Economy, The Report Myanmar 2017

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From The Report: Myanmar 2017
After its historic transition to civilian rule following years of incremental reforms, Myanmar is enjoying a
period of exceptional growth. Once an outlier in the region, Myanmar now has the fastest-growing
economy in ASEAN, and is seen as a source of regional strength and a destination of opportunity. Further
liberalisation is planned, international investment is expected to remain strong and the domestic economy
is becoming increasingly efficient. Optimism reigns as the experiment in reform has proven durable.
While many emerging economies struggle to maintain a high rate of expansion in the face of global
uncertainty, Myanmar is set to remain on course.
This chapter contains interviews with U Kyaw Win, Minister of Planning and Finance; Sean Turnell,
Economic Advisor, National League for Democracy and Associate Professor, Department of Economics,
Macquarie University; U Thurance Aung, Vice-President, Myanmar Japan Thilwa Development; and
Keiichiro Nakazawa, Chief Representative, Japan International Cooperation Agency, Myanmar Office.
http://www.oxfordbusinessgroup.com/myanmar-2017/economy
Articles from this chapter

This chapter includes the following articles.
Myanmar leads ASEAN region in economic growth rates
period of exceptional growth. The countrys potential is being unlocked. Once an outlier in the region,
Myanmar now has the fastest-growing economy in ASEAN, and is seen as a source of regional strength
and a destination of opportunity. Further liberalisation is planned, international investment is expected to
remain strong and the domestic economy is becoming increasingly efficient. Optimism reigns as the
experiment in reform has proven durable. While many emerging economies struggle to maintain a high
rate of expansion in the face of global uncertainty, Myanmar is set to remain on course.
Gdp Growth
According to the Asian Development Bank (ADB), Myanmars GDP grew by 7.2% in 2015, following
8.7% growth in 2014 and 8.4% in 2013. The rate is forecast at 8.4% in 2016. That compares favourably
with neighbours and peers. The growth rates in Cambodia and Laos are both expected to be around 7% in
2016, and the Philippines and Vietnam are set to see growth of around 6%. Malaysia will expand by 4-
5%, Thailand by less than 4% and Singapore by under 2%. Growth in Myanmar is expected to accelerate
to 8.3% in 2017.
Challenges
The strong performance is being achieved despite a number of challenges. Flooding in 2015 with
intense rains and landslides in July and August and in 2016 took a toll on growth as harvests were
damaged and transportation impeded. An estimated 20% of cultivated land was devastated. Inflation is a
persistent problem, with structural issues keeping it high, while the floods caused a spike. Debt is
becoming a concern, given persistent government deficits, and foreign direct investment (FDI) slowed for
a period in 2016.
Reforms that are being undertaken, which are important for growth, might become stalled as the country
transitions to the new administration. Myanmar is also dealing with a protracted peace process, with State
Counsellor Daw Aung San Suu Kyi noting that sustained growth is not possible until a deal is finalised.
Myanmar may lack the capacity to effectively carry out all the changes that are needed in such a short
period of time. Growth is strong, though a more challenging external environment exposes the economy
to risks, said Habib Rab, senior country economist at the World Bank.
Exceptional Potential
Myanmar has great economic potential. It has reserves of natural resources, including gold, silver,
platinum, coal, tin, tungsten, zinc, copper and gemstones, and it has a wide range of climatic conditions
that allows for the growing of everything from tropical fruits to vegetables. Importantly, water is
abundant.
Myanmar has a young population, with a median age of 27. A wave of workers will be entering the
market at the right time, yielding a major demographic dividend. The situation is very different from that
in countries struggling with ageing populations. With more than 50m people, the country has a sizeable
domestic market. Myanmar is also well positioned geographically. Situated between China and India, and
next to South-east Asia, it was a centre of commerce for two millennia.
In modern times Myanmars economic fortunes have ebbed and flowed. In the 19th century it was the
regions wealthiest country, and it was the largest exporter of rice in the world until 1948. The economy
suffered during the Second World War as a result of invasion. While the country gained independence in
1948, it has faced insurgencies continuously through to recent times.
With the introduction of the Burmese Way to Socialism in 1962, industry was nationalised. The economy
stagnated under centralised planning just as the rest of the region started flourishing on the
implementation of liberal policies. Economic reform began in Myanmar in 1988, but progress was slow.
Inflation and budget deficits persisted. Tax reforms were not implemented and state-owned enterprises
were not privatised. Cosmetic changes were made, but the government continued to intervene heavily in
the private sector.
US sanctions on Myanmar, initiated in the 1990s, greatly slowed economic development. Some US
companies left and others were unable to enter the country, while business was held back by the lack of
connectivity to the dollar banking networks. The EU has also had sanctions in place since the 1990s.
Japan did not follow, though it did limit the assistance it provided to the country.
Comeback Of A Nation
Extensive reform, both political and economic, has been in the works for some time. The Roadmap to
Democracy was initiated in 2003, a new constitution was written in 2008 and parliamentary elections, the
first in 20 years, were held in 2010. Though the military maintained a firm hand on the government, the
elections were a watershed event. Large-scale changes were initiated that took Myanmar towards a more
liberal system. Market economics were affirmed as the dominant mode in the country, while nationalism
as a core economic principle was abandoned. With the 2015 election, which included the participation of
the opposition National League for Democracy (NLD), the path ahead was set.
Since 2010 major economic reforms have been initiated. A large number of laws were passed to
normalise the legislative environment following years of military control (see analysis). Structural
improvements were also made. The exchange rate was unified in 2012, new regulations on banks were
introduced and foreign banks were licensed. Since 2013 the budgets of state-owned enterprises have been
separated from the budget. Treasury bill auctions were introduced in January 2015.
The Framework for Economic and Social Reform, issued in 2013, set a number of priorities for Myanmar.
Included in the list were tax and fiscal reform, trade liberalisation, investment liberalisation, financial
reform, the development of governance and the promotion of transparency. The reforms undertaken since
the country started to initiate changes in earnest have been credit positive, according to Moodys. While
Myanmar does not yet have a credit rating from any international agency, the central bank has been
working with Citigroup and Standard Chartered Bank to get a credit rating. The moves made so far are
seen as improving the business environment. Moodys added that the right sort of liberalisations will
boost the countrys current account position, thus supporting its rating when issued.
The countrys World Bank doing business ranking has already improved markedly. In 2015 Myanmar
was 177th out of 189 countries; in 2016 it rose to 171st, and at the start of 2017 it was in 170th place. In
the starting a business category it rose from 189th position in 2015 to 170th in 2016 and then to 146th in
2017. The first year in which Myanmar was ranked at all was 2014, when it was in 182nd place.
New Direction
The 2015 election and the choosing of Htin Kyaw as president in 2016 took the country to the next level.
With the NLD participating and winning a majority of the votes cast, the transition to effective civilian
administration was finally achieved. The new government quickly established a tone suggesting further
reform, producing a 100-day plan and a 12-point programme.
The 12-point economic programme issued in July 2016 is the cornerstone of the new governments
agenda. Not only is it comprehensive, but it also suggests that policy will be implemented that favours
liberalisation. The programme makes a formal commitment to the private sector, and doing business
issues are set to be addressed. The government calls for more transparency on the budget, reform of state-
owned enterprises, reform of the tax system, and an improvement in both the structure and the operations
of Myanmars capital markets. The countrys mining sector will be revamped to make extractive
industries more transparent. To this end, in 2014 Myanmar joined the Extractive Industries Transparency
Initiative, which is a global standard for the open and accountable management of oil, gas and minerals
resources (see Mining chapter). The government also intends to promote the building of more
infrastructure, improve the agricultural sector, make FDI a high priority, and promote small and medium-
sized enterprises.
Immediately following the NLDs victory, sentiment quickly turned positive. The kyat rallied,
strengthening from 1308 to the dollar in December 2015 to 1165 in May 2016. With liberal elements
achieving a clear victory, it was widely believed that the country was beyond the point of no return and
would not close back up. Japan in particular had been sitting on the sidelines, not making major
commitments until the opposition came to power.
Zones
Special economic zones (SEZs) are seen as key to Myanmars development, and projects are under way
or planned at Dawei, Thilawa and Kyaukphyu. Once the NLD won the election, confidence in the
economy surged and Japans government signed on as a partner in Dawei SEZ.
