Building on positive performances in recent years, Myanmar’s economy is set to continue gaining momentum in the near and medium term, despite concerns over the slow pace of economic reforms and social unrest in Rakhine state. Oxford Business Group released this business review for 2017 in second week of January.
According to an IMF’s forecast released in November, Myanmar’s economy is expected to grow by 6.7% in the current financial year (FY), which ends in March 2018. The figure is significantly above the 5.9% growth achieved in FY 2016/17 and well above the fund’s prediction of 5.1% expansion across South-east Asia in 2017.
Improved returns in the agriculture sector will play a significant role in future growth, as the sector continues to recover from adverse weather in FY 2016/17. Agriculture is of vital importance to the overall economy, accounting for 38% of GDP, 23% of exports and employing some 60% of the national workforce, according to the World Bank. On top of agricultural exports, the economy has been supported in recent years by increased demand for locally made garments and light manufactured goods.
Rising domestic demand has also helped boost growth. Asian Development Bank (ADB) data show that imports of consumer goods and intermediate goods rose by 54% and 20%, respectively, between April and July 2017.
An anticipated increase in public spending in early 2018 on the back of stronger tax revenues is expected to further stimulate the economy moving . forward; the IMF expects annual GDP growth to rise by between 7% and 7.5% in the medium term.
Despite the largely positive outlook, there are concerns that ongoing conflict in the northern part of Rakhine State could impact capital inflows and foreign direct investment (FDI); however, the IMF noted the direct economic impact appeared to be largely localized, rather than affecting broader development and investor sentiment.
Inflation rates to remain above regional average
Rising levels of demand has fed into higher consumer prices. The ADB recorded inflation of 6.8% for 2016, and predicts year-end rates of 7% and 7.5% for 2017 and 2018, respectively. Although a product of economic development and rising wages, the inflation predictions remain significantly higher than Southeast Asian regional averages of 3.1% for 2017 and 2018.
Slow pace of reforms contributing to business concerns
While growth prospects for the near and medium term remain positive, some in the business community have raised concerns over the slow implementation of economic reforms. A December 2017 survey carried out by the Union of Myanmar Federation of Chambers of Commerce and Industry and consultancy firm Roland Berger found a significant fall in confidence among the business community.
The percentage of those with positive short-term business sentiment fell from 73% in late 2016 to 49%, according to the report, with respondents citing a lack of clear economic policy from the government as a significant reason behind the drop in confidence. Despite these short-term concerns, 88% remain optimistic about Myanmar’s medium- to long-term outlook, noting the strong domestic market potential of the economy.
Sharing this sentiment, Peter Beynon, chairman of the British Chamber of Commerce in Myanmar, told OBG that while progress has been promising, more action needs to be taken to support growth.
“In order to improve its business environment, the government needs to accelerate the pace of economic liberalization. In particular, the executive should focus on promoting a faster liberalization of sectors such as insurance, banking, non-banking financial institutions and microfinance,” he said. “However, liberalization has to be accompanied by the implementation of the right set of regulations.” These concerns were reflected in the World Bank’s 2018 ease of doing business index, which placed Myanmar 171st out of 190 economies surveyed. Despite maintaining the same ranking from 2017 (170th), the country recorded incremental improvements in six out of the 10 categories covered in the survey, indicating that the pace of reform is beginning to improve.
The report cited the reduction of stamp duty when registering property and the adoption of regulations allowing for the establishment of credit bureaus as measures that had facilitated greater business activity in recent times.
New Companies Law to improve FDI flows
Despite some concerns over the pace of economic reforms, recent developments have improved Myanmar’s investment outlook.
The new Companies Law, approved in December and set to be implemented by August 2018, will allow foreigner investors to hold up to 35% of shares in a domestic firm, while the company will still be designated as a local operator. Currently, even a 1% overseas stake in a local company means the firm is designated as a foreign company, resulting in restrictions on property and asset ownership.
Authorities hope the improved investment climate will encourage stronger foreign direct investment inflows in 2018, and help broaden the base of investment into more sectors of the economy.