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ADB sees positive economic prospects for Myanmar, depending on FDI

Source: The Myanmar Times    Time:2018-04-12 17:54:35
The Yangon city skyline. Growth in the country is expected to hit 7.2pc by 2019-2020. Photo by Kang Wan Chern/The Myanmar Times

The Myanmar economy is on target for further growth in 2017-18 and as it moves forward into a fresh fiscal year, but there are policy and reform risks that could derail growth, said Yumiko Tamura, principal country specialist, ADB Myanmar Resident Mission at the Asian Development Bank (ADB). 
Ms Tamura yesterday presented the ADB’s growth forecasts for Myanmar, which is expected to hit 6.8 percent in 2017-18 compared to 5.9pc during the previous fiscal year. In comparison, Asean is forecast to growth at 5.2pc over the same period. 
In Myanmar, growth was driven by improvements in the agriculture sector, which expanded by 3.5pc during the year on better weather conditions and productivity. Agriculture also provides about a third of the country’s GDP.
The industry and service sectors also grew during the year, expanding by about 8pc year over year due to higher demand for manufacturing and tourism-related services.  
Ms Tamura said there was an increase in tourist arrivals and receipts despite the crisis in Rakhine. “Due to efforts made by domestic tourism operators, such as promotions by hotels and tour companies, tourist arrivals, particularly from around the region, continued to rise,” she said.
However, improving rice and garment exports were not sufficient to narrow the current account deficit, now 5pc of GDP compared to 3.9pc last year. Imports, driven by strong domestic consumption of overseas goods and demand for capital goods to supply infrastructure projects, grew 12pc during the year. 
Government spending also rose. The fiscal deficit has ballooned to around 3.5pc of GDP from 2.5pc before on the back of higher spending on infrastructure and social services such as education and healthcare. 
Despite more robust growth and spending though, inflation slowed to an estimated 5.3pc in 2017-18 from 6.8pc in the previous year, aided by a drop in food prices and a smaller volume of central bank borrowing to fund the budget.
Positive prospects
Ms Tamura presented a positive outlook for the Myanmar economy in the next two years, with growth expected to continue at current levels in 2018-19 before accelerating to hit 7.2pc in 2019-20. 
“Growth will be driven by agriculture production, industry expansion, stronger demand for tourism and IT-related services as well as stronger domestic demand driven by foreign direct investments (FDI) and improving global conditions,” she said. 
She said that inflation will likely rise to 6.2pc in 2018-19 before dropping to 6pc in 2019-20 on the back of stronger growth, additional government spending and oil prices trending up.  Based on the ADB’s estimates, the budget deficit is estimated to rise to 4pc of GDP this fiscal year, while the current account deficit will widen further to 5.4pc of GDP over the same period. 
Ms Tamura warned though, that the positive outlook for Myanmar will depend on clever management of public finances and a stable flow of FDI. “With underdeveloped capital markets, Myanmar cannot hope to attract sizable portfolio capital inflows in the near future. FDI will therefore have to be the main source of financing for the current account deficit and to support growth,” she said. 
Ms Tamura added that there is room for improvement at the local banks and recommended opening up the banking sector to foreign competition. “However, this will take time as it involves a lengthy process of screening and approving licenses. In the meantime, it is better to focus on strengthening the domestic banks, which are an engine to supporting growth.”
She also said further liberalisation of local interest rates is needed so that investors can base their decisions on market-based movements.

(The photo is derived from The Myanmar Times. Please advise us to remove immediately if any infringement caused.)

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