Viewpoint: U Kyaw Kyaw Maung
The successful implementation of the second wave of reforms associated with the Myanmar Sustainable Development Plan will focus on peace, stability and good governance, and will help us achieve the UN’s Sustainable Development Goals. Although the economy slowed to about 6.2% between April to September 2018, due to weakening external and domestic demand, we expect growth to rebound to 6.8% in FY 2018/19 and then to 7% in FY 2019/20, supported by an increase in government spending and improved business sentiment amid reform momentum.
Inflation picked up to 7.1% over the same period in 2018 in the wake of severe flooding and exchange rate depreciation. Inflation is expected to further increase to 8.8% in FY 2018/19, largely due to a hike in the price of electricity in July 2019. While electricity tariffs imposed inflationary pressures, they are expected to ease the budget deficit burden, which increased to 6% in FY 2018/19 on the back of concerted efforts to support the economy and structural reform. A reduced budget deficit will in turn encourage further expansion and industrialisation. Indeed, three special economic zones – Thilawa, Kyaukphyu and Dawei – provide incentives and simplified processes for investors.
Owing to a narrow trade deficit and gradual recovery in foreign investment, our external position is expected to improve by the end of 2019. In order to avoid excessive short-term volatility in the exchange rate and to build foreign currency reserves, the CBM is working with the IMF to conduct rule-based intervention in the foreign exchange market. As some regulatory gaps remain and the enforcement of key provisions of the Foreign Exchange Management Law is weak, this is being revisited with technical assistance.
Foreign bank branches today are allowed more operational flexibility than they were in the past, for instance by lending to local companies. Furthermore, the CBM is allowing more foreign banks and subsidiaries to participate in the local market, although in a way that protects domestic banks. With a view to strengthening the capital base, technology and governance of our banks, the CBM recently allowed foreign investors to invest up to 35% of a local bank’s capitalisation via a joint venture. In order to strengthen the regulatory and supervisory environment, the CBM has issued a series of prudent regulations and directives over the past two years. Notably, with technical assistance from the IMF, an “off-site supervision guide and risk-assessment matrix” was issued to adopt risk-based supervision by 2020. What is more, the Myanmar Credit Bureau was created in 2018 to provide qualified and secure loans to local businesses. The bureau is currently implementing a data test run to collect information on borrowers and will start full operations in the near future.
The CBM is encouraging banks to expand their branch networks to facilitate increased levels of financial inclusion. We have also permitted domestic banks to utilise mobile, internet and digital banking technologies, which will make banking more accessible. We support nonbank financial institutions that provide mobile services to people living in remote and rural areas.
Additionally, the CBM is working with financial institutions and international card services such as Visa and Mastercard to establish a safe and inclusive national payment system. We are not alone in these efforts, as mobile service providers are working to set up a national QR code standard, called the Myanmar QR.
However, headwinds are expected in the short to medium term. Growth around the world is subdued, and trade tensions and geopolitical uncertainties pose significant risks to the global economy. Consistent reductions in interest rates by the world’s central banks have threatened financial stability and the efficiency of monetary policy. As such, efforts to mitigate the risks faced by the global economy must feature accommodating and flexible macroeconomic policies.
The above is adapted from the governor’s statement at the World Bank/IMF Annual Meeting in October 2019.
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