercial tax on critical medical supplies and products related to the prevention, control and treatment of COVID-19.
- Income and commercial tax payments due in the second and third quarters of FY2019/20 have been made extendable to end of the fiscal year, and an exemption for the 2 percent advance income tax on exports to the end of the fiscal year has been announced.
- Low interest loans of up to MMK 500 billion are being channeled to the private sector through the state-owned Myanmar Economic Bank.
- A credit guarantee scheme for loans extended to SMEs and high growth sectors, contingent on retaining employment, is being established.
- Electricity bills: up to150 units free per months for month of April and May and up to 75 units free for June.
- Establish cash and/or in-kind transfer programs for affected and vulnerable households covering all possible regions of the country by various means including mobile payments, with the first phase based on the food ration database and next benefiting from new targeting approaches.
- Additional measures:
  - Exemption of license renewal fees in the tourism sector.
  - Reduced customs duties for COVID-19 Medical Supplies operating with the Myanmar Automated Cargo Clearance System and Manual Processes.
  - Providing 40 percent of the social security fees for about 1.3 million insured workers from factories and workshops that had to temporarily suspended for health inspections.
  - Strengthening the National Food Reserve by MMK 38 billion.

### Monetary policy and financial sector measures
- Central Bank of Myanmar measures to ease financial conditions:
  - Reduced the bank policy rate by a cumulative 300 basis points.
  - Temporary reduction in banks’ statutory reserve requirement ratio from 5 percent to 3.5 percent until September 2020.
  - Temporary change in weights of longer-term government securities in the liquidity ratio.
  - Ceasing deposit auctions to encourage liquidity in the interbank market.
  - The kyat has been allowed to adjust with limited intervention, in line with the FX intervention rule to build adequate FX reserves.
- Plans to clarify the framework for credit auctions, the discount window, and emergency liquidity assistance.
- Continue to upgrade the monetary policy framework, including the introduction of interest on excess reserves, with IMF technical assistance.

### Banking sector prudential and supervisory measures
- Prior to COVID-19, progress was being made on conversion of overdrafts to term loans and increasing capitalization by most banks.
- Extended the phase in period for full compliance with 2017 prudential regulations—including on capital adequacy requirement, full provisioning of NPLs, and meeting large exposure limits—by three years to end-August 2023.
- CBM will benchmark performance against those standards (including those for Loan classification) to measure the compliance gap and prevent backsliding.
- Banks will be given incentives to comply fully in a shorter time span; banks with high NPLs will not be allowed to make dividend payments to shareholders.
- Banks will be allowed to restructure or reschedule loans and assets impaired by COVID-19 and asked to separate COVID-19 impaired loans from other loans for different treatment.
- Banks will continue reporting loan portfolios according to loan classification requirements in place prior to COVID-19 to facilitate assessment of asset quality and government interventions.
- Credit guarantee schemes to SMEs not exceeding MMK 1 million will be transparently provided through a new government guarantee agency with the support of the Asian Development Bank (ADB).
- Committed to accelerate preparation of contingency plans to better manage banking sector stress; any decision and mechanisms to absorb NPLs and/or recapitalize banks will be undertaken in a manner consistent with reducing fiscal costs and in consultation with the World Bank and the Fund.
- Continue work with the Asia Pacific Group on the agreed time bound remedial Action Plan regarding Anti Money Laundering and Combatting the Financing of Terrorism.

### Policy commitments, reform agenda, and financing request
- Continue reforms to modernize the tax system and improve public financial management (PFM) to support the Myanmar Sustainable Development Plan (MSDP), while preserving debt sustainability.
- Continue developing the government securities market, improve cash management and coordination between the Treasury and CBM, reduce reliance on monetary financing, and further liberalize interest rates and strengthen the monetary transmission mechanism.
- Benefit from IMF capacity development and technical assistance on strengthening tax administration, enacting the draft income tax law, rationalizing the tax code, and moving to the next phase of PFM reforms.
- The Union Government of Myanmar requests emergency financing from the IMF in the equivalent of SDR 258.4 million, equivalent to 50 percent of quota, with a 1:2 blending ratio, under the Rapid Credit Facility (RCF) and Rapid Financing Instrument (RFI).

