Information about Asia and the Pacific Asia y el Pacífico
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Myanmar

Author(s):
International Monetary Fund
Published Date:
May 2012
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INTRODUCTION

1. Myanmar’s new government faces a historic opportunity to jump-start development and lift living standards. Myanmar could become the next economic frontier in Asia if, with appropriate reforms, it can turn its rich natural resources, young labor force, and proximity to some of the most dynamic economies, to its advantage. Delivering on these expectations with inclusive and sustainable growth should start with ensuring macroeconomic stability. This process is already under way with plans to unify the exchange rate and lift exchange restrictions, and should be supported by establishing a consistent monetary policy framework and improving public financial management.

2. In the medium term, addressing long-standing distortions would require cross-cutting reforms. Modernizing Myanmar’s economy will be a process of removing impediments to growth by enhancing the business and investment climate, encouraging financial sector development, and further liberalizing trade and foreign direct investment (FDI). Economic development remains essential for reducing poverty and building human capital.

RECENT ECONOMIC DEVELOPMENTS AND OUTLOOK

3. Growth has stabilized in FY2010/11. Driven by higher fiscal spending before the elections and buoyant commodity exports, real GDP growth is estimated to have picked up to 5.3 percent in FY2010/11. Inflation declined to 6.4 percent (y-o-y) in October 2011, from 8 percent a year earlier, mainly due to lower food prices and less deficit monetization. Gross international reserves rose to an estimated US$6.1 billion in FY2010/11 (about nine months of imports) due to natural gas exports and foreign direct investment (FDI) inflows primarily into the energy sector.

Staff’s views

4. The economic outlook is positive. Real GDP growth is projected at 5½ percent in FY2011/12 and at 6 percent in FY2012/13 driven by commodity exports and higher investment, supported by robust credit growth and improved business confidence. Inflation, projected at 4.2 percent for FY2011/12, is expected to pick up to 5.8 percent in FY2012/13 as the recent drop in food prices phases out.

5. Risks to this outlook are balanced. On the downside, a drop in regional demand could negatively affect exports, although Myanmar remains largely insulated from the developments in advanced economies due to sanctions. However, a sustained appreciation of the currency (in the parallel markets used by the private sector) could further erode external competitiveness. On the upside, the recent easing of FDI restrictions, further increase in credit, and continued progress toward exchange rate unification could bolster growth.

Authorities’ views

6. The authorities concur with staff on outlook and risks. They have estimated growth at double digits in the past decade, relying mostly on the five-year economic plans for the public sector. They have now initiated a statistical revision to better reflect private sector developments that account for about 90 percent of economic activity. They broadly agreed with staff projections and remain concerned with the impact of appreciation on external competitiveness.

POLICY DISCUSSIONS: ESTABLISHING A FRAMEWORK FOR MACROECONOMIC STABILITY

A. Exchange Rate Unification

7. The authorities plan to reform their complex exchange rate system. Since 1977, an official peg to the SDR at 8.50 kyats per SDR (5.35 kyats per U.S. dollar) has been in place. The official rate has never been part of a monetary policy framework. It is used only to allocate foreign currency from public export earnings to public import payments, and fiscal accounting. An “export-first” policy, enforced by complex exchange restrictions, permits private imports to the extent of available private export earnings, and has directed all private sector transactions to parallel markets to obtain foreign currency at multiple exchange rates in various segmented markets.1 The exchange restrictions and multiple currency practices (MPC) are distortionary, increase transactions costs, discourage FDI and foreign trade, and are also exacerbating the exchange rate appreciation pressures. Since 1993, the Central Bank of Myanmar (CBM) has also issued U.S. dollar-equivalent Foreign Exchange Certificates (FECs) to limit the circulation of U.S. dollar banknotes. Over time, the FECs obtained other functions, including for certain domestic payments, and are also traded at an informal market exchange rate.

8. The combination of strong inflows and exchange restrictions is eroding external competitiveness. The parallel market exchange rate of the kyat has appreciated by 23 percent in nominal effective terms and about 29 percent in real effective terms since end-FY2009/10, driven by large inflows into the economy, which cannot find an outlet due to exchange restrictions on current international payments and transfers. The official exchange rate is clearly overvalued, and an analysis based on the framework of IMF’s Consultative Group on Exchange Rates suggests that the informal market exchange rate is on average 19 percent overvalued in FY2010/11 and 40 percent so far in FY2011/12. In September 2011, the authorities eased some restrictions to address appreciation pressures by allowing foreign currency purchases for a car import program, and health and travel expenses abroad from recently established foreign exchange counters.

9. The authorities are preparing to replace the official peg with a managed float as a first step toward unifying the exchange rates. They also intend to announce a redemption plan for the FECs. Since the most immediate impact of this change will be on the public sector (the only user of the official rate), the new fiscal budget has already incorporated an exchange rate assumption in line with the prevailing parallel market exchange rate.

10. As an integral part of this plan, the CBM is taking steps to create a formal foreign exchange market. The initial steps focused on establishing a formal retail market by licensing 17 private banks in October 2011 to operate money changing counters at the Thein Phyu (TP) center. However, restrictions on TP counters exclude purchases for imports, besides the one-off car import program. In November, 11 banks were licensed as authorized foreign currency dealers (AD) to trade with each other and domestic customers; however, these licenses are yet to be activated. Currently, only three state banks are allowed to conduct foreign exchange business with the rest of the world. Private banks are seeking correspondent banking relations, beginning with remittance transfers.

Staff’s views

11. Staff concurs with the authorities’ plan to adopt a managed float well-anchored by necessary market infrastructure. The fundamental characteristics of the economy, as well as the need for exchange rate flexibility during the unification process point to a managed float, in line with other country experiences.2 Establishing an interbank market to determine a market-based exchange rate is a prerequisite for a managed float.3 To this end, the CBM should establish foreign currency auctions and a kyat deposit facility to conduct sterilized foreign currency operations, in line with recent IMF technical assistance (TA) recommendations. Activating the AD licenses should coincide with easing restrictions on usability of foreign currency for private imports to facilitate two-way flows between informal markets and the interbank market. This should include relaxing restrictions on TP counters to make these purchases and all foreign currency accounts at private banks usable for imports; and further liberalizing service payments and income transfers abroad (e.g., education-abroad, royalty payments).

