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World Bank projects strong growth for Myanmar
23
Apr '15
Myanmar could continue growing at around 8 per cent, like other countries in their early stages of transition to a market-based economy, according to the World Bank’s East Asia and Pacific Economic Report April 2015.

The World Bank projection is based on the assumption of continued growth in gas sector investment and output, and accelerated service sector growth resulting from the gradual liberalization of the telecom and banking sectors.

Public sector spending is expected to increase from 26.5 per cent of GDP in 2013-14 to roughly 28.7 per cent of GDP in 2014-15. Around 35 per cent of this will be public investment going to fill a major infrastructure gap left by many years of under-investment. Foreign Direct Investment in 2014-15 is expected to reach $5 billion, with some estimating more, bringing cumulative stock of FDI to over $50 billion, the World Bank noted. Around a third of FDI is in the gas sector.

The World Bank has cautioned that although growth is expected to remain relatively strong over the medium-term on the back of continued structural reforms, downside risks have also increased. If government spending growth continues along current trends, Myanmar may face fiscal sustainability challenges.

Myanmar’s real exchange rate has appreciated since November, which will dampen export competitiveness. There has been significant progress in anchoring exchange rate and inflation expectations. Continued progress in developing institutional capacity for exchange rate management will be important.

According to the World Bank report, the poverty rate in 2010 was estimated at between 25.6 and 37.5 per cent, with the lower rate reflecting the Government’s methodology—which showed a 20 per cent decline since 2005—and the higher rate reflecting a more broad based methodology used by the World Bank. Poverty in Myanmar is largely a rural phenomenon, with at least 70 per cent of the country’s poor living in rural areas.

One of Myanmar’s challenges will be to narrow down the widening trade and current account deficits triggered by rapidly rising demand coupled with removal of trade and foreign exchange restrictions. The current account deficit in 2014-15 is expected to reach 5.3 per cent of GDP.

Another challenge will be external public debt which is still within sustainability thresholds. The report warned that overall public debt sustainability is vulnerable to lower real GDP growth and fiscal slippages. This risk is heightened by recent international commodity price developments. Although the effects of these have not yet transmitted through to Myanmar, there is a major risk that natural gas prices will follow the same trend as oil prices. A sustained downturn would adversely impact government revenues and export earnings, and may negatively affect future investments in the oil and gas sectors. (SH)

Fibre2fashion News Desk - India

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