Myanmar’s fluctuating and precarious growth story

Despite missing investment targets, Myanmar’s economy is still growing.

By John Pennington

Analysts once viewed Myanmar as one of the most promising growth engines in Asia. Myanmar’s gross domestic product (GDP) grew from US$8.9 billion in 2000 to US$60 billion in 2011. The growth rate has slowed down since then. It is now an emerging economy.

Source: World Bank

At first glance, these growth figures look impressive. While GDP grew, poverty and harsh working conditions remained. The governments’ economic plans did not deliver.

Source: Asian Development Bank

Economic growth in Myanmar depends on many variable factors

World Bank economists forecast Myanmar’s GDP growth will drop from 7.3% in 2016 to 6.5% by the end of the year. The country has had to deal with natural disasters. As a result of the 2016 floods, fewer commodities were available. The price of beans and pulses rose by up to 80%. There was less investment than in previous years. The flooding caused poor quality seeds and limited fertiliser supply.

Business confidence dropped. Banks struggled to adapt to new capital safeguards introduced in July. All these challenges resulted in an economic slowdown.

Source: Focus Economics

Agriculture still dominates Myanmar’s economy. Around 40% of Myanmar’s GDP comes from the sector. The majority of the country’s employees (70%) work in agriculture. Natural disasters thus have a significant impact on Myanmar’s economy.

The worsening Rohingya crisis is beginning to have an impact on the economy. The government had to react to natural disasters and the humanitarian crisis. As a result, the economy will be further harmed.

Political changes brought forward economic reform

In 2011, Myanmar moved from a military dictatorship to a military-civilian-led government. The economic situation changed. The government launched a five-year plan and targeted an annual growth of 10.5% per fiscal year. Although Myanmar’s growth hit 8.4% in 2013, the economy has fallen short of this target.

Approved foreign direct investment (FDI) in Myanmar rose from US$300 million in 2009 to US$20 billion in 2010. The influx of foreign money caused the local currency to increase sharply. As a result, the value of exports rose to a point where they were unaffordable. Agricultural goods flooded the domestic market. Farmers lost out.

Source: Department of Investment and Company Information

There were some positives. As Myanmar made the transition towards democracy, it rejoined the global economy. Asian Development Bank (ADB) funded projects in Myanmar for the first time in 25 years. Creditors wrote off some of the country’s debts. More tourists arrived in the country and boosted the economy. Those positives did not outweigh the damage done by the over-reliance on FDI. Myanmar stood little chance of hitting the growth targets.

Myanmar is struggling to meet long-term targets

In 2011, the government also launched the 20-year National Comprehensive Development Plan (NCDP). Under the NCDP, Myanmar aims for a GDP of US$180 billion and a GDP per capita of US$3,000 by 2030. Both GDP and GDP per capita are inching up as the economy recovers. Myanmar will not meet those lofty targets without significant reforms.

FDI into Myanmar is estimated to be US$140 billion between 2014 and 2030. That is an average of US$6 billion per year. FDI continues to increase. This FDI figure is one target Myanmar may hit.

More political change in 2015 did not bring about the expected results

In 2015, Aung San Suu Kyi’s National League Democracy took power. Voters and onlookers hoped for another boost for the economy. There was no such boost. Several factors combined to stall economic progress. Investors held back due to uncertainty before, during and after the elections.

Floods in 2015 took their toll on the economy. Inflation hit 16% in October 2015. Exports dropped by 12% in the first three quarters. The fiscal deficit began to widen. It is evident that financial projections in Myanmar were too optimistic.

Source: Trading Economics

Recent outlooks are confident but cautious

Economic growth in 2016 was slow. Analysts predicted that growth would pick up once again. If inflation pressures ease and investment increases, Myanmar’s economy will bounce back. Myanmar’s growth is predicted to be higher than its ASEAN neighbours. Growth projections of 7.7% for 2017 and 8% for 2018 are still short of the targets Myanmar set themselves.

The country is vulnerability to natural disasters. It remains a constant threat to the economy.

As a result of the developing Rohingya crisis, fewer tourists are heading to Myanmar. The World Bank froze US$200 million in funding due to the crisis in October 2017. The longer the Rohingya crisis continues, the more impact it will have on the economy.

Economic projections need to be realistic rather than optimistic

As the ADB official stated, “Modernizing an economy is a huge and complex task, and the government needs to prioritise and sequence reform measures and identify and address constraints to sustained rapid economic growth. Observers widely acknowledge the huge opportunity, yet the country is facing difficult challenges in almost all aspects of economic and social policy.”

Myanmar has not made a steady move towards a mature, developed economy. Economists and officials did not consider the prevalence of corruption and lack of infrastructure development when they made economy projections. Myanmar’s growing economy is fragile. Economists should be realistic and guarded about what the future may hold.