12. The CBM should be granted a standing authorization to use and manage international reserves. Most of the foreign assets of Myanmar are held by three state banks. On current market trends, the CBM is expected to accumulate reserves at the foreign currency auctions. Nonetheless, to provide a reserve cushion, most of the foreign assets of the state banks should be transferred to the CBM before the auctions start. The CBM should adopt international best practices for reserve management.

13. The authorities should prepare a plan to end the ‘export-first’ policy to accept their Article VIII obligations. Although the removal of the official exchange rate and FECs will eliminate two of the many exchange rates, the unification of various informal market exchange rates requires elimination of the exchange restrictions that give rise to segmented markets, where these rates are determined. Ideally, the exchange restrictions should be removed gradually and across the board, to provide a level playing field to all imports and avoid introducing additional market distortions. This could be accomplished by exempting a gradually increasing portion of all private imports from the requirement to secure private ‘export earnings’ first, regardless of the source of foreign currency obtained. This would reduce market segmentation and help mitigate appreciation pressures. The plan to lift exchange rate restrictions should be coordinated with phasing out of trade licensing to eliminate nontariff barriers. The current macroeconomic conditions and expected FDI inflows provide comfort to start this process, but also underscore the importance of maintaining macroeconomic stability, including by establishing a proper monetary policy framework and improving public financial management.

Authorities’ views

14. The authorities noted broad-based support and their strong commitment to exchange rate unification. They emphasized their priority for stability during the unification process. Accordingly, they planned ahead to assess the impact of the move to a managed float on the state economic enterprises (SEEs) and the fiscal budget. For the unification of informal market rates used by the private sector, they expect to have a plan ready by mid-2012 to gradually lift all remaining restrictions on current international payments and transfers. They target to complete the process before end-2013, when the South East Asian Games will be held in Myanmar. They began drafting a new foreign exchange law and welcomed the planned IMF TA in March to finalize the draft. They noted immediate plans to activate the AD licenses, and have relaxed the restrictions on TP counters. They plan to launch foreign currency auctions and interbank trading at the time of the announcement of the managed float.

B. Establishing a Monetary Policy Framework

15. The CBM does not have a monetary policy framework. The official peg was never used as a monetary anchor. Interest rates for all instruments are set administratively. The CBM is a department within the Ministry of Finance and Revenue (MoFR), with the primary function of monetizing the fiscal deficits. There is a nascent over-the-counter market for treasury securities, albeit at administratively-set rates. There is no formal interbank market, and the CBM does not conduct any monetary operations. Pervasive controls on banks impede the monetary transmission mechanism.

16. First interest cuts since 2007 made treasury bonds more attractive. Since September 2011, the deposit and lending rates were cut by a cumulative 4 percentage points to 8 and 13 percent, respectively. The September adjustment also placed the treasury bond rates above the minimum deposit rate, which provides an incentive for banks to hold treasury bonds, and helped reduce deficit monetization. The CBM also allowed banks some flexibility in setting the deposits rates within a band.

Reserve Money and Inflation

(Year-on-year percent change)

Sources: Authorities; and IMF staff calculations.

Staff’s views

17. A consistent monetary policy framework is a necessary complement to reforms of the exchange rate regime. The CBM should be given full operational autonomy and proper accountability, with the clearly defined primary objective of domestic price stability. All central banking functions, including treasury agency and reserve management functions currently held by state banks, should be moved to the CBM. Consistent with the heavily cash-based nature of the economy, and its close link with inflation, the CBM should start monitoring reserve money to guide its future interest rate decisions. While planned deposit auctions would provide an interim tool to manage liquidity, developing the treasury securities market is needed to move to market-based monetary operations.

18. The level of interest rates appears appropriate in light of the economic outlook. Within the current regulatory constraints on financial intermediation and structural impediments on private sector, further interest rate cuts risk channeling domestic savings to potentially speculative assets, such as real estate. The onus of stimulating productive investment is now on structural policies to reduce barriers for private sector development.

Authorities’ views

19. The authorities plan to grant the CBM operational autonomy. The CBM is in the process of drafting a new central bank law, and welcomed the planned IMF TA in March to benefit from international best practices. The authorities anticipate that the law will be adopted in 2012. They also plan to consolidate reserve management at the CBM before they announce the float, however, they saw transferring all treasury functions to the CBM as part of a broader reorganization of state banks that would take time and require TA. They noted capacity constraints in establishing a reserve money targeting framework and monetary operations and considered TA essential.

20. The authorities agreed with staff that the current level of interest rates is appropriate. They noted that the interest rate adjustment in September 2011 has increased bank purchases of treasury bonds substantially since then, but saw little room for further rate cuts in the near term.

C. Fiscal Management: Supporting Development and Ensuring Sustainability

21. The fiscal deficit in FY2011/12 has narrowed due to lower capital spending after the elections. With the construction of the new capital close to completion and moderation in defense spending after the elections, the deficit is expected to moderate to 5½ percent in FY2011/12, despite the recent increase in pensions and a temporary tax exemption on key agricultural exports to address deteriorating external competitiveness.

22. The adoption of a market-based exchange rate is expected to further reduce the budget deficit in FY2012/13. As a net exporter, the consolidated public sector budget is expected to benefit from the use of the market exchange rate by 1.2 percent of GDP.4 This is primarily due to the net transfers from SEEs, notwithstanding the planned increase in social and infrastructure spending, reducing the projected deficit to a 4.6 percent of GDP.

23. Despite progress in bond financing, deficit monetization remains the main financing tool. Bond financing is estimated to reach 46 percent of the deficit in FY2011/12 helped by the recent adjustment in interest rates. However, weak public financial management leads to automatic monetization of the residual by the CBM. The planned fiscal decentralization could further undermine fiscal discipline. In particular, weak budgeting capacity, the separation of sub-national budgets from the State Fund Account (treasury account) and their interim financing by the Myanma Economic Bank, which handles the treasury functions, could increase deficit monetization.

