Burma: Risk Assessment
Country Risk Rating
Business Climate Rating
- Ongoing democratic transition and opening of the economy
- Abundant raw materials (jade, minerals, gas and oil); hydroelectric opportunities
- Proximity to vibrant economies (India, China, Thailand)
- Huge touristic potential
- Good potential of the primary sector (agriculture)
- Young population (27% of the population is under 14)
- Availability of inexpensive labor force
- ASEAN membership
- High endemic corruption
- Extreme ethnic crisis regarding intolerance of the Muslim Rohingya minority by the Buddhist majority
- International condemnation of minorities’ discrimination
- Inefficient central bank
- Lack of diversification and of infrastructure (electricity, refining, education)
- Underdeveloped financial sector
Growth Will Remain Very Strong
Economic growth will remain one of the most dynamic of the region. Agriculture – representing nearly a third of GDP, half of total employment and a major export sector – benefits from high soil fertility, but suffers from low profitability. Thanks to public investments in the sector, gradual progress is being made towards upgrading production and output standards so as to boost exports. In 2019, the adequate monsoon season and higher rice prices will support the sector. The share of growth accounted for by the manufacturing sector (mostly textile, but also automotive assembly, machinery, and electronics) will continue to increase, mainly thanks to external demand, although the depreciation of the currency (-17% to the USD year-to-date in November 2018) will decrease export revenue. Exports will also be exposed to the risk of repeal of preferential access to the European single market because of the Rohingya crisis, but will benefit from increased trade with China. Growth will also be spurred by Chinese investing in infrastructure projects (as part of the memorandum of understanding signed on the China-Myanmar Economic Corridor, CMEC) and by the government’s impetus for reform ahead of elections in 2020. The latter includes measures to facilitate entrepreneurship and access to loans for SMEs. Meanwhile, the mining and tourism sector will continue to grow steadily but will suffer from the lack of infrastructure. Inflation will remain high but it will be compensated by higher wage growth and thus not hurt private consumption (50% of GDP), which will also remain supported by transfers from Burmese residents abroad.
Growing Dual Deficits but Steady FDI Inflows
The budget for the 2018/2019 fiscal year will increase the deficit. Spending on energy supply and social services as well as infrastructure will increase. Revenues will mainly stem from State-Owned Enterprises (although only 22 out of 32 SOEs are profitable) and taxes. Budget financing by the central bank should be reduced to 20% of the budget, with the risk of strengthening inflationary pressures. Public and publicly guaranteed external debt levels remain sustainable (15% of GDP in June 2017), although the IMF estimates that is a risk in the context of depreciation of the local currency. The current account deficit should grow due to the higher merchandise trade deficit related to imports for FDI financed infrastructure projects. Exports will continue to increase, especially to China (largest trading partner), boosted by the new gas pipeline (gas is the most exported product: 39% of total exports) and by garment sales. However, nominal export growth will suffer from an only partial recovery following the steep depreciation of the currency in 2018. Moreover, the deficit in the primary account will increase on the back of profit repatriation by foreign firms. The current account deficit will be financed by FDI inflows (Myanmar was the first recipient of FDI among the least-developed countries in 2017 – CNUCED). To improve resilience to external shocks, authorities abolished a trading band of foreign currencies in August 2018, thus liberalizing the exchange rate.
Democratic Improvements at Odds with Treatment of Minorities
The National Defence and Security Council (NDSC), is the highest instance of power. Moreover, the military holds a constitutional right to 25% of seats in both houses. However, in recent years, an unprecedented political liberalization has taken place. The first Parliamentary elections with all opposition parties since 1990 were held in 2012, and then in 2015. National League for Democracy (NLD) leader and Nobel Peace Prize winner for promoting democracy, Aung San Suu Kyi, became State Counselor. This role was made for her to rule without being President, as the Constitution prohibits it because of her foreign family relations. The President, Win Myint, is the first without any military background in over five decades. NLD kept its majority at the midterm’s elections in 2017 in both houses, despite growing support for minority parties. Officially, 135 ethnic groups are present in the country, while the NLD is associated with the Bamar majority group. Since August 2017, the Muslim Rohingya minority, which was never granted citizenship and is largely considered as Bangladeshi migrants, have been victims to abuse from the army. International monitors estimate that 7,000 people have been killed, and 720,000 have fled, mostly to Bangladesh. The UN refers to this situation as “ethnic cleansing”. Economic and political sanctions were implemented by the EU, the United States, the United Kingdom, and Australia. In 2018, Myanmar demanded repatriation of the refugees in answer to international pressures, but no steps were taken to ensure their rights or safety. In parallel, the country is nurturing its diplomatic relations with ASEAN and China. The business environment remains very precarious: Myanmar is ranked 171st out 190 in the World Bank's 2019 Doing Business index.