Japanese commitment to the Dawei project had long been uncertain. The country has tended to favour the
Thilawa project as it is seen as being more Myanmar-focused, viewing Dawei as more important for
Thailand. Japan has taken its time in analysing, researching and discussing projects, but is starting to feel
the pressure of Chinas increasing presence in the region, and its commitment has put Dawei SEZ back on
track. China, meanwhile, is leading the development of Kyaukphyu SEZ. Myanmars SEZs will provide
platforms for investment that allow companies to enter the market quickly while the government works
on more general, nationwide reform measures (see analysis).
Criticism
Despite expressing the right sentiments, the government has been the recipient of some criticism.
Although a 100-day plan was announced, none was actually published. Some ministries issued their own
outlines, but no comprehensive campaign has been introduced. The 12-point plan was seen by some as
lacking in substance and being overly broad. Questions have thus been raised about how exactly the
government hopes to reform the economy, especially when it comes to stateowned companies, of which
there are 50.
Other concerns have been expressed. It has been noted that most of the recent legislative progress was
made under the previous administration. The outgoing Parliament passed a series of laws, some of which
were of fundamental importance, while much of what the new Parliament has done is the result of efforts
undertaken in the years since 2010. The peace process appears to be distracting the new administration,
while dramatic changes have been avoided for fear of creating tension with the bureaucracy. As for the
bureaucrats themselves, they are somewhat cautious of making any moves without clear instruction from
above.
Some points of intransigence have been identified. The new government has decided to keep Kyaw Kyaw
Maung as chairman of the central bank. He is known for being very conservative, making him the target
of complaints from the financial sector. However, keeping him on board ensures stability and continuity.
Some observers also say that it is important to have someone in control with a memory of the banking
crisis of 2003.
Myanmar Investment Commission
Most frustrating for businesses is the lack of action from the Myanmar Investment Commission, which is
perceived to have been moving slowly since the government came to power. This contributed for a time
to a steep decline in the amount of foreign investment entering the country. Some businesses have said
that expansion plans have been put on hold due to a lack of direction, and the low level of interest from
some larger countries has been a surprise. More inflows were expected from the US, the UK and Japan
after the lifting of the sanctions, but most commitments have instead come from Thailand, Singapore,
China, South Korea and Hong Kong. Since April 2016 there has been a slowdown, said Dr Marlar Myo
Nyunt, director at the Ministry of Planning and Finances Directorate of Investment and Company
Administration. The new government wants to make sure everything is done correctly for the economy.
But our rules and processes have not changed over the past five years.
Questions have been raised about whether the government has the human resources and the skill base to
implement the 12-point programme. As the opposition for so long, the NLD lacks experience, and years
of working relatively isolated from the world may have left the country unprepared for the tasks at hand.
Negotiating contracts, building financial markets, writing new laws, approving investment and enforcing
taxation are just some areas where more capacity is needed.
Balanced Opening
Despite the choppy transition from old to new, the administration is still receiving favourable reviews
from many quarters. The 12-point document touches on all the major points while establishing reasonable
parameters for state participation. It calls for an economy that is led by the private sector, but
contemplates the government being active in some selected areas. For example, investments beyond the
capacity of the private sector will be undertaken by the state. Some people were disappointed in the 12-
point plan, but it is moving the country in a market-oriented direction. The importance of that policy
statement is that it shows they want to move in the right direction and open up to investment, Alyce
Abdalla, economic unit chief at the US Embassy in Yangon, told OBG. Disconnects in the transition are
understandable. Under military rule, the government was compelled to sign off on as much as possible.
With the country isolated by sanctions, it had to take what it could get in terms of foreign investment and
could not afford to be picky. The new administration must be more careful in evaluating investments. It
must operate more normally, and in accordance with internationally accepted principles, which gives the
impression that it is moving more slowly.
Some believe that too much has been made of the capacity issue. While it may seem as though not much
is being done, public sector staff are busy, and many are capable and experienced. The civil service is
better performing and deeper than commonly believed, they argue. The 12 objectives set out sound
policy priorities, said Rab. There is important policy and institutional reform progress on the ground to
address emerging economic challenges.
Forces beyond the governments control are also at work. US sanctions were lifted, but some remained
until the end of 2016. While US companies were generally able to do business before that point,
confusion surrounding the policy resulted in some potential investors opting to wait. Compliance
departments have tended to take a cautious approach when it comes to Myanmar.
A number of companies are also finding the land situation problematic. The lack of available space, the
influx of foreign funds and speculation have caused prices to rise to levels that make doing business
prohibitively expensive.
GDP per capita is $1200, making Myanmar a middle-lower-income country, a status reached in 2015.
That compares with $5816 in Thailand, $1813 in Laos, $2111 in Vietnam and $2899 in the Philippines.
Myanmar remains heavily dependent on basic industries. The agricultural sector is the source of 30% of
GDP and as much as 60% of employment. Natural resources rents are 10.2% of GDP, which is high
compared with other countries in the region. For Thailand the figure is 3.7%, for Malaysia 8.2% and for
Vietnam 7.6%. The world average is 3.7%.
In its 2015 Article IV consultation, the IMF saw continued growth of 8% or higher until at least 2018. It
said that Myanmar is doing well, and that it will continue to do so if structural reforms are carried out as
planned and FDI is strong. The ADB believes that Myanmars long-term growth potential is around 8%,
but cautioned that this will only happen if reforms that it has committed to are pursued. According to the
bank, transparency, less bureaucracy and better education are essential.
Going Strong
While Myanmar has historically been dependent on natural resources and agriculture, the economy is now
driven by activity across the board. Other sectors are developing rapidly, with the broader domestic
economy which includes construction, manufacturing and services responding well to liberalisation. A
few segments have been particularly strong. Tourist arrivals were up 19% in 2015 and up four-fold since
2011, with revenues of $2.1bn. Exports of garments rose by 28% in the same year as investments poured
in.
Development of Myanmars traditional strengths is also seen as essential. It arguably has the best
conditions for agriculture in Asia, but the land is not used productively; investment is low, farm policy is
weak and agricultural profits are modest. According to the ADB, the upside is tremendous if the sector is
better managed. Mining is in a similar position. Good policy can take the sector from one that functions
poorly due to land disputes, civil unrest and low levels of transparency to one that is of prime interest
to international investors.
According to the ADB, regional integration will be a significant factor in the encouragement of further
growth. As the ASEAN Economic Community develops links will strengthen. The countrys fortunes will
also depend on global conditions. The performance of countries to which Myanmar is tied has been mixed
in recent years. The outlook is much the same. A weak West and an inconsistent China are being balanced
somewhat by a strong India and recovery in South-east Asia. Growth in the Asian region is forecast at
5.7% in 2016 and 2017.
Debt Under Control
Myanmar has improved its key metrics. Its debt-to-GDP ratio fell from a high of more than 200% in 2001
to a low of less than 50% in 2015, while external debt is only 15.7% of GDP. Domestic public debt is
forecast to remain steady at around 17% of GDP through to 2017/18.
In 2012 Japan reduced the amount owed by Myanmar, bringing the country to a position of low risk of
debt distress. However, only 20% of the remaining debt is concessional. As such, Myanmar is vulnerable
to slowing growth and lack of spending discipline. U Maung Maung Win, then-permanent secretary of the
Ministry of Finance, told the local press in 2015 that Myanmar had MMK10.2trn ($8.3bn) of foreign
obligations in total, but he added that the figure would be reduced to MMK9trn ($7.3bn) by early 2016
due to debt repayments.
Steps are currently being taken to improve controls. In August 2016 Parliament approved the countrys
medium-term debt management strategy, while a new debt law was ratified in 2016 and a debt
management office was created. The new law, crafted under the guidance of the ADB, works to
consolidate the issuing of debt. Under the framework, only the Ministry of Finance is allowed to authorise
new paper. Any other government entity seeking to borrow, including state-owned companies and
localities, must go through the government or borrow directly from it. The law also calls for the
promotion of the domestic bond market.
The new law replaces the 1920 Government Securities Act and to a degree clarifies practices already in
existence. Under the Union Government Law 2010, only the national government had the power to issue
debt. However, the new law states that local governments can conduct their own financing but only if
fundraising is done with government consent.
