International Monetary Fund trims Myanmar growth outlook

Photo of a view of downtown Yangon showing high-rise buildings and  Independence  Monument.
Photo of a view of downtown Yangon showing high-rise buildings and Independence Monument.

The International Monetary Fund revised its projection for Myanmar’s real economic growth that was forecast at the October annual meeting at 8.5 percent in 2014 to a decelerated 7.8 percent this fiscal year from 8.3 percent in previous fiscal year.
The revision is due to slower growth in the agricultural sector, said Yang Yongzheng who led a recent IMF team’s visit to Myanmar from 28 January to 5 February, in a statement released on Wednesday on conclusion of a nine-day mission to the country.
The IMF also warned of inflation which is forecast to pick up to around 6 percent year-on-year in 2014-2015 FY, up from 5.8 percent in 2013-2014 FY.
It also pointed out the country’s net international reserves fell to $4.5billion at end-December due to an increase in the trade deficit to 5.5 percent of GDP caused by a 25% rise in imports in April-December while export growth was flat.
The country’s economic outlook is “favourable” over the medium term, but there has been a noticeable increase in downside risks for near term, Yang warned in the statement, noting fiscal risks that are likely to result from spending pressures, including a potential large increase in public-sector wages that will lead to a rise in inflation expectations.
“The external current account deficit could widen further, and shortfalls in foreign direct investments and other capital inflows could result in slower reserve accumulation,” Yang added.The IMF mission chief stressed the need to prioritize spending and increase tax revenues that are vital for the containment of next year’s budget within the targeted 5 percent of GDP deficit, highlighting the importance of broadening the tax base, improving tax compliance and minimizing exemptions to mitigate the risk of the large proposed increased in public-sector wages that could reduce spending in health, education, and infrastructure “absolutely” needed to boost the country’s growth potential.
He noted that fiscal decentralization should refrain from more fund allotments to region/state governments without a corresponding devolution of responsibilities, also highlighting the importance of strengthened natural resources revenue management.
The IMF in the statement welcomed the country’s introduction of treasury securities auctions last month, describing it as a move to establish a non-inflationary alternative to the CBM deficit financing and helping develop the financial market.
It noted that maintaining a flexible exchange rate is critical for Myanmar to absorb external shocks and build up its international reserve buffer, urging state-owned banks to take part in the auctions and interbank trading.
The Fund acknowledged the progress modernizing the financial sector and strengthening supervision and stressed the need of implementing modernized regulations given the expected entry of foreign banks.
“The CBM should employ measures that would prevent excessive flows and implement rules on foreign exchange
lending that avoid excessive risk-taking. The issuance of new domestic licenses for policy banks should be carefully controlled to minimize risks,” it added.
During their mission to Myanmar, the IMF staff met with Union Minister at the President’s Office U Soe Thane, Central Bank of Myanmar Governor U Kyaw Kyaw Maung, Union Minister for National Planning and Economic Development Dr Kan Zaw, Deputy Minister for Finance Dr Maung Maung Thein, as well as other senior officials, parliamentarians, and representatives from the private sector, according to the statement.

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