The result of the June 23 referendum in the United Kingdom (UK) on whether to ‘leave’ or ‘remain’ with the European Union (EU) disrupted the economic order and send ripples to the rest of the world. With fifty-two per cent voting to leave EU, reaction was swift with the value of the English Pound nose-diving followed by plunging stock markets not only in Europe but also in Asia. Hardly hit are the markets in Hong Kong, China, South Korea and Japan.
After the initial shock, some anticipated that the markets will stabilize, but collateral events bolstered the pervading uncertainty. The anxiety is not limited to economic concerns anymore but the bigger concern of the possible break-up of the UK. Scotland and Ireland overwhelmingly voted ‘remain’ during the referendum and would now like to have a referendum to break away from UK and retain their membership with the EU.
The resignation of Prime Minister David Cameron after the referendum did not bode well for the immediate resolution of the issue, as he left the decision and the actual process of separation to his successor. Political parties in UK are in chaos and a crisis of leadership is evident. Feeling cheated and betrayed, 3million British signed a petition for a second round of referendum. But as Cameron stated before the vote was cast, the process is ‘irreversible’.
The political and economic chaos may be in Europe and far from Myanmar, but there are worries that it will have harmful effects. As the country is gradually integrating into the global economy and the new government is still trying to learn, challenges from external events may be the least of its worries. The government has to brace itself because three main areas may be impacted – development aid, investment and trade.
Both EU and UK are main contributors to the development assistance to the country. Of the total US $5.31 billion development assistance committed to Myanmar for 2011-2015, EU was the third biggest contributor at $416 million and UK the sixth at $274 million. For the period 2014-2020, EU has an indicative allocation of €688 million to Myanmar. A big chunk of the EU contribution was with the peace initiatives and poverty reduction through the Livelihood Trust Fund (LIFT). The prolonged uncertainty in Europe will definitely drag the economy down and lessen the budget allocated for development assistance. This means the allocated amount will shrink and fewer resources will be used to implement development programs in the rural areas of the country.
In 2015, EU is the fourth biggest foreign investor in Myanmar, and the top among the Western investors. Companies in Europe may rethink their plans based on the emerging trends and may hold invest in Myanmar until the dust has settled in their home bases. Investors from Asian countries may also follow suit. China, whose economy is highly dependent on the European and US markets, is expected to slow down further. Being the top investor in Myanmar may change as a result of the unfolding events. This will also be the same case with Japan, South Korea and Singapore.
Trade with EU increased substantially because of trade preferences under the program ‘Everything But Arms.’ Bilateral trade reached €1.2 billion in 2015 composed of garments and agricultural exports to EU and machineries and electrical appliances imports. With the disruption of world trade, it remains to be seen what will be the configuration of trade relations between EU and Myanmar. Employment will suffer if the volume of exports to Europe will go down.
The government cannot wait for the effects to be felt before they start working on how to mitigate its impact. For several years, the country experienced strong growth rates and the events in Europe might cause a slowing down of the country’s economy. At this stage, we cannot afford it.