Staff’s views

24. Stopping deficit monetization remains essential to contain inflation pressures. Lifting restrictions on state banks’ and Myanmar Insurance’s holdings of government securities; and encouraging retail sales of treasury bonds would further increase bond financing. Moving to treasury bond auctions would help phase out deficit monetization and establish a market-determined interest rate. Establishing a treasury function within the MoFR is essential to strengthen public financial management and will require technical assistance. With planned decentralization, institutional arrangements to delineate fiscal responsibilities and improving regional capacity for fiscal management are also necessary.

25. The first budget discussion in the new parliament provides a historic opportunity to redefine fiscal priorities. Although the lower deficit target is appropriate, there is substantial room within the current budget envelope to focus fiscal policies on poverty reduction, and building human capital and infrastructure. Plans to shift spending to health and education could go further and should aim at narrowing large regional differences in social outcomes. Capital spending should support rural development and power generation, and be centered on result-based planning and evaluation.

26. Expanding tax bases would generate more revenues for development spending. Replacing the commercial tax with a general sales tax with a single tax rate, and at most one reduced (or zero) tax rate for basic food items, would be a first step to simplify tax structures, while raising the exemption threshold for income tax would make it easier to administer.

27. In light of increasing reliance on natural resource-based revenues, a broadly balanced medium-term budget appears appropriate. Under current policies, the deficit is expected to decline to around 1¼ percent in the medium term, primarily due to a substantial increase in gas revenues in mid-2013. This is appropriate in light of the large development needs of the current generations. However, these resource-based revenues should be used to increase Myanmar’s growth potential by building infrastructure and human capital.

Myanmar: Impact of Adopting a Managed Float (in FY2010/13) on Fiscal Balance

(In percent of GDP)

Sources: Authorities; and IMF staff projections.

28. The adoption of a managed float would increase transparency of SEEs’ performance and should guide their reform. This would reveal the implicit losses of importing SEEs, which were previously hidden by the use of the official exchange rate. Initially, these implicit subsidies should be replaced with explicit subsidies to all loss-making SEEs in the budget to prevent accumulation of domestic arrears and avoid sharp price adjustments, especially for public utilities. Going forward, any price adjustments should begin with gradual reduction in regressive subsides to protect the poor.

Authorities’ Views

29. The authorities’ target a deficit in the range of 4½ percent of GDP in FY2012/13 with more emphasis on social spending. They plan to reduce military spending to 14½ percent of total expenditures from 23½ percent, while social spending is expected to increase to about 7½ percent of expenditures, from 5.4 percent. They also plan to allocate more spending to transportation infrastructure. They await the new national economic plan to guide their medium-term fiscal targets, which is expected to allocate future gas revenues to poverty reduction, rural development, and industrialization.

30. The authorities recognize the need to improve tax policies and tax administration. In August 2011, they abolished the withholding tax on imports, and are considering simplifying soon the commercial tax on domestic sales, which contains more than nine tax rates. They also plan to introduce single tax payer identification and self-assessments to expand the tax bases, but expect that this would take time and would require broader tax education and improved tax administration.

31. The authorities are planning further privatization of SEEs. They noted progress in privatizing more than 700 SEEs since the late 1990s. To increase transparency and improve valuations, they plan to move to open tenders in FY2012/13, but expect slower privatization as most of the profitable SEEs have already been privatized. They also plan to liberalize SEE operations by allowing them to manage their costs of raw materials from their operating revenues, rather than through budgetary allocations, but will continue to cover their losses, including those emanating from the adoption of a managed float.

D. Financial Sector Policies: Facilitating Development

32. The financial sector is small and repressed with administrative controls on financial intermediation.5 Key obstacles are the deposit-to-capital ratio,6 onerous collateral requirements, administratively set interest rates, and segmented banking activities. These controls and the exchange restrictions led to a reportedly large unregulated shadow financial system. The regulatory treatment of state banks and private banks is uneven, bank governance is poor, and banking supervision does not follow the Basel Core Principles. There is no unified national electronic payments and settlement system, although plans are under way to develop the financial infrastructure.

33. Recently, the authorities eased some restrictions on the financial sector. Since March 2011, more than 40 new bank branches were allowed and the list of acceptable collateral was further expanded. These steps improved access to credit and led to acceleration in private sector credit growth, albeit from a very low base.

Staffs’ views

34. Expediting financial sector modernization is essential to facilitate development and prepare the sector for the ASEAN Economic Community. While gradual liberalization of loan interest rates, as with deposit rates, should begin in tandem with reforms to the monetary policy framework, broader efforts are needed to improve financial intermediation. These include phasing out the deposit-to-capital ratio while strengthening capital requirements, further expanding the list of acceptable collateral, and easing administrative requirements on expanding branch networks. Joint ventures with foreign financial institutions would expedite the transfer of technology before the ASEAN financial integration in 2015.

35. Financial liberalization should be complemented with a stronger regulatory and supervisory framework. While there is a broad need to upgrade regulation and supervision, concurrent with financial liberalization the priority should be given to moving to internationally accepted definitions for loan classification and provisioning, strengthening conflict-of-interest requirements, and introducing a net open foreign currency position limit. Efforts to strengthen the AML/CFT regime should be guided by the action plan agreed with the Financial Action Task Force.

Authorities’ views

36. The authorities broadly concurred with staff positions, but also noted capacity constraints. They noted limited human capacity at private banks as a constraint on branch expansions. They preferred a gradual liberalization indicating that many domestic banks are not ready for price competition, notwithstanding the need to prepare for ASEAN integration. Regarding state banks, they noted that it would take time to wean them off of their historic roles in carrying out many administrative functions of the state. Nonetheless, they noted plans to revise the financial institutions’ law to modernize the sector.

E. Structural Policies: Lifting Impediments to Broad-based Growth

37. Growth is narrow-based. The economy largely depends on energy and agriculture. Agricultural development is suppressed by poor access to credit, lack of private land ownership, and inadequate infrastructure and inputs. The energy sector has surpassed agriculture as the main source of export revenues. However, its growth dividend is limited, as it is exclusively under state control and is largely isolated from the domestic economy. Despite the low wage advantage, the manufacturing sector remains stifled by poor infrastructure, inadequate know-how, and extensive administrative constraints. Myanmar has one of the highest costs in the world for starting a business.

