Public Information Notice: IMF Executive Board Concludes 2011 Article IV Consultation with Myanmar
IMF News, May 7, 2012
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- Published: May 7, 2012
Background and Growth Outlook
- Real GDP growth is estimated to have increased to 5.3 percent in FY2010/11 (April-March).
- Growth projections:
- FY2011/12: 5½ percent.
- FY2012/13: 6 percent.
- Inflation:
- CPI at 6.4 percent (year-on-year) in October 2011.
- Projected to decline to 4.2 percent in FY2011/12 from 8.9 percent in FY2010/11.
- Projected to pick up to 5.8 percent in FY2012/13 as recent drop in food prices phases out.
- Parallel market exchange rate: kyat appreciated by 29 percent in nominal effective terms since end-FY2009/10, driven primarily by large inflows and constrained private imports under an ‘export-first’ policy.
Risks and Reform Scenarios
- Downside risks:
- Drop in regional demand could negatively affect exports.
- Sustained appreciation of the currency could erode external competitiveness and constrain household incomes.
- Upside opportunities:
- Easing of FDI restrictions on private land use and profit repatriation.
- Further increase in credit.
- Continued progress toward exchange rate unification.
- Authorities’ planned exchange rate reform:
- Move to adopt a managed float as new exchange rate regime and end the official peg to the SDR used in public sector operations since 1977.
- Steps to establish market infrastructure: interbank market and foreign currency operations at the Central Bank of Myanmar (CBM).
- Temporary measures to address appreciation pressures: allow foreign currency purchases for car imports under a special program, health and travel expenses abroad; temporarily reduced taxes on key agricultural exports.
Fiscal Policy and Public Finance
- Consolidated nonfinancial public sector deficit projections:
- Decline from 5½ percent of GDP in FY2011/12 to 4.6 percent of GDP in FY2012/13.
- Primary reason: higher net transfers from state economic enterprises (SEEs), primarily from gas exports, with the budget applying market-based exchange rates for SEEs’ exports and imports for the first time.
- Social spending:
- Spending on education and health expected to increase to 7½ percent of total expenditures, up from 5.4 percent.
- Monetary-fiscal interaction:
- CBM cut administratively-set interest rates by a cumulative four percentage points since September 2011.
- Revised fixed interest rate structure to incentivize banks to hold treasury bonds.
- Deficit monetization projected to decline to about half of the fiscal deficit in FY2011/12.
External Position and Balance of Payments
- Current account:
- Projected current account deficit to widen to 2.7 percent of GDP in FY2011/12 from 0.8 percent of GDP in FY2010/11 due to import growth linked to large FDI energy projects.
- Reserves:
- Gross official reserves rose to US$7.1 billion in September 2011.
- Expected to remain about 9.4 months of imports in FY2011/12.
- External debt and arrears:
- External debt and arrears are material considerations for policy.
Financial Sector and Structural Reforms
- Financial intermediation:
- Formal financial intermediation remains repressed by pervasive controls on banks.
- Recent relaxations: deposit-taking requirements, expanded administratively-set collateral list, eased branch network controls, some flexibility in deposit rates.
- Result: private sector credit growth has accelerated from a very low base.
- Other measures:
- Harvest loans to farmers doubled.
- FDI rules relaxed.
- Imports of gasoline and palm oil liberalized.
- Policy priorities:
- Modernizing the financial system and liberalizing bank operations and interest rates.
- Strengthening supervision and regulation to accompany financial reforms.
- Strengthening the statistical base and public financial management.
Executive Board Assessment and Recommendations
- Overall view:
- Directors noted Myanmar's considerable economic potential and welcomed the authorities’ reform commitments.
- Emphasized that improved policy frameworks and careful sequencing are key to reform success.
- Exchange rate reform:
- Reforming the exchange rate system is the top priority; adoption of a managed float is the first step.
- Urgent need to establish market infrastructure and move away from inefficient allocation of foreign exchange.
- Encouraged removal of remaining exchange restrictions and elimination of multiple currency practices as soon as circumstances permit.
- Monetary policy and central bank:
- Current stance of monetary policy viewed as broadly appropriate.
- Welcomed plans to grant the CBM operational autonomy to pursue domestic price stability and recommended transfer of all central banking functions to it.
- Encouraged expansion of retail sales of government securities and lifting restrictions on holdings by state-owned financial institutions, pending treasury bond auctions.
- Fiscal policy:
- Welcomed plans to reduce the fiscal deficit while increasing social spending.
- Agreed that a broadly balanced budget for the central government is an appropriate medium-term target.
- Noted that growing natural resource revenues and improved tax structures will help finance social spending and infrastructure.
- Called for strengthened public financial management to support monetary reorientation and minimize fiscal risks, including those from fiscal decentralization and the managed float.
