Myanmar Year in Review 2015

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A decisive victory for the opposition in Myanmar’s general elections in late 2015 generated a fresh wave of investor optimism, raising hopes of increased economic stability in 2016 after a somewhat uncertain year.

Victory at the polls in November for the National League for Democracy (NLD), under Daw Aung San Suu Kyi, will see greater civilian participation in government, although the military will retain control of the Ministries of Defence, Interior and Border Affairs in the new Cabinet, alongside a minimum of 25% of seats in parliament and substantial economic holdings.

Growth leaders

Growth was robust in 2015 despite cooling in the global economy, with Myanmar posting GDP growth of 8.5%, according to the IMF. This ranks ahead of average growth among the five original ASEAN member nations – Indonesia, Malaysia, the Philippines, Singapore and Thailand – which stood at 4.6%, and average global growth, which reached 3.1%. GDP growth is expected to remain relatively steady in 2016, easing somewhat to 8.3%, as per IMF forecasts.

Strong consumer demand helped drive expansion in Myanmar’s retail sector, while also boosting the appeal of the industry to foreign brands. International brewers like Heineken and Carlsberg opened in-country production facilities through joint ventures with local partners during the year, and Japan’s Kirin acquired a 55% stake in market leader Myanmar Beer for a reported $560m in August.

The year also saw strong growth in commercial property development, buoyed by rising demand for prime business space, particularly in Yangon, the country’s financial and business capital. Such demand should help sustain activity in Myanmar’s construction sector, which already has several infrastructure projects on its books.

In a key development for the country’s financial services sector, nine foreign banks granted licences to operate in the market commenced operations, albeit on a limited scale, by early 2016.

Trade and budget prospects

However, the incoming NLD government, expected to be formally sworn in this March, will inherit an economy faced with ongoing structural challenges, including a widening fiscal deficit, projected to reach 5.5% of GDP, according to the IMF.

Rising inflation also weighed on Myanmar’s economic performance somewhat in 2015, having gained momentum on the back of high levels of liquidity, rising demand and food shortages caused by mid-year nationwide flooding. In its latest Article IV consultation with Myanmar, the IMF projected inflation would rise to 13.3% by the end of FY 2015/16, up from 7.4% in FY 2014/15.

Price increases have been exacerbated by depreciation of the kyat, which lost around 21% of its value against the US dollar over the year, driving up the cost of imports and affecting both consumers and firms that rely on overseas technology and equipment for expansion.

To ease pressure on the kyat and rein in inflation, the Central Bank of Myanmar announced plans in late November to raise the reserve requirement ratio of banks and increase the value of its fortnightly deposit auction, with an interest rate hike also signalled as a possibility.

A weaker kyat contributed to a widening of the trade deficit, with the gap between imports and exports reaching MMK3.1trn ($2.4bn) for the first six months of FY 2015/16, up 27% year-on-year.

Major flooding weakened export trade further in mid-2015, after damage to farmlands led to lower production. To maintain food security and stabilise domestic food prices, the government imposed a six-week freeze on rice exports, one of the mainstays of Myanmar’s foreign trade.

Investment forecast

Foreign investment has also slowed somewhat, reaching $4.1bn as of December 2015, according to the Directorate of Investment and Company Administration. By the end of FY 2015/16, foreign investment was expected to reach $6bn, down from $8bn in FY 2014/15.

The oil and gas sector has attracted the bulk of the investment to date, accounting for more than $2bn of the total as at December, while transportation and communications saw $736m worth of investments and manufacturing received $685m.

Investment inflows are expected to ramp up again in 2016, with a smooth election in hand and the promised transition of government scheduled in the coming months.

According to U Aung Naing Oo, secretary of the Myanmar Investment Commission, greater investment from EU countries in particular is forecast during the first six months of 2016.

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