Deficit
Government finances have been relatively stable. According to the World Bank, the fiscal stance in the
five years prior to the recent election was moderately prudent, with the deficit at less than 5% of GDP.
Yet the bank noted that the position was helped by one-offs, such as the sale of banking and telecoms
licences, and payments related to gas contracts. Without them, the fiscal deficit would have been a few
percentage points higher during some years. The long-term trend has been positive; the deficit was above
6% of GDP in 2000. However, higher spending, in part the result of the election, led to a higher deficit.
The shortfall was around 4.8% of GDP in 2015, up from 2.9% in 2014. The IMF would like to see it
come down to 4%. Total revenue is forecast to fall from 26.4% of GDP in FY 2014/15 to 20.8% of GDP
by 2017/18, but a drop in expenditure is expected, from 29.3% of GDP to 25.3%. To say that a budget
deficit is a bad thing is simplistic. The question is how able or how quickly the country is to repay its
debts responsibly and securely, Serge Pun, chairman of Serge Pun and Associates, told OBG. Budget
transparency and preparation are gradually improving. According to the World Bank, the Union Budget
Law imposes annual borrowing limits, and the government has started to prepare debt strategies to ensure
a sound borrowing mix. Historically, the government has relied on the monetisation of debt, selling
Treasury bills to the central bank, which fuelled inflation. Reforms are now being made to improve
funding. From 2010 states and regions started to set their own budgets, and sources of funding are being
diversified. Domestically, Myanmar is shifting towards the sale of bills and shortterm bonds to local
banks. The government is also starting to raise funds from international sources, some on a concessional
basis. The 2016/17 budget was passed quickly by the previous Parliament and took aim at the deficit,
setting future targets that should help achieve balance. In the longer term the government hopes to raise
taxes, improve efficiency and address issues at state-owned enterprises.
Trade Imbalances
The trade deficit has been high, hitting $1.5bn in the first four months of FY 2015/16, and the IMF
forecasts that it will remain above 10% of GDP through to 2018. The current account has been negative
for over a decade, hitting 8.9% of GDP in 2015. The IMF is forecasting an overall positive balance,
mainly due to financial inflows. Exports have been slowed by several factors. Commodity prices have
fallen, causing the per unit value of overseas sales to decline, bans on the export of raw materials have
been put in place to encourage domestic processing and floods have reduced agricultural production.
However, as exports fell so did imports, leading to a decline in the trade deficit, which in the same period
in 2014/15 hit $2.15bn. Imports had been heavy due to the purchase of capital goods, oil and consumer
goods, but the weak kyat helped reduce demand.
FDI has been doing well, despite the dip in the first few months of FY 2016/17. Total FDI hit $9.4bn in
the fiscal year ended March 2016, up from $8bn the year earlier and $4.1bn in the year ending March
2014. The government has set a target of $8bn for the year ending March 2017. Despite concerns about
foreign investor interest in the country in the months after the election, the FDI situation seemed to
improve after the administration was settled in.
FDI is a key part of Myanmars growth strategy. In addition to funding for agriculture and mining, the
government would like to see investment in light industry, with the subsector, particularly garment
manufacturing, seen as a growth driver.
Inflation
Inflation remains a concern. It peaked at 16.2% in October 2015, averaging 11% for the year. The country
has faced periods of much more serious price increases in the past. In 2002 the consumer price index was
up 42%, in 1989, 58% and in 1974, 57%. The recent spike was caused in part by the flooding. Monetary
policy has also been cited, in addition to bottlenecks in the economy. Inflation will moderate as
agricultural recovery from the floods brings down food prices, but it is forecast to have remained high at
9.5% in 2016.
While the country has been praised for the unification of the exchange rate, the management of currency
remains a concern. According to the ADB, interventions have been costly and counterproductive.
Following the unification of the rate, the kyat fell from 822 to a low of 1314 to the dollar in late 2015.
Despite a strengthening after the election, it weakened again in 2016 and stood at 1365 to the dollar at the
end of the year. The ADB said that growth can only be maintained if the monetary authorities are
independent and the central bank has the tools to manage policy.
The financial sector is an area of focus for liberalisation. Reforms at the central bank level, where
improved supervision and better prudential requirements are being emphasised, will help to stabilise
growth and ensure it continues. The rise of private sector banking is also helping, according to the IMF.
Infrastructure
Emerging after decades of isolation, Myanmar is struggling with weak infrastructure. What exists has not
been properly maintained, and what is needed is beyond Myanmars capacity to finance domestically.
Only 40% of roads are paved, while many of the more developed areas suffer from heavy traffic. The lack
of strong transport links is impacting the economy. It makes for long commutes, slow deliveries,
increased logistics costs and difficult internal travel for international investors.
In the World Economic Forums Global Competitiveness Report 2013-14, Myanmar was ranked 139th
of 148 countries, with infrastructure cited as a major problem. It was 131st in the 2015-16 report, ranking
138th in the infrastructure category. The country faces a $60bn transport infrastructure deficit up to 2030.
To fund the gap, it will need the support of investment partners. In August 2016 Japan offered Myanmar
$852m in loans for infrastructure. Chinas commitment is uncertain given disagreements over existing
projects, while India lacks the funding ability to sponsor the huge projects needed.
Power is another issue. Only 30% of the country is on the grid, and just 14% in rural areas. Power outages
are still common, and the lack of reliable electricity supply is a bottleneck in development. The
government has set a bold target of 100% electrification by 2030 (see Energy chapter).
Outlook
The international community has expressed great optimism about Myanmar. It recognises the challenges
the country faces, but sees these as manageable. Investors, bankers, multilaterals and corporations note
that while policy is still relatively undeveloped, so far the administration has done a good job of
reforming the laws it inherited. However, the tasks that remain are significant. Myanmar still ranks
incredibly poorly according to the World Banks ease of doing business index, Alexander Jaggard,
Myanmar country representative at Mekong Economics, told OBG. This demonstrates the scale of the
task at hand in regards to the various reforms and rewriting of laws to encourage business and investment
in the country. Myanmar must now focus on specific problems, such as electricity supply, and monetary
and fiscal policy. Efforts must also be made to improve other fundamental areas including education
and land policy if long-term, sustainable growth is to be achieved.
U Kyaw Win, Minister of Planning and Finance, on improving and developing Myanmars banking
sector: Interview
U Kyaw Win, Minister of Planning and Finance, on improving and developing Myanmars banking
sector: Interview
Interview: U Kyaw Win
What advances are still needed in the financial sector to promote economic growth?
U KYAW WIN: Myanmar faces a series of challenges, which include creating social welfare, assuring
economic stability, increasing integration with global markets and improving human capacity. On top of
these things, developing the financial sector is critical to promoting economic growth.
Fortunately, the government has managed to attract foreign investment into agriculture, manufacturing,
industry and banking, to name but a few sectors. Yet challenges still remain within the finance industry.
Myanmars institutional capacity lags significantly behind its neighbours, and more reforms are needed to
generate long-term benefits for the financial sector and the wider economy.
Concerning the relationship between the financial sector and the allocation of the governments budget,
the Ministry of Planning and Finance uses sustainable fiscal measures to keep the deficit to less than 5%
of GDP. However, economic risk and public financial management methods still need to improve, and
public investment is a top priority.
What role do you expect foreign lenders to play in the development of Myanmars banking sector?
KYAW WIN: In the age of globalisation, no country can stand alone. As you can imagine, the financial
sector in Myanmar is in an early stage of development. There is a large and untapped market for foreign
investors, including foreign lenders. They can participate in providing financial services and establishing
economic infrastructure, including the rollout of technology and digital platforms for innovative products.
I see local financial service providers working together with foreign investors by sharing technical
knowhow, networks and resources in a unified manner. Since 2013 the Central Bank of Myanmar has
granted licences to 13 foreign banks to open their branches in the country. Encouraging foreign banks to
take part in the development of Myanmars interbank market is a vital step towards deepening the
capacity of the financial sector and increasing cooperation between foreign and domestic banks. In
addition, small and medium-sized enterprises (SMEs) need improved access to credit in order to
contribute to Myanmars positive and sustainable economic growth, and the development of the banking
sector.
How can improvements in credit provision and tax collection assist with business development?