38. There is momentum to promote rural growth and increase competition. The authorities doubled the size of harvest loans to farmers in 2011, while specialized rice companies have provided additional credit in certain areas. In January 2012, they also allowed agricultural land to be leased for up to 60 years to facilitate FDI. The recent liberalization of private imports of gasoline and palm oil helped reduce rationing and improved price competition. They are also considering a new land reform to grant private land ownership, which they expect to begin in 2012.

Staff’s Views

39. Lifting agricultural productivity remains essential for rural development. Investment in productivity improvements requires long-term credit. The planned land reform provides a unique opportunity to grant land titles that can be used as collateral for borrowing, a key impediment for private bank lending to agriculture. Higher rates of broad-based rural growth are essential to reduce poverty, and require complementary public investment in roads, education, and health.

40. Recent efforts to support private sector development are welcome and should go further. The positive examples of gasoline and palm oil imports can easily be multiplied by moving away from nontransparent licensing practices that limit competition. Replicating the success of FDI in the energy sector in other sectors would help diversify the economy consistent with the authorities’ plans to move toward industrialization. In this regard, the elimination of exchange restrictions is essential, besides gradually moving to a negative list for restricted FDI. However, the broader goal of promoting private sector development would require stronger efforts to improve the business climate by reducing administrative controls and the cost of doing business.

Authorities’ Views

41. The authorities consider rural development essential for inclusive growth. They plan to further double harvest loans to farmers in 2012 and are considering jointly with the private sector to establish a rice purchase program to stabilize farm gate prices. They expect the planned land reform to facilitate productivity enhancements, including mechanization and use of improved inputs.

42. Industrialization is part of the authorities’ new national economic plan. They target eliminating infrastructure bottlenecks, beginning with energy. To this end, they have opened up onshore exploration to international companies. They consider specialized economic zones as a focal point to attract FDI to focus on labor-intensive industries and view reforms of the exchange regime essential to facilitate this process.

F. Other Issues

Staff’s Views

43. Capacity building is essential to improve data quality and coverage. Data remain grossly inadequate for surveillance due to capacity constraints and inadequate resources. Substantial TA is necessary to support the authorities’ plans to upgrade their statistical practices.

44. Resolving external arrears would bolster the government’s engagement with the international community. The recent reconciliation of Myanmar’s outstanding obligations to Japan is a welcome first step and should be extended to all creditors. Myanmar remains in debt distress, primarily due to arrears, notwithstanding the improvement in debt indicators.7

Authorities’ Views

45. The authorities included improving data quality as a priority in their new national economic plan. They plan to overhaul their statistical practices to eliminate the heritage of the past and see a great need for capacity building.

46. The authorities consider access to new funding essential to normalize arrears. They plan to extend the reconciliation exercise to all creditors, but noted the vast development needs as a constraint on payment capacity.

STAFF APPRAISAL

47. The new government has started the process of addressing Myanmar’s development challenges. Unleashing Myanmar’s high growth potential will require cross-cutting reforms and substantial technical assistance, both beginning with improvements to macroeconomic management. The authorities’ top priority to reform the exchange rate system is well-placed and should be complemented by strengthening monetary and fiscal management to bolster the positive effects of planned exchange rate unification. In the medium term, modernizing the economy will be a process of removing impediments to growth by enhancing the business and investment climate, promoting agricultural productivity, modernizing the financial sector, and further liberalizing trade and FDI. Building human capital and poverty reduction are essential to benefit from these reforms.

48. The economic outlook is positive. Real GDP growth is expected to increase to 5½ percent in FY2011/12 and to 6 percent in FY2012/13, driven by commodity exports and higher investment. Inflation, projected at 4.2 percent for FY2011/12, is expected to rise to 5.8 percent in FY2012/13 as the recent decline in food prices phases out. Risks to this outlook are broadly balanced.

49. The planned adoption of a managed float is a welcome first step toward exchange rate unification. Steps to establish the necessary market infrastructure in line with IMF TA recommendations should continue, and require expeditious removal of some exchange restrictions to make a larger pool of foreign currency available for private imports and other transfers abroad.

50. The unification of the informal market exchange rates would require moving away from the ‘export-first’ policy. The authorities should prepare a plan to gradually remove all exchange restrictions on current international payments and transfers, and eliminate multiple currency practices (MPCs) by a target date. Pending such a plan, staff does not recommend the approval of the existing exchange restrictions and MPCs.

51. A monetary framework is a necessary complement to reforms of the exchange rate system. Plans to grant the CBM operational autonomy is a positive first step, and should include transferring all central banking functions from state banks to the CBM, and starting reserve money targeting. While the recent reduction in interest rates is welcome, there is no room for further interest rate cuts in light of economic outlook.

52. Further progress in reducing deficit monetization is needed to contain inflation pressures. Until treasury bond auctions can be established, expanding the retail sales of treasury bonds and lifting restrictions on state banks’ and insurance company’s holdings of treasury securities would further reduce deficit monetization. A treasury function is essential to improve public financial management, as well as better institutional arrangements to delineate fiscal responsibilities under fiscal decentralization.

53. The new government’s first budget aims at redefining national spending priorities. Plans to increase social spending, while targeting a moderate fiscal deficit of 4½ percent of GDP in FY2012/13, are welcome, but there is further room to prioritize spending for poverty reduction and education.

54. In the medium term, a broadly balanced budget is appropriate. Increasing gas revenues should be used to expand Myanmar’s growth potential by building human capital and infrastructure. More development spending would require lifting nonresource revenues by expanding tax bases through simplifying taxes and improving tax administration.

55. Reforms of SEEs should continue with improved transparency. The SEE losses that would be revealed with the adoption of a market-determined exchange rate should guide future SEE reforms. While explicit subsidies would avoid fast price hikes of utilities and essential inputs, a gradual reduction in regressive subsidies, which tend to benefit higher income groups, would contain their losses.

56. Financial sector modernization remains essential to facilitate development. Gradual liberalization of interest rates that began with deposit rates should be extended to loans, commissions, and fees. The recent efforts to improve financial intermediation should continue by lifting pervasive administrative controls on network expansions, phasing out the deposit-to-capital ratio, and expanding the list of allowable collateral. Liberalization should be complemented by strengthened supervision and regulation. Joint ventures with foreign banks would help prepare the sector for ASEAN financial integration in 2015.

