Myanmar GDP expected to grow in 2019 despite foreign and domestic pressures

Myanmar’s macroeconomic performance improved in 2018 as recovery in the agriculture sector, rising oil and gas prices, and substantial growth in several manufacturing segments helped the country regain positive momentum. Efforts to encourage private sector activity and liberalise the economy have been extensively detailed in a new long-term economic development agenda, and recent legislative reforms should further bolster business engagement.

At the same time, the country is facing several notable challenges. The liberalisation of financial services has been slower than anticipated: deficits in the fiscal budget and the external balance of trade remain large and continue to grow, and currency depreciation hampered growth and spurred inflation in 2018. Moreover, recent efforts to improve the tax system and the ease of doing business have not yet yielded positive results.

Ongoing conflicts in Rakhine, Shan and Kachin States have also weighed heavily on investor sentiment, with inflows of foreign direct investment (FDI) declining in the wake of international scrutiny since 2017. The burgeoning garment industry faces the prospect of a serious near-term setback, following an announcement that the EU was considering suspending Myanmar’s trade privileges as a result of the violence.

Nonetheless, recent moves to rein in spending, boost investment and develop a much-needed public investment programme should serve to mitigate the worst effects of these challenges and help to maintain strong, steady macroeconomic expansion in 2019.

Economic Growth

Myanmar has been one of the fastest-growing South-east Asian economies for more than 25 years, with annual GDP growth remaining above 5.5% since 1992. Although Western sanctions and a military government kept the country isolated for decades, GDP was elevated for much of the 1990s and early 2000s, peaking at 13.75% in 2000, and remaining in the double digits until 2010, when growth moderated to 9.63%. Economic liberalisation and accelerated democratic transformation beginning in 2011 have seen most international sanctions lifted, prompting a wave of investors to enter the 55m-strong market, and keeping growth elevated.

World Bank data show that GDP growth rose from 5.59% in 2011 to 7.33% in 2012 and 8.43% in 2013, before moderating to 7.99% in 2014, 6.99% in 2015, and 5.87% in 2016, a five-year low. Growth recovered to 6.37% in 2017, less than Laos (6.89%), Cambodia (6.81%), Vietnam (6.81%), and the Philippines (6.68%), but above Malaysia (5.9%), Indonesia (5.07%), Thailand (3.9%), Singapore (3.62%) and Brunei Darussalam (1.33%).

The May 2018 edition of the “Myanmar Economic Monitor” (MEM), a semi-annual World Bank publication, highlighted improved outputs in agriculture and manufacturing as keys to growth in FY 2017/18, which ran from April 1, 2017 to March 31, 2018. Favourable weather and higher foreign demand led to a 2.5% increase in farm yields and a 50-year high in rice exports, even as new import restrictions in India weighed on the bean and pulse segment. Oil and gas production, meanwhile, which accounted for 25% of exports in FY 2017/18, benefitted from a near-doubling of global oil prices. Gas export receipts rose by 13% during the first three quarters of FY 2017/18 to offset a 43% decline in gas export volumes during the first three quarters of FY 2016/17. For its part, industry grew by 8.9% on the back of greater manufacturing output, which accounted for three-quarters of industrial activity over the period. Growth in the food processing and garment segments, in particular, helped to drive manufacturing production up 11% year-on-year (y-o-y). Construction, another key sector, registered 7.6% growth, which, while lower than in FY 2015/16, was largely stable.

Structure & Oversight

Myanmar has been classified as a lower-middle income country since July 2015, with gross national income (GNI) per capita rising sharply in recent decades. GNI per capita in current US dollars rose from $170 in 2002 to $300 in 2006, $650 in 2009, $1020 in 2011, and a peak of $1230 in 2013 and 2014, before moderating to $1190 in 2015, 2016, and 2017. Rising personal consumption is a major economic growth driver, with the country’s young, 54m-strong population and decades of isolation providing a firm foundation for demand-driven expansion. Although final consumption expenditure as a percentage of GDP fell sharply between 2009 and 2011, sinking from 84.2% to 63.04%, it has recovered in recent years, rising to 66.3% in 2013, 68.23% in 2015 and 70% in 2016.

Recent currency depreciation, however, may have skewed these statistics. The World Bank reported that final consumption expenditure in local currency increased from MMK24.1trn ($17bn) in 2008 to MMK32.5trn ($23bn) in 2012, MMK44trn ($31.1bn) in 2015 and MMK55.8trn ($39.5bn) in 2016, the most recent year for which statistics are available. According to World Bank data, private consumption accounted for 50% of GDP in FY 2017/18.