KYAW WIN: As a result of decades of sanctions, Myanmar finds itself economically behind other
nations in the region. The growth of the banking sector was constrained by limitations in trade and service
transactions with global markets. Therefore, development of the credit segment is needed to spur
economic development. In order to achieve this, we need to develop a protected credit information system
that will improve transparency and assist in advancing accounting standards within the nation.
Moving forward, long-term financial instruments are critical for the development of local businesses.
Likewise payment and settlement facilities will create a more enticing investment climate due to a sound
banking environment. We can expect that this will, in turn, lead to greater efficiency in the private sector.
Furthermore, under the Ministry of Planning and Finance, Myanmar Economic Bank is trying to improve
access to credit by offering more annual and term loans to local businesses. This includes promoting a
lending scheme for SMEs.
Some of the tax collection priorities include identifying corporate income taxes and capital gains taxes for
non-resident foreigners, reducing personal income tax rates for foreigners from a flat rate to a progressive
rate, enhancing allowances for spouses and children, and developing the tax regulations.
Sean Turnell, Economic Advisor, National League for Democracy (NLD); and Associate Professor,
Department of Economics, Macquarie University, on promoting growth: Interview
Sean Turnell, Economic Advisor, National League for Democracy (NLD); and Associate Professor,
Department of Economics, Macquarie University, on promoting growth: Interview
Interview: Sean Turnell
How would you assess the economic liberalisation that has taken place in Myanmar so far?
SEAN TURNELL: In recent years some important foundations have been laid for the structural
transformation of Myanmars economy. The floating of the exchange rate back in 2012 was a crucial
technical reform, but it was an even more important symbolic gesture in signalling the return of the
market as a central coordinating mechanism for the economy. Likewise, the new investment laws, the
opening up to foreign banks, the expansion of microfinance and the creation of some new institutions all
suggested that Myanmar had decisively turned away from the path it had taken in the past five decades.
Yet, at the end of the administration of President Thein Sein, these foundations were still fragile, and the
liberalisation measures recounted above were, in practice, sometimes more superficial than real.
Even the exchange rate reforms did not lead to a truly floating kyat, or an end to official interference in
the foreign exchange market. So, the new government has its work cut out for it in genuinely liberalising
the economy and otherwise improving policy-making in ways that will improve the fundamentals of the
economy. Nevertheless, I believe they are starting in the right place. Economic policies narrowly defined
have never really been Myanmars main problem. Instead, for that one must look to politics, and on that
front I am optimistic that things are better now than they have been for half a century.
In your opinion, what fiscal measures can be employed to promote economic growth?
TURNELL: Myanmars government extracts less tax revenue than any comparable government in Asia,
or indeed almost anywhere else. At the same time, for decades it has maintained levels of military
spending that have been, relative to GDP, among the highest in the world. This resulted in the fiscal
deficits Myanmar has traditionally been noted for, and from these the full gamut of macroeconomic
distortions that have hitherto been so apparent. Clearly, Myanmars fiscal arrangements are in need of a
fairly dramatic overhaul. One major upside of this is that, from such a low base of growth, the positive
impact of improvements in Myanmars fiscal circumstances should be quickly and powerfully felt.
In terms of the kind of overhaul that is needed predicated on the obvious need to raise greater revenues
new but fairer taxes need to be introduced, but, above all, the whole structure of tax rates needs to be
simplified and made more transparent. Naturally, given past problems on this front, the revenues of state-
owned enterprises also need to be brought into the budget and properly accounted for. On the spending
side, budget transparency needs to be established and spending priorities realigned.
What priorities has the NLD identified to improve rural access to finance?
TURNELL: Improving access to affordable and reliable financial services is a central objective of the
NLD. But this is especially so with respect to Myanmars farmers, who currently lack such access and, as
a consequence, are either forced into the arms of informal moneylenders charging truly usurious interest
rates or simply go without finance. Therefore, the impoverishment of the countrys farmers and the
impairment of agricultural productivity has been the inevitable outcome of problems originating in
financial sector dysfunctions.
The NLD has devised several policies for improving this situation, including undertaking a proper
diagnostic of the sprawling, state-owned Myanmar Agricultural Development Bank (MADB), and then
rebuilding and recapitalising it. Complimenting a revived MADB will be the extension of greater
freedoms for private banks to engage the rural sector.
New economic legislation to facilitate economic growth in Myanmar
New economic legislation to facilitate economic growth in Myanmar
The government of Myanmar has passed a wide range of legislation aimed at economic reform since
2010. While much remains to be done, the body of new law on the books is substantial, covering areas
from lighthouses to central banking. The new government under the National League for Democracy has
been careful in introducing its own legislation, but it has been implementing much of what was passed
before it took over.
Incremental Advances
Some of the new laws are incremental in nature, dealing with the loose ends inevitable in the transition
from military to civilian government. These include the Pesticide Law, the Plant Variety Protection Law
and the Law Amending the Myanmar Lighthouses Act.
However, most laws passed recently address subjects of importance to the development of the economy.
While the previous administration was controlled by the military, it was nevertheless reformist. It wrote
legislation dealing with taxation, finance, labour and foreign investment, covering much of what has been
urged by international organisations. In most cases the new laws have been supportive of free enterprise.
They have made commerce easier and more stable, and have encouraged more equitable treatment.
The Shops and Establishments Law was passed in 2015, replacing the 1951 Shops and Establishments
Act. Under the new law, the entities in question may remain open for two additional hours per day, and
can now close at 11.00pm rather than 9.00pm. Shops may not open for business before 5.00am.
Establishments are permitted to remain open 24 hours a day with government permission. Overtime hours
and working conditions are also covered by the Shops and Establishments Law. Workers cannot be forced
to work for more than eight hours a day or 48 hours per week, but they can voluntarily choose to accept
up to 12 hours a week of overtime.
In 2015 Myanmar set a minimum wage. Workers are to receive MMK3600 ($2.92) per eight-hour day,
from September 2015. The level is roughly a 450% jump from what some workers had been receiving
previously. Myanmars wages are now higher than those in Bangladesh, but still lower than those in
Vietnam and Thailand. While the move was criticised by some, who say the rate is still too low,
international firms in particular were supportive, noting that industrial action is more common in markets
where earnings are below living-wage levels.
The Condominium Law was also passed in 2016, opening up opportunities for international investors.
Under the legislation, which had been in the works for three years, foreigners are now allowed to own
40% of the units in a residential building. Some conditions must be met: the land under the project must
be collectively owned; the project must be approved as a condominium project by the Ministry of
Construction; it must be on a piece of land at least 0.2 ha in size; and the building must be more than six
storeys tall.
In January 2016 a new Arbitration Law was enacted, replacing the previous law from 1944. Myanmar
signed the New York Convention in 2013, but enforcement proved to be difficult. The 2016 law should
make it easier to get foreign judgments recognised and will give effect to the treaty. Based on the UN
Commission on International Trade Laws Model Law on International Commercial Arbitration, the new
law is seen as improving the business climate in the country, as it will bring confidence that disputes can
be fairly settled.
Fundamental Importance
Of most interest to international investors are a number of new laws which are fundamental in nature.
They deal with issues that must be addressed if Myanmar is to reform effectively, such as tax, foreign
direct investment (FDI) and financial institutions.
Tax is a major issue, one that has caught the attention of international organisations advising Myanmar.
The IMF has said that the authorities need to focus on tax collection, which as a proportion of GDP is less
than 10% far behind regional peers. The fund attributes this to a narrow tax base, excessive tax
incentives and poor administration, and has called for a reduction of incentives, the introduction of a
value-added tax and reform of the way extractive industries are taxed.
Much has been done already to rationalise the system. The Union of Myanmar Revenue Law was passed
in 2014 along with four other tax-related bills. In it, the individual income tax rate was changed and the
exemption increased. A number of old taxes were done away with or made more fair. The commercial
income tax was maintained at 25%, but small businesses are exempt for a period. Self assessment was
also introduced. The IMF noted the introduction of self assessment for some taxpayers, but said more
resources should be committed to tax collection. It added that self assessment should be extended to more
taxpayers only after procedures have been improved.
Union Tax Law
The Union Tax Law passed in 2016 increases the personal exemption from MMK2m ($1625) to
MMK4.8m ($3899), but overall keeps the major rates unchanged. It only adjusts the commercial tax for
some goods, with cigarettes now taxed on a per unit basis, reduces the commercial tax on some services
such as domestic airlines, which are now taxed at 3% and raises the commercial tax on a number of
exported items. The number of goods exempt from commercial tax was increased from 79 to 86, while
the number of services exempt was increased from 23 to 29.
