Risks loom as inflation concerns remain

The International Monetary Fund (IMF) raised Myanmar’s economic growth forecast to 7.5 percent for the 2013-14 fiscal year, up from 6.75pc, due to continued economic reform that includes the loosening of restrictions in the private sector, the Fund announced in a release.

Despite the country’s encouraging macroeconomic situation, the IMF once again warned that gains would be hindered by high inflation if steps are not taken to deal with the issue.

According to a January 21 statement, Myanmar has benefited from adopting a floating exchange rate and removing exchange restrictions; establishing an autonomous central bank; and significantly increasing spending on health and education.

“Financial sector modernisation will require sustained reform efforts over several years,” the statement reads.

“The banking sector is growing and modernising rapidly and will require updated regulations and improved supervision capacity,” it continued.

“Foreign bank participation can play a useful role in accelerating financial sector development, but a gradual process is needed to minimize risks and to limit additional strain on supervisory resources.”

It also said that Myanmar will likely achieve reduced credit in the private sector from current high levels to around 30pc by April. At the same time, the fiscal deficit is expected to match the budget target of 5pc of GDP, while falling to 4.5pc in the next fiscal year on one-off revenues from the issuance of telecommunications licenses.

The result of continued growth will result in 7.75 pc GDP growth for the 2014-15 fiscal year, the IMF predicts.

In order to sustain growth, the IMF suggests the government begins to monetise the deficit in order to allay inflationary pressures. The international finance institution expects inflation will reach 6pc by the end of this fiscal year, 0.5pc over safe grounding, while the figure will likely continue to grow next year.

But challenges remain.

“Risks to the outlook arise largely from limited macroeconomic management capacity and narrow cushions. Inflation remains elevated and there are pressures from rapid money and credit growth, kyat depreciation and possible electricity price hikes,” the IMF statement said, adding that international reserves remain low and are vulnerable to shocks.

Tax revenues, meanwhile, remain low even though it is growing quickly, the Fund observed.

“To enable increased spending [tax revenues] should be boosted though broadening the tax base and improving compliance,” the IMF said.

Source: Myanmar Times

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