IMF Staff Completes 2018 Article IV Visit to Myanmar

December 12, 2018

End-of-Mission press releases include statements of IMF staff teams that convey preliminary findings after a visit to a country. The views expressed in this statement are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Board. Based on the preliminary findings of this mission, staff will prepare a report that, subject to management approval, will be presented to the IMF's Executive Board for discussion and decision.
  • Myanmar’s economy rebounded in 2017/18 but is showing signs of slowing; growth is expected to moderate to around 6.4 percent in 2018/19.
  • The medium-to-long-term outlook remains favorable with economic growth expected to gradually rise close to 7 percent; risks are tilted to the downside, including from the Rakhine crisis.
  • 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).

An International Monetary Fund (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. At the conclusion of this visit, Mr. Peiris issued the following statement:

“The economy rebounded in 2017/18 but is showing signs of slowing. 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. The fiscal deficit widened slightly to 2.7 percent of GDP in 2017/18, while central bank financing of the deficit declined. Headline inflation was moderate in 2017/18 (4.0 percent on average) but has increased from higher fuel prices and a depreciating kyat. The current account deficit widened marginally in 2017/18 to 4.7 percent of GDP, largely financed by strong FDI inflows (5.4 percent of GDP) which helped keep international reserve coverage at around three months of imports. 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, the economy is expected to slightly pick up to 6.4 percent in 2018/19 and close to 7.0 percent over the medium. 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. A drop in international oil prices and a gradual moderation in inflation over the near term should support consumer spending.

“The implementation of a second wave of reforms with greater investments, in both physical and human capital, financed by higher revenues and improved spending efficiency should sustain Myanmar’s growth take-off. Economic prospects over the longer term remain favorable on the back of Myanmar’s demographic dividend and strategic location between the global growth engines. To harness this potential, Myanmar will also need to secure peace and stability while managing fiscal risks from large infrastructure projects.

“Risks to the outlook are tilted to the downside. 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. Macro-financial spillovers from banking sector restructuring may be more severe if banks delay recapitalization. Risks on the global front include rising trade tensions and global market volatility, higher crude oil prices and spillovers from a slowdown in China. 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.

“Fiscal policy should aim to raise tax revenues and SDG-related spending, while phasing out central bank financing, to ensure debt sustainability over the long term. A Public Private Partnership framework should be instituted to improve project selection and ensure value-for-money through competitive bidding, building on the project bank regulation. Strengthening profitability and governance of State Economic Enterprises including electricity tariff reforms is macro-critical. A new bidding round for petroleum production sharing contracts should rely on a revised model contract to help maximize revenues and ensure transparency.

“Continued exchange rate flexibility will help cushion the economy from external shocks. Further upgrading the monetary and FX operational framework, including by adopting a market-determined reference exchange rate and interest rate flexibility, will 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. The authorities should implement fully the new regulations while encouraging loan loss recognition and recapitalization to support a healthy recovery of credit growth. Strengthening credit risk management by banks, moderating concentration risks and allowing unsecured lending at rates commensurate with risks would also support financial stability and development.

“Strengthening governance and reducing the cost of doing business will help attract private investment. Capacity development to support reform implementation and institution building is critical to achieving the goals set in the MSDP.

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. We offer our sincere gratitude to the authorities for their cooperation and hospitality.

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