A 5% commercial tax on telecoms operators went into effect on April 1, 2016. The tax had been set for
June 2015 but was delayed. While seen by some as a threat to growth in one of the countrys most
successful sectors, the money collected will be channelled towards health, education and transportation,
the government has said.
FDI
Changes have been made regarding FDI. Notification 26/2016 formalises the practice of requiring foreign
investors to gain permission from the relevant ministry before doing business. Under the new Myanmar
Investment Law, the Myanmar Citizens Investment Law and the Foreign Investment Law were merged.
Tax holidays in the major cities have been shortened from five years to three. Investments in moderately
developed areas attract tax holidays of five years, while those in the least developed areas will receive
seven-year tax holidays. Tax incentives will no longer be automatic, and must be applied for. Most
significantly, the law introduces a new form of approval, the Myanmar Investment Commission (MIC)
endorsement. If a company is not in a restricted category, it will not have to apply for a permit from the
MIC. All it will need is an endorsement, which is obtained in a streamlined process. The law was
welcomed by the international community, though it was noted that much will depend upon how the MIC
interprets the regulations.
Foundation For Finance
A new Financial Institutions Law was passed in March 2016, replacing the Financial Institutions Law of
1990. It promises to help make the economy more stable, calling for banks to keep 5% of customer
deposits at the central bank and minimum capital of MMK20bn ($16.2m). It spells out what should be
done in the case of weakness in the banking system, which will help avoid the use of the arbitrary
measures imposed during past banking crises. The law also calls for higher levels of transparency.
While the sector objected to some of the capital levels, as smaller institutions might be unable to meet the
requirements, the central bank felt that the requirements would be good for the economy.
U Thurane Aung, Vice-President, Myanmar Japan Thilawa Development, on the benefits of the Thilawa
Special Economic Zone (SEZ) to investors and the industrial base: Interview
U Thurane Aung, Vice-President, Myanmar Japan Thilawa Development, on the benefits of the
Thilawa Special Economic Zone (SEZ) to investors and the industrial base: Interview
Interview: U Thurane Aung
To what extent is the Thilawa SEZ helping to advance the industrial base?
THURANE AUNG: Thilawa SEZ is like a fast-track gateway for foreign direct investment (FDI). Within
the Thilawa SEZ, there is a framework set up through a real one-stop service centre, which cuts all the red
tape in order to fast-track each and every approval and formality needed, from investment approvals, tax
exemption, construction permits and utilities connections to import and export procedures, Customs
clearance, tax returns, labour registration and visa applications. All these processes are handled by
efficient front-office staff with high service quality. This helps prevent potential corruption from
occurring.
The SEZ is like an incubator for new regulations and practices, and lots of new rules and directives are
tried and tested there, such as licence-free import and export procedures, and the evaluation of investment
proposals, using both qualitative and quantitative evaluation methods, which provide transparency in
accessing FDI. New economic activities are also allowed, and opportunities are being created for foreign
investment, such as the right to do trading, wholesaling and retailing.
In terms of investor appetite, what specific manufacturing segments are the most attractive?
THURANE AUNG: We are seeing a good balance between both export-oriented industries and import
substitution industries. This is because Myanmar is competitive in terms of labour for export-oriented
industries. It also has a significant population compared to other countries in the region and relies on
imports for many materials, which makes it feasible for industries to actually produce here. In the export-
oriented industries, we have manufacturers in auto parts, electronics, garments, raw materials for food,
tripods, wheelchairs and toys. In the import-substitution industries, we have automobile assembling, steel
and concrete building materials, food, plastic injection mouldings, aluminium cans, agricultural
machinery, cartons and boxes, pharmaceuticals and engine oil. There are also a number of logistics
companies within the zone catering to warehousing needs, especially for bonded operations.
What measures have been taken to entice investors to set up operations in the SEZ?
THURANE AUNG: The Thilawa SEZ is benchmarked against other SEZs in the region rather than the
local industrial zones. In the time of the ASEAN Economic Community, manufacturers can set up
anywhere in ASEAN and can enjoy the same trade agreements between different countries. Therefore,
first we have to make sure the infrastructure of our SEZ is as good or better than other SEZs and
industrial zones elsewhere in the region. Our pricing structure is also benchmarked against them. Second
is of course the creation of soft infrastructure to create an environment that creates an ease of doing
business. Our Government understood this need and has committed to establishing such a working
environment.
What synergies have been created among industrial and light manufacturing, and logistics? How
do these aid the export of value-added products?
THURANE AUNG: We have attracted a variety of manufacturers, which can all supply each other in
some way. For all the garment factories, pharmaceutical companies and food companies, there is a carton
and box plant within the same zone. For the car assembler, there is a factory from which they can source
some car parts. Food and drink firms can buy their packing materials from the aluminium and plastic
injection moulding companies. We also have a mechanism in place to allow the free flow of goods
between the zone and the domestic tariff area to have synergies within their supply chain management.
Myanmar's new economic zones act as drivers of growth
Myanmar's new economic zones act as drivers of growth
Special economic zones (SEZs) are essential to Myanmars development. While the country is liberalising
rapidly, the process will take some time. Regulations have to be written, and infrastructure needs to be
upgraded in areas with legacy issues.
Thilawa
The development of Thilawa SEZ, which lies 25 km from Yangon, has been smooth. The first phase, the
400-ha zone A, was opened in 2015, with more than 40 companies committed to operate at the site. The
first phase of zone B has also been agreed on. Thilawa will ultimately be a 2500-ha SEZ. It offers resident
companies tax holidays of five to seven years, and capital goods can be imported tax-free. Raw materials
may also be tax exempt. In addition, the zone offers professional administration, solid infrastructure and a
lack of bureaucracy.
Thilawa has a stable shareholder base which includes the governments of Myanmar and Japan, as well
as private investors from both countries and is listed on the newly formed Yangon Stock Exchange. The
shareholders include three of Japans largest and most established general trading companies
Mitsubishi, Marubeni and Sumitomo. More than half of the firms committed to set up in the zone are
from Japan, although 13 countries are represented in total.
While some concerns had been raised about whether projects initiated before the current administration
took over would survive, the company running Thilawa has said that the SEZ has the full backing of the
countrys leaders and is a high priority. It is part of the new governments mandate to see it succeed. Not
only to promote it, but also to protect it, said U Thurane Aung, vice-president of Myanmar Japan
Thilawa Development. The government knows there is a need to develop the SEZ.
Kyaukphyu
In late 2015 the right to develop Kyaukphyu SEZ in Rakhine State was awarded to a six-member
consortium led by Chinese interests, with Thailands Charoen Phokphand one of the partners. The project
has faced developmental problems, including the accusation that it did not properly take into account the
concerns of local residents, but is nevertheless moving ahead. The 1708-ha site will have two deep-sea
ports, a 978-ha industrial zone and a 494-ha housing development. India has also discussed building an
SEZ in Myanmar, proposing a project at Sittwe, also in Rakhine.
Dawei
The largest and most ambitious project is also making significant headway. Formed under a memorandum
of understanding in 2008, Dawei SEZ has progressed slowly. Lack of funding and infrastructure,
opposition from local residents, disagreements among the partner nations and the abandonment of the
project by two private sector partners resulted in delays. However, in December 2015 Japan signed on as
an equal partner with Thailand and Myanmar in the SEZ. In June 2016 Thailands prime minister, Prayuth
Chan-ocha, reaffirmed his countrys support, saying that the SEZ would create jobs and improve lives.
The new National League for Democracy-led government is reviewing projects that were signed before it
came to power, wanting to ensure that all foreign agreements are beneficial for the country. It may look
into potential irregularities, including whether the SEZ was planned to take into account the
environmental and social impact of the site. However, the Dawei project is likely to stay on track, as the
benefits of developing it are likely to outweigh the concerns. For Myanmar, it will be a great boost to the
local economy; for Thailand, a source of relatively inexpensive manufacturing; and for Japan, an
important part of its regional supply chain.
Daweis size suggests that interest will remain strong. Built on some 20,000 ha and including a port, blast
furnaces, refineries and liquefied natural gas storage, it is one of South-east Asias largest development
projects. Financial daily The Nikkei reports that construction on the site will be ongoing for 50 years.