- Encouraged efforts to reconcile external arrears with all creditors to eventually clear arrears.
- Structural and institutional reforms:
- Stressed need for structural reforms to remove barriers to trade and foreign investment, enhance the business climate, and improve agricultural productivity.
- Welcomed increased IFI and donor technical assistance and stressed coordination among providers to avoid duplication.
Selected Economic Indicators (highlights from table)
- GDP (2010/11): US$45.4 billion.
- Population (2007/08): 57.5 million.
- Quota: SDR 258.4 million.
- Real GDP (annual percent change), staff working estimates and projections:
- 2007/08: 12.0
- 2008/09: 10.3
- 2009/10: 10.6
- 2010/11: 10.4
- Staff working estimates: 5.5 (2007/08), 3.6 (2008/09), 5.1 (2009/10), 5.3 (2010/11), 6.0 (2012/13 projection)
- Agriculture (annual percent change) 4/: 8.0 (2007/08), 3.4 (2008/09), 4.7 (2009/10), 4.4 (2010/11), 4.5 (2011/12)
- Inflation (period average): 32.9 (2007/08), 22.5 (2008/09), 8.2 (2009/10), 4.2 (2010/11), 5.8 (2011/12)
- Public finance (in percent of GDP) 5/:
- Total revenue (including grants): 14.1 (2007/08), 13.1 (2008/09), 12.1 (2009/10), 11.9 (2010/11), 11.4 (2011/12), 21.6 (2012/13)
- Total expenditure: 17.9 (2007/08), 15.5 (2008/09), 16.9 (2009/10), 26.1 (2010/11)
- Overall balance: -3.8 (2007/08), -2.4 (2008/09), -4.8 (2009/10), -6.0 (2010/11), -5.5 (2011/12), -4.6 (2012/13)
- Money and credit (annual percent change):
- Broad money: 21.0 (2007/08), 23.4 (2008/09), 34.8 (2009/10), 36.3 (2010/11), 33.3 (2011/12), 24.6 (2012/13)
- Domestic credit: 22.1 (2007/08), 24.0 (2008/09), 34.4 (2009/10), 32.5 (2010/11), 26.8 (2011/12)
- Balance of payments (in million of dollars):
- Trade balance: 924 (2007/08), 302 (2008/09), 72 (2009/10), 799 (2010/11), -238 (2011/12), -1,779 (2012/13)
- Exports: 6,446 (2007/08), 7,241 (2008/09), 7,139 (2009/10), 8,980 (2010/11), 9,889 (2011/12), 10,491 (2012/13)
- Imports: -5,522 (2007/08), -6,938 (2008/09), -7,067 (2009/10), -8,181 (2010/11), -10,127 (2011/12), -12,270 (2012/13)
- Current account balance (excluding grants): 89 (2007/08), -920 (2008/09), -947 (2009/10), -365 (2010/11), -1,385 (2011/12), -2,379 (2012/13)
- Gross official reserves: 3,054 (2007/08), 3,629 (2008/09), 4,638 (2009/10), 6,070 (2010/11), 7,903 (2011/12)
- Reserves in months of total imports: 6.6 (2007/08), 6.3 (2008/09), 7.9 (2009/10), 9.4 (2010/11), 9.7 (2011/12)
- External debt (in million of dollars):
- Total external debt (including arrears): 8,082 (2007/08), 9,101 (2008/09), 9,970 (2009/10), 11,240 (2010/11), 11,841 (2011/12), 12,419 (2012/13)
- (In percent of GDP) 2/: 40.0 (2007/08), 29.0 (2008/09), 28.3 (2009/10), 24.8 (2010/11), 22.8 (2011/12)
- External debt arrears: 3,858 (2007/08), 4,359 (2008/09), 4,781 (2009/10), 5,405 (2010/11), 5,510 (2011/12), 5,654 (2012/13)
- Memorandum items:
- Official exchange rate (kyat per U.S. dollar): 5.2 (2007/08), 5.7 (2008/09)
- FEC (parallel) rate (kyat per U.S. dollar) 6/: 1,110 (2007/08), 992 (2008/09), 1,004 (2009/10), 861 (2010/11), 810 (2011/12)
- GDP in billions of kyats: 23,336 (2007/08), 28,778 (2008/09), 32,351 (2009/10), 36,436 (2010/11), 39,805 (2011/12), 44,621 (2012/13)
- GDP in millions of U.S. dollars 2/: 20,182 (2007/08), 31,367 (2008/09), 35,225 (2009/10), 45,380 (2010/11), 51,925 (2011/12), 54,416 (2012/13)
Public Information Notice (PIN) No. 12/44 — Executive Board conclusion on the 2011 Article IV consultation with Myanmar (concluded March 19, 2012).