Myanmar Economic Monitor May 2018 Growth Amidst Uncertainty Hans Anand Beck Lead Economist, Myanmar May 17, 2018
Key Takeaways The economy performed better in 2017/18 amidst uncertainty. • Myanmar’s growth picked up to 6.4 percent led by agriculture and manufacturing, and helped by strong global economic recovery • Inflation moderated to 5.5 percent. Current account and fiscal deficits narrowed and the Kyat strengthened slightly. While the economic outlook remains positive, risks have intensified. • Rising input costs, policy uncertainty and the perception of slowing reforms. • Uncertainty in global trade policy and commodity price volatility. The government has the reform tools to improve the outlook • Implement the Myanmar Sustainable Development Plan • Implement effectively and raise awareness of the Investment Law and Companies Act to generate FDI and knowledge, and employment.
The economy performed better in 2017/18 than 2016/17 The outlook remains positive, but risks have intensified Government reforms can raise the outlook and economic potential 3
Global conditions improved, providing a favorable environment Real GDP Growth 5 4.5 4.5 4.3 4 3.7 3.5 3.1 3 3 Percent 2.4 2.5 2.3 2.2 2 1.6 1.5 1 0.5 0 World Advanced economies Emerging and developing economies 2016 2017e 2018f Source: World Bank Global Economic Prospects January 2017 4
Myanmar capitalized on global recovery, but is losing its lead in the region 8 2016 2017 2012-17 average 7 6 5 4 3 2 1 0 LAO CH MMR CAM VIET INDO MAL THA
Growth was broad based Real GDP growth and sector contribution Output, Employment, Future output PMI 9% 8.4% 8.0% 8% 7.0% 6.8% 7% 6.4% 5.9% 6% 5% 4% 3% 2% 1% Mar'18 April'17 May'17 June'17 July'17 Aug'17 Sept'17 Oct'17 Nov'17 Dec'17 Jan'18 Feb'18 0% 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19F -1% Output Employment Future output index Agriculture Industry Services GDP production
Strong exports narrowed the trade and current account deficits and FDI flows picked up Current account Financial Account 10% 2% 5% 0% 0% Share of GDP -2% -5% -4% Share of GDP -10% -6% -15% -8% -20% -10% -25% -12% -14% Trade balance Services balance Direct Invesment Portfolio Investment Primary income balance Secondary income balance Current account Other Investment Financial account
Export growth was led by natural gas, garments and agriculture, with access to new markets Rice - Acceleration of exports and diversification of Natural gas exports: Quantities and prices destinations (m tons) 200 300 Index: April 2017 = 100 150 200 USD billion 100 100 50 Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct 0 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2013/14 2014/15 2015/16 2016/17 2017/18 2014/15 2015/16 2016/17 2017/18 Value Quantity Price Border Sea Total
Year on year change 10% 12% 14% 0% 2% 4% 6% 8% Inflation fell in early 2017, but picked up since August Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 CPI Food driven by food prices Feb-16 Mar-16 Apr-16 May-16 CPI Non Food Jun-16 Jul-16 Aug-16 7 % Sep-16 Oct-16 Nov-16 CPI Headline Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 5.5% Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18
Broad money growth increased, as CBM reduced its intervention through the deposit auctions Money growth CBM Deposit Auctions 45% 3.0 4,500 6.0 40% 2.5 4,000 4.0 35% 3,500 30% 2.0 2.0 Percentage Kyat billion 3,000 25% yoy change 1.5 0.0 2,500 20% 2,000 -2.0 15% 1.0 1,500 10% -4.0 0.5 1,000 5% -6.0 500 0% 0.0 Q4/2015 Q1/2016 Q2/2016 Q3/2016 Q4/2016 Q1/2017 Q2/2017 - -8.0 Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4 2014/15 2015/16 2016/17 2017/18 Private sector Broad Money Net Claims on CG Reserve Money Bids accepted Bids submitted Real Interest Rate Money Multiplier (RHS) (RHS)
Government size remains small and actual fiscal deficit may be considerably lower than the budget Size of general government v per capita GDP, Fiscal balances, Percent of GDP Myanmar in global perspective, 2016. 2% 1.1% 1% 0.4% 0% -1.1% -1% -0.5% -1.1% -2% -2.7% -3.9% -3% -2.2% -4.7% -4% -3.1% -5% -4.3% -6% -5.8% PA PA PA RE 2014/15 2015/16 2016/17 2017/18 Public Sector SEEs Union Government
