World Bank cuts Myanmar’s growth forecast to 6.2%

The World Bank has revised downwards its forecast for Myanmar’s economic growth by 0.5 percentage points to 6.2 percent in the fiscal year 2018-19.

The World Bank East Asia and Pacific economic update released this month downgraded Myanmar’s GDP growth projections from the previous forecast, saying seasonal floods, rising cost, inflationary pressures and the Rakhine crisis would weigh on the economy. The outlook for 2019-20 and 2020-21 was also cut by 0.4 percentage points to 6.5pc and 0.3 percentage points to 6.8pc, respectively.

The Bretton Woods institution said, in the medium term, the country’s growth is expected to pick up as a result of “several investment-friendly laws have been passed and are anticipated to be implemented.” Myanmar implemented its new Investment Law last year and the new Companies law in August.

The revision will make grim reading for the National League for Democracy-led government, which has been criticised at home and abroad for its handling of the economy as it approaches midpoint through its five-year term. Approved FDI for the last six months falls shorts of the government’s own estimates, while tourist numbers in the country has risen by only 2 percent this year. Sectors such as insurance and retail banking remain largely sealed off from foreign players as reforms are mired in inaction.

This has led to domestic and foreign business leaders casting serious doubts on the government’s management of the economy over the last 2.5 years. One domestic businessman warned that “the window is closing” on reforms and an Asian business group criticised Nay Pyi Taw as working “in silos” and having “no urgency to get things done”.

Mandalay International University’s lecturer Pietro Borsano commented that the escalating trade tension is “biting China’s economy” and any turbulence there will significantly affect Myanmar’s outlook.

“Myanmar’s government will find itself in a much more volatile environment in Asia as a whole for years to come, with a lot of uncertainty and instability,” he commented.

The key, he said, is whether Nay Pyi Taw can roll out a business environment sufficiently attractive for those Chinese companies who plan to relocate to Southeast Asia to avoid American tariffs. Factors include infrastructure, labour mobility, logistics costs and regulatory issues.

ASEAN

The Washington-based lender noted that inflation has begun to rise in Myanmar and across the region, including the Philippines and Vietnam.

Growth in the developing economies in the region, excluding China, is expected to remain stable at 5.3pc from 2018 to 2020, driven primarily by domestic demand. In Thailand and Vietnam, growth is expected to be robust in 2018 before slowing in 2019 and 2020 as stronger domestic demand only partially offsets the moderation in net export growth. Indonesia’s growth should be stable, because of improved prospects for investment and private consumption. Growth in 2018 in the Philippines will likely slow, but the expected expansion of public investment will boost growth over the medium term. In Malaysia growth is expected to ease, as export growth slows, and public investment is lower following the cancellation of two major infrastructure projects.

“Protectionism and turbulence in financial markets can hurt the prospects for medium-term growth, with the most adverse consequences for the poorest and most vulnerable. This is a time for policy makers across the region to remain vigilant and proactively enhance their countries’ preparedness and resilience,” Victoria Kwakwa, the World Bank’s Vice President for East Asia and Pacific, said.

Sudhir Shetty, the lender’s chief economist for the region, said the main risks to continued robust growth include an escalation in protectionism, heightened financial market turbulence, and their interaction with domestic fiscal and financial vulnerabilities.

“In this context of rising risks, developing EAP economies need to utilise the full range of available macroeconomic, prudential, and structural policies to smooth external shocks and raise potential growth rates,” he added. The report advocated pursuing proactive macroprudential policies to help address financial sector vulnerabilities, reduce capital market volatility, and manage exposure to exchange rate movements, as well as liberalising key sectors, improving the business climate, and boosting competitiveness. Leveling the playing field between SMEs and big firms, and between foreign and domestic players, could also help reduce resource misallocation and create jobs.

Source: Myanmar Times

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