Keiichiro Nakazawa, Chief Representative, Japan International Cooperation Agency (JICA), Myanmar
Office, on developing manufacturing and infrastructure: Interview
Keiichiro Nakazawa, Chief Representative, Japan International Cooperation Agency (JICA),

Myanmar Office, on developing manufacturing and infrastructure: Interview
Interview: Keiichiro Nakazawa
What are the comparative advantages Myanmar possesses in the manufacturing industry? How do
you see them developing over time?
KEIICHIRO NAKAZAWA: Politically, when the government of U Thein Sein, former president of
Myanmar, worked to make the economy more market-oriented, it opened up opportunities and the new
government has been working to expand these. There was a survey conducted by the Japan Bank for
International Cooperation with Japanese manufacturing companies that operate abroad, and the results
were telling. Myanmars top attraction for companies is its large and untapped domestic consumer
market, and the second is its cheap and decent labour. People look here and see a high-potential market,
and one which has not seen much penetration of foreign products because of the closed economy and
sanctions.
JICA has been assisting the new government to attract more responsible investments and to create decent
jobs. Thilawa Special Economic Zone (SEZ) is one example of this. We have assisted infrastructure for
the SEZ as well as operations of its one-stop service centre, among other improvements. In order for
Thilawa SEZ to compete with others in neighbouring countries, its brand image must be developed. This
is very important for many foreign companies, particularly those that manufacture goods. Therefore, we
work with the SEZ Management Committee and Myanmar Japan Thilawa Development to further
encourage responsible investments.
I would say that manufacturing is a process that runs along the value chain, and all the basics are the
same. The Japanese use the 5S methodology, which stands for sort, set in order, shine, standardise and
sustain. This is an efficient and proven method for all manufacturing industries and pertains to every
aspect down the value chain. These basics are common to both high-end manufacturing and low-
valueadded, labour-intensive output. Workers, managers and craftsmen should all employ these solid
principles while embarking upon low-value-added manufacturing. They should also employ kaizen,
which is the adherence to a continuous cycle of improvements in working practices.
What priorities has JICA identified in terms of easing traffic congestion in Yangon?
NAKAZAWA: The government is conducting several projects based on the National Transport Master
Plan. In Yangon there is a circular railway around the immediate central area of the city, which was
constructed in the early 20th century by the British. Although old, I was very impressed with this railway
because in former French colonies, such as Vietnam and Cambodia, similar railways are not very secure.
In some cities shop owners opened their businesses along railways because the frequency of railway
services was minimal. But here in Yangon a wall around the railway stop people from living and working
on the tracks. So, if the Myanmar government becomes serious about improving it, then it could be done.
Currently, it takes three hours to make one circuit around the track, which can hopefully be reduced to
about an hour and a half by working on a basic signalling system, track rehabilitation and new train cars.
We hope that in five years time, after some of the improvements are completed, approximately 400,000-
600,000 passengers will be able to travel on this railway each day. The Yangon regional government is
also working on improving bus services and integrating more than 300 current bus routes, which must be
consolidated into public-private enterprises. Beyond this, there is a trial bus rapid transit line. When you
connect bus services with the circular railway stations, you get a well-integrated intermodal transit
system. The idea behind this is that you can walk from your house to a nearby bus stop, take the bus to
the railway station, then take a train to your destination.
MyanmarEconomy
Overview
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period of exceptional growth. The countrys potential is being unlocked. Once an outlier in the region,
Myanmar now has the fastest-growing economy in ASEAN, and is seen as a source of regional strength
and a destination of opportunity. Further liberalisation is planned, international investment is expected to
remain strong and the domestic economy is becoming increasingly efficient. Optimism reigns as the
experiment in reform has proven durable. While many emerging economies struggle to maintain a high
rate of expansion in the face of global uncertainty, Myanmar is set to remain on course.
Gdp Growth
According to the Asian Development Bank (ADB), Myanmars GDP grew by 7.2% in 2015, following
8.7% growth in 2014 and 8.4% in 2013. The rate is forecast at 8.4% in 2016. That compares favourably
with neighbours and peers. The growth rates in Cambodia and Laos are both expected to be around 7% in
2016, and the Philippines and Vietnam are set to see growth of around 6%. Malaysia will expand by 4-
5%, Thailand by less than 4% and Singapore by under 2%. Growth in Myanmar is expected to accelerate
to 8.3% in 2017.
Challenges
The strong performance is being achieved despite a number of challenges. Flooding in 2015 with
intense rains and landslides in July and August and in 2016 took a toll on growth as harvests were
damaged and transportation impeded. An estimated 20% of cultivated land was devastated. Inflation is a
persistent problem, with structural issues keeping it high, while the floods caused a spike. Debt is
becoming a concern, given persistent government deficits, and foreign direct investment (FDI) slowed for
a period in 2016.
Reforms that are being undertaken, which are important for growth, might become stalled as the country
transitions to the new administration. Myanmar is also dealing with a protracted peace process, with State
Counsellor Daw Aung San Suu Kyi noting that sustained growth is not possible until a deal is finalised.
Myanmar may lack the capacity to effectively carry out all the changes that are needed in such a short
period of time. Growth is strong, though a more challenging external environment exposes the economy
to risks, said Habib Rab, senior country economist at the World Bank.
Exceptional Potential
Myanmar has great economic potential. It has reserves of natural resources, including gold, silver,
platinum, coal, tin, tungsten, zinc, copper and gemstones, and it has a wide range of climatic conditions
that allows for the growing of everything from tropical fruits to vegetables. Importantly, water is
abundant.
Myanmar has a young population, with a median age of 27. A wave of workers will be entering the
market at the right time, yielding a major demographic dividend. The situation is very different from that
in countries struggling with ageing populations. With more than 50m people, the country has a sizeable
domestic market. Myanmar is also well positioned geographically. Situated between China and India, and
next to South-east Asia, it was a centre of commerce for two millennia.
In modern times Myanmars economic fortunes have ebbed and flowed. In the 19th century it was the
regions wealthiest country, and it was the largest exporter of rice in the world until 1948. The economy
suffered during the Second World War as a result of invasion. While the country gained independence in
1948, it has faced insurgencies continuously through to recent times.
With the introduction of the Burmese Way to Socialism in 1962, industry was nationalised. The economy
stagnated under centralised planning just as the rest of the region started flourishing on the
implementation of liberal policies. Economic reform began in Myanmar in 1988, but progress was slow.
Inflation and budget deficits persisted. Tax reforms were not implemented and state-owned enterprises
were not privatised. Cosmetic changes were made, but the government continued to intervene heavily in
the private sector.
US sanctions on Myanmar, initiated in the 1990s, greatly slowed economic development. Some US
companies left and others were unable to enter the country, while business was held back by the lack of
connectivity to the dollar banking networks. The EU has also had sanctions in place since the 1990s.
Japan did not follow, though it did limit the assistance it provided to the country.
Comeback Of A Nation
Extensive reform, both political and economic, has been in the works for some time. The Roadmap to
Democracy was initiated in 2003, a new constitution was written in 2008 and parliamentary elections, the
first in 20 years, were held in 2010. Though the military maintained a firm hand on the government, the
elections were a watershed event. Large-scale changes were initiated that took Myanmar towards a more
liberal system. Market economics were affirmed as the dominant mode in the country, while nationalism
as a core economic principle was abandoned. With the 2015 election, which included the participation of
the opposition National League for Democracy (NLD), the path ahead was set.
Since 2010 major economic reforms have been initiated. A large number of laws were passed to
normalise the legislative environment following years of military control (see analysis). Structural
improvements were also made. The exchange rate was unified in 2012, new regulations on banks were
introduced and foreign banks were licensed. Since 2013 the budgets of state-owned enterprises have been
separated from the budget. Treasury bill auctions were introduced in January 2015.
The Framework for Economic and Social Reform, issued in 2013, set a number of priorities for Myanmar.
Included in the list were tax and fiscal reform, trade liberalisation, investment liberalisation, financial
reform, the development of governance and the promotion of transparency. The reforms undertaken since
the country started to initiate changes in earnest have been credit positive, according to Moodys. While
Myanmar does not yet have a credit rating from any international agency, the central bank has been
working with Citigroup and Standard Chartered Bank to get a credit rating. The moves made so far are
seen as improving the business environment. Moodys added that the right sort of liberalisations will
boost the countrys current account position, thus supporting its rating when issued.