57. Private sector development requires stronger efforts to improve the business climate. Eliminating nontransparent licensing practices and administrative controls would help provide a level playing field and reduce the cost of doing business. Gradually moving to a negative list for restricted FDI would reduce investor uncertainty.

58. Data remains grossly inadequate for surveillance. Substantial capacity building efforts are needed to improve coverage and quality of data.

59. Resolving eternal arrears is essential to re-engage the international community. Recent efforts to reconcile arrears with Japan are welcome and should be extended to all creditors.

60. It is recommended that the next Article IV consultation be held on the standard 12-month cycle.

Figure 1.Myanmar and Its Peers: Selected Indicators

Sources: Authorities; Direction of Trade; IMF’s World Economic Outlook; and IMF staff calculations.

Figure 2.Myanmar: Macroeconomic Developments

Sources: Authorities; Direction of Trade; IMF’s World Economic Outlook; and IMF staff calculations.

Table 1.Myanmar: Selected Economic Indicators, 2007/08-2012/13 1/

GDP (2010/11): US$45.4 billion 2/

Population (2007/08): 57.5 million

Quota: SDR 258.4 million

2007/082008/092009/102010/112011/122012/13
Est.Proj.Proj. 3/
(Percent change; unless otherwise indicated)
Real GDP and prices
Real GDP12.010.310.610.4
Staff working estimates of real GDP5.53.65.15.35.56.0
Agriculture 4/8.03.44.74.44.44.5
Industrial production 5/21.83.05.06.36.57.5
Services and trade12.94.25.86.16.37.1
Consumer prices (period average)32.922.58.28.24.25.8
Consumer prices (end of period)28.89.27.18.95.05.4
(In percent of GDP)
Public sector operations 6/
Total revenue (including grants)14.113.112.111.911.421.6
Total expenditure 7/17.915.516.917.916.926.1
Overall balance-3.8-2.4-4.8-6.0-5.5-4.6
Central bank financing2.72.23.74.02.51.1
Domestic public debt16.516.820.022.825.926.7
(Annual percentage change)
Money and credit
Broad money21.023.434.836.333.324.6
Domestic credit22.124.034.834.432.526.8
Public sector (net)23.325.634.428.523.815.7
Private sector16.716.236.965.468.060.0
(In millions of U.S. dollars, unless otherwise indicated)
Balance of payments
Trade balance92430272799-238-1,779
Exports6,4467,2417,1398,9809,88910,491
Imports-5,522-6,938-7,067-8,181-10,127-12,270
Current account balance (excluding grants)89-920-947-365-1,385-2,379
Overall balance7991126198081,7291,842
Gross official reserves
In millions of U.S. dollars3,0543,6294,6386,0707,9039,889
In months of total imports6.66.37.98.99.49.7
External debt
Total external debt (including arrears)8,0829,1019,97011,24011,84112,419
(In percent of GDP) 2/40.029.028.324.822.822.8
External debt arrears3,8584,3594,7815,4055,5105,654
Terms of trade (in percent change)1.76.20.50.36.6-2.8
Exchange rates (end of period)
Official exchange rate (kyat per U.S. dollar)5.25.85.75.45.2
FEC (parallel) rate (kyat per U.S. dollar) 8/1,1109921,004861810
GDP in billions of kyats23,33628,77832,35136,43639,80544,621
GDP in millions of U.S. dollars 2/20,18231,36735,22545,38051,92554,416
Sources: Until FY2009/10 the authorities, with some adjustments by IMF staff; from FY2010/11 IMF staff estimations and projections.

Fiscal year (April-March).

Before FY2012/13, GDP converted at a weighted exchange rate, where the official and FEC market rates are weighted with about 8 and 92 percent, based on the respective shares of public and private sectors in GDP.

The authorities plan to adopt a managed float in FY2012/13.

Including livestock, fishery, and forestry.

Including manufacturing, power, energy, construction, and mining.

Consolidated public sector; includes the Union government and state economic enterprises.

The SPDC (the political organization of the military) budget has been reduced by about 75 percent in FY2011/12 (about 2.6 percent of GDP).

The foreign exchange rate for FY2011/12 is as of January 2012.

Sources: Until FY2009/10 the authorities, with some adjustments by IMF staff; from FY2010/11 IMF staff estimations and projections.

Fiscal year (April-March).

Before FY2012/13, GDP converted at a weighted exchange rate, where the official and FEC market rates are weighted with about 8 and 92 percent, based on the respective shares of public and private sectors in GDP.

The authorities plan to adopt a managed float in FY2012/13.

Including livestock, fishery, and forestry.

Including manufacturing, power, energy, construction, and mining.

Consolidated public sector; includes the Union government and state economic enterprises.

The SPDC (the political organization of the military) budget has been reduced by about 75 percent in FY2011/12 (about 2.6 percent of GDP).

The foreign exchange rate for FY2011/12 is as of January 2012.

