By Dinesh Ahluwalia
The need for a Sovereign Rating is long overdue
“After two years of strong economic growth and macroeconomic stability, Myanmar faced a more difficult economic environment in 2015-2016. Economic growth declined, but remained strong, at 7 percent during the period, compared with 8.5 percent in 2014-2015” that was according to the World Bank’s May 2016 edition of the Myanmar Economic Monitor published as a press release on May 31st, 2016.
Fast forward to today … with a new President elect in the US and his promised USD $1 trillion in badly needed infrastructure spending in the US, there is an almost certainty of the rise in US interest rates later this month and perhaps more to come in the months, quarters and years ahead. The global bond markets have reacted with immediacy and signaled an end to the 30 year boom in the global bond markets with a near $1.7 trillion loss in global bonds in November 2016.
You may be asking what is the co-relation of the above statements and what does this really mean to Myanmar. It turns out quite a lot.
Strictly speaking in economic terms the honeymoon period of easy money for emerging and frontier markets is over, Myanmar included. Every country will need to compete ever harder for investment dollars and its governments will need to make their cases for its economic and investment policies to appeal to a higher standard demanded by the global financial markets (we are not talking about fancy PR exercises and media buying on global news channels or global road shows) and this new standard is coming faster than you can imagine.
Myanmar cannot afford to be complacent in this regard, even the worlds second largest economy i.e. China (which is also slowing and re-calibrating its own economy) is being forced to make some difficult monetary policy decisions to address its exchange policies vis. a vis. an independent monetary policy and open capital borders all at the same time. It is doing so with more transparency than previously accustomed too, because it knows that it needs to make the global bond markets its friend not foe. So the lessons being that Myanmar will not be immune to shifts of money flows taking apace globally. Since the focus of economies big and small is ‘money’ and as we know there is cost of capital regardless if you are Sovereign Nation, Corporate, a well established Family Business, Individual, Farmer or a Laborer, regardless of your foreign exchange reserves, enterprise value, net worth, savings you are subject to a set of norms by which you are held accountable for the repayment of principal and interest. However lucky are those who can get competitive credit or in some cases credit alone.
In Myanmar you have probably heard stories of corporates who feel short changed by paying high interest rates and cannot compete locally with the incoming global products and services or heard the complaints of successful Myanmar businesses that could not access the bond markets of Singapore or other global financial centers, however the stories that really make me cringe are when I hear about farmers that are forced to borrow at unheard of interest rates or small business in villages that are indebted to borrow at double digit rates on a monthly basis and in some cases on a weekly basis.
The local banks and consumer finance companies are not the problem – they have their own complexities & high costs to deal with, nor am I pointing fingers at the predatory money lenders who have no scruples – they will continue to ply their trade regardless.
What I am humbly suggesting is what I have suggested for over a year since being more observant in Myanmar. Economically speaking, this country needs to focus on one “hurdle rate’ first which when successfully overcome will have a multiplier effect in bringing down interest rates for large sections of its society. This fundamental ‘hurdle rate’ is something that is relatively simple for a nation to address however it needs economic leadership and the execution skills to implement in the shortest period of time. I am propagating the need to secure a Sovereign Rating as soon as possible. There is nothing more important for the health of this nation and its financial integrity and security that Myanmar move judiciously and with much speed in securing itself a Sovereign Rating. The absence of which is impeding its economic growth, financial market transformation & growth, savings rate in financial instruments and the access to every form of competitive or structured financing at every level from corporate to the village farmer / laborer.
Qs. So what is holding Myanmar back? Answer: Prioritization & Communication.
Contrary to popular opinion it is not by giving permission or by internal acceptance or by parliamentary debate that one secures a Sovereign Rating. It is however by prioritization of the collection and communication of economic data, consistently in a transparent format within the well established norms of the Credit Rating agencies that affords them the comfort level by which to rate you.
It is this process by which the government and the central bank need to prioritize to communicate valuable economic data that can be authenticated in a consistent format continuously by which you gain the trust of Credit Rating agencies to assign you a Sovereign Rating and thereafter to constantly monitor your progress.
Approximately 130 countries on this planet benefit from a Sovereign Rating – it is about time that Myanmar its people and business benefit from a base line rate and thereafter build its various financial markets for the benefit of its society.
Myanmar for all its rich history of education and a historical center of trading has no reason why it cannot have an established and vibrant bond market, mortgage market, consumer finance market and other derivative forms of debt markets first for its own people and next regionally.
Myanmar can be an engine of growth and innovation regionally but the time to communicate economic data and policies (monetary and fiscal) is now. The cost opportunity of inaction or incommunicado is very high.
Sovereign Rating is the first step to prosperity and the financial health of this country.
About the Author: Dinesh Ahluwalia is the Founder & Managing Director of Morning Harbour Investment Advisors Limited (MHIAL) a Private Equity Advisory firm based in Hong Kong. Dinesh is also the founder of the Myanmar Economic Forum (MEF) @ Asian Economic Forum Company Limited an economic focused public policy think tank based in Yangon. Follow MEF on Twitter at: https://twitter.com/myeconomicforum Dinesh can also be reached at [email protected]