Myanmar Economic Monitor May 2018 Growth Amidst Uncertainty Hans Anand Beck Lead Economist, Myanmar May 17, 2018
Key Takeaways The economy performed better in 2017/18 amidst uncertainty. A stronger-than-expected global economic recovery in 2017 provided a boost to global trade. Myanmar s economy saw a broad based recovery in growth led by agriculture and manufacturing while services growth declined slightly as tourism was affected by Rakhine uncertainties. Inflation moderated, the current account and fiscal deficits narrowed and the Kyat strengthened slightly within the year. While the economic outlook remains positive, domestic risks in particular have intensified. Rising input costs, policy uncertainty and the perception of slowing reforms and banking sector uncertainty. Revenue leakage and low budget execution hinder basic service provision and infrastructure and hence productivity. The external environment may deteriorate due to uncertainty in global trade policy and commodity price volatility. The government has the reform tools to improve the outlook Implement the Myanmar Sustainable Development Plan Coordinate implementation and raise awareness of the Investment law and companies act to generate FDI and knowledge, and employment. Use evidence that ownership, firm size and stable electricity provision affect firm productivity. Access to credit is reported as improving, but the road to financial stability and inclusion will be bumpy.
The economy performed better in 2017/18 than 2016/17 The outlook remains positive, but risks have intensified Government reforms can raise the outlook and economic potential 3
Global conditions improved, providing a favorable environment Percent Real GDP Growth (Percent) 5 4.5 4.5 4.3 4 3.7 3.5 3 3 3.1 2.5 2.4 2.3 2.2 2 1.5 1.6 1 0.5 0 World Advanced economies Emerging and developing economies 2016 2017e 2018f Source: World Bank Global Economic Prospects January 2017 4
Myanmar capitalized on global recovery, but is losing its lead in the region. In developing East Asia and Pacific (EAP), economic growth strengthened slightly in 2017 8.0 2016 2017 2012-17 average 7.0 6.0 5.0 4.0 3.0 2.0 1.0 - LAO CH MMR CAM VIET INDO MAL THA
April'17 May'17 June'17 July'17 Aug'17 Sept'17 Oct'17 Nov'17 Dec'17 Jan'18 Feb'18 Mar'18 A broad based a broad based pick up in growth. Real GDP growth and sector contribution Output, Employment, Price PMI 9% 8% 7% 6% 8.4% 8.0% 7.0% 5.9% 6.4% 6.8% 5% 4% 3% 2% 1% 0% -1% 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19F Agriculture Industry Services GDP production Output Employment Future output index
Share of GDP Share of GDP Strong export performance narrowed the trade and current account deficits, and FDI flows picked up to cover. Current account Financial Account 10% 5% 0% 2.0% 0.0% -2.0% -5% -4.0% -10% -15% -6.0% -8.0% -20% -25% Q3/2015 Q4/2015 Q1/2016 Q2/2016 Q3/2016 Q4/2016 Q1/2017 Q2/2017 Q3/2017-10.0% -12.0% Trade balance Services balance -14.0% Q3/2015 Q4/2015 Q1/2016 Q2/2016 Q3/2016 Q4/2016 Q1/2017 Q2/2017 Q3/2017 Direct Invesment Portfolio Investment Primary income balance Current account Secondary income balance Other Investment Financial account
Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Index: April 2017 = 100 USD billion Export growth led by natural gas prices which are volatile, garments and agriculture Natural gas exports: Quantities and prices Rice - Acceleration of exports and diversification of destinations (m tons) 200 300 200 150 100 100 50 0 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2013/14 2014/15 2015/16 2016/17 2017/18 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2014/15 2015/16 2016/17 2017/18 Value Quantity Price Border Sea Total
yoy change Inflation fell on average, and within the year, before picking up in August, driven by food prices Inflation drivers 14% 12% 10% 8% 6% 4% 2% 0% CPI Food CPI Non Food CPI Headline
Actual fiscal deficit may be considerably lower than the budget Fiscal balances, Percent of GDP 2% 1.1% 1% 0.4% 0% -1.1% -1% -0.5% -2% -2.7% -1.1% -3% -3.9% -4% -2.2% -3.1% -4.7% -5% -4.3% -6% -5.8% PA PA PA RE 2014/15 2015/16 2016/17 2017/18 Public Sector SEEs Union Government
The economy performed better in 2017/18 than 2016/17 The outlook remains positive, but risks have intensified Government reforms can raise the outlook and economic potential 12
Favorable medium-term economic outlook 2015 2016 2017 2018 2019 2020 Real GDP growth (% change) CPI Inflation (end of period) Current account balance (% of GDP) Fiscal balance (% of GDP) 7.0 5.9 6.4 6.8 6.9 7.1 8.4 7.0 5.2 4.9 5.3 5.3-7.2-5.3-4.7-4.7-4.1-3.8-5.1-3.0-4.7-4.8-4.4-4.4
But downside risks have intensified Upside Downside External risks Domestic risks 14
The economy performed better in 2017/18 than 2016/17 The outlook remains positive, but risks have intensified Government reforms can raise the outlook and economic potential 15
Buttress macroeconomic stability MSDP offers the much-needed unifying and coherent roadmap for reforms Key fiscal priority for Myanmar: to break out of the cycle of low revenue and low and inefficient public spending Could consider a fiscal strategy to increase spending on critical priorities for growth, such as capital investments in energy and transport, and for inclusive development, such as on education and health Good progress in improving transparency in the extractives sector, however, more can be done under the Extractives Industry Transparency Initiative
Improve operating environment for the private sector Perception of bureaucratic inertia, centralized decision making, and emerging protectionism are bottlenecks to improving the operating environment for the private sector Coordination across government departments to implement recent new economic legislations (e.g., Company Law, Investment Law) Consider using indicators in Ease of Doing Business as measurable targets for reforms and establish a mechanism to monitor reform progress, and to facilitate consultations with the private sector. Further liberalize sectors: such as insurance and banking services for foreign investments along with implementation of prudential regulations Ministries to develop communication strategies for public outreach/coherence in message (policy reforms)