Kyat steadily declines against other currencies

Myanmar kyat’s weakening against major foreign currencies has accelerated during President Thein Sein’s time in office.

The currency rate has slided to K 1,070 and K 1,075 per one US compared to K 824 per one US dollar at the end of 2011 and early 2012.

In November in 2012, the exchange rate was K 845. In the same period of 2013, the rate fell to K 976.

The Myanmar kyat also fell in relation to the Singapore dollar, Thai baht and Japanese yen.

The Myanmar currency exchange rate per one Singapore dollar jumped from Ks 789 to Ks 825 on November 18, bringing the kyat down 4.5 per cent.

The Myanmar currency rate per one Thai baht jumped from Ks 30 to K 32.5 on November 18, bringing the kyat down 8 percent in relation to the Thai baht.

Myanmar’s trade deficit is cited as the primary cause of the faltering kyat. Myanmar’s import was valued at above US$8 billion in the first six months of this fiscal year, while the export volume amounted to approximately $5 billion, leaving a trade deficit of $3 billion.

“This is the reason of the dollar price hike. There may also be speculation in the currency market,” said one local businessman who asked not to be named.

According to the Myanmar Citizen Investment Law, the Myanmar Investment Commission adopts a lenient policy on the source of investment capital of investors awarded investment licenses. Investors were only required to submit bank account records.

As sources of income were not precisely scrutinised, this raises speculation that some illicit money – generated by illegal drug, gem or timber trade – may be channeled into the financial system. The money could be converted to US dollar to finance the import of items necessary for their investment projects. Some local businessmen believed that this is a reason why the demand for dollar spikes.

A businessman said that a sharp change in the exchange rate normally occurs shortly ahead of the annual water festival and “poppy” season – when poppy opium is cultivated. He recalled that the exchange rate was quite stable in the early days of the Thein Sein government. He blamed speculation for the recent depreciation of the kyat.

“It remains to be seen how the Central Bank of Myanmar will tackle this,” he said.

This year, Myanmar welcomed investment worth Ks 4.57 trillion in accordance with the Myanmar Citizen Investment Law before July 2014.

There have been 46 money laundering cases in Myanmar under the current government, all of which have been settled. No action has been taken against any company, according to the Myanmar Police Force.

“Regarding the investors and company founders, the investment money is examined to determine whether it is from an illegal source of income or a legal source. No action has been taken under the current government. Previously, Myanmar Universal Bank was punished for investing money that flowed from the illegal sale of narcotic drugs,” a Myanmar Police Force official said.

According to the International Monetary Fund, by the end of March 2014, CBM’s foreign reserves amounted US$4.5 billion, covering nearly 3 months of prospective imports. Due to the kyat depreciation, there is an increasing call that it releases some dollar to ease the demand.

“The CBM said that it could not control the exchange rate. Some time last year, the central bank sold some dollar,” economist Soe Thein said.

“It’s not easy to tell when the exchange rate will be stabilised. Intervention is good for the short term if the exchange rate is high due to other factors. But nothing can be done if the exchange rate is influenced by macroeconomic factors and long-term imbalances. If the imports stay high for too long, the kyat will surely further decline.”

He noted that the government needed to draw more foreign investment, to attract more dollar into the economy.

Government spending is currently increasing. The budget deficit of the government is expected to grow to five percent of the GDP in 2014-2015 fiscal year.

The government issued nearly Ks 6.37 trillion to Union ministries and departments in the 2012-2013 fiscal year. This number rose by Ks 1.35 trillion when the government allotted more than Ks 7.72 trillion to Union ministries and departments in the 2013-2014 fiscal year. In the 2014-2015 fiscal year, the government budget was valued at Ks 10.18 trillion, which is nearly double the value of the budget two years ago.

Ministries and departments also receive additional budgets from the government every year. The additional budget totaled Ks 2.67 trillion in 2014-2015 fiscal years.

Spending beyond the initial budget can cause financial problems, the businessmen said.
Many argue that the government should be more transparent about trade and budget deficits.

“It is now difficult to determine the market situation. There may be a sharp fall in the exchange rate. But the central bank should step in when there were rumours that would boosted dollar value. This should help stabilise the exchange rate,” said Than Lwin, a senior adviser at Kanbawza Bank.


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