*Appendix I. Letter of Intent, June 12, 2020.*

### 16.67 percent of quota, SDR 86.13 million, from PRGT resources and 33.33 percent of quota,

### 1mmrea2020005 - 16.67 percent of quota, SDR 86.13 million, from PRGT resources and 33.33 percent of quota,

### IMF financing, requests, and use of proceeds
- IMF assistance: 16.67 percent of quota, SDR 86.13 million, from PRGT resources and 33.33 percent of quota, SDR 172.27 million, from GRA resources.
- Intention to request additional RCF/RFI financing up to 100 percent of quota (SDR 516.8 million or about US$700 million) to fill in the potential external financing gap in FY2019/20 and FY2020/21.
- The Union Government requests disbursement under the RCF and RFI totaling SDR 258.4 million (50% of quota).
- RCF/RFI proceeds to be used for budget support to address urgent BOP needs from lost exports, remittances, tourism income, and investment flows due to COVID-19, and to catalyze additional concessional financing from the World Bank, the ADB, and bilateral partners.
- DSSI participation: intend to avail of the Debt Service Suspension Initiative (DSSI), supported by the G-20 and Paris Club, and commit to spend freed resources on health and economic relief spending identified in the CERP.

### Transparency, reporting, and public financial management commitments
- Publish quarterly consolidated GFS reports including a breakdown of health and social spending.
- Publish quarterly budget monitoring reports identifying CERP-related spending, with a lag of no more than three months at the end of each quarter.
- Disclose all government and government guaranteed debt contracted by the consolidated public sector to the IMF and World Bank Group.
- Continue to submit to Parliament and publish online the Annual Debt Report in accordance with the Public Debt Management Law.
- Commitment not to contract new non-concessional debt during the suspension period, other than agreements under DSSI or in compliance with IMF Debt Limit Policy (DLP) or WBG policy on non-concessional borrowing.
- Memorandum of Understanding finalized between MOPFI and CBM on roles and responsibilities for servicing financial obligations to the IMF.
- Safeguards: Myanmar commits to a safeguard assessment, to provide IMF staff access to CBM’s most recently completed external audit reports, and to authorize external auditors to hold discussions with IMF staff.
- Publication commitments on the MOPFI website:
  - Quarterly reports on all COVID-19 related expenditure.
  - Results of a targeted audit of COVID-19 related expenditures by the Office of the Auditor General for Myanmar (OAGM) within 6 months of the end of the fiscal year.
  - Information on procurement contracts on COVID-19 related expenditure within 3 months of being signed above Kyat 100 million, including names of companies awarded and their beneficial owners, specific nature of goods or services procured, price per unit, and overall contract amount.
  - Reports of ex post validation of delivery related to procurement above Kyat 100 million.
- ADB to assist in publishing CERP progress reports.
- Authorization for IMF to publish this Letter of Intent and the staff report for the RCF/RFI request.

### Monetary and exchange policy stance
- CBM affirms it will maintain an accommodative monetary stance while safeguarding domestic and external stability, with periodic reviews of its monetary stance.
- CBM will act as counterparty for IMF lending to Myanmar; RCF/RFI resources will be lent to the MOPFI.
- On June 9, 2020, Myanmar notified the Fund of its acceptance of the obligations under Article VIII sections 2, 3, and 4 of the Fund’s Articles of Agreement.
- The Union Government does not intend to introduce measures or policies that would exacerbate balance of payments difficulties, including exchange and trade restrictions that would compound these difficulties.

### Macroeconomic outlook and assumptions (COVID-19 context)
- Assumption: localized outbreak; real GDP growth expected to slow to 1.4 percent in FY19/20 (staff forecast).
- Authorities’ expectation: GDP growth to slow to 4-5% in FY2019/2020 and gradual recovery in FY2020/2021 (authorities more optimistic than staff).
- Key baseline averages, FY2020-24 (Average) versus Previous DSA:
  - Real GDP growth (in percent): Baseline 5.2; Previous DSA 6.3
  - Inflation (percent change, y/y): Baseline 6.2; Previous DSA 6.7
  - Primary fiscal balance (in percent of GDP): Baseline -3.4; Previous DSA -2.5
  - Overall fiscal balance (in percent of GDP): Baseline -5.3; Previous DSA -4.4
  - Current account (in percent of GDP): Baseline -4.1; Previous DSA -3.9
  - FDI (in percent of GDP): Baseline 3.4; Previous DSA 3.5
- FY definitions: Myanmar’s fiscal year is on October-September basis. In DSA standard tables, 2019 refers to FY2018/19 and ends in September 2019.
- Prior to COVID-19: Myanmar grew 6.8% in FY2018/2019 and was expected to record 7.0% growth in FY2019/2020; inflation expected to average 8.43% in FY2019/2020. Economic growth for the first and second quarter of FY2019/2020 recorded 6.5% and 5.3% respectively. Average inflation reached 9.1% in March 2020.
- COVID-19 epidemiological update (as of June 14): reported number of confirmed COVID-19 cases is 261.