The Ministry of Planning and Finance (MPF) is the primary government agency tasked with drafting macroeconomic development policies. MPF was formed in 1972 with the merger of the Ministry of Finance and Revenue and Ministry of National Planning, which had operated separately since their inception in 1948.

Six financial and five non-financial institutions fall under MPF’s purview, including the Central Bank of Myanmar (CBM), Myanma Economic Bank, the Budget Department, Internal Revenue Department, Customs Department and Pension Department. MPF is responsible for formulating and implementing national monetary and financial policies, as well as national planning activities. In June 2018 U Soe Win was appointed minister of planning and finance.

Development Strategies

In August 2018 the MPF launched the Myanmar Sustainable Development Plan (MSDP), a long-term economic development plan running through to 2030. Unlike the first 12-point economic plan released by the ruling National League for Democracy (NLD), the MSDP is complex and detailed, identifying hundreds of reforms necessary to achieve robust economic and social growth under three main pillars: peace and stability, prosperity and partnership, and people and the planet. It is divided into five goals, 28 strategies and 251 action plans, with economic reforms targeted specifically under the second goal – economic stability and strengthened macroeconomic management – as well as the third goal: job creation and private sector-led growth.

Key Contributors to GDP

The Central Statistical Organisation (CSO) reports that services and trade accounted for the largest proportion of GDP in constant prices during the second quarter of FY 2017/18, the most recent period for which statistics are available. Services and trade accounted for MMK5.7trn ($4bn) of GDP during the quarter, or 45% of total GDP at constant prices, against agriculture’s MMK3.6trn ($2.5bn) and industry’s MMK3.4trn ($2.4bn).

The services and trade sector has expanded steadily since FY 2011/12, with its total annual GDP contribution rising from MMK15.8trn ($11.2bn) to MMK17.7trn ($12.5bn) in FY 2012/13, MMK19.6trn ($13.9bn) in FY 2013/14, MMK21.4trn ($15.1bn) in FY 2014/15 and MMK23.2trn ($16.4bn) in FY 2015/16. Industry rose from MMK11.6trn ($8.2bn) to MMK17trn ($12bn) between FY 2011/12 and FY 2015/16, while agriculture grew from MMK14.6trn ($10.3bn) to MMK16.3trn ($11.5bn). During FY 2016/17 services and trade accounted for 41.9% of GDP at constant prices, or MMK25.1trn ($17.8bn), against industry’s MMK18.5trn ($13.1bn) and agriculture’s MMK16.2trn ($11.5bn).

Monetary Policy

In its May 2018 report, the World Bank highlighted recent improvements to Myanmar’s fiscal and monetary policies, with recent government efforts to rein in the deficit, reduce foreign borrowing and stabilise the kyat helping to support growth. The kyat has depreciated significantly since 2014, falling by more than 65% against the US dollar and crossing the threshold of MMK1600:$1 for the first time during the summer of 2018. Depreciation has been driven by US dollar appreciation, rising imports, weakening FDI inflows, black market currency manipulation and rising levels of cross-border trading with China, which has strengthened demand for US dollars.

This has pushed inflation upwards, with the World Bank reporting that consumer price index inflation rose from 6.1% y-o-y in FY 2014/15 to 8.4% in FY 2016/17. Rapid mid-year kyat depreciation pushed inflation to 8.56% in July 2018, up from 6.45% in June, prompting CBM to undertake several policy measures aimed at curbing inflation and stabilising the kyat. These included removing a requirement that private banks and exchange counters trade within 0.8% of its official exchange rate band, abolishing trading bands, and prohibiting the re-export of sugar and oil to China. CBM’s most recent policies complemented earlier efforts to reduce money supply, with the IMF reporting that credit growth slowed from 25.5% in 2016 to 21.2% in 2017, while money supply growth decelerated from 19.4% to 16.5% over the same period. The Asian Development Bank (ADB) attributed this to the central bank’s efforts to keep inflation under control.

Balance of Trade

Import growth is also contributing to currency depreciation, with the ADB reporting in April 2018 that merchandise import growth rose fivefold between 2016 and 2017, from 2.4% to 12%, largely as a result of strengthening domestic consumption and increasing demand for capital goods to supply new and ongoing infrastructure projects. A recent increase in exports has helped mitigate the problem, although the country’s trade deficit is large and growing. While the ADB reported that the trade deficit widened from 3.9% in 2016 to 5% of GDP in 2017, the World Bank stated that the deficit rose from 6.2% of GDP in FY 2014/15 to 9% in FY 2015/16 and would moderate to 8.5% of GDP in FY 2017/18 as exports returned to growth. The European Commission, meanwhile, reported that Myanmar’s trade deficit rose from €494m ($568.8m) in 2013 to €3.7bn ($4.4bn) in 2014 and €4.4bn ($5.2bn) in 2015, before dropping to €3.8bn ($7.1bn) in 2016 and increasing to a peak of €6.1bn ($7.2bn) in 2017 (see Trade & Investment chapter).