The economy performed better in 2017/18 than 2016/17 The outlook remains positive, but risks have intensified Government reforms can raise the outlook and economic potential 12
Favorable medium-term economic outlook 2015 2016 2017 2018 2019 2020 Real GDP growth (% 7.0 5.9 6.4 6.8 6.9 7.1 change) CPI Inflation (end of 8.4 7.0 5.2 4.9 5.3 6.0 period) Current account -7.2 -6.4 -5.9 -4.7 -4.1 -3.8 balance (% of GDP) Fiscal balance (% of -5.1 -3.0 -4.7 -4.8 -4.4 -4.4 GDP)
But downside risks have intensified Upside Downside External risks Domestic risks 14
The economy performed better in 2017/18 than 2016/17 The outlook remains positive, but risks have intensified Government reforms can raise the outlook and economic potential 15
Government has the right tools for reform • MSDP offers the much-needed unifying and coherent roadmap for reforms • By raising more and spending better , Myanmar can use its budget for addressing priorities under the MSDP, such as investments in energy, transport, education and health • Myanmar can attract more investment , both foreign and domestic, by implementing the new Investment Law and the Companies Act, tracking doing business reforms and, providing a secure transactions framework, and further liberalizing key sectors such as Insurance • Four C’s critical for reforms going forward: coordination, consultation, certainty and communication
Raising labor productivity will require a better allocation of factors and a focus on infrastructure Foreign firms as a share of total: • The private sector in Myanmar has changed a lot: 40% of firms are less than 10 years old. There are few foreign firms but they represent 20% of formal employment and of exports. • Young firms in manufacturing also tend to be very large – whether because they are new domestic or foreign ventures or because they have recently been privatized • There is a lot of dispersion in labor productivity and reallocation should go further to allow productive small firms to grow more and unproductive large firms to shrink • One important factor that seems to explain labor productivity is access to electricity
Investment Law is a milestone to attract FDI. Implementation and awareness is key • Do you feel businesses in your sector will b enefit from the New Investment Law? New Investment Law well received, especially by foreign investors who account for up to a fifth of exports and of formal employment. • Awareness of law still low, not yet fully Domestic 34.9 14.9 4.0 46.2 implemented. • The main changes include lower entry barriers, more streamlined procedures, a dedicated mechanism to mediate investor disputes, and more selective investment incentives. Foreign or JV 31.3 20.4 2.0 46.3 • Complementary reforms remain important to improve investors’ access to factors such as land, infrastructure, skilled labor, and quality domestic inputs. 0 20 40 60 80 100 Percentage o f firm s Yes, the law has positive impact No, the law will have no effect Not aware of the law No, law will hurt my business Source: Myanmar WBES 2016, 2017
Making Finance Work for All Financial depth: Myanmar and Comparators, • Myanmar’s financial system significantly 2016 underserves large parts of the private sector and general public. 132 140 124 120 • Recent changes have yielded significant gains, including on financial access 100 80 69 69 • Road ahead is a balancing act between 64 financial stability with significantly expanding 60 45 outreach and the range of available 37 36 33 40 instruments. 22 22 18 14 20 7 • 0 Reforms needed are complex and 0 simultaneous – important that they are clearly Myanmar Cambodia Philippines Vietnam Indonesia articulated and focused on bringing benefits of more effective financial services to the general Domestic Bank Deposits / GDP (%) public Private Credit / GDP (%) Credit to Government and SOEs / GDP (%)
20
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