May 17, 2018

Myanmar Economic Monitor

May 2018

Growth Amidst Uncertainty

Hans Anand Beck

Lead Economist, Myanmar

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.

Key Takeaways

3

Government reforms can raise the outlook and economic potential

The outlook remains positive, but risks have intensified

The economy performed better in 2017/18 than 2016/17

4Source: World Bank Global Economic Prospects January 2017

Global conditions improved, providing a favorable

environment…

2.4

1.6

3.7

3

2.3

4.3

3.1

2.2

4.5

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

World Advanced economies Emerging and developing economies

Per

cen

t

Real GDP Growth (Percent)

2016 2017e 2018f

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

-

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

LAO CH MMR CAM VIET INDO MAL THA

2016 2017 2012-17 average

A broad based a broad based pick up in growth.

8.4%

8.0%

7.0%

5.9%

6.4%6.8%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

2013/14 2014/15 2015/16 2016/17 2017/18 2018/19F

Agriculture Industry Services GDP production

Real GDP growth and sector contribution Output, Employment, Price PMI

Ap

ril'1

7

May

'17

Jun

e'17

July

'17

Au

g'17

Sep

t'1

7

Oct

'17

No

v'17

Dec

'17

Jan

'18

Feb

'18

Mar

'18

Output Employment Future output index

Strong export performance narrowed the

trade and current account deficits, and FDI flows picked up to cover.

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

Q3/2015 Q4/2015 Q1/2016 Q2/2016 Q3/2016 Q4/2016 Q1/2017 Q2/2017 Q3/2017

Sh

are

of

GD

P

Trade balance Services balance

Primary income balance Secondary income balance

Current account

-14.0%

-12.0%

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

Q3/2015 Q4/2015 Q1/2016 Q2/2016 Q3/2016 Q4/2016 Q1/2017 Q2/2017 Q3/2017

Sh

are

of

GD

P

Direct Invesment Portfolio Investment

Other Investment Financial account

Current account Financial Account

Export growth led by natural gas prices which are volatile, garments and agriculture

Rice - Acceleration of exports and diversification of destinations (m tons)

50

100

150

200

Ap

r

Ma

y

Jun

Jul

Au

g

Sep Oct

No

v

Dec Jan

Feb

Mar

Ap

r

May Ju

n

Jul

Au

g

Sep Oct

No

v

Dec Jan

Feb

Mar

Ap

r

Ma

y

Jun

Jul

Au

g

Sep Oct

No

v

Dec Jan

Feb

Mar

Ap

r

Ma

y

Jun

Jul

Au

g

Sep Oct

No

v

Dec

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

2014/15 2015/16 2016/17 2017/18

Ind

ex: A

pri

l 20

17 =

10

0

Value Quantity Price

Natural gas exports: Quantities and prices

0

100

200

300

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

USD

billio

n

Border Sea Total

Inflation fell on average, and within the year, before picking up in August, driven by food prices

0%

2%

4%

6%

8%

10%

12%

14%

yoy

chan

ge

CPI Food CPI Non Food CPI Headline

Inflation drivers

Actual fiscal deficit may be considerably

lower than the budget

-1.1%

-4.3%

-2.7%

-5.8%

1.1%

-0.5%

0.4%

-1.1%

-2.2%

-3.9%

-3.1%

-4.7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

PA PA PA RE

2014/15 2015/16 2016/17 2017/18

Public Sector SEEs Union Government

Fiscal balances, Percent of GDP

12

Government reforms can raise the outlook and economic potential

The outlook remains positive, but risks have intensified

The economy performed better in 2017/18 than 2016/17

Favorable medium-term economic outlook

2015 2016 2017 2018 2019 2020

Real GDP growth (%

change)

7.0 5.9 6.4 6.8 6.9 7.1

CPI Inflation (end of

period)

8.4 7.0 5.2 4.9 5.3 5.3

Current account

balance (% of GDP)

-7.2 -5.3 -4.7 -4.7 -4.1 -3.8

Fiscal balance (% of

GDP)

-5.1 -3.0 -4.7 -4.8 -4.4 -4.4

But downside risks have intensified

14

Upside Downside

External risks

Domestic risks

15

Government reforms can raise the outlook and economic potential

The outlook remains positive, but risks have intensified

The economy performed better in 2017/18 than 2016/17

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

• 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)

Perception of bureaucratic inertia, centralized decision making, and emerging protectionism are bottlenecks to improving the operating environment for the private sector