Myanmar’s economy is thriving but curbed by uncertainty ahead of next year’s general elections and softer private demand, according to the International Monetary Fund (IMF).
IMF economists holding annual Article IV consultations in Myanmar reiterated warnings made last April that “risks are tilted to the downside.” They cited concerns over the fallout from the Rakhine crisis and deficiencies in the banking sector.
“On the domestic front, growth could underperform if fiscal spending does not accelerate sufficiently. Delayed restructuring and recapitalization of the banking system could increase systemic risks with large macro-financial spillovers. A deterioration of the security situation and continued humanitarian issues in Rakhine could weigh on sentiment,” the IMF said in a statement following last week’s visit.
On the external front, heightened trade tensions, global market turmoil, rising crude oil prices, and spillovers from a slowdown in China remain risks.
The IMF estimates a growth rate of 6.5 percent in 2018/19, up slightly from 6.4 percent in 2017/18, thanks to the sustained strong export performance, particularly of garments and gas, despite global headwinds.
Foreign direct investment inflows and project approvals, it warns, remain lower than in recent years because large projects have been completed, and foreign investors stay cautious ahead of the 2020 elections.
For 2019/20, the Fund expects growth to be broadly stable, with higher government spending offset mainly by pre-election uncertainty and weaker private demand. Myanmar will hold parliamentary elections in late 2020.
The Fund expects inflation to fall to 6-7 percent in the medium term as the one-off impact from higher electricity tariff ends and pressures from rising food prices subside. It said domestic demand was mostly weaker, reflecting slowing credit growth, a correction in real estate prices, and declining investment.
The fiscal deficit widened slightly to 3.5 percent of GDP in 2018/19 from 3.0 percent in 2017/18, and central bank financing of the debt was higher than the preceding year.
To bolster macro-financial stability, the Fund advocates for the upgrading of the monetary and fiscal policy framework and comprehensive financial sector reforms.
Further, building on recent successful reforms, Myanmar should fully implement its sustainable development plan and scale up infrastructure and human capital spending.
These, the IMF argues, can help the country achieve the Sustainable Development Goals (SDGs) and boost sustainable growth.
The headquarters of the IMF is in Washington DC. Picture credit: Investopedia