### Balance of payments, financing gap, and financing strategy
- External financing gap amounting to US$1.7 billion expected in FY19/20 to keep adequate reserves.
- Staff assessment: large BOP financing gap of about USD 2.5 billion over the next 2 years in FY2019/2020 and FY2020/2021 (text notes).
- Financing strategy: mix of external financing from IMF, the World Bank, ADB, EU and Japan, and the DSSI to fill external gap and reduce pressure on monetizing the deficit and risks of disorderly external market conditions.
- DSSI estimated suspensions: US$322 million and US$67 million in external debt service in FY2019/20 and FY2020/21 respectively; DSSI would contribute 19 percent of the financing gap in FY2019/20. Savings from suspended debt service in FY2019/20 and FY2020/21 have been incorporated into the macro framework and the DSA.

### Debt sustainability, risks, and scenarios
- Risk of external debt distress: Low
- Overall risk of debt distress: Low
- Granularity in the risk rating: Not applicable
- Application of judgement: No
- DSA findings:
  - Under the baseline reflecting the COVID-19 shock, all external public and publicly guaranteed (PPG) debt indicators remain below policy relevant thresholds and benchmarks.
  - A slowdown in exports and the aftermath from a natural disaster are shocks that worsen the debt outlook the most.
  - Under the adverse scenario, contingent liability through the financial sector is assumed to be the default 5 percent of GDP; realization of such contingent liabilities could significantly deteriorate the PV of public debt-to-GDP ratio and could breach the benchmark (55 percent) in the medium term, suggesting a possible worsening of the risk rating from low to moderate under extreme shocks.
- Policy recommendations to contain debt and fiscal risks:
  - Use concessional external financing and the DSSI to support policy stimulus while containing risks to price and external stability.
  - Avoid excessive recourse to central bank financing.
  - Embark on a medium-term revenue strategy underpinned by a revenue target and comprehensive tax policy reforms building on recent administrative reforms.
  - Remain vigilant of banking sector fragilities and put in place a framework for better monitoring and managing fiscal risks including from PPPs.
  - Strengthen debt management capacity.

### Impact of COVID-19 and domestic policy measures (CERP and other responses)
- CERP launched April 27, 2020 by MOPFI to strengthen healthcare, protect socio-economic well-being, and support recovery.
- Fiscal actions:
  - Approved supplementary budget for FY2019/20 and reallocation of up to 10% of FY2019/2020 budget estimate (except loans and grants) towards COVID-19 related spending.
  - Tax credits and deductions, waiver of taxes and custom duties on critical supplies and products for COVID-19 prevention and treatment.
  - COVID-19 fund of MMK 100 billion established for concessional loans to CMP businesses in the garment sector, hotels and tourism companies and SMEs.
  - Extended tax payment period for income tax and commercial tax for FY2019/2020 until end of fiscal year.
  - Exempted the 2% advance income tax on exports until the end of the 2019/2020 fiscal year.
  - Reduced interest rates including for agriculture loans.
  - Lifted import license fees for pharmaceutical and pharmaceutical raw materials.
- Social measures and market interventions:
  - Subsidized 5 basic commodities for people without regular income.
  - Exempted household electricity bills up to 150 units in April and May and up to 75 units in June.
  - Increased stockpile of rice (50000 tons) and palm oil (12000 tons).
  - Declared medical equipment, medicines and other essential supplies as special goods with measures to prevent price speculation.
- Containment measures:
  - Travel restrictions, border closure, bans on mass public gatherings, stay-at-home orders during Thingyan Festival and targeted lockdowns in Yangon and Sagaing townships. As of June 14, most lockdowns lifted leaving two townships in Yangon under partial lockdown.

### Administrative and institutional developments
- MOPFI and CBM finalized Memorandum of Understanding on IMF servicing roles.
- CBM reforms cited: abolished pegged exchange rate in 2012 and moved to managed float; removed most current account restrictions via 2012 Foreign Exchange Management Law; removed exchange restriction from tax certification requirement in new investment law; abolished trading band (reference exchange rate ± 0.8%) in 2018; moved to market-based Reference Exchange Rate in February 2019; implemented one-way FX auction mechanism with internal guidelines to eliminate multiple currency practice.

