MANILA, PHILIPPINES – An easing of sanctions alongside rising exports and business enthusiasm for Myanmar will fuel annual growth of more than 6% for the next two years, provided the government stays the course with its reform program, says a new Asian Development Bank (ADB) study.
“The outlook for the Myanmar economy is the brightest it has been for decades with investment, exports, tourism, and business optimism all on the rise,” said Chief Economist Changyong Rhee. “However this positive outlook could be at risk if the forward momentum of policy reforms falters or if recent tensions escalate further.”
In its flagship annual economic publication, Asian Development Outlook 2013 (ADO 2013), released today, ADB forecasts annual gross domestic product (GDP) growth of 6.5% in the year to 31 March 2014 (FY2013), rising to 6.7% in FY2014. In FY2012, the economy expanded an estimated 6.3%, well above the annual average of 5% recorded over the previous five years.
Proposed tax reforms and greater financial autonomy for state enterprises, coupled with increased export receipts, should give the government more fiscal leeway to step up spending on social services and infrastructure, while also lowering the fiscal deficit, ADO 2013 says. It will also help reduce an over-reliance on natural resources revenues, which currently make up nearly a quarter of all public revenue.
Although the government’s ambitious policy reform agenda may take years to yield results, the report underscores measures to deliver benefits within two to three years, such as increasing the participation of private banks in the economy, and easing restrictions on interest rates and lending. Simplifying business registration and visa procedures for tourists, upgrading inefficient power systems, and increasing access to finance and other services in the agriculture sector, would also be beneficial in the short term.
Moving forward, the economy is set to benefit from the European Union’s proposed reinstatement of preferential access for exports from Myanmar, and the suspension of the US ban on imports from the country. Exports will get a lift from the start up of two large gas fields in FY2013, which will more than double gas output and boost sales to the key markets of People’s Republic of China and Thailand. The flourishing tourism sector, higher official development assistance, and a surge in foreign direct investment expected with the scheduled awarding of two telecommunications licenses in 2013 will also underpin economic activity.
Inflation is expected to average 5.1% in FY2013 and next, which is well below recent highs. In the medium term a lower fiscal deficit and reduced central bank credit to the government should dampen price pressures.
An ongoing government program to liberalize the economy has seen the gradual removal of economic sanctions and a wave of new investor interest in the once isolated country. In FY2012, a rise in industrial output and an expansion of the services sector likely helped fuel growth, offsetting a modest slowdown in exports and agriculture ― which accounts for more than a third of total GDP. The number of foreign firms granted investment approvals, including in the manufacturing sector, rose sharply and there was an almost 14-fold surge in the number of foreign registered companies in the 10 months to January 2013, compared to FY2011.