Table 2.Myanmar: Summary Operations of the Nonfinancial Public Sector, 2007/08–2017/18
2007/082008/092009/102010/112011/122012/13 1/2013/142014/152015/162016/172017/18
Prel.Prel.Est.Proj.Proj.Proj.Proj.Proj.Proj.Proj.
(In billons of kyats)
Consolidated accounts
Revenue 2/3,2833,7723,9094,3374,5519,62210,97512,07112,64513,43014,338
Of which: Revenue from gas exports79810101,6462,1102,4672,4402,4252,425
Tax8751,0451,0771,0831,0641,4591,6381,8311,9902,1872,416
Grants 3/0.20.30.50.40.455.455.655.755.855.955.9
Other revenue2,4092,7272,8323,2533,4878,1079,28110,18510,59911,18711,865
Expenditure4,1774,4505,4636,5136,74711,66212,42012,99113,62814,36915,296
Expense 2/2,5572,7673,0353,5224,3906,6807,0327,2467,5467,9278,335
Net acquisition of non-financial assets1,6201,6832,4282,9912,3574,9825,3885,7456,0836,4416,962
Gross operating balance (current balance)7261,0058748151622,9423,9434,8255,0995,5036,003
Net lending/borrowing (overall balance)-894-678-1,554-2,176-2,195-2,040-1,446-920-983-939-958
Net acquisition of financial assets-1.4-49.8-76.7-120-217-177-137-87-72-37-27
Net receipts from privatization of SEEs (shares and other equities)-1.4-49.8-76.7-120-217-177-137-87-72-37-27
Net incurrence of liabilities8926281,4772,0561,9781,8631,309833911902931
Domestic7249801,6561,8441,9771,6211,056545623601610
Securities other than shares833234614359721,129786443569596609
Treasury bonds561222457661,0131,155805443569596609
Treasury bills27201216-331-41-26-190000
Loans (central bank credit)6416571,1951,4091,0054922701025540
Bank financing7249801,6561,8441,9771,6211,056545623601610
Foreign1.12.00.81.11.4242.4252.9288.4287.9300.9321.8
Loans (net on accrual basis) 3/-0.4-0.9-1.6-2.30.8137.8160.6181.8187.6199.0218.8
Disbursements1.92.31.72.02.1320.3348.9370.8387.8410.5430.3
Amortization due-2.3-3.3-3.3-4.2-1.3-182.5-188.3-189.0-200.2-211.5-211.5
Change in external arrears 3/1.52.92.53.40.5104.592.3106.7100.3101.9103.0
Interest0.20.60.00.00.218.916.317.58.46.45.2
Principal1.32.22.53.40.385.676.089.291.995.597.8
Statisical discrepancy167-354-1802110000000
(In percent of GDP)
Consolidated accounts
Revenue14.113.112.111.911.421.622.021.920.719.819.0
Of which: Gross revenue from gas exports0.00.00.00.00.03.74.24.54.03.63.2
Of which: Tax revenue3.73.63.33.02.73.33.33.33.33.23.2
Of which: Net transfers from SEEs2.92.82.52.52.55.46.87.97.77.47.2
Expenditure17.915.516.917.916.926.124.923.622.321.220.3
Expense11.09.69.49.711.015.014.113.112.311.711.0
Net acquisition of nonfinancial assets 4/6.95.87.58.25.911.210.810.49.99.59.2
Gross operating balance (current balance)3.13.52.72.20.46.67.98.88.38.17.9
Net lending/borrowing (overall balance)-3.8-2.4-4.8-6.0-5.5-4.6-2.9-1.7-1.6-1.4-1.3
Of which: Bank financing3.13.45.15.15.03.62.11.01.00.90.8
(In billons of kyats)
General government
Revenue1,7012,0972,1602,4302,4524,3045,5076,6997,1967,7488,425
Taxes 5/8751,0451,0771,0831,0641,4591,6381,8311,9902,1872,416
Grants 3/0.20.30.50.40.455.455.655.755.855.955.9
Other revenues8271,0521,0831,3461,3882,7893,8144,8135,1515,5045,953
Transfers from state economic enterprises6868077938999902,3873,3964,3774,6985,0365,469
Other nontax revenue 6/141244289447398402418435452469483
Expenditure2,1612,2693,1754,0784,1235,8006,3736,9057,3877,8528,506
Expense8129371,1591,4452,1782,5152,7562,9553,1433,3603,609
Conpensation to employees2683083724646056917738368989641,027
Wages and salaries262263310389519594670727783843900
Contributions64661768797104109115121127
Use of goods and services126175169181457503561621689765851
Goods and services8499102111284310346383424471524
Maintenance and repairs42766770172193216239265294327
Interest147181263415513644675676651632628
Domestic146181263415512610646638632617615
External (due) 3/0.20.20.40.40.634.228.937.719.015.212.6
Social benefits27272734269386386386386386386
Other 7/244245300317335290361435519612717
Net acquisition of nonfinancial assets1,3491,3322,0162,6331,9453,2853,6173,9504,2444,4924,896
Gross operating balance (current balance)8891,1601,0019852741,7892,7513,7444,0534,3874,816
Net lending/borrowing (overall balance)-460-172-1,015-1,648-1,671-1,496-866-206-190-104-80
State economic enterprises
Revenue2,2682,4822,5422,8063,0897,7068,8639,74910,14710,71811,382
Expenditure2,7022,9883,0813,3343,6138,2509,44310,46410,94011,55312,260
Expense2,4312,6372,6692,9763,2016,5537,6718,6689,1019,60310,195
Net acquisition of nonfinancial assets2703514123584121,6971,7721,7961,8391,9502,065
Gross operating balance (current balance)-163-155-127-170-1121,1531,1921,0811,0461,1151,187
Net lending/borrowing (overall balance)-434-506-539-528-524-544-580-715-793-835-878
Sources: Budget Department, Ministry of Finance and Revenue; and IMF staff estimates and projections.

The official exchange rate is assumed to be abolished with the adoption of a market-based exchange rate in FY2012/13.

Revised to reflect the nonzero balance of SEEs. Consolidated revenue includes all revenue receipts of SEEs instead of only net SEE transfers. Consolidated current expenditure includes current expenditure of Union government and SEEs, net of net SEEs transfers to the union budget.

Converted at the official exchange rate before FY2012/13, when the official exchange rate is replaced by a market-determined exchange rate.

The SPDC (the political organization of the military) budget has been reduced by about 75 percent in FY2011/12 (about 2.6 percent of GDP).

From FY2011/12, includes property and wheel tax. From FY2009/10, includes state lottery revenues, which had been in other nontax revenue.

From FY2011/12, other nontax revenue include certain local development councils (e.g., Yangon, Mandalay, etc), which were not included earlier.

Includes current expenditures of the Ministry of Defense and pension and gratuities.

Sources: Budget Department, Ministry of Finance and Revenue; and IMF staff estimates and projections.

The official exchange rate is assumed to be abolished with the adoption of a market-based exchange rate in FY2012/13.

Revised to reflect the nonzero balance of SEEs. Consolidated revenue includes all revenue receipts of SEEs instead of only net SEE transfers. Consolidated current expenditure includes current expenditure of Union government and SEEs, net of net SEEs transfers to the union budget.

Converted at the official exchange rate before FY2012/13, when the official exchange rate is replaced by a market-determined exchange rate.

The SPDC (the political organization of the military) budget has been reduced by about 75 percent in FY2011/12 (about 2.6 percent of GDP).

From FY2011/12, includes property and wheel tax. From FY2009/10, includes state lottery revenues, which had been in other nontax revenue.

