Myanmar is set for economic take-off and faces an historic opportunity to launch growth that would lift living standards – if it pursues the right policy mix, the IMF said on Monday.
The former Burma, taking tentative steps towards democracy after decades of harsh military rule, has seen the publication of its annual IMF Article IV economic consultation report for the first time under its new reformist leadership.
The IMF mission chief for Myanmar, Meral Karasulu, said the Southeast Asian nation had already made progress and could see GDP growth of 5.5 percent to 6 percent over the next two years.
“There is very strong momentum. I have been working with the country since 2009 … and I think over the last couple of years the progress is really very, very tangible.”
“Myanmar could see strong growth if it pursues the necessary reforms to take advantage of its rich natural resources, young labor force, and proximity to some of the world’s most dynamic economies, including China and India.”
The mission chief said Myanmar had prioritized the reform of its complex exchange rate system with many restrictions that gave rise to multiple exchange rates that drove up costs, discouraged foreign direct investment and caused Myanmar’s currency, the kyat, to appreciate.
The central bank had introduced a managed exchange rate system in March after the Article IV team had left. Upon its launch, Myanmar’s central bank set a reference exchange rate of 818 kyat per dollar, On Monday, it was quoted at 824, versus the old official rate of around 6 to the dollar.
“Myanmar plans to complete the process of exchange rate unification, including removing all exchange rate restrictions and eliminating multiple currency practices before their target date of end-2013 when the Southeast Asian Games are due to be held,” she said.
Asked in a telephone news conference if that timetable was sustainable, she said: “I don’t find it is necessarily unrealistic.” She noted that the IMF’s experience in other countries suggested that eliminating informal markets for currency exchange was a task that would typically take about one to two years.
Currency reform could also not be rushed, given pent-up demand from importers for foreign exchange. Myanmar has about $9 billion in foreign currency reserves, the IMF notes, about nine months of imports.
“International reserves of the country remain quite comfortable and if anything we do expect them to get better because there are significant new natural gas projects that would increase the foreign reserves.”
Most of Myanmar’s foreign reserves were managed by three state-owned banks, in addition to the central bank, an unusual arrangement. She said the IMF has recommended to Myanmar that the central bank take over sole responsibility.
She voiced confidence that the reserves, once a tightly held state secret, actually existed.
“I do not see that in any way the reported numbers are not there in the banks where they are being kept,” she said.
The Article IV report said unleashing Myanmar’s high growth potential would require cross-cutting reforms and substantial technical assistance to modernize the financial sector with a stronger regulatory and supervisory framework.
“Currently, Myanmar’s financial sector is small and repressed, with controls on financial intermediation. Modernization of the financial sector is essential to facilitate development and prepare the sector for membership of the ASEAN Economic Community,” the IMF said.
It further noted that Myanmar’s economic growth was narrowly based on energy and agriculture, which was hindered by poor access to credit, lack of private land ownership, and inadequate infrastructure and inputs.
“Lifting agricultural productivity will be essential for rural development and inclusive growth. The IMF believes that the planned land reform could provide an opportunity to jump- start this process of development.”
Industrialization was a priority in the country’s economic plan. “Despite its low wage advantage, the manufacturing sector has been stifled by poor infrastructure and know-how, low investment, and extensive administrative controls limiting private sector development,” the IMF said
“Cross-cutting reforms would be needed to support private sector development. A key priority is to reduce the cost of doing business and policy ambiguity by improving transparency, and improving infrastructure,” it said.
But business confidence had improved, investment was higher, credit growth was more robust and growth was being driven by commodity exports, the IMF said.
Inflation is projected at 4.2 percent in fiscal year 2011/2012, picking up to 5.8 percent the following year, but the IMF also said the current interest rate policy “appears to be appropriate in light of the economic outlook”.
The IMF estimated Myanmar’s GDP at just over $50 billion for a population of around 55 million. In contrast, neighboring Thailand, with a population of about 67 million, has a GDP of $348 billion.
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