Would Myanmar plunge deeper into recession?

Writer: 
Nay Htun Naing

(1) 

International organisations have raised concerns over Myanmar’s economic situation in 2015. 

The reports simultaneously issued by the Asia Development Bank and the World Bank on March 24 highlighted the country’s worrying situation.

Asian Development Outlook 2015 pointed out Myanmar’s challenges and consequences from its increasing inflation. Meanwhile, the World Bank report said the country is having great difficulty conducting economic reform. 

The inflation is projected to accelerate to 8.4% in FY2015. And there will be depreciation of the Myanmar kyat, higher fiscal spending and expected higher wages, the report said. In trade volume also, imports will increase and these are all worrying factors for the country, the report added. 

Moreover, total external debt as a ratio to GDP fell slightly to 17.6% in 2014 but it could increase again to 18% in 2015, the report pointed out. 

Risks to the economic outlook come from thin external and fiscal buffers, ethnic and sectarian tensions, vulnerability to bad weather, and possible slowing of reform momentum ahead of the elections.

“It could be a challenge to maintain fiscal discipline ahead of national elections in the fourth quarter of 2015,” said ADB in the report. 

The World Bank report stressed the need for the country to promote the private sector and have uniformity and transparency in implementing laws and procedures. 

However, it is not certain whether the government could overcome those challenges and difficulties by following the suggestions of the reports. 

(2)

The Myanmar government has judged the country’s economic situation in 2015 as normally as ever. The government estimates the inflation rate to reach 8.11%, which comes from a brief report about the 2015-16 budget of the Union. The report mentioned about Ks 19.403 trillion of state income, Ks 23.230 trillion of spending and Ks 3.827 trillion of budget deficit. 

In drawing budget, the government set US$ 1 equivalent to Ks 1,020. But even in the first quarter of the year, the Myanmar kyat is increasingly weakening against US dollar. 

When it comes to the trade sector in 2015, the government has estimated the export value to be US$ 12.9 billion, the import value to be US$ 17 billion and trade deficit to be US$ 4.1 billion. 

Despite the normal estimation of Myanmar’s economic situation for the fiscal year of 2015-16, there might be some instabilities.

There are three major points that could jeopardize the country’s economy. They are the inflation rate reaching its peak, the largest budget deficit over the past four years and the largest import value. 

Due to the third point – the largest import value—the Myanmar kyat is increasingly depreciating, thereby contributing to more trade deficit. 

(3)

The inflation rate has reached the highest level in 2015 under the government of President Thein Sein. It only increased between 2% and 4% in 2011 and 2012 and almost 6% in 2013. In 2014, the inflation rate reached 6% and it is expected to jump to over 8% this year. Commodity prices will rise as does the inflation rate. 

At present, basic commodity prices are rising continuously. The Consumer Price Index (CPI) reached the highest level in 2014, which had happened over the past four years. 

The CPI for the FY 2012-13 is 167.94, for the FY 2013-14, 177.53 and for up to December 2014, 192.45. 

Commodity prices have reached record high under President Thein Sein.

(4) 

According to the ADB report, the depreciation of the Myanmar kyat is mainly blamed for the increasing inflation rate. The kyat depreciation has reached the worst situation this year. 

Under the present government, the Myanmar kyat against US dollar has fallen to 35% and is expected to fall up to 40%. Economic experts also predict that the kyat value can no way increase again at the moment. 

On April 2, 2012, the exchange rate was Ks 815 per dollar. It increased to Ks 1,092 per dollar on March 24 this year. One dollar was worth Ks 851.58 in 2012-13, Ks 966.75 in 2013-14 and Ks 1,026 in December 2014. 

(5) 

As the Myanmar kyat depreciates, import expenses rise. High import expenses are also a factor for high inflation rate. 

The government has no plan yet to reduce importation. It tends to continue importing goods despite high expenses. The important value for 2015-16 is expected to reach US$ 17 billion, according to government data. That amount is the largest also in the time of President Thein Sein. 

Myanmar’s import values were US$ 9.0689 billion in 2012-13, US$ 13.7595 billion in 2013-14 and US$ 12.214 billion in December 2014. 

In the previous financial years, imports surpassed exports. What’s more, this year’s exports are likely to decrease more than the previous year. 

Export values were US$ 8.977 billion in 2012-13, US$ 11.204 billion in 2013-14 and US$ 8.7387 billion in 2014-2015 (up to December 2014). 

More imports than exports mean more spending, which results in trade deficit. The trade deficit is the largest ever under the Thein Sein presidency. 

Trade deficits were US$ 91 million in 2012-13, 2.5555 billion in 2013-14 and US$ 5.07 billion in 2014-15 (Up to March 2015). That means trade deficit has doubled over the past two years. 

