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. - Source: Coface

Business Climate Rating

E
The highest possible risk in terms of business climate. Due to a lack of available financial information and an unpredictable legal system, doing business in this country is extremely difficult.

Strengths

  • Ongoing democratic transition and opening of the economy
  • Strategic geographical location, between India and China
  • Abundant raw materials (rice, jade, minerals, gas, and oil)
  • Significant hydroelectric potential
  • Proximity to vibrant economies (India, China, and Thailand)
  • Huge tourist potential
  • Potential of the primary sector (agriculture, arable, land)
  • Youthful profile of the population

Weaknesses

  • Extreme ethnic tension between the Muslim Rohingya minority and the Buddhist majority
  • International condemnation of the discriminatory policy against minorities
  • The role of the Central Bank not yet really defined
  • Undiversified economy
  • Underdeveloped financial sector

Current Trends

Growth Will Remain Very Strong

Myanmar’s economic growth is set to remain one of the region’s highest in 2018. Activity benefited from the democratic transition and the arrival to power of the National League for Democracy (NLD) in April 2016. Nevertheless, the dynamism will be relatively dependent on the establishment of a clear economic agenda by the government in 2018, institutional reform, and the resolution of the crisis of the Rohingya population – a Muslim minority in a Buddhist majority country, in the state of Rakhine (western part of the country).

The agricultural sector, which benefited from favorable climatic conditions in 2017, will continue to develop in 2018 notably due to large water collection from dams. Burmese production is expected to benefit from relatively high demand for rice, both domestic and external (rice being the main export of the primary sector).

Public and private (especially foreign) investment in infrastructure is increasing. The construction sector should be the first to benefit from this, with a predicted growth of 16.4% in 2018. Chinese companies have built a 771-kilometre gas pipeline, operational since 2017, and have seven major infrastructure projects in the Irrawaddy Valley, the country’s main river.

The development of tourism should also continue despite the lack of hotel accommodation. Although poverty remains widespread, private consumption (50% of GDP) will likely continue to support growth in 2018, benefiting from the increase in the level of wages and transfers from Burmese residents abroad. This reflects a household savings rate which remains very low. Inflation will remain high as a result of expansionary economic policies, rising wages, housing prices, and growth in domestic demand.

Dual Deficits but Increase in FDI

Efforts to bring the budget deficit under control are expected to continue in 2018. Public expenditure accounts for nearly 15.6% of GDP, of which 31% is military expenditure. Nevertheless, social and educational spending will remain at a high level. The state will invest mainly in the construction of new economic zones in Thaliwa, Dawei and Kyaukpyu. At the same time, with revenues being restricted by weak natural gas prices, the government wants to push ahead with reforms aimed at increasing the tax base, which would help boost budget revenues. In fact, Myanmar’s tax collection is the smallest of the ASEAN countries (8% of DP). The right of transit of gas and oil between extraction sites and China will yield USD 13 million annually. The government is set to continue to rely less and less on the use of loans from the central bank to finance its deficit. The goal is to go from 40% of the deficit in 2017 to 20% in 2018.

In terms of external accounts, the current account deficit should remain stable in 2018. Exports will continue to increase, especially to China (largest trading partner), boosted by the construction of the gas pipeline (gas is the most exported product – 39% of total exports). Imports will increase further, including transportation and construction materials. The current account deficit will be offset by very strong FDI inflows.

To improve the economy’s resilience to external shocks, authorities are likely to move towards a floating exchange rate of the kyat in 2018.

Democratic Transition in a Context of Inter-ethnic Conflict

In political terms, the country has seen an unprecedented period of liberalization. Partial parliamentary elections were held in April 2012, the first elections in which all elements of the opposition had taken part since 1990. The National League for Democracy (NLD) won 43 of the 45 seats up for election, enabling its leader Aung San Suu Kyito become an MP. In the general election of 8 November 2015, the NLD won over 80% of the vote, and subsequently entered into office in April 2016. Htin Kyaw was elected President by Parliament and Aung San Suu Kyi was appointed “State Counsellor” – a role specifically devised for her as the Constitution prohibits her from becoming President because of her foreign family links. The partial legislative elections of April 2017 maintained the position of the NLD, which lost only one of the 255 seats it held.

European and US sanctions could return in 2018 if the Rohingya situation does not improve. Following attacks on police stations, the Myanmar army’s campaign of repression against the Rohingya population in the state of Rakhine, led to the departure of more than 500,000 Muslims, who mostly moved to Bangladesh. At the end of 2017, Bangladeshi authorities planned to begin the process of repatriating the Rohingya population, although the latter are not citizens of Myanmar following a decision by the Burmese army in 1982 not to grant them this status. The UN refers to this situation as “ethnic cleansing”.

Lastly, the business environment remains very precarious and Myanmar is one of the poorest ranked countries in the world according to the World Bank’s Doing Business index (170 out of 190).

Source:

Coface (01/2018)
Burma