Economic Update

Published 31 Mar 2020

As the total number of global cases of Covid-19 exceeded 784,000 with over 37,000 deaths on March 30, Myanmar reported 14 cumulative cases and no fatalities.

Compared to its neighbours, the fast-growing South-east Asian state had felt relatively insulated from the most severe effects of the pandemic for much of the first quarter, with few restrictions on daily life or the movement of people inside and outside the country. However, this changed after the country reported its first cases on March 23, sparking some residents of the commercial capital Yangon to rush to supermarkets to stockpile provisions.

The government has since ordered half of its employees to stay at home to minimise the movement and congregation of people. Large public gatherings were already prohibited and the unprecedented step had been taken on March 13 to cancel the Myanmar New Year celebrations in mid-April. 

Myanmar followed the example of many other countries on March 30 in announcing the suspension of all international commercial flights until April 13 to contain the spread of Covid-19, with a significant proportion of the reported cases so far involving patients with a recent travel history to Europe or the US. 

Although the country has been one of the fastest-growing countries in Asia for several years, its public health care system is still undeveloped by regional standards and concerns have been raised about its capacity to cope with a large number of cases, especially in densely populated urban areas where many residents depend on daily earnings from informal work.

Stimulus package

Although Myanmar’s state of prepardeness has been questioned in some quarters, the government made an effort to mitigate the negative economic and social effects of the pandemic on March 18 by announcing a MMK100bn ($71.6m) support package consisting of loans, eased deadlines for tax payments and tax exemptions for eligible locally owned businesses. 

To assist companies affected by the downturn in business activity, the government is offering loans with an interest rate of 1% and a grace period of one year to help employers pay salaries, with officials stating that both the rate and the timeframe would be assessed based on the economic impact of the global pandemic.

Elsewhere, eligible businesses now have until the end of September to make quarterly income and monthly commercial tax payments that were previously due at the end of March.

In another development, the government has also announced that businesses will be exempt from paying the 2% advanced tax on export items until the end of the current fiscal year on September 30.

The package will draw MMK50bn ($35.8m) from the country’s revolving fund and MMK50bn ($35.8m) from the social welfare fund.

Targeted sectors

The announced stimulus measures will be targeted towards garment manufacturing, tourism and locally owned SMEs, which have been identified by the government as key pillars of the economy and have been hard hit by falling demand.

The garment manufacturing segment is one of the country’s economic mainstays, with exports totalling $4.6bn in 2018, the latest figures available. The Myanmar Garment Manufacturers Association, the primary trade association for the industry, estimates that the segment employs 450,000 people in 600 factories nationwide.

Given that some 80% of investment in the industry comes from China, the segment has suffered in the wake of the Covid-19 outbreak. According to the Confederation of Trade Unions Myanmar, as of mid-March around 20 factories had closed in the country, while many others had reduced working hours due to a lack of raw materials, affecting an estimated 10,000 workers.

In addition to measures included under the stimulus package, 15 tonnes of raw materials for garment factories were transported to Myanmar by plane in mid-March, through a cooperative effort between industry representatives and the Myanmar and Chinese governments.

Meanwhile, the tourism sector – which directly accounted for 2.8% of GDP in 2018, according to the World Travel & Tourism Council – has also faced a slowdown since the outbreak of Covid-19, which will be exacerbated by the decision to suspend all international flights until mid-April. 

The Ministry of Tourism predicts that international arrivals will fall by 50% this year, while the Union of Myanmar Travel Association told local media that $800,000 of travel bookings were cancelled between the end of January and mid-March due to travel restrictions associated with the pandemic.

Economic impact

While the full extent of the public health impact on Myanmar is yet to be seen, the country is also expected to suffer economically as a result of a downturn in trade.

In late February the Ministry of Commerce announced that, as a result of the virus, trade between Myanmar and China declined by $209m between January 23 and February 18.

Instead of generating $10m-$14m daily, officials noted at the time that trade between the two countries had fallen to between $1m-$2m per day.

Furthermore, with China accounting for 26% of Myanmar’s foreign direct investment, a significant slowdown in major infrastructure projects is expected this year. Myanmar is part of four major projects – the Muse economic zone, the China-Myanmar Economic Corridor, the Kyaukphyu Special Economic Zone and the New Yangon City project – under China’s Belt and Road Initiative.

In a further move intended to boost economic activity, the Central Bank of Myanmar announced on March 25 that it would slash the country’s benchmark interest rate by 100 basis points to 8.5%, effective April 1. This decision follows an earlier 50-basis-point cut on March 12.