In FY 2015-16, trade deficit is expected to reach US$ 4.1 billion but more than that amount under current circumstances. 

(6)

Imbalanced imports and exports plus the Myanmar kyat depreciation will greatly affect the country’s economy. 

At the same time, government spending has reached the highest level. In the state budget for 2015-16, an estimated amount of income is Ks 19.403 trillion. Spending is Ks 23.230 trillion and budget deficit is Ks 3.827 trillion. 

It is also the largest government spending ever in the time of President Thein Sein. 

According to parliamentary reports, government spending increases year by year. There is more spending than earnings. 

In 2011-12, income is Ks 6.453 trillion and spending is Ks 8.083 trillion; in 2013-14, Ks 14.15545 trillion and 14.91068 trillion; and in 2014-15, Ks 16.8915 trillion and Ks 19.443 trillion respectively. 

For 2015-16, income is expected to be Ks 19.403 trillion while spending is expected to be Ks 23.230 trillion. Looking at those amounts, the budget deficit occurs every year. 

According to a budget forum organised by the Union of Myanmar Federation of Chambers of Commerce and Industry on March 6, the country’s budget deficit has totalled Ks 7.2 trillion from 2012-2013 to 2014-15. 

According to the parliamentary reports, budget deficits were Ks 1.629.66 trillion in 2011-2012, Ks 1.25076 trillion in 2012-13, Ks 755.21 billion in 2013-14 and Ks 2.55181 trillion in 2014-15. The estimated amount budget deficit for 2015-16 is largest in four years. 

As there is concern over high government spending, parliament announced pay rise for civil servants on March 26. It is the fourth time their salaries have been increased under Thein Sein’s government. Added to the basic salaries of civil servants were Ks 30,000 in March 2012, Ks 20,000 in April 2013, Ks 20,000 in April 2014 and Ks 20,000 in March this year (2015). 

However, the latest pay increase does not benefit lower level staff very much. The extra allowance of Ks 30,000 was cut so the pay rise for those lower level employees is not that effective. 

(7)

Studying all major points that could lead to economic instability, Myanmar’s economy is likely to collapse. Most economic experts say the country’s economic future is unpredictable and easily fragile. 

It is time for President Thein Sein’s economic advisory board to take necessary steps. The group includes experts U Myint, Dr. Aung Tun Thet and Dr. Zaw Oo. Among them, U Myint himself seems to dilly-dally. 

On November last year, for the Irrawaddy News Website, U Myint wrote a critical news article titled “What is government’s accounting system?” It was he who called for an end to the bureaucracy of government’s accounting system. But now he should point out more. 

The government repeats potentials for economic development but the people enjoy few benefits. 

Private businesses have to struggle while the majority of the people are under poverty line. The president’s economic advisors know this very well. 

Other responsible persons are from the National Economic and Social Advisory Council. It was established in June, 2012. Maw Than is patron of the 15-member council. Chairman is Tin Htut  Oo (CEO of ARDC) and secretary is Set Aung (vice-governor of the Central Bank). Its members are Dr. Aung Tun Thet, Than Lwin (vice president of KBZ Bank), Khin San Yi (Union education minister), Dr. Kyaw Yin Hlaing, Tin Maung Than (Myanmar Egress), Hla Maung Shwe (Myanmar Egress), Win Aung (UMFCCI president), Thaung Tin (deputy minister for communications and information technology), Dr Ko Ko Gyi (Diamond Star Co.), Dr. Zaw Oo, Thihan Myo Nyunt, Khin Maung Aye (CB Bank president), Moe Kyaw (MMRD) and Dr Yin Yin Hla.  

The group has more than four officials of Myanmar Peace Centre as members.

We have no idea if the National Economic and Social Advisory Council which was founded in 2012 still intact or any changes occurred in its membership.

But the advisors are the closest to the president and it is no doubt that their opinions have influence on business policies.

(8)

If the Myanmar economy collapses in 2015, President Thein Sein and his government are the first to blame. The second most responsible people are the presidential advisors.

Currently most of the presidential advisors remain silent and let the crony tycoons dodge the taxation knowingly. Sometimes, they turn a blind eye to such tax dodgers for their personal interests.

Some of them have connection with international diplomats and act like a broker. Some who call themselves 'experts' are among them.

Some members reportedly have promised business licenses from the president.

The buzz goes that there are presidential advisors who are silent directly or indirectly due to their personal interests.

They are criticised as 'impotent' when it comes to advising the government and are also blamed for using their advisory role for their gains.

(9)

 The government's economic reforms have some results but they are not as good as they should be. 

The reforms could not advance the private sector; the weak economic management and the financial dissipation within the governing body should push the country to economic instability.

The worst defect concerned with the financial dissipation within the government is the ineffective control over corruption. 