*Source: IMF/World Bank joint DSA and RCF/RFI request documentation (June 16, 2020).*

### 19. These cash transfers also include support for vulnerable groups such as the elderly,

### 1mmrea2020005 - 19. These cash transfers also include support for vulnerable groups such as the elderly,

### Fiscal policy and cash transfers
- Cash transfers include support for vulnerable groups such as the elderly, internally displaced persons camps, local farmers, and those at the grassroot level.
- Authorities will leverage technology to ensure that these transfer programs are well-targeted, particularly through mobile payment which is widely used in Myanmar.
- Fiscal deficit in FY2019/2020 is expected to widen to MMK 6.5 trillion or 5.46% of GDP.
- In financing this deficit, the share of CBM financing is expected to rise to about MMK 1.3 trillion.
- Authorities commit to phase out CBM financing when the crisis abates and are aware of the inflation risk posed by CBM financing.
- To prevent unexpected surge in CBM financing:
  - Authorities are offering higher yields on government securities.
  - Authorities will work closely with commercial banks to ensure steady market demand for government bills/bonds.
  - Authorities plan to delay low-priority spending to make room for COVID-19 related spending if the pandemic persists longer than expected and additional financing needs arise.
- Continued commitment to medium-term fiscal sustainability and further fiscal reforms under the Myanmar Sustainable Development Plan (MSDP), including:
  - Modernizing the Income Tax Law.
  - Designing a value added tax.
  - Adopting a computerized system for tax administration.
  - Aim: better managing revenue risks, improving integrity of the tax system, and strengthening domestic revenue mobilization.

### Monetary policy and liquidity measures
- The CBM has eased their monetary policy stance by cutting the policy rate by a cumulative 300 basis points since March 12, 2020.
- Complementary measures include temporary reduction in reserve requirements.
- Liquidity ratio calculation temporarily altered to lessen the haircut ratio applied to treasury bonds with more than one year (from 50% to 10%).
- Deposit auctions are temporarily suspended.
- Authorities expect inflation to be largely contained in the near-term.
  - The impact of the one-time electricity tariff hike that resulted in a sharp spike in inflation last year will dissipate by July 2020.
  - Economic slowdown is likely to keep a lid on inflation.
  - CBM agrees on the need to closely monitor inflationary pressure given large uncertainties related to the pandemic.
- Exchange rate flexibility continued to play an important role as a shock absorber.
- FX intervention has been limited and adheres to the established FX intervention rule to build adequate FX reserves.
- Authorities will continue to upgrade monetary operations, including the introduction of interest on excess reserves, with technical assistance from the IMF.

### Financial sector policies and regulatory adjustments
- Policy focus: facilitating credit provision and smooth functioning of banks, while ensuring a robust regulatory framework.
- Prior to COVID-19, NPLs in the banking system started to stabilize around 20%.
- Banking sector progress noted in converting overdraft loans to term loans and were broadly on track to bring overdraft loans down to 20% of total loans by July 2020; the pandemic is likely to result in some setbacks with a slight increase in NPLs and possible delays in meeting the overdraft conversion target.
- CBM extended the deadline for meeting the 2017 prudential regulations by up to 3 years from August 2020 to August 2023 to facilitate bank credit during the crisis and allow time to build capital buffers.
  - To avoid backsliding, CBM will ask banks to conduct a preliminary assessment of their compliance gap and to present their proposed compliance plan by the end of the three year period.
  - CBM will examine and rectify as necessary their self-assessment presented by banks and will monitor their progress toward full compliance over time.
- Banks will be allowed to restructure or reschedule loans impaired by the consequences of Covid-19.
  - Loan classification will remain unchanged to prevent misuse for legacy NPLs.
  - A directive will be issued to separate COVID-19 impaired loans from other loans to be given different treatment.
- Authorities will continue to work closely with the IMF mission team on financial sector reform and contingency planning to preserve financial stability as agreed during the 2019 Article IV consultation.

### Structural reforms, governance, and transparency
- Authorities remain fully committed to the structural reform agenda under the MSDP.
  - Improving business climate to foster recovery and support MSDP’s goal of more inclusive and private sector led growth.
  - Strengthening governance, continuing the fight against corruption, and strengthening the AML/CFT framework remain high on the reform priority.
- Commitment to transparency and accountability of crisis spending:
  - Authorities will closely monitor budget spending and publish a report on COVID-19 related expenditures as well as the audit results and information on large procurement contracts.
- Authorities will continue to pursue further reform progress where possible as the crisis abates.

### Conclusion and role of Fund support
- Myanmar authorities remain fully committed to preserving macroeconomic and financial stability and to advancing reforms towards sustainable and inclusive growth as the crisis abates.
- The COVID-19 pandemic is an unprecedented shock that poses a threat to reform progress.
- Fund support through the RCF and RFI will catalyze additional financing supports from donors and creditors, and is instrumental to the authorities’ effort to mitigate the impact of COVID-19 and sustain growth momentum while preserving policy buffers.
- Authorities express deep gratitude for continued support from the Fund and other partners in these difficult times.

*Source: 1mmrea2020005 - 19. These cash transfers also include support for vulnerable groups such as the elderly,*

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_Source: https://www.imf.org/-/media/files/publications/cr/2020/english/1mmrea2020005.pdf_