From FY2011/12, other nontax revenue include certain local development councils (e.g., Yangon, Mandalay, etc), which were not included earlier.

Includes current expenditures of the Ministry of Defense and pension and gratuities.

Table 3.Myanmar: Monetary Survey, 2007/08–2012/13 1/
2007/082008/092009/102010/112011/122012/13
JunEst.Proj.
(In billions of kyats, end of period)
Monetary authorities’ accounts
Net foreign assets 2/3/12.917.921.426.029.633.76,677.7
Foreign assets 2/16.020.925.930.434.040.07,631.0
Foreign liabilities 2/3.13.04.54.54.46.3953.3
Domestic credit (net)3,652.74,301.55,517.67,162.16,773.58,400.39,199.9
Claims on central government (net)3,641.04,287.35,475.96,882.86,712.77,887.98,380.1
Claims on deposit money banks11.814.241.7279.460.8512.4819.8
Other items (net)-67.8-91.4-131.8-159.3-236.354.4-6,281.0
Valuation gains/losses 4/-6,633.6
Reserve money3,561.94,187.15,363.07,001.26,535.38,488.49,596.7
Monetary survey
Net foreign assets 2/-1.62.04.26.310.115.93,977.4
Net domestic assets4,390.25,414.57,299.69,949.010,462.313,252.612,548.9
Domestic credit4,607.25,712.37,699.910,348.211,037.013,708.017,378.2
Claims on public sector (net)3,834.74,814.56,470.68,314.98,755.610,292.011,912.7
Claims on private sector (net)772.6897.81,229.32,033.32,281.43,416.05,465.6
Other items (net)-217.0-297.8-400.3-399.3-574.7-455.4-4,829.3
Valuation gains/losses 4/-3,951.1
Broad money 2/4,392.55,420.77,304.99,957.410,474.413,268.516,526.3
Narrow money3,081.63,589.74,660.45,901.65,859.67,484.08,604.6
Of which: Currency2,810.43,194.14,008.44,824.94,688.45,725.96,308.9
Quasi-money1,310.81,831.02,644.54,055.84,614.96,264.79,303.5
(Annual percentage change)
Domestic credit22.124.034.834.431.832.526.8
Claims on public sector23.325.634.428.526.523.815.7
Claims on private sector16.716.236.965.457.568.060.0
Broad money 2/21.023.434.836.335.833.324.6
Narrow money16.816.529.826.623.126.815.0
Of which: Currency in circulation17.413.725.520.414.518.710.2
Quasi-money32.339.744.453.456.254.548.5
Reserve money20.817.628.130.516.821.213.1
(Contribution to annual growth of broad money, in percent)
Broad money 2/
Net foreign assets0.00.10.00.00.10.129.9
Domestic credit23.025.236.736.334.633.727.7
Other items (net)-2.1-1.8-1.90.01.1-0.6-33.0
Memorandum items:
Velocity5.35.34.43.73.83.02.7
Money multiplier (broad money/reserve money)1.21.31.41.41.61.61.7
Gross official reserves (in billions of U.S. dollars) 5/3.13.64.66.16.17.99.9
Private sector credit (in percent of GDP)3.33.13.85.66.38.612.2
Sources: Central Bank of Myanmar; and IMF staff estimates.

Figures represent the end of fiscal year in March.

Converted at the official exchange rate before FY2012/13, when the official exchange rate is replaced by a market-determined exchange rate.

Holdings of foreign assets by banking and financial agencies of the government.

Due to adoption of a market-determined exchange rate.

Reserve holdings by state-owned resident banks.

Sources: Central Bank of Myanmar; and IMF staff estimates.

Figures represent the end of fiscal year in March.

Converted at the official exchange rate before FY2012/13, when the official exchange rate is replaced by a market-determined exchange rate.

Holdings of foreign assets by banking and financial agencies of the government.

Due to adoption of a market-determined exchange rate.

Reserve holdings by state-owned resident banks.

Table 4.Myanmar: Balance of Payments, 2007/08–2017/18(In millions of U.S. dollars, unless otherwise indicated)
2007/082008/092009/102010/112011/122012/132013/142014/152015/162016/172017/18
Est.Proj.
Trade balance92430272799-238-1,779-833824-366-1,194-1,984
Exports, mainly f.o.b.6,4467,2417,1398,9809,88910,49111,99613,82714,15115,04716,252
Public exports4,0614,5624,1055,3885,4395,6606,8927,9508,2078,6679,248
Of which: Gas2,2822,8492,4802,6573,0473,0224,0394,8434,7954,6584,628
Private exports2,2562,6072,9633,5024,4504,8315,1045,8765,9436,3807,005
Imports, mainly c.i.f.5,5226,9387,0678,18110,12712,27012,82913,00314,51716,24118,236
Private imports4,0315,5514,9475,8916,5827,8538,4678,84210,30711,77513,495
Services, net-1,062-1,556-1,289-1,413-1,413-892-1,589-2,297-2,420-2,536-2,383
Receipts4784874875435886397017758619681,101
Payments1,5402,0431,7761,9562,0001,5312,2893,0723,2813,5053,485
Private transfers, net227334270250265292335362391422456
Current account, excluding grants89-920-947-365-1,385-2,379-2,086-1,111-2,396-3,308-3,911
Official grants42602467070707070707070
Nonmonetary capital movements6768169935763,0444,1512,5311,7251,7651,6641,745
Long term, net-73-162-292-414156131189225120-147-255
Disbursements374406299360405405440466487514539
Repayments due448567591774249274250241366661794
Foreign direct investment7159769639692,8633,9952,3171,4751,6201,7861,975
Other capital, net 1/3423222125252525252525
Errors and omissions, net-81563265260000000
Overall balance7991126198081,7291,842516685-560-1,574-2,096
Financing-799-112-619-808-1,729-1,842-516-6855601,5742,096
Net international reserves (- increase)-1,094-613-1,041-1,432-1,833-1,986-676-8603551,2961,791
Gross reserves (- increase)-1,053-575-1,009-1,432-1,833-1,986-676-8603551,2961,791
Of which: SDR allocation320
Short-term liabilities-41-39-3200000000
Net increase in arrears295501422624105145160176205278305
Memorandum items:
Current account balance (in percent of GDP 2/3/)0.4-2.9-2.7-0.8-2.7-4.4-3.5-1.8-3.5-4.6-5.1
Export volumes (percent change)-6.13.218.3-2.96.821.218.92.84.76.5
Import volumes (percent change)28.16.89.09.58.911.211.411.711.912.3
Gross reserves, end-period3,0543,6294,6386,0707,9039,88910,56511,42611,0719,7757,984
(In months of imports)6.66.37.98.99.49.79.910.59.27.25.3
Net reserves, end-period3,3573,8005,0235,8607,6939,67910,35511,21610,8619,5657,774
Total external debt8,0829,1019,97011,24011,84112,41912,92113,40913,85914,15914,426
(In percent of GDP 2/3/)40.029.028.324.822.822.821.921.220.419.618.9
Ratio of external debt to exports of goods and nonfactor services1.21.21.31.21.11.11.00.90.90.90.9
External debt arrears 4/3,8584,3594,7815,4055,5105,6545,8155,9916,1966,4746,779
External debt service (in percent of goods and nonfactor service exports)7.75.94.33.13.95.15.04.85.46.97.3
Ratio of broad money (M2) to gross reserves1.31.51.61.92.12.02.22.32.63.14.1
Terms of trade (percent change)1.76.20.50.36.6-2.8-5.6-3.2-0.81.31.1
Sources: Data provided by the Myanmar authorities; and IMF staff estimates and projections.

