Catalog

	Table of Contents
p. 19 of 81 BACK | NEXT I. Developing Asia and the World II. Economic Trends and Prospects in Developing Asia East Asia Southeast Asia Cambodia Indonesia Lao People's Democratic Republic Malaysia Myanmar Philippines Singapore Thailand Viet Nam South Asia Central Asian Republics The Pacific III. Preferential Trade Agreements in Asia and the Pacific

Asian Development Outlook 2002 : II. Economic Trends and Prospects in Developing Asia : Southeast Asia

---

Myanmar

Economic expansion in Myanmar is likely to have slowed in 2001 as a consequence of tougher economic sanctions and slower domestic agricultural growth. Over the long term, prospects for growth and for lasting poverty reduction remain uncertain in a context where macroeconomic and structural distortions are acute.

Macroeconomic Assessment

For 2000, GDP growth is officially estimated to have been 13.6%. However, independent estimates suggest that growth was much more modest, possibly 6%. Official estimates of growth for 2001 are, as yet, unavailable but the pace of economic activity in Myanmar, as in other countries of the region, is likely to have slowed. In addition to depressed external demand conditions, economic sanctions are likely to have held economic expansion in check. Moreover, agricultural output, which contributes substan- tially to aggregate activity, is likely to have been adversely affected by rains that hindered dry-season rice cropping.

In 2000, inflation, which had averaged over 25% a year for more than a decade, dropped sharply. Consumer prices are estimated to have fallen by 1.7%. This dramatic reversal in trend was caused by a decline in the cost of food (mainly due to a bumper rice harvest in 1999/2000), which weighs heavily in the consumption basket. However, price stability was also helped by the creation of “tax-free markets,” which lowered distribution and marketing costs, and by the slower growth of central bank credit. Although no official inflation data are yet available for 2001, the latest indications are that price stability was short lived, and inflation may have averaged somewhere around 20% in 2001. Central bank credit growth resumed and the kyat depreciated sharply in the parallel market.

Over a protracted period, the public sector has run substantial fiscal deficits. To cover the losses of state economic enterprises (SEEs), direct financial transfers are made by the Union Government. SEE expenditures account for about 75% of all public expenditures and, historically, SEEs have been responsible for the bulk of public sector deficits. In 1999, the consolidated budget deficit was estimated at about 5% of GDP. However, significant off-budget spending and the subsidies implicit in the application of the official exchange rate to SEE transactions mean that the true public sector resource gap could be much larger. Poor prospects for improved revenue mobilization and a large increase in public sector pay (in April 2001) imply that the public sector deficit persisted through 2000 and 2001.

Monetary policy in Myanmar has traditionally been captive to the financing needs of the public sector. Deposit and lending rates are administratively determined. Between 1999 and 2000, the central bank reduced its discount rate from 15% to 10%; the discount rate remained at this level through 2001. While real interest rates turned positive in 2000, accelerating inflation in 2001 is likely to have eroded the value of monetary assets.

Perhaps surprisingly, given depressed regional and global demand, available data suggest that Myanmar enjoyed fast export growth over the first half of 2001. Exports of garments grew strongly, as did exports of gas and metals, reflecting earlier investments in these sectors. Commodity exports also performed well. Exports of pulses surged, due both to an expansion of the area under cultivation that boosted supply and to rising international prices. Despite a variety of measures intended to contain imports, these also rose in 2001, largely as a result of increased fuel imports. While trade data are incomplete and may be subject to measurement error, it seems that the trade deficit narrowed in 2001. However, on the services account, reduced receipts from tourism and a decline in remittances from overseas workers may have resulted in a deficit.

Despite an increase in approvals, there was a sharp fall in disbursed FDI in 2001. In the first half of the year, inflows were down by about 50% over the same period in 2000. International sanctions and consumer boycotts are deterring investors. Other than limited flows for humanitarian needs, official development assistance to Myanmar has also largely ceased. Foreign exchange reserves remain meager, and in the first half of 2001 provided cover for about 1 month of imports. It is estimated that Myanmar had an external debt of $5.6 billion in 2000.

There is only one estimate of the headcount index of poverty in Myanmar. Based on a national poverty line, it puts the incidence of poverty in 1997 at 22.9%. This is very low compared with countries at similar levels of per capita income. While a low incidence of poverty may reflect Myanmar’s rich agricultural legacy, it is also possible that these data are subject to error. A variety of other social indicators, including those for child malnutrition, is cause for serious concern.

Policy Developments

Severe macroeconomic imbalances threaten any sustained growth prospects. Perennial government deficits and their financing through central bank credit expansion act as implicit taxes on the private sector, distort resource allocation, and underpin the sustained depreciation of the domestic currency. Distortions in the foreign exchange market have reached unprecedented proportions with the ratio of the parallel to the official exchange rates now about 100:1. At the root of the economy’s fiscal problems is a poor record on domestic resource mobilization. At 2.3%, the tax-to-GDP ratio is grossly inadequate and a wide range of basic needs remains unmet. The rationalization and strengthening of the tax system should be a matter of urgent government consideration as should the removal of subsidies from a wide range of goods and services. Equally, moribund SEEs strain the public purse.

The country faces a huge range of development problems. Its physical and social infrastructure is extremely inadequate and an increasing incidence of HIV/AIDS and drug-related problems are adding to social stress. Productivity in several sectors, particularly agriculture, is low and opportunities are impaired by a variety of policies and procedures that unnecessarily regulate and impede commerce. In sectors where SEEs benefit from large exchange rate subsidies, it is impossible for the private sector to compete. The reform process that was started over a decade ago has effectively stalled.

In a context where there is so much that now needs to be done, it is difficult to prioritize. Nevertheless, deficits in the provision of basic education and health services stand out. In terms of the public sector budget, each receives less than 0.5% of GDP in terms of recurrent and capital expenditures. Yet from the perspective of promoting both durable and equitable growth, international experience attests that investments in these sectors are crucial. A realignment of priorities in this direction, combined with policies that promote the liberalization of agriculture, could do much to help reduce poverty.

Outlook for 2002–2003

Over the short term, economic prospects are uncertain, largely because the Government’s reform agenda remains limited. Inflation may accelerate through 2002, and the exchange rate is at risk of depreciating further. It is unlikely that pressures on international reserves will be relieved. Economic outcomes in 2002 are, as in the past, likely to depend substantially on weather-related agricultural performance. While growth remains constrained, the prospects for a large headway in poverty reduction are minimal.

Back Malaysia	Next Philippines