Fiscal Policy

Similar to the trade deficit, Myanmar’s fiscal deficit has also been increasing. In an effort to bridge this gap, the government has implemented spending cuts and moved to improve revenue collection. Additionally, stakeholders have reported that there are indications the government is also seeking to reduce foreign borrowing – as was the case with the renegotiation of the Kyaukphyu Special Economic Zone in Rakhine State (see Trade & Investment chapter).

The FY 2018/19 budget approved by the Parliament projects public revenue of MMK15.9trn ($11.2bn) and expenditure of MMK22.1trn ($15.6bn), an increase of 6.7% and 27.7%, respectively, on the figures realised the previous year. The MMK6.2trn ($4.4bn) deficit for FY 2018/19 represents 6% of expected GDP, more than double the MMK2.4trn ($1.7bn) deficit realised in FY 2017/18. The widening is part of a longer-term trend, as government revenue – comprising taxes, revenue from state-owned enterprises (SOEs) and foreign aid – as a share of GDP declined steadily between FY 2014/15 and FY 2017/18, from 12.1% to 9.8%.

In the December 2018 MEM, the World Bank attributed this deficit growth chiefly to revenue overestimation rooted in two factors. First, the profitability of SOEs – which pay a combined 45% of their profits to the Treasury Department and the Internal Revenue Department – has declined, as the global price of natural gas has plummeted and private sector competitors have emerged in other sectors. Second, despite making progress in modernising its tax administration, the erosion of the tax base, due mainly to exemptions on specific commercial goods and non-targeted incentives, has caused the collection of tax receipts to stagnate. As a percentage of GDP, tax receipts rose from 6.6% in FY 2012/13 to 10% in FY 2014/15, then declined steadily to 7.1% in FY 2017/18. Lower tax revenue has stemmed from both income and commercial tax, which declined, respectively, from 3.4% to 2.6% and 2.9% to 2.2% of GDP between FY 2014/15 and FY 2017/18.

On the outlays side, the rising burden has been driven by growing, recurrent expenditure on health care and increasing payments on domestic debt interest, as the CBM often finances the deficit by borrowing and printing money. However, in an effort to cap future interest payments on public borrowing and curb inflation, the government is progressively limiting the share of the deficit that may be funded by CBM loans, from 40% in FY 2016/17 to 30% in FY 2017/18 and 20% in FY 2018/19, with the intention of reducing it to 0% in the FY 2019/20 budget. Meanwhile, spending on capital items has fallen from 6.9% in FY 2014/15 to 6.2% in FY 2015/16 and 5% in FY 2016/17, owing in part to capacity shortcomings that limit the execution of investment plans by public bodies. Despite the new public revenue stream created with the promulgation of a special goods tax, declining collection continues to strain resources and significantly impact near-term prospects. The MSDP calls for greater revenue mobilisation through the development of a more fair, transparent and efficient tax system. Among the reforms that it proposes to improve collection are the expansion of an electronic payment system, the integration of new IT to ease registration and accounting, and the introduction of measures such as internal audits to reduce corruption.

“In order to achieve our goals of growth, stability and employment, the government and central bank need to adopt the right mix of fiscal and monetary policies, as well as improving the management and governance practices of public sector entities and SOEs,” U Ye Lwin, managing director of Myawaddy Bank, told OBG.

The authorities have also been moving to roll out reforms aimed at boosting revenue collection, including tax collection, under the auspices of the MSDP, although declining income and commercial tax realisation continue to weigh on the near-term outlook.

Foreign Direct Investment

FDI inflows had been rising sharply for several years until a recent slowdown. According to the Directorate of Investment and Company Administration (DICA), an MPF sub-agency charged with approving FDI permits, Myanmar received inflows averaging $3bn annually between FY 2001/02 and FY 2011/12. These investments were heavily concentrated in mining, power and hydrocarbons projects.