Includes the 2009 general SDR allocation of SDR 191.6 million and the 2009 special one-time allocation of SDR 10.7 million.

Converted at the official exchange rate before FY2012/13, when the official exchange rate is replaced by a market-determined exchange rate.

Excluding grants.

Increases in arrears from existing loans coming due and accrued interest not paid.

Sources: Data provided by the Myanmar authorities; and IMF staff estimates and projections.

Includes the 2009 general SDR allocation of SDR 191.6 million and the 2009 special one-time allocation of SDR 10.7 million.

Converted at the official exchange rate before FY2012/13, when the official exchange rate is replaced by a market-determined exchange rate.

Excluding grants.

Increases in arrears from existing loans coming due and accrued interest not paid.

Table 5.Myanmar: Medium-Term Projections, 2007/08–2017/18
2007/082008/092009/102010/112011/122012/132013/142014/152015/162016/172017/18
Est.Proj. 1/
(Percentage change)
GDP (in constant prices)12.010.310.610.4
Staff working estimates of real GDP5.53.65.15.35.56.05.96.06.26.36.5
Agriculture 2/8.03.44.74.44.44.54.95.05.35.45.6
Industrial production 3/21.83.05.06.36.57.56.76.56.66.77.1
Services and trade12.94.25.86.16.37.16.86.97.07.17.2
Inflation (CPI, end of period)28.89.27.18.95.05.45.35.35.35.35.3
(In percent of GDP)
Public finances
Total revenue (including grants)14.113.112.111.911.421.622.021.920.719.819.0
Total expenditure17.915.516.917.916.926.124.923.622.321.220.3
Of which: Capital expenditure6.95.87.58.25.911.210.810.49.99.59.2
Overall balance-3.8-2.4-4.8-6.0-5.5-4.6-2.9-1.7-1.6-1.4-1.3
Estimated domestic public debt16.516.820.022.825.926.726.124.523.121.720.3
Estimated total public debt56.545.848.347.648.749.548.045.743.541.339.2
(In millions of U.S. dollars, unless otherwise indicated)
Balance of payments
Exports (in percentage change)23.912.3-1.425.810.16.114.315.32.36.38.0
Imports (in percentage change)88.025.61.815.823.821.24.61.411.611.912.3
Trade balance92430272799-238-1,779-833824-366-1,194-1,984
(In percent of GDP) 4/4.61.00.21.8-0.5-3.3-1.41.3-0.5-1.7-2.6
Current account (excluding grants)89-920-947-365-1,385-2,379-2,086-1,111-2,396-3,308-3,911
(In percent of GDP) 4/0.4-2.9-2.7-0.8-2.7-4.4-3.5-1.8-3.5-4.6-5.1
Grants42602467070707070707070
Capital account6768169935763,0444,1512,5311,7251,7651,6641,745
Of which: FDI7159769639692,8633,9952,3171,4751,6201,7861,975
Errors and omissions-81563265260000000
Overall balance7991126198081,7291,842516685-560-1,574-2,096
(In millions of U.S. dollars, unless otherwise indicated)
External debt and reserves
Total external debt (including arrears)8,0829,1019,97011,24011,84112,41912,92113,40913,85914,15914,426
(In percent of GDP) 4/40.029.028.324.822.822.821.921.220.419.618.9
External debt arrears3,8584,3594,7815,4055,5105,6545,8155,9916,1966,4746,779
Gross official reserves3,0543,6294,6386,0707,9039,88910,56511,42611,0719,7757,984
(In months of total imports)6.66.37.98.99.49.79.910.59.27.25.3
Sources: Data provided by the Myanmar authorities, with adjustments made by IMF staff; and IMF staff projections.

The authorities plan to adopt a managed float in FY2012/13.

Including livestock, fishery, and forestry.

Including manufacturing, power, energy, construction, and mining.

Before FY2012/13, GDP converted at a weighted exchange rate, where the official and FEC market rates are weighted about 8 and 92 percent, based on the public and private sectors’ respective shares in GDP.

Sources: Data provided by the Myanmar authorities, with adjustments made by IMF staff; and IMF staff projections.

The authorities plan to adopt a managed float in FY2012/13.

Including livestock, fishery, and forestry.

Including manufacturing, power, energy, construction, and mining.

Before FY2012/13, GDP converted at a weighted exchange rate, where the official and FEC market rates are weighted about 8 and 92 percent, based on the public and private sectors’ respective shares in GDP.

1See Selected Issues Paper, Chapter II.
2See Selected Issues Paper, Chapter III and Annex.
3See Selected Issues Paper, Chapter IV.
4See Selected Issues Paper, Chapter V.
5There are 23 banks, of which 19 are private.
6The deposit-to-capital ratio limits deposit-taking by private banks up to 25 times of paid-up capital.
7See accompanying Debt Sustainability Analysis.

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