Myanmar’s plummeting currency has prompted a vicious circle of rising prices in the import-dependent economy, in which even export-driven companies face rising costs, say businesspeople.
New laws and regulations are urgently needed to control the kyat, they said, which has fallen by more than 25 percent to the US dollar this year to K1300 yesterday, its weakest since Myanmar adopted a managed float in 2012.
In the unofficial market, the rate has reached up to K1315. The currency seems a one-way bet amid growing government deficits and the near-term prospect of rising rates in the US.
“Rising US dollar prices are directly affecting importers, but consumers are facing the most difficulties as the price of commodities is rising and will continue to rise,” said U Ye Min Aung, director of Myanmar Agriculture Public Corporation (MAPCO).
“When US dollar prices rise, traders cannot import as much as before, so local prices increase even further,” he said. “The Ministry of Commerce, the Central Bank, Myanmar Investment Commission and the Ministry of Finance must meet and work out how to solve the problem.”
A weaker kyat makes exports more competitive. In theory this should benefit farmers, but Myanmar imports farming machinery and fertiliser, he said.
As these essentials become less affordable to farmers, production will fall, along with exports of rice, beans, pulses and other products, he said.
“It’s a circle, it’s all linked, and it will make business for everybody very difficult,” said U Ye Min Aung. “In the agriculture sector, we are worried. The situation is weak. We need more international investment, but for that we need the government to cooperate.”
Export volumes have already taken a hit following nationwide flooding earlier this year that destroyed large areas of farmland across the country.
Businesspeople say they are feeling the heat. Very little is produced in Myanmar, which imports almost everything from construction materials, to petroleum, to cooking oil, to cars, to industrial materials, to medicines and any number of other basic goods, said petroleum importer U Myo Htwe.
“The price of all materials and products except petroleum has risen. But the price of fuel is out of Myanmar’s control, and if it rises again the situation here will be bad,” he said.
The price of international benchmark Brent crude oil had fallen from $57.33 a barrel at the start of the year to $44.82 yesterday, according to Bloomberg data.
“Local businesspeople have stores of petroleum, but if these stores run out and prices rise, we will really face difficulties,” said U Myo Htwe. “We have a choice now – stop importing, or sell our goods at an expensive price. That’s why I say prices should be controlled.”
In the garment sector too, materials are almost all imported. Chair of the Myanmar Garment Manufacturers Association U Myint Soe previously told The Myanmar Times the only materials produced domestically are cotton balls and high-density poly- ethylene bags, which are also made from imported materials.
Myanmar does not even produce thread, he said, adding that such reliance on imports is dangerous for the cut, make and pack industry. Tailors too, are losing out because they have to import textiles, which are becoming increasingly expensive, said Ma Su Wai Yee, owner of CiCi clothing.
Electronics shops in Yangon say the weak kyat has not yet caught up with them but that once they replenish stocks they will have to raise the price of products and mobile phone handsets.
A salesperson at J Phone in Kyauktada township said prices are likely to rise as soon as this month. “After this, the market will become tougher because our products are not basic commodities, and people won’t want to buy expensive goods,” she said.
In the past, businesspeople imported electronics and accessories directly from China, but as the kyat weakens against the Chinese renminbi, they are increasingly buying from local wholesale shops, said the owner of Handsome handsets and accessories in Tarmwe township.
“We face difficulties because the price of accessories is rising. Now we can’t go to China anymore to trade directly because the kyat has weakened and the price of accommodation there is too high.”
In late June, the Central Bank increased the volume of US dollars it sells to the market in its daily auctions, after pledging to supply enough dollars to local banks to support essential imports such as fuel and palm oil.
Deputy governor U Set Aung told The Myanmar Times last week that the Central Bank is planning to tighten monetary policy to combat inflation and stabilise the exchange rate.
A new reserve requirement ratio will be imposed on local banks by January and the Central Bank also plans to scale up the deposit auctions it holds every fortnight, he said, adding that the monetary authority may consider raising interest rates in the future.
The Central Bank is also working with organisations including the International Monetary Fund, the World Bank, the Asian Development Bank and the Japan International Cooperation Agency to work out how best to address the problem, according to reports last week in state media.
Meanwhile, money changers in Yangon say they are running into problems as few people are willing to sell their dollars for kyat. Supply and demand are out of balance, said U Myo Htwe, who is also the director of Farmer Pho Yar Zar money changer.
“Dollars are expensive so there are no sellers, but demand is high – we only have buyers. As a result, business is bad,” he said.
Source: Myanmar Times