Myanmar has 3 Years of Strong Growth Ahead, Says World Bank

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Myanmar’s economy will recover from a 2016 slump to expand at over 7 percent for next three years, according to a new World Bank review. But the path is still replete with risks, and many of the imbalances that plague the economy are getting worse.

Like the IMF, which lowered its estimate in October, the World Bank now thinks Myanmar will post 6.5pc GDP growth in 2016-17. The fund had originally predicted a much higher 8pc figure back in May last year.

The World Bank’s new Myanmar Economic Monitor (MEM), which was released yesterday, blames a range of factors. High inflation lowered local consumption, and – along with exchange rate volatility, structural constraints and a lack of clear economic policy – it also lowered investment flows, the bank said.

Both the IMF and the World Bank single out the construction industry, where a disruptive review of Yangon high-rise buildings in the middle of last year helped dampen activity in an already sluggish sector that accounts for over 5pc of GDP, according the MEM.

The new report also pointed to gas production, which accounts for 8pc of GDP and which dropped sharply in 2016. Prices for natural gas have also fallen, and Ministry of Commerce data for the first eight months of 2016-17 showed export earnings were down 40pc on the previous fiscal year.

The third area where industrial production fell was food processing, an unglamorous but important industry that accounts for some two-thirds of Myanmar’s entire manufacturing output, according to the World Bank.

A slow recovery in the agricultural sector is partly to blame for the problems in food processing. The World Bank expects the agricultural sector to grow at over 4pc in 2016-17, up from 3pc the previous financial year, but it is still recovering from the devastating 2015 floods.

Paddy production has rebounded but in terms of harvested area and tonnes produced is forecast to fall just short of 2014-15. The outlook is brighter for beans where production in 2016-17 is expected to be higher than any of the previous three years. Paddy, beans and oilseeds are the three most important crops for the economy.

The good news is that the World Bank sees economic growth picking up again, and predicts average economic growth of 7.1pc a year for the next three years. One key factor in this prediction is more public and private investment in infrastructure and a range of other areas.

One big hope for the country is manufacturing, and Habib Rab, senior country economist for the World Bank in Myanmar, pointed to a gradual shift towards that sector in the composition of FDI in recent years.

“We do expect manufacturing sectors to grow, but subject to investment in [the] services sector and power sector, which would make manufacturing investment more attractive,” he said.

Over the last 12 months local and foreign investment in agriculture has also increased, notably in key areas like fertiliser, seed development and animal feed that are integral to raising production, Mr Rab said.

Dutch animal feed company De Heus opened a production factor in October, and Myanmar Agribusiness Public Corporation is building the first of several planned agricultural industrial parks in Ayeyarwady Region that it hopes will receive international investment.

But progress must be made on the lack of clarity around land rights, said Mr Rab.

“Access to land is a critical area,” Mr Rab said. “Land reform or a lack of clarity around property rights is one of the major constraints to private investment flows. Making progress in that area is very, very important.”

The bank also recommends the government address serious macroeconomic imbalances that have long been a feature of the economy. When it comes to investment “broader stability in the macroeconomic environment is also critical,” Mr Rab said.

Myanmar was already highly exposed to external shocks, and falling exports and slower FDI flows in 2016 have made things worse, the World Bank said.

The current account deficit widened from 3.3pc of GDP in 2014-15, to 4.8pc in 2015-16, and although it does not put a figure to its predictions, the bank thinks the deficit will continue to widen in the short-term.

“This is due to a combination of slowing gas exports, slowing demand in China, and large investment-related import needs,” the report said. But the deficit will “moderate” in 2016-17 off the back of strong FDI flows, it added.

The public sector deficit, meanwhile, has more than quadrupled since 2014-15, when it was 1.1pc of GDP. The bank expects that deficit to hit 4.5pc in 2016-17, with the jump mainly due to lower revenue from commodity exports, a fall in the kyat-US dollar exchange rate, a higher wage bill and expenditures for flood and disaster relief.

The MEM noted that the “government adopted an amended budget in August, with efforts to cut spending whilst trying to protect priority areas such as education, health and agriculture.”

When it comes to the exchange rate, where the kyat hovers near historic highs against the dollar – Mr Rab said it was important that the Central Bank “maintain exchange rate flexibility so that the exchange rate adjusts to the market.”

The MEM report also noted that last year many investors bided their time waiting for the government to elaborate on economic policy. Many investors, local and international, feel they are still waiting.

Mr Rab said that the 12-point policy that the government released in July 2016 was “very strong” and that more transparency over how those points will be implemented would be helpful.

“That’s just one aspect and what is also important is the regular communication of near-term economic policies and how the government is responding,” he said.

Along with macroeconomic imbalances, the MEM reported noted that a “lack of clarity or delays in policy implementation could prolong economic slowdown.”

 

Source: Myanmar Times
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