The countrys World Bank doing business ranking has already improved markedly. In 2015 Myanmar
was 177th out of 189 countries; in 2016 it rose to 171st, and at the start of 2017 it was in 170th place. In
the starting a business category it rose from 189th position in 2015 to 170th in 2016 and then to 146th in
2017. The first year in which Myanmar was ranked at all was 2014, when it was in 182nd place.
New Direction
The 2015 election and the choosing of Htin Kyaw as president in 2016 took the country to the next level.
With the NLD participating and winning a majority of the votes cast, the transition to effective civilian
administration was finally achieved. The new government quickly established a tone suggesting further
reform, producing a 100-day plan and a 12-point programme.
The 12-point economic programme issued in July 2016 is the cornerstone of the new governments
agenda. Not only is it comprehensive, but it also suggests that policy will be implemented that favours
liberalisation. The programme makes a formal commitment to the private sector, and doing business
issues are set to be addressed. The government calls for more transparency on the budget, reform of state-
owned enterprises, reform of the tax system, and an improvement in both the structure and the operations
of Myanmars capital markets. The countrys mining sector will be revamped to make extractive
industries more transparent. To this end, in 2014 Myanmar joined the Extractive Industries Transparency
Initiative, which is a global standard for the open and accountable management of oil, gas and minerals
resources (see Mining chapter). The government also intends to promote the building of more
infrastructure, improve the agricultural sector, make FDI a high priority, and promote small and medium-
sized enterprises.
Immediately following the NLDs victory, sentiment quickly turned positive. The kyat rallied,
strengthening from 1308 to the dollar in December 2015 to 1165 in May 2016. With liberal elements
achieving a clear victory, it was widely believed that the country was beyond the point of no return and
would not close back up. Japan in particular had been sitting on the sidelines, not making major
commitments until the opposition came to power.
Zones
Special economic zones (SEZs) are seen as key to Myanmars development, and projects are under way
or planned at Dawei, Thilawa and Kyaukphyu. Once the NLD won the election, confidence in the
economy surged and Japans government signed on as a partner in Dawei SEZ.
Japanese commitment to the Dawei project had long been uncertain. The country has tended to favour the
Thilawa project as it is seen as being more Myanmar-focused, viewing Dawei as more important for
Thailand. Japan has taken its time in analysing, researching and discussing projects, but is starting to feel
the pressure of Chinas increasing presence in the region, and its commitment has put Dawei SEZ back on
track. China, meanwhile, is leading the development of Kyaukphyu SEZ. Myanmars SEZs will provide
platforms for investment that allow companies to enter the market quickly while the government works
on more general, nationwide reform measures (see analysis).
Criticism
Despite expressing the right sentiments, the government has been the recipient of some criticism.
Although a 100-day plan was announced, none was actually published. Some ministries issued their own
outlines, but no comprehensive campaign has been introduced. The 12-point plan was seen by some as
lacking in substance and being overly broad. Questions have thus been raised about how exactly the
government hopes to reform the economy, especially when it comes to stateowned companies, of which
there are 50.
Other concerns have been expressed. It has been noted that most of the recent legislative progress was
made under the previous administration. The outgoing Parliament passed a series of laws, some of which
were of fundamental importance, while much of what the new Parliament has done is the result of efforts
undertaken in the years since 2010. The peace process appears to be distracting the new administration,
while dramatic changes have been avoided for fear of creating tension with the bureaucracy. As for the
bureaucrats themselves, they are somewhat cautious of making any moves without clear instruction from
above.
Some points of intransigence have been identified. The new government has decided to keep Kyaw Kyaw
Maung as chairman of the central bank. He is known for being very conservative, making him the target
of complaints from the financial sector. However, keeping him on board ensures stability and continuity.
Some observers also say that it is important to have someone in control with a memory of the banking
crisis of 2003.
Myanmar Investment Commission
Most frustrating for businesses is the lack of action from the Myanmar Investment Commission, which is
perceived to have been moving slowly since the government came to power. This contributed for a time
to a steep decline in the amount of foreign investment entering the country. Some businesses have said
that expansion plans have been put on hold due to a lack of direction, and the low level of interest from
some larger countries has been a surprise. More inflows were expected from the US, the UK and Japan
after the lifting of the sanctions, but most commitments have instead come from Thailand, Singapore,
China, South Korea and Hong Kong. Since April 2016 there has been a slowdown, said Dr Marlar Myo
Nyunt, director at the Ministry of Planning and Finances Directorate of Investment and Company
Administration. The new government wants to make sure everything is done correctly for the economy.
But our rules and processes have not changed over the past five years.
Questions have been raised about whether the government has the human resources and the skill base to
implement the 12-point programme. As the opposition for so long, the NLD lacks experience, and years
of working relatively isolated from the world may have left the country unprepared for the tasks at hand.
Negotiating contracts, building financial markets, writing new laws, approving investment and enforcing
taxation are just some areas where more capacity is needed.
Balanced Opening
Despite the choppy transition from old to new, the administration is still receiving favourable reviews
from many quarters. The 12-point document touches on all the major points while establishing reasonable
parameters for state participation. It calls for an economy that is led by the private sector, but
contemplates the government being active in some selected areas. For example, investments beyond the
capacity of the private sector will be undertaken by the state. Some people were disappointed in the 12-
point plan, but it is moving the country in a market-oriented direction. The importance of that policy
statement is that it shows they want to move in the right direction and open up to investment, Alyce
Abdalla, economic unit chief at the US Embassy in Yangon, told OBG. Disconnects in the transition are
understandable. Under military rule, the government was compelled to sign off on as much as possible.
With the country isolated by sanctions, it had to take what it could get in terms of foreign investment and
could not afford to be picky. The new administration must be more careful in evaluating investments. It
must operate more normally, and in accordance with internationally accepted principles, which gives the
impression that it is moving more slowly.
Some believe that too much has been made of the capacity issue. While it may seem as though not much
is being done, public sector staff are busy, and many are capable and experienced. The civil service is
better performing and deeper than commonly believed, they argue. The 12 objectives set out sound
policy priorities, said Rab. There is important policy and institutional reform progress on the ground to
address emerging economic challenges.
Forces beyond the governments control are also at work. US sanctions were lifted, but some remained
until the end of 2016. While US companies were generally able to do business before that point,
confusion surrounding the policy resulted in some potential investors opting to wait. Compliance
departments have tended to take a cautious approach when it comes to Myanmar.
A number of companies are also finding the land situation problematic. The lack of available space, the
influx of foreign funds and speculation have caused prices to rise to levels that make doing business
prohibitively expensive.
GDP per capita is $1200, making Myanmar a middle-lower-income country, a status reached in 2015.
That compares with $5816 in Thailand, $1813 in Laos, $2111 in Vietnam and $2899 in the Philippines.
Myanmar remains heavily dependent on basic industries. The agricultural sector is the source of 30% of
GDP and as much as 60% of employment. Natural resources rents are 10.2% of GDP, which is high
compared with other countries in the region. For Thailand the figure is 3.7%, for Malaysia 8.2% and for
Vietnam 7.6%. The world average is 3.7%.
In its 2015 Article IV consultation, the IMF saw continued growth of 8% or higher until at least 2018. It
said that Myanmar is doing well, and that it will continue to do so if structural reforms are carried out as
planned and FDI is strong. The ADB believes that Myanmars long-term growth potential is around 8%,
but cautioned that this will only happen if reforms that it has committed to are pursued. According to the
bank, transparency, less bureaucracy and better education are essential.
Going Strong
While Myanmar has historically been dependent on natural resources and agriculture, the economy is now
driven by activity across the board. Other sectors are developing rapidly, with the broader domestic
economy which includes construction, manufacturing and services responding well to liberalisation. A
few segments have been particularly strong. Tourist arrivals were up 19% in 2015 and up four-fold since
2011, with revenues of $2.1bn. Exports of garments rose by 28% in the same year as investments poured
in.
Development of Myanmars traditional strengths is also seen as essential. It arguably has the best
conditions for agriculture in Asia, but the land is not used productively; investment is low, farm policy is
weak and agricultural profits are modest. According to the ADB, the upside is tremendous if the sector is
better managed. Mining is in a similar position. Good policy can take the sector from one that functions
poorly due to land disputes, civil unrest and low levels of transparency to one that is of prime interest
to international investors.
