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IMF sees bright outlook for Myanmar despite challenges
Publication Date : 19-06-2014
The continued flow of foreign direct investment – particularly in the oil and gas and manufacturing sectors - will brighten the country’s economic outlook, according to the International Monetary Fund.
Amid this trend, Matt Davies, chief of the IMF mission to Myanmar, warned that there are economic challenges – chiefly the widening fiscal deficit and associated consequences from the banking liberalisation.
On the sideline of a press conference yesterday, Davies said that the economy would be further driven by investments by foreign companies as well as domestic firms, more activity in the manufacturing sector, and higher income from exports, especially agricultural products.
“Myanmar will enjoy more investment in manufacturing, telecommunications and natural resources,” he said.
As of December 2013, Myanmar had attracted US$44.2 billion in cumulative foreign investment, 42.5 per cent of this in the energy sector. Investment in the sector is expected to rise further, following the awarding of 20 exploration blocks in March. The Ministry of Energy said then that it would receive $226.1 million as a “signature bonus” from the firms once exploration begins on the 10 shallow water and 10 deep-water blocks. Of total, $91 million will come from shallow-water exploration blocks and $135 million from deep-water exploration blocks.
According to the Asian Development Bank, capital goods imports surged by 59.5 per cent to $5.8 billion in 2013. This reflected stronger investment. The ADB put GDP forecasts for 2014 and 2015 at 7.8 per cent.
To ensure a successful entry, the IMF’s Davies suggested all foreign companies study rules and regulations carefully and then find the best way to cater services that meet the need of customers.
The fund expects economic growth to accelerate slightly to 8.5 per cent in the 2014-15 fiscal year, which started in April, from 8.25 per cent in last fiscal year.
This is higher than its previous forecast, announced in March. Then, the gross domestic product (GDP) was forecast to expand by 7.75 per cent in this fiscal year, from 7.5 per cent in the previous year. In the 2012-13 fiscal year, the GDP growth rate was 7.3 per cent.
“Myanmar is well placed to build on its recent economic reforms and embark on an extended period of rapid growth, emulating its regional peers. However, ensuring that this growth is sustainable and inclusive requires decisive implementation of a broad range of policy and structural reforms,” Davies said.
The figure was released following discussions with local officials during June 4-17.
Amid the bright economic outlook, the mission chief warned against risks for the country left impoverished after years of military rule and sanctions by western countries.
Davies expressed concern on the fiscal deficit and the Central Bank of Myanmar’s independence.
“Fiscal and external buffers remain thin and demand-side pressures on inflation and large capital inflows will strain the still-infant macroeconomic management tools,” he warned.
The fiscal deficit was recently cut due partly to large one-off revenues from telecom licences and the deficit this year is expected to remain within the central bank’s target of 5 per cent of GDP. Fiscal risks escalated, however, due to the use of external borrowing to finance off-budget operations, increasing tax exemptions and changing relations with state and regional governments and state economic enterprises.
Davies stressed the need of further progress in reforming tax administration. To him, increasing the share of concessional financing will provide space for more development spending. Meanwhile, strengthening the central bank’s independence will help build monetary policy tools to address inflationary pressures and manage foreign capital inflows.
Inflation is expected to remain at 6.5 per cent this year.
Davies also emphasised that the IMF stands ready to help the central bank modernise existing banking regulations to effectively monitor foreign and local banks’ activities in light of the plan to gradually open the banking sector to foreign banks.
“We are working with the central bank to ensure that the financial sector can support economic development and decrease some economic risks,” he said, adding that the central bank has undergone a huge change over the past two years.
While in Naypyitaw in April, IMF deputy managing director Naoyuki Shinohara also stressed that the country needs sound market economic management to support the economic growth.
“Sound, stable market economic management will be the most important. The government needs to avoid inflation. The government needs to avoid excessive borrowing,” he said.