Quarterly Business Magazine

IMF warns of Myanmar economy slowdown

Trade deficit and Budget Deficit pose serious challenges
Posted :
Thursday, July 2, 2015

On the 1st of July, the International Monetary Fund (IMF) has warned that the Myanmar economy faces the danger of a slowdown. The appreciation of the dollar coupled with the fall in natural gas prices meant that Myanmar's budget and external transactions positions are weaker than ever before. High International debt and a huge trade deficit pose grave danger to commodity price stabilization and international transactions.

After rapid liberalization of the finance sector, control measures are now a necessary evil. Compounding to the problem is the lack of capacity, and all these factors add up to a weak economy.

Private sector debt has increased by 36% from last fiscal year. If the revenue from the telecommunications sector and sale of natural gas are excluded, the budget deficit would amount to 5.5% of the Gross Domestic Product (GDP). Many economists agree that a budget deficit exceeding 5% of the GDP is a dire threat to the national economy.The trade deficit within the fiscal year 2014-15 was over USD 5 billion and more than half of the total exports according to the data from the Ministry of Commerce.

In dealing with the private sector debt,the IMF has advised that a strict fiscal policy be set and followed along with more deposit auctions and new requirements on Private Banks' reserves.
As for the government Budget, the vital sectors of Education and Health must receive priority but nonessential projects must be kept down as much as possible. State and Division expenditures must also be tightly scrutinized, said Mr. Yongzheng Yang, Resident representative of the IMF. Measures to reduce the government budget deficit include introducing higher taxes, reducing tax holidays and tax breaks, and imposing highly unpopular commercial tax on telecommunication services.

Moreover, Myanmar's foreign exchange reserves have dipped below the arbitrary red line of 3 months' imports. The total imports within the fiscal year 2014-15 amounted to around USD 16 billion, or about USD 1.2 Billion a month. Financial experts think that one of the causes of depleted foreign exchangereserves is the lower Foreign Direct Investment (FDI) flowing into the country.

As a result, Myanmar's inflation now stands at around 8% (at the end of May). At the same time, the GDP rose by 8.5% in FY 2014-15 and the economy, fueled by increased domestic consumption, is expected to grow by 8.5% in FY 2015-16.

He also mentioned that building the institutional capacity for macroeconomic management is key to addressing Myanmar’s huge developmental challenges.

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