The Parliament has long been pointing out the corruption cases within the government. The government has proposed more budget spending but it cannot cope the corruption.

On the February 10 parliamentary session, Tin Nwe Oo, a member of the Public Joint Committee, revealed that most budget appropriations happened in higher levels of the ministries.

Some directors of the ministries have involved in such cases along with the principals from Science and Technology Ministry, township administrators and directors from Home Affairs Ministry.

 She stated that there are 256 appropriators in Home Affairs alone. Some diplomats and director-generals of Foreign Affairs Ministry are among the appropriators.

"The director-generals and directors from Irrigation Department, Agriculture Mechanisation Department and Water Resources Utilisation Department under Ministry of Agriculture and Irrigation have been warned," she said.

Misappropriation clearly shows the governmental body is still corrupted to the core.

(10)

Although the Parliament pointed out the corruption cases, the countermeasures are feeble in practice.

Take a look at the budget allocation for the fiscal year 2015-16 for example.

The government spending has increased. The budget deficit has occurred every year, and will be greater this year than those of the previous years.

The Parliament managed to cut only 1 per cent of the government's budget.

It is questionable since the Parliament itself has criticised but could not stifle the problem. It is not reasonable that the parliamentarians also stay silent due to a considerable salary raise – jumped from Ks 300,000 to Ks 1 million ($300 to $1,000). 

However, the question raised by the Lower House MP Thein Nyunt on March 18 brought the link between parliamentarians and crony tycoons to light.

He was asking if there was any action to be taken against the satellite dishes imported from foreign countries.

While he was asking, he included a phrase: "…according to our studies, although the TV channels like Sky Net has invested greatly…" and therefore, the people have been curious: Was he raising the question for Sky Net TV channel owned by Shwe Than Lwin Company?

The truth is the Parliament has pointed out the government but some MPs are suspected as the advocates for the government and crony tycoons. The Parliament has the responsibility to squash such suspicions.

The opposition is also weak. They should not sit back and watch when the hardships come. It is wrong to convince that the duty of opposition is only to watch the government and campaign to get support when the election comes. 

The 2015 general election that can shape the future of the country is around the corner.

Crisis is likely before election due to recession and wealth gap and could damage it. 

The opposition has the duty to alarm the government even the executive body is ignorant to the situation. Sitting back and watching the government's mistakes is not enough to solve the country's problems.

If the National League for Democracy (NLD) ruled the power, it had a duty to solve all of the current problems. So the party needs to be prepared.

This means the MPs from NLD should be discussing more about economy. It is true that the NLD have only a few seats in the Parliament, but its representatives should not spend all their time in human right affairs.

The social, economic and political matters are interwoven and therefore, it is not correct to focus on changing the sky because the weather is bad.

(11)

The government and the Parliament have raised the salaries, but the lower levels have faced a tighter situation due to the increasing expenditures along with the salary raise.

Owners of private small- and medium-sized enterprises, the dynamo of a country's economic development, are also struggling for survival.

According to the World Bank's 2015 report, there are over 1,000 SMEs in Myanmar and the 92 per cent of them are running on their own without getting any loans. This rate is the highest among the peers of Myanmar. The country has become an unfriendly place for private businesses.

Weakening kyat makes the import expenses high; the private trading sector is damaged.

The construction sector begins to collapse and the owners are likely to get hurt.

A large amount of money concentrated in the property market is not a good sign for the economic boom. This shows every sector including SME has been dealing with a hard time.

Meanwhile, the labours have presented a wide set of basic needs.

Business owners are cutting the workers' salaries to make ends meet and this leads to exploitation.

The basic wage is yet to be termed. As the workers' day-to-day expenses got increased, the private business owners found it hard to meet their employees halfway.

Eventually, the workers staged protests demanding a new salary rate – Ks 1,000 ($1) a day – and ended up with ugly crackdown and imprisonment.

The result is a wider social gap.

(12)

The government has responsibility to remedy the series of problems.

Firstly, the inflation should be reduced by cutting government spending and shrinking budget deficit.

Secondly, the imports should be trimmed down in times of kyat depreciation. Goods like alcoholic beverages and cigarettes ought to be imported less. The illegal trading needs to be tackled.

Especially, the import of deluxe automobiles should be limited, and raising the tax rates over luxury goods can be another alternative.

Millions of working class have suffered from recession. The situation will worsen if the running private enterprises fall.

Myanmar's poverty rate is not declining yet and the 26 per cent of the population still living in economic deficiency. The country ranks 150 among 187 countries, according to the UN's human development index.

The possibility of economic failure and social gap are making the Myanmar people suffocate. The government should solve the problem in practical means.

The President Thein Sein and his advisors, the government, the Parliament and the opposition cannot sit back and enjoy the situation anymore.

Otherwise, the economic depression would lead Myanmar to a crisis in 2015.