Burma: Risk Assessment
Country Rating1
Rating: D
Business Climate Rating1
Rating: D
Risk Assessment2
Economic growth below potential
In 2010, Myanmar recorded uneven economic performance, which lagged overall behind regional standards. The energy and mining sectors were driven by the inflows of investments from the main Asian economies and the construction industry remained dynamic. Conversely, in an agricultural sector that employs most of the population and represents nearly 40% of GDP, production declined with the rice harvest less abundant than it was the year before. The manufacturing industry has continued to suffer from electricity shortages and difficulties with input procurement. Should these trends continue in 2011, the inflow of foreign direct investments would nonetheless be likely to enable stronger growth: Several billion dollars in projects - financed by China, India, and Thailand and focused on oil exploration, copper and nickel extraction, and also hydroelectric production - will underpin the economy. Precious stone production will also increase despite trading limitations imposed by international sanctions. Natural gas will, however, remain the primary export but with its production unable to grow further until the start of exploitation of new fields, expected in 2013. The other sectors, meanwhile, will continue to grow at a pace below their potential due to limited access to credit, deficient infrastructure, and administrative constraints that complicate matters in doing business.
Substantial payment arrears on foreign debt
Public sector finances are undermined by the scale of the defense budget, which represents a fifth of government spending, and the considerable monetization of deficits. Recourse to that practice has nonetheless been in decline since 2009 with bonds issued increasingly in the domestic market, making it possible to limit inflationary pressure. The rise of prices is currently about 10% year-on-year compared to as much as 30% between 2006 and 2008.
Besides, Myanmar's foreign debt, borne entirely by the public sector, is characterized by large arrears with private and multilateral/bilateral public creditors (especially the World Bank and Asian Development Bank). No significant progress has been made on debt collection these past years. Moreover, with the existence of a multiple exchange rate regime, including some that are not convertible, and the persistence of restrictions on the capital account, default and non-transfer risks seem very high. FDI inflows are, however, expected to completely cover the economy's external financing needs and have enabled topping up the Central Bank's foreign exchange reserves, which remain at satisfactory levels in relation to imports.
Uncertainties remaining high in the political arena
The national elections held in 2010 - the first in twenty years - followed by the liberation of opposition leader and Nobel peace prize winner Aung San Suu Kyi constituted historic milestones on the Burmese political scene. Although unlikely to jeopardize the military junta's grip on power, those move could nonetheless prompt Western countries to ease the international sanctions imposed on Myanmar, especially if Aung San Suu Kyi lends support to such initiative. Whatever happens, however, there will be little likelihood of progress on political reform or improvement in the business climate. The risks of public unrest remain substantial, particularly in border areas where some ethnic minorities have demanded better protection for their rights and more independence.
Strengths
- Abundant raw materials (rice, teak, ore, gas, oil)
- Considerable hydroelectric potential
- Proximity to dynamic economies (India, China, Thailand)
- High tourism potential
Weaknesses
- High risk of ethnic tensions
- Isolation associated with economic sanctions
- Self-sufficient economy with little diversification
- Lack of structural reforms (infrastructure investments, investments in the health and education sectors)