Myanmar (Burma)

Strong growth masks structural vulnerabilities

Country Rating D4

Strengths

  • Considerable natural resources
  • Robust growth potential
  • After years of sanctions, the country is opening to foreign investments and tourism
  • Strategic location 

Weaknesses

  • Political risk remains high as the military continues to dominate politics
  • Very weak business environment despite a few reforms implemented recently
  • Ethnic tensions remain elevated
  • The Central Bank’s role is still not clearly defined and its operating framework is weak
  • Macroeconomic policies buffers are poor with weak FX reserves and weak public finances
  • Limited access to information

 

Economic Overview

Strong growth hides structural vulnerabilities

Economic growth has slowed in FY2016-17. Yet performance has remained robust compared to regional peers. The economy sustained a supply shock related to massive flooding, a correction of the construction sector, subdued demand growth from main trade partners, and weak commodity prices. 

And still, growth was firm. Favorable fiscal and monetary policies, positive investment inflows, and a wave of wide-ranging reforms intended to open and boost the economy were all helpful. Services, in particular, have continued to thrive thanks to an expansion of tourism, telecommunication, and financial services.

Going forward, growth should strengthen. A successful election in November 2015, eased sanctions from the US and an encouraging policy agenda from the new government provide a favorable environment for investment. This should, in turn, boost domestic demand. 

Exports are set to pick-up gradually benefiting from a recovery in commodity prices and a gradual pick up in major trade partners’ demand. Risks stem from weak policy buffers and a difficult business environment. 

Strengthening policy buffers will be a priority

Keeping GDP growth above +7% will require strong policy buffers. On the fiscal side, public debt is at an acceptable level due to a massive write-off by creditors and Japanese support on clearing arrears to the World Bank. 

Yet the trend does not sit wll with an increasing deficit. Fiscal management has been hampered by weaker than expected commodity prices. 

The Central Bank faces various challenges. These include high inflation which soared above +10% y/y in Q1 2016, an excessive growth of credit (above +30% y/y in FY2015-16), and pressures on the currency in the wake of lower commodity prices and tighter monetary policy in the US. These vulnerabilities are exacerbated by poor buffers (low FX reserves, e.g.), weak operating framework and insufficient banking supervision.

Last, external vulnerabilities are high. On top of weak reserves, the economy has a chronic current account deficit. The latter is set to increase in the short term due to low commodity prices and continued imports growth of capital goods. 

Weak political and business environment weigh on the long-term outlook

Despite significant political progress (towards democracy and civil society), internal tensions hamper the outlook. The business environment is weak. The country still ranks poorly (170 out of 190) in the World Bank Doing Business survey, with significant shortcomings on contracts enforcement and investment protection.  

Last review: 2016-12-12