Myanmar needs ‘more liberalisation’
Though Myanmar has liberalised some policies in recent years to attract more foreign direct investment, its FDI regulations are more restrictive than in most peer economies in Southeast Asia, according to the Asian Development Bank’s new report on the regional economy launched on April 11.
Yumiko Tamura, principal country specialist at ADB Myanmar Resident Mission, said further liberalisations were needed in FDI regulations and the banking sector, including opening up to foreign competition and adjusting the interest rate.
“FDI is crucial to Myanmar over the medium term to finance its persistent current-account deficit and to support growth,” she said.
She expected FDI to be the main source of financing for the current-account deficit.
Despite limited scope for portfolio capital inflows, FDI can tap the nation’s potential for export-oriented production of labour-intensive goods, Tamura said.
“Imports are growing faster than exports to finance development needs, widening the trade
deficit. ODA (official development assistance) can serve as a cushion but it is small,” she said.
Tamura said continued efforts towards a more conducive business climate would attract increased foreign investment.
She urged a focus on screening and approval procedures, foreign equity holdings, capital repatriation, construction permits, tax incentives and property registration.
In a bid to buoy investor confidence and attract sizeable FDI in the years to come, policy makers should effectively implement reforms, said Tamura. She also urged implementing a medium- or long-term strategy – a Myanmar Sustainable Development Plan – and to introduce strategic public investment planning and prioritisation.
The Asian Development Outlook 2018 states that investment growth may have softened as investors await clarity on a new company law expected in August. The external economic environment should, however remain favourable provided that global growth continued to be strong.
According to Tamura, agricultural production, industry expansion, stronger demand for tourism and services related to information technology, and stronger domestic demand will drive the nation’s growth over the next few years.
She said Myanmar’s economy recovered last year, with 6.8 per cent growth, up from 5.9 per cent in fiscal year 2016. She expected growth to be sustained this year, and accelerated to 7.2 per cent next year.
Tamura said the economy is not severely affected by the situation in northern Rakhine state. Despite ongoing conflicts there, the nation’s growth had quickened, thanks to improved agriculture, industry and service expansion, stronger exports and robust private consumption.
Thanks to the better weather, the agriculture sector has enjoyed 3.5 per cent growth, contributing to nearly 30 per cent of gross domestic product.
The industry and service sectors have grown over 8 per cent. Robust manufacturing drove higher industrial output and services benefited from buoyant tourism and strengthening domestic consumption.
“Agriculture is forecast to continue to grow robustly, assuming normal weather and favourable commodity prices. Signs indicate improved conditions for manufacturing,” she said.
Growth in industry is therefore projected to strengthen over the next two years.
Services should expand further with solid growth in tourism and information technology services.
Driven by the demand for capital goods to supply infrastructure projects, growth in merchandise imports is estimated to have accelerated fivefold to 12 per cent from 2.4 per cent growth in FY2016.
Exports were driven by rice shipments estimated at 2.8 million tonnes, the highest in half a century, and by high demand for garments. Earnings from service exports continued to remain buoyant, and higher purchasing power strongly supported private consumption.
Last year, inflation eased at an estimated 5.3 per cent, down from 6.8 per cent in FY2016, reflecting lower domestic food inflation, subdued international commodity prices and a stable exchange rate.
However, higher growth and an expected rise in international oil prices will increase inflationary pressures. This year, inflation is forecast to accelerate to 6.2 per cent before moderating to 6 per cent in 2019.
The current account deficit is forecast to slightly widen to the equivalent of 5.4 per cent of GDP this year and 5.5 per cent next year. A better external economic environment is expected to increase exports, while imports will also grow to support public investments in infrastructure and continuing FDI.
Tamura expected the fiscal deficit to continue. She said the fiscal balance is projected to remain in deficit around 4 per cent of GDP over the next two years, reflecting an increase in spending to support development agenda.
“Public financial management needs to be strengthened for improved revenue collection, efficient expenditures, and continued reduction in CBM (Central Bank of Myanmar) financing,” she said.
Newin Sinsiri, ADB country director for Myanmar, said Myanmar, with mitigated risks, should be able to stay on a steady economic growth path in the medium-term.
“Myanmar should be able to leverage limited public resources by effectively engaging development partners, foreign investors, and the domestic private sector [in order] to help finance its staggering infrastructure requirements, narrow its regional socioeconomic disparities, and support the long-term development agenda,” he said.