According to the ADB, regional integration will be a significant factor in the encouragement of further
growth. As the ASEAN Economic Community develops links will strengthen. The countrys fortunes will
also depend on global conditions. The performance of countries to which Myanmar is tied has been mixed
in recent years. The outlook is much the same. A weak West and an inconsistent China are being balanced
somewhat by a strong India and recovery in South-east Asia. Growth in the Asian region is forecast at
5.7% in 2016 and 2017.
Debt Under Control
Myanmar has improved its key metrics. Its debt-to-GDP ratio fell from a high of more than 200% in 2001
to a low of less than 50% in 2015, while external debt is only 15.7% of GDP. Domestic public debt is
forecast to remain steady at around 17% of GDP through to 2017/18.
In 2012 Japan reduced the amount owed by Myanmar, bringing the country to a position of low risk of
debt distress. However, only 20% of the remaining debt is concessional. As such, Myanmar is vulnerable
to slowing growth and lack of spending discipline. U Maung Maung Win, then-permanent secretary of the
Ministry of Finance, told the local press in 2015 that Myanmar had MMK10.2trn ($8.3bn) of foreign
obligations in total, but he added that the figure would be reduced to MMK9trn ($7.3bn) by early 2016
due to debt repayments.
Steps are currently being taken to improve controls. In August 2016 Parliament approved the countrys
medium-term debt management strategy, while a new debt law was ratified in 2016 and a debt
management office was created. The new law, crafted under the guidance of the ADB, works to
consolidate the issuing of debt. Under the framework, only the Ministry of Finance is allowed to authorise
new paper. Any other government entity seeking to borrow, including state-owned companies and
localities, must go through the government or borrow directly from it. The law also calls for the
promotion of the domestic bond market.
The new law replaces the 1920 Government Securities Act and to a degree clarifies practices already in
existence. Under the Union Government Law 2010, only the national government had the power to issue
debt. However, the new law states that local governments can conduct their own financing but only if
fundraising is done with government consent.
Deficit
Government finances have been relatively stable. According to the World Bank, the fiscal stance in the
five years prior to the recent election was moderately prudent, with the deficit at less than 5% of GDP.
Yet the bank noted that the position was helped by one-offs, such as the sale of banking and telecoms
licences, and payments related to gas contracts. Without them, the fiscal deficit would have been a few
percentage points higher during some years. The long-term trend has been positive; the deficit was above
6% of GDP in 2000. However, higher spending, in part the result of the election, led to a higher deficit.
The shortfall was around 4.8% of GDP in 2015, up from 2.9% in 2014. The IMF would like to see it
come down to 4%. Total revenue is forecast to fall from 26.4% of GDP in FY 2014/15 to 20.8% of GDP
by 2017/18, but a drop in expenditure is expected, from 29.3% of GDP to 25.3%. To say that a budget
deficit is a bad thing is simplistic. The question is how able or how quickly the country is to repay its
debts responsibly and securely, Serge Pun, chairman of Serge Pun and Associates, told OBG. Budget
transparency and preparation are gradually improving. According to the World Bank, the Union Budget
Law imposes annual borrowing limits, and the government has started to prepare debt strategies to ensure
a sound borrowing mix. Historically, the government has relied on the monetisation of debt, selling
Treasury bills to the central bank, which fuelled inflation. Reforms are now being made to improve
funding. From 2010 states and regions started to set their own budgets, and sources of funding are being
diversified. Domestically, Myanmar is shifting towards the sale of bills and shortterm bonds to local
banks. The government is also starting to raise funds from international sources, some on a concessional
basis. The 2016/17 budget was passed quickly by the previous Parliament and took aim at the deficit,
setting future targets that should help achieve balance. In the longer term the government hopes to raise
taxes, improve efficiency and address issues at state-owned enterprises.
Trade Imbalances
The trade deficit has been high, hitting $1.5bn in the first four months of FY 2015/16, and the IMF
forecasts that it will remain above 10% of GDP through to 2018. The current account has been negative
for over a decade, hitting 8.9% of GDP in 2015. The IMF is forecasting an overall positive balance,
mainly due to financial inflows. Exports have been slowed by several factors. Commodity prices have
fallen, causing the per unit value of overseas sales to decline, bans on the export of raw materials have
been put in place to encourage domestic processing and floods have reduced agricultural production.
However, as exports fell so did imports, leading to a decline in the trade deficit, which in the same period
in 2014/15 hit $2.15bn. Imports had been heavy due to the purchase of capital goods, oil and consumer
goods, but the weak kyat helped reduce demand.
FDI has been doing well, despite the dip in the first few months of FY 2016/17. Total FDI hit $9.4bn in
the fiscal year ended March 2016, up from $8bn the year earlier and $4.1bn in the year ending March
2014. The government has set a target of $8bn for the year ending March 2017. Despite concerns about
foreign investor interest in the country in the months after the election, the FDI situation seemed to
improve after the administration was settled in.
FDI is a key part of Myanmars growth strategy. In addition to funding for agriculture and mining, the
government would like to see investment in light industry, with the subsector, particularly garment
manufacturing, seen as a growth driver.
Inflation
Inflation remains a concern. It peaked at 16.2% in October 2015, averaging 11% for the year. The country
has faced periods of much more serious price increases in the past. In 2002 the consumer price index was
up 42%, in 1989, 58% and in 1974, 57%. The recent spike was caused in part by the flooding. Monetary
policy has also been cited, in addition to bottlenecks in the economy. Inflation will moderate as
agricultural recovery from the floods brings down food prices, but it is forecast to have remained high at
9.5% in 2016.
While the country has been praised for the unification of the exchange rate, the management of currency
remains a concern. According to the ADB, interventions have been costly and counterproductive.
Following the unification of the rate, the kyat fell from 822 to a low of 1314 to the dollar in late 2015.
Despite a strengthening after the election, it weakened again in 2016 and stood at 1365 to the dollar at the
end of the year. The ADB said that growth can only be maintained if the monetary authorities are
independent and the central bank has the tools to manage policy.
The financial sector is an area of focus for liberalisation. Reforms at the central bank level, where
improved supervision and better prudential requirements are being emphasised, will help to stabilise
growth and ensure it continues. The rise of private sector banking is also helping, according to the IMF.
Infrastructure
Emerging after decades of isolation, Myanmar is struggling with weak infrastructure. What exists has not
been properly maintained, and what is needed is beyond Myanmars capacity to finance domestically.
Only 40% of roads are paved, while many of the more developed areas suffer from heavy traffic. The lack
of strong transport links is impacting the economy. It makes for long commutes, slow deliveries,
increased logistics costs and difficult internal travel for international investors.
In the World Economic Forums Global Competitiveness Report 2013-14, Myanmar was ranked 139th
of 148 countries, with infrastructure cited as a major problem. It was 131st in the 2015-16 report, ranking
138th in the infrastructure category. The country faces a $60bn transport infrastructure deficit up to 2030.
To fund the gap, it will need the support of investment partners. In August 2016 Japan offered Myanmar
$852m in loans for infrastructure. Chinas commitment is uncertain given disagreements over existing
projects, while India lacks the funding ability to sponsor the huge projects needed.
Power is another issue. Only 30% of the country is on the grid, and just 14% in rural areas. Power outages
are still common, and the lack of reliable electricity supply is a bottleneck in development. The
government has set a bold target of 100% electrification by 2030 (see Energy chapter).
Outlook
The international community has expressed great optimism about Myanmar. It recognises the challenges
the country faces, but sees these as manageable. Investors, bankers, multilaterals and corporations note
that while policy is still relatively undeveloped, so far the administration has done a good job of
reforming the laws it inherited. However, the tasks that remain are significant. Myanmar still ranks
incredibly poorly according to the World Banks ease of doing business index, Alexander Jaggard,
Myanmar country representative at Mekong Economics, told OBG. This demonstrates the scale of the
task at hand in regards to the various reforms and rewriting of laws to encourage business and investment
in the country. Myanmar must now focus on specific problems, such as electricity supply, and monetary
and fiscal policy. Efforts must also be made to improve other fundamental areas including education
and land policy if long-term, sustainable growth is to be achieved.

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