Research and analysis

Burma: economy growing, but questions on sustainability May 2014

Published 1 May 2014

The Asian Development Bank thinks Burma’s economy is growing faster than any in Southeast Asia, at a predicted 7.8% this year. Reliable statistics are hard to come by - the economy is cash based, unbanked, and untaxed. Growth is being driven by rising exports, consumption and investment. Inflation, energy prices, government capacity and financial crime offer reasons for caution.

0.1 Detail

Burma celebrated its recent New Year Water Festival with a splash of impressive growth figures. The Asia Development Bank’s Asian Development Outlook, released on 1 April, makes Burma the fastest-growing nation in Southeast Asia, due to rising exports, consumption and investment. The ADB is forecasting 7.5% growth for FY13/14 and 7.8% in FY14/15. The IMF’s Staff Monitored Programme Report points to strong investment and business confidence on the back of sustained policy reform as a major growth drivers, coupled with commodity exports, tourism, and credit growth. Capital goods imports rose 59.5% to USD5.8b in 2013, accounting for a surge in imports in general from 2012 and 2011. Over 5,000 new businesses were registered in the 10 months up to January 2013, including 375 foreign-registered entities. Meanwhile private sector credit kept up its pace at 46% growth in 2013. Natural Gas exports rose 68.8% in the 12 months up to 2013, accounting for 40% of all exports.

Telecoms and oil and gas licenses are due to keep investment strong and support further growth into 2014 and 2015.The fiscal deficit is expected to narrow to 4.5% of GDP in 2014 off the back of the telecoms and oil and gas activity.

0.2 Risks

But fast growth presents risks. The IMF has highlighted the risk of growing inflation, which it forecast will reach 7% in 2014/15. Other pressures on consumers have been higher food prices and increasing property rents, especially in the commercial capital of Rangoon. The Central Bank and the Ministry of Finance are together trying to both control inflation and facilitate growth in the market.

There is also the challenge of supervising the financial sector – particularly in the light of the institutional upheaval caused by Central Bank independence, the raft of new laws, new technologies such as mobile banking, nearly 200 recently registered microfinance institutions, new state banks being created and potentially new foreign banks entering.

0.3 Electricity prices and energy gaps

Electricity remains a worrying bottleneck for Burma’s economy. The government has started to act. The price of (heavily subsidised) electricity has just been raised - most of the increase will be borne by commercial and heavy residential users, protecting low-income households. The rationale for the increase is sound – why should only 24% of households benefit from subsidised electricity, while the remaining 76% have to buy it from small producers for 10 or 15 times the price? With some businesses, including UK investors, facing increased power costs of more than 60%, this will inevitably result in short-term pain. However, if it leads to improved supply, as the government has promised, it will be worth it.

0.4 Financial Supervision

The most urgent work on the list of the newly opened Burma office of the United Nations Office on Drugs and Crime (UNODC) is on anti money laundering. Burma has been given until June to address severe structural deficiencies or FATF has threatened to add it to the list of two countries (Iran and DPRK) where members are called upon to apply counter-measures.

0.5 Public perceptions

The (uncertain) hope created by the economic reforms is reflected in the results of a survey undertaken by the International Republican Institute. 85% of the 3000 country-wide interviewees think the current economic situation is good or very good and 81% expect their personal economic situation to improve in the next year. However, unemployment, low income and price increases head up a league table of concerns, even higher than conflict, and the constitution. Whatever the veracity of some of the results, economic issues will be on people’s minds as they head to the ballot box next year.

0.6 Comment

The UK’s public and private sector’s are playing an important role in trying to build capacity; through DFID’s support to improve public financial management, and the UK Financial Services Taskforce’s tailored assistance. The fundamentals that could underpin significant growth are present in Burma, but given the many challenges facing the authorities we can expect some turbulence.

0.7 Disclaimer

The purpose of the FCO Country Update(s) for Business (”the Report”) prepared by UK Trade & Investment (UKTI) is to provide information and related comment to help recipients form their own judgments about making business decisions as to whether to invest or operate in a particular country. The Report’s contents were believed (at the time that the Report was prepared) to be reliable, but no representations or warranties, express or implied, are made or given by UKTI or its parent Departments (the Foreign and Commonwealth Office (FCO) and the Department for Business, Innovation and Skills (BIS)) as to the accuracy of the Report, its completeness or its suitability for any purpose. In particular, none of the Report’s contents should be construed as advice or solicitation to purchase or sell securities, commodities or any other form of financial instrument. No liability is accepted by UKTI, the FCO or BIS for any loss or damage (whether consequential or otherwise) which may arise out of or in connection with the Report. ]