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.
