IMF Staff Completes 2018 Article IV Visit to Myanmar

IMF News, December 12, 2018

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Growth rebounded to about 6.8 percent in 2017/18 from 5.9 percent in 2016/17 driven by exports and a recovery in agriculture.
Preliminary data in the transition budget year (April – September 2018) point to a growth of about 6.2 percent due to government underspending, waning investor confidence and moderating global demand.
Going forward, growth is expected to slightly pick up to 6.4 percent in 2018/19 and close to 7.0 percent over the medium term.
The medium-to-long-term outlook remains favorable on the back of Myanmar’s demographic dividend and strategic location between the global growth engines.

The fiscal deficit widened slightly to 2.7 percent of GDP in 2017/18.
The fiscal deficit for 2018/19 is projected to increase to 3.5 percent of GDP, providing a modest fiscal stimulus on the back of higher capital spending.
Policy guidance:
- Aim to raise tax revenues and SDG-related spending, while phasing out central bank financing, to ensure debt sustainability over the long term.
- Institute a Public Private Partnership framework to improve project selection and ensure value-for-money through competitive bidding, building on the project bank regulation.
- Strengthen profitability and governance of State Economic Enterprises including electricity tariff reforms.
- Conduct a new bidding round for petroleum production sharing contracts relying on a revised model contract to help maximize revenues and ensure transparency.

The current account deficit widened marginally in 2017/18 to 4.7 percent of GDP.
FDI inflows were strong at 5.4 percent of GDP in 2017/18, which helped keep international reserve coverage at around three months of imports.
An alternative scenario of a faster resolution of the Rakhine crisis and structural reforms could facilitate external financing, allowing for greater SDG-related spending and a rebuilding of international reserves.

Headline inflation was moderate in 2017/18 (4.0 percent on average) but has increased from higher fuel prices and a depreciating kyat.
A drop in international oil prices and a gradual moderation in inflation over the near term should support consumer spending.
Policy guidance:
- Continue exchange rate flexibility to help cushion the economy from external shocks.
- Further upgrade the monetary and FX operational framework, including by adopting a market-determined reference exchange rate and interest rate flexibility, to anchor expectations and strengthen the monetary transmission mechanism.

The banking system is adjusting to new prudential regulations after a period of rapid credit growth and lax lending standards.
Policy guidance:
- Implement fully the new regulations while encouraging loan loss recognition and recapitalization to support a healthy recovery of credit growth.
- Strengthen credit risk management by banks, moderate concentration risks and allow unsecured lending at rates commensurate with risks to support financial stability and development.
Note on risks: Macro-financial spillovers from banking sector restructuring may be more severe if banks delay recapitalization.

Successful implementation of the second wave of reforms in the Myanmar Sustainable Development Plan (MSDP) will help sustain the growth take-off and achieve the Sustainable Development Goals (SDGs).
Policy guidance:
- Greater investments in both physical and human capital, financed by higher revenues and improved spending efficiency.
- Strengthening governance and reducing the cost of doing business to attract private investment.
- Capacity development to support reform implementation and institution building is critical to achieving MSDP goals.

Risks are tilted to the downside, including:
- A prolonged crisis in Rakhine state and a withdrawal of trade preferences could reduce concessional donor financing and investment, leading to lower growth and significant job losses.
- Rising trade tensions and global market volatility, higher crude oil prices and spillovers from a slowdown in China.
Alternative upside scenario:
- Faster resolution of the Rakhine crisis combined with structural reforms could facilitate external financing and allow greater SDG-related spending.

An IMF team led by Mr. Shanaka J. Peiris visited Myanmar from November 28 to December 13, 2018, to conduct discussions for the 2018 Article IV consultations.
End-of-Mission press releases convey preliminary findings after a visit; the views expressed are those of IMF staff and do not necessarily represent the views of the IMF’s Executive Board.
The staff team met with the governor and deputy governors of the Central Bank of Myanmar, the union minister and the deputy ministers of Ministry of Planning and Finance, the union minister of Ministry of Investment and Foreign Economic Relations, senior government officials, parliamentary members, private sector representatives, and the financial community.

IMF Communications Department — Press Release No. 18/472