The IMF said “risks are tilted to the downside” and that failure to address the humanitarian catastrophe or the refugee repatriation process would hurt the country economically.





“A prolonged humanitarian crisis and any withdrawal of trade preferences could reduce concessional donor financing and investment leading to lower growth,” it said. The European Union is considering initiating a withdrawal process of the trade privileges it has offered Myanmar, owing to the human rights violations in northern Rakhine.

The fragility of the banks presents another risk, the IMF added. Macrofinancial spillovers from the ongoing banking sector restructuring process may become more severe if banks delay recapitalisation. There is a need to improve compliance and loss recognition.

Headline inflation was moderate in 2017-18, with 4.0 percent on average, but has been rising from increased fuel prices and a depreciating kyat. The kyat has depreciated 14.5pc since April 2018.

The IMF expects economic growth of 6.4pc in the fiscal year 2018-19 (October 2018 to September 2019) if government spending picks up. This compares with 6.8pc in 2017-18 (April 2017 to March 2018) and an annualised 6.2pc in the six months to September 2018.

Despite favourable long-term prospects, growth is estimated to “remain below potential” this year due to weakening export demand and subdued private construction activity. It is forecasted to pick up in the medium term (6.6pc in 2019-20 and 6.7pc in 2020-21), albeit at a slower pace than previously envisaged. The growth trajectory is subject to downside risks related to Rakhine. External uncertainties include trade tensions, high crude oil prices and spillovers from exposure to China.

The predictions came in the Fund’s latest annual assessment of the Myanmar economy.



A prolonged humanitarian crisis and any withdrawal of trade preferences could reduce concessional donor financing and investment leading to lower growth. - IMF

Daw Aung San Suu Kyi’s economic adviser Sean Turnell said the IMF’s concerns about risks regarding Rakhine are valid, and “relate not just to the internal effects of such crises, but also those that might come from counter-productive international responses to them."

On the issue of banking sector fragility, he emphasised that the risks are about legacy structural issues surrounding the banks bequeathed to the current administration and reform is “well underway”.

“For the first time Myanmar now has a government that is indeed serious about such a fundamental safeguard as the prudential regulation of banks, and to which banks are now gradually adhering to.

“Of course, as in so many areas, it’s going to take time to clear up these legacy problems in banking, and the whole process is not without its challenges,” the adviser told The Myanmar Times.

Economic slowdown is “very much a global story” and the IMF’s estimates that Myanmar's growth will be well above global norms and as fast as China’s.

Dr Turnell said the government's “strong” economic management “shines out” in the report and that its fiscal prudence would permit a mild stimulus under the Myanmar Sustainable Development Plan (MSDP).

Successful implementation of MSDP’s second wave of reforms, according to the Fund, will help sustain growth.

“The IMF notes the extraordinarily modest, by historical standards, fiscal deficit in Myanmar - just 2.7pc in 2017-18, compared to the decade-average in excess of 5pc - as well as the great success of the government in reducing recourse to central bank financing.”

The Fund acknowledged the recent moves to a genuinely market-determined reference exchange rate, partial liberalisation of interest rates, and improvements in data collection and dissemination. Dr Turnell said in these areas the administration “is in complete agreement” regarding the need for further progress.

The IMF warning comes as the ruling National League for Democracy party concluded their third year in office. Approved FDI between October 2017 and September 2018 has fallen to the lowest since 2014. The authorities passed a slew of new laws intended to improve the business environment, but poor implementation has put off investors.

‘Changing perceptions’

Changing perceptions of country risk rather than the speed of reform has led to slowing momentum, commented Adam McCarty, chief economist with Mekong Economics.

Country risk has increased due to Rakhine and the inability of the authorities and the legal system to stop established local business cartels from controlling markets and stopping competition.

Reforms, at least on paper, are probably moving about as fast as we might reasonably expect, given government capacity constraints and political considerations. - Adam McCarty, Mekong Economics

“Reforms, at least on paper, are probably moving about as fast as we might reasonably expect, given government capacity constraints and political considerations,” the economist went on.

Recent developments suggest a pick-up in the pace of change, such as the creation of the Ministry of Investment and Foreign Economic Relations. Five foreign life insurers were granted provisional licences after two years of delay while Japanese and Swiss traders were given a greenlight to do retail and wholesale activities. The government also announced a “project bank” to determine how infrastructure programmes are planned and funded.

To regain the momentum, Dr McCarty suggested Nay Pyi Taw to invest in human capital, stop worrying about debt and “borrow every possible dollar at concessional rates”. “Those rates will only be there for 10-15 years, and disbursements rates on projects are very low anyway. It is time to spend, not save.”

In addition, Myanmar needs a well-funded competition and productivity authority to focus on domestic price competitiveness, as the economy “is riddled with excessive costs and anti-competitive practices.”

The Asian Development Bank , which predicts the country to grow by 6.6pc over this fiscal year, also warned that slow progress in implementing reform and withdrawal of trade privileges remains a risk.