Myanmar Economic Situation

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Steve Dowall

2:42am Monday 6 February

Myanmar Economic Situation

Myanmar is one of the poorest countries in South East Asia and the outlook for the Myanmar economy is bleak. The strong popular reaction to the increase in fuel prices announced by the junta in August 2007 which led to subsequent mass protests reflected the hardship being experienced by the Myanmar population.

Though rich in natural resources, Myanmar's economy has largely stagnated since 1997 due to poor macroeconomic management, a large public sector debt, a sharp decline in foreign investment, isolationist policies and trade sanctions. Low revenues, high defence expenditure (thought to be as much as 40%) and heavy losses by state enterprises have led to massive budget deficits. The size of the black economy in Myanmar limits the ability of the government to raise tax revenues, and tax evasion is widespread. Exchange rate management is poor, with the official exchange rate of the kyat grossly overvalued.

Despite the liberalisation of the early 1990s, there are now significant barriers to private enterprise. In addition to unclear economic policies, inflation, exchange rate distortions, corruption, controls on trade, and arbitrary decision making by those in power, a crisis in the private banking sector has hampered private sector growth and discouraged domestic and foreign investment. In short, Myanmar is regarded as a high risk destination for overseas investment.

Natural gas is one of Myanmar's largest sources of legal export revenue, accounting for about 30 percent of total exports, with further growth expected and energy demand increasing from neighbouring countries, predominantly India, China and Thailand. The Economic Intelligence Unit forecasts that the economy will grow at around 2-3 percent in 2008; inflation will continue to rise; and despite continued growth in the oil and gas sector, the rest of the economy will remain weak.