The liberalisation programme initiated in 2011 – and particularly the 2012 passage of the Foreign Investment Law, which broadened the range of businesses that could be wholly owned by foreign firms – drove an increase in FDI, as well as a diversification of investment sources and targets. Between FY 2011/12 and FY 2015/16 FDI grew from $1.9bn to $9.4bn, at a CAGR of 49.1%, as spending surged in real estate, hotels and tourism, and transport and communications. Growth was fastest in the manufacturing sector, where FDI jumped from an annual average of $17m over the decade to FY 2011/12 to $1.2bn per annum between FY 2012/13 and FY 2015/16. However, DICA-approved FDI flows have shrunk since, to $6.6bn in FY 2016/17 and $5.7bn in FY 2017/18, where foreign spending is expected to stay for the next five years. The slowdown has been attributed to setbacks in the liberalisation of financial rules – foreign banks remain prohibited from retail business, and foreign insurers cannot operate outside special economic zones – as well as growing international concern about conflicts in Rakhine, Shan and Kachin States. In particular, the September 2018 publication of a UN report accusing the military of committing attrocities prompted the EU to consider suspending Myanmar from the Generalised System of Preferences (GSP). GSP trade privileges, which were reinstated in Myanmar in 2013, have supported significant growth in the garment industry, with the Myanmar Garment Manufacturers Association projecting garment exports will hit $2.7bn in 2018, nearly double the amount achieved in 2015. Garment exports are the second-largest export category after natural gas and account for 65% of all exports to the EU, one of the few partners with which Myanmar enjoys a trade surplus (see Trade & Investment chapter). Similarly, the EU accounts for 65% of the market for Myanmar rice – now the country’s most valuable agricultural export – and growing European demand helped rice output to hit a 50-year high in FY 2017/18. Coupled with falling oil prices, the potential loss of GSP privileges could have profound consequences for Myanmar’s exports.


Unemployment could also become a more pressing concern in 2019. The garment industry employs 450,000 people, putting a significant number of formal sector jobs at risk should the country lose GSP privileges. A recent minimum wage increase could also push unemployment higher. In its “2018 Human Development Statistical Update” for Myanmar, the UN Development Programme (UNDP) estimated an employment-to-population ratio of 64.6% and a labour force participation rate of 65.1%. Agriculture accounted for 49.9% of total employment, followed by services at 33.5%. Total unemployment was just 0.8%, and unemployment among youths – those aged 15-24 – was only slightly higher, at 1.7%.

While unemployment is low, a 33% increase in the minimum wage announced in March 2018 could negatively affect job growth. The decision, which was intended to increase formal employment and boost productivity, could raise manufacturing input costs, drive up inflation, and encourage businesses to delay hiring or choose temporary workers. According to the World Bank, small businesses could be hit particularly hard, as wages comprise a larger share of their expenses than those of larger companies. Low productivity also continues to weigh on the economy, and the World Bank has advised that complementary structural reforms be undertaken to realise the full benefits of higher wages.

Private Participation

Although domestic conflict and rising wages could weigh on near-term investment, FDI inflows should increase with efforts under the MSDP’s third goal to encourage private sector activity. The government announced in December 2018 that it is formulating a public investment programme, or project bank, of priority projects to be developed as public-private partnerships (PPPs). MPF will assess and approve the projects submitted by government agencies to be included in the project bank.

Myanmar has made progress in PPP development recently, particularly in the ICT sector. The World Bank’s PPP Knowledge Lab reports that eight such projects have reached financial close in Myanmar since 1990, most recently a $1.5bn PPP with Vietnam’s Viettel to develop a nationwide 4G network (see ICT chapter).

Efforts to attract FDI should also benefit from the new Companies Law, which eases foreign ownership limits, as well the new Investment Law, which should streamline business registration and improve the ease of doing business (see Trade & Investment chapter).


Despite external and domestic challenges, Myanmar is projected to remain on a strong near-term growth path. In October 2018 the World Bank forecast GDP growth of 6.2% during FY 2018/19, against earlier projections of 6.8%, with inflation projected at 8.8%. The ADB’s October 2018 outlook is brighter, forecasting GDP growth of 7.2% and inflation of 6%.

Myanmar will likely continue to face currency volatility, rising twin deficits and falling FDI inflows in 2019, although recent reforms indicate the government is increasingly turning its attention to stimulating economic growth. The MSDP dovetails with the Companies Law and the Investment Law, while recent moves to open activities to foreign banks and permit foreign trading on the Yangon Stock Exchange could provide much-needed capital (see Financial Services chapter). Moves to open new exploration blocks in oil and gas should support new FDI inflows (see Energy chapter) and help offset any potential losses in the garment industry. Liberalisation has been slower than expected, but is beginning to gain momentum, and there is reason to be confident about further improvement in 2019.

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The Report: Myanmar 2019

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