Burma: Risk Assessment
Country Risk Rating
|D||A high-risk political and economic situation and an often very difficult business environment can have a very significant impact on corporate payment behavior. Corporate default probability is very high.|
Business Climate Rating
|D||The business environment is very difficult. Corporate financial information is rarely available and when available usually unreliable. The legal system makes debt collection very unpredictable. The institutional framework has very serious weaknesses. Intercompany transactions can thus be very difficult to manage in the highly risky environments rated D.|
Very dynamic growth
Growth will remain at a high level in 2016. Economic activity is likely to benefit from the ongoing democratic transition allowed by the elections in November 2015. The country also enjoys strong momentum in the gas, telecommunications and consumer goods sectors. In addition, the expansion of the tourist sector is likely to continue despite the insufficient supply of hotel accommodation and will help sustain growth in the construction sector. The country is profiting from foreign investment inflows made possible by the country's growing openness. However, despite the development of special economic zones, the country still suffers from significant infrastructure shortcomings, especially regarding electrical installations, which limit the country's production capacity. Moreover, productivity is weak and the workforce poorly skilled. Although the banking sector remains underdeveloped, the country is seeing a rapid expansion in credit which should sustain consumer and investment spending.
Although poverty remains widespread, private consumption, which accounts for 80% of GDP, will continue to support growth and foreign investments in the agri-business sector. It will also be boosted by increased social spending and the setting of a minimum wage in September 2015. Inflation, however, will remain at a high level because of accommodative economic policies and the rapid rise in housing, electricity and food prices.
Twin deficits but growth in foreign direct investments
After increasing sharply in 2015, the budget deficit is expected to stabilize in 2016. The government has increased social spending (education, healthcare) and is facing a reduction in revenues because of lower natural gas prices. Reforms, however, have helped increase budget revenues. Meanwhile, public debt has benefited from a cancelation and a rescheduling of arrears by the Paris Club, allowing the country to take advantage of new concessional loans to finance infrastructure development. As a result, the public debt level appears sustainable. With regard to the external accounts, the current account deficit is expected to stabilize in 2015. Despite the growth of exports, the country has a trade deficit fueled by significant imports associated with the investment projects, but also generated by sustained consumption. This is however offset in part by increased FDI flows. In this context, foreign exchange reserves will remain at a satisfactory level.
A further step towards democracy but interethnic tensions remain serious
Politically, the country has been through unprecedented liberalization. The November 2010 legislative elections, which ended the rule of the military junta and the arrival of President Thein Sein opened the way to a program of reforms from summer 2011. By-elections were held in April 2012, the first since those of 1990 in which all opposition parties participated. The National League for Democracy (NLD) won 43 of the 45 seats contested, enabling Aung San Su Kyi, leader of the NLD, to become a member of parliament. In the long-awaited general election of 8 November 2015, the LND won over 80% of the votes. It therefore has an absolute majority in Parliament, even though 25% of the seats are reserved for members of the Junta. A number of Generals and members of the Army party acknowledged the victory of the LND and have promised a peaceful handover of power. Parliament must now elect a government and a President from the ranks of Aung San Su Kyi’s party. She cannot, however, be appointed President because the Constitution prohibits any person with a direct relationship to a foreigner from being president.
The process of opening up the country has resulted in the lifting of most of the sanctions imposed by the United States in 2012 and 2013: suspension of visa ban on senior Myanmar officials, lifting of restrictions on financial aid and removing the ban on imports of Burmese products in the US. The EU also lifted its sanctions in April 2013. However, Naypyidaw's relations with western countries could come under strain due to the persistent interethnic and religious tensions between the Buddhist majority and the Muslim minority in Rakhine State. A ceasefire was nonetheless signed in October 2015 between the government and 8 of the 15 armed groups.
Finally, the business climate remains difficult and Myanmar is one of the worst rated countries in the world in terms of quality of governance.