Myanmar

MAJOR MACRO ECONOMIC INDICATORS

(e): Estimate (f): Forecast *Fiscal year 2023: 1 October 2022 - 30 September 2023

RISK ASSESSMENT

A country torn by civil war

The military coup d'état conducted by the Tatmadaw (Myanmar Army) in February 2021 led to the dismissal of the democratically elected National League for Democracy (NLD) party. The country is now governed by the State Administration Council (SAC), with the Commander-in-Chief of the Defence Services, Min Aung Hlaing, as Prime Minister. Win Myinwith, who had no military background, governed the country as President from 2018 until the coup and was replaced by the former military general Myint Swe. Aung San Suu Kyi, NLD leader and Nobel Peace Prize laureate, had until then been a state advisor, and automatically a government leader. Aung San Suu Kyi, who has been detained and convicted on more than 15 counts, is now living under house arrest. Since the coup, civil war has been waging in the country, opposing the Tatmadaw and several allied ethnic armed organisations, disrupting the economic activity and land trade with China. The coup led these organisations which represent ethnic minorities to form alliances, including with representatives of the Burmese majority. They are mainly active in the mountainous and deprived regions near the eastern border with China and Thailand, while the government controls the richer central plains, main cities, and the delta where most of the industry and agriculture are located.
Major Western countries (US, Europe, UK Canada, and Australia) have imposed sanctions on the military government, including asset freezes and travel bans, as well as on the key revenue-generating state-owned company, Myanma Oil and Gas Enterprise (MOGE). Around 50% of the country's foreign currency comes from natural gas revenues, making it one of the main sources of weapons and military equipment financing. Meanwhile, China and Russia have been supportive of the Tatmadaw. Russia is Myanmar’s leading arms supplier and both countries conducted their first joint military naval exercise in the Andaman Sea in November 2023.

Gloomy economic outlook

Since the coup, civil war coupled with Western sanctions and the military’s poor ability to run the economy have severely damaged the economic environment. In FY2021, the Myanmar economy contracted at a record 18%, followed by a modest expansion of 3% in FY2022. There is no end in sight to the various challenges that Myanmar faces as conflicts between the military and armed resistance groups are increasing while Western economic sanctions are persisting. We forecast the economy to expand by 2.7% for both FY2023 and FY2024. Given the very low base in FY2021, the increase will be relatively small, implying a FY2024 GDP level of 21% lower than in FY2020.
Since the coup, the Myanmar kyat has lost approximately 49% of its value, with an official exchange rate pegged at 2,100 kyats to the dollar, while the rate on the black market is hovering at between 3,400 and 4000. To combat black market money changers, the military government is threatening legal action against anyone found to be in possession of foreign currency. The sharp depreciation of the national currency prompted an increase in import prices which played a significant role in high inflation levels. Ongoing conflicts disrupting supply chain and business operations, monetary financing of the public deficit and high global prices of commodities caused further upward price pressures. Inflation is expected to decelerate in FY2024 but should remain well higher than in previous years, negatively affecting household consumption. Against this backdrop, the government has implemented the first minimum wage increase since 2018, effective from October 2023, which boosted workers' wages by more than 20%. Moreover, the country is highly vulnerable to natural disasters, as attested by Cyclone Mocha in May 2023, which wreaked extensive damage.
While Western countries have imposed sanctions, countries bordering Myanmar continue to maintain economic relations with the country. Myanmar exports are mainly supported by China and Thai energy companies that are filling the gap left by Western groups after they left the country in the wake of the coup. For example, TotalEnergies was replaced by the Thai company PTT Exploration and Production. Northern Gulf Petroleum will operate in the Yetagun gas field replacing Malaysia's Petronas and Japan's Eneos Holdings. China is very active in Myanmar's textile industry, with 300 garment factories accounting for more than half of the total. The country continues to receive Chinese investment as part of the New Silk Road project. According to the Ministry of Investment and Foreign Economic Relations (MIFER), China accounted for 23.5% of total foreign investment as of 31 October 2023, just behind Singapore (28.1%). However, overall exports and FDI have decreased drastically since the coup.

Stubborn budget and current account deficits

In the FY2024 budget proposal, overall spending is expected to fall by 3.4%, but the larger fall in revenues has resulted in a deficit of 5.7% of GDP. The government budget has not been in surplus since FY2012 and reached a record-high deficit of 7.8 % of GDP in FY2021. Since then, the deficit has narrowed but still remains wide, which places upward pressure on public debt. The latter jumped from less than 40% of GDP in FY2020 to over 60% in the following years because of higher deficits. However high levels of inflation have offset the impact, allowing public debt to stabilise at approximately 60%. The government relies mainly on domestic debt, amounting to 40% of GDP in FY2023, with financing coming mainly from the central bank. External debt represented 23% of GDP in FY2023 and was held mainly by bilateral partners (approximately 70% of total external debt).
The current account has traditionally shown a deficit. The economy is dependent on imports of capital and consumer goods, materials for infrastructure projects, medical equipment, petroleum products, and man-made fibres, as refining and petrochemical capacity is insufficient. It is expected to widen as the export outlook could remain affected by trade restrictions, a weak global economy, and lower natural gas exports amid production disruptions. In addition, exports of services are weak as inbound tourism is still low. Since the coup d’état, the hit on foreign investments into the country suggests that current deficits are unlikely to be fully financed, which negatively impacts the level of international reserves. That said, the outflow of Myanmar's population following the coup is contributing to an increase in remittances, which are fuelling foreign exchange reserves. International reserves accessibility and levels remain uncertain.

Last updated: April 2024