Myanmar Economic Monitor May 2018 - World Bankpubdocs.worldbank.org/en/724461527622835157/May... ·...
Transcript of Myanmar Economic Monitor May 2018 - World Bankpubdocs.worldbank.org/en/724461527622835157/May... ·...
May 17, 2018
Myanmar Economic Monitor
May 2018
Growth Amidst Uncertainty
Hans Anand Beck
Lead Economist, Myanmar
The economy performed better in 2017/18 amidst uncertainty.
• A stronger-than-expected global economic recovery in 2017 provided a boost to global trade.
• Myanmar’s economy saw a broad based recovery in growth led by agriculture and manufacturing while services growth declined slightly as tourism was affected by Rakhine uncertainties.
• Inflation moderated, the current account and fiscal deficits narrowed and the Kyat strengthened slightly within the year.
While the economic outlook remains positive, domestic risks in particular have intensified.• Rising input costs, policy uncertainty and the perception of
slowing reforms and banking sector uncertainty.• Revenue leakage and low budget execution hinder basic service
provision and infrastructure and hence productivity.• The external environment may deteriorate due to uncertainty in
global trade policy and commodity price volatility.
The government has the reform tools to improve the outlook• Implement the Myanmar Sustainable Development Plan
• Coordinate implementation and raise awareness of the Investment law and companies act to generate FDI and knowledge, and employment.
• Use evidence that ownership, firm size and stable electricity provision affect firm productivity.
• Access to credit is reported as improving, but the road to financial stability and inclusion will be bumpy.
Key Takeaways
3
Government reforms can raise the outlook and economic potential
The outlook remains positive, but risks have intensified
The economy performed better in 2017/18 than 2016/17
4Source: World Bank Global Economic Prospects January 2017
Global conditions improved, providing a favorable
environment…
2.4
1.6
3.7
3
2.3
4.3
3.1
2.2
4.5
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
World Advanced economies Emerging and developing economies
Per
cen
t
Real GDP Growth (Percent)
2016 2017e 2018f
Myanmar capitalized on global recovery, but
is losing its lead in the region.
In developing East Asia and Pacific (EAP), economic growth strengthened slightly in 2017
-
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
LAO CH MMR CAM VIET INDO MAL THA
2016 2017 2012-17 average
A broad based a broad based pick up in growth.
8.4%
8.0%
7.0%
5.9%
6.4%6.8%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
2013/14 2014/15 2015/16 2016/17 2017/18 2018/19F
Agriculture Industry Services GDP production
Real GDP growth and sector contribution Output, Employment, Price PMI
Ap
ril'1
7
May
'17
Jun
e'17
July
'17
Au
g'17
Sep
t'1
7
Oct
'17
No
v'17
Dec
'17
Jan
'18
Feb
'18
Mar
'18
Output Employment Future output index
Strong export performance narrowed the
trade and current account deficits, and FDI flows picked up to cover.
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
Q3/2015 Q4/2015 Q1/2016 Q2/2016 Q3/2016 Q4/2016 Q1/2017 Q2/2017 Q3/2017
Sh
are
of
GD
P
Trade balance Services balance
Primary income balance Secondary income balance
Current account
-14.0%
-12.0%
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
Q3/2015 Q4/2015 Q1/2016 Q2/2016 Q3/2016 Q4/2016 Q1/2017 Q2/2017 Q3/2017
Sh
are
of
GD
P
Direct Invesment Portfolio Investment
Other Investment Financial account
Current account Financial Account
Export growth led by natural gas prices which are volatile, garments and agriculture
Rice - Acceleration of exports and diversification of destinations (m tons)
50
100
150
200
Ap
r
Ma
y
Jun
Jul
Au
g
Sep Oct
No
v
Dec Jan
Feb
Mar
Ap
r
May Ju
n
Jul
Au
g
Sep Oct
No
v
Dec Jan
Feb
Mar
Ap
r
Ma
y
Jun
Jul
Au
g
Sep Oct
No
v
Dec Jan
Feb
Mar
Ap
r
Ma
y
Jun
Jul
Au
g
Sep Oct
No
v
Dec
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2014/15 2015/16 2016/17 2017/18
Ind
ex: A
pri
l 20
17 =
10
0
Value Quantity Price
Natural gas exports: Quantities and prices
0
100
200
300
Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2013/14 2014/15 2015/16 2016/17 2017/18
USD
billio
n
Border Sea Total
Inflation fell on average, and within the year, before picking up in August, driven by food prices
0%
2%
4%
6%
8%
10%
12%
14%
yoy
chan
ge
CPI Food CPI Non Food CPI Headline
Inflation drivers
Actual fiscal deficit may be considerably
lower than the budget
-1.1%
-4.3%
-2.7%
-5.8%
1.1%
-0.5%
0.4%
-1.1%
-2.2%
-3.9%
-3.1%
-4.7%
-6%
-5%
-4%
-3%
-2%
-1%
0%
1%
2%
PA PA PA RE
2014/15 2015/16 2016/17 2017/18
Public Sector SEEs Union Government
Fiscal balances, Percent of GDP
12
Government reforms can raise the outlook and economic potential
The outlook remains positive, but risks have intensified
The economy performed better in 2017/18 than 2016/17
Favorable medium-term economic outlook
2015 2016 2017 2018 2019 2020
Real GDP growth (%
change)
7.0 5.9 6.4 6.8 6.9 7.1
CPI Inflation (end of
period)
8.4 7.0 5.2 4.9 5.3 5.3
Current account
balance (% of GDP)
-7.2 -5.3 -4.7 -4.7 -4.1 -3.8
Fiscal balance (% of
GDP)
-5.1 -3.0 -4.7 -4.8 -4.4 -4.4
But downside risks have intensified
14
Upside Downside
External risks
Domestic risks
15
Government reforms can raise the outlook and economic potential
The outlook remains positive, but risks have intensified
The economy performed better in 2017/18 than 2016/17
Buttress macroeconomic stability
• MSDP offers the much-needed unifying and coherent roadmap for reforms
• Key fiscal priority for Myanmar: to break out of the cycle of low revenue and low and inefficient public spending
• Could consider a fiscal strategy to increase spending on critical priorities for growth, such as capital investments in energy and transport, and for inclusive development, such as on education and health
• Good progress in improving transparency in the extractives sector, however, more can be done under the Extractives Industry Transparency Initiative
Improve operating environment for the private sector
• Coordination across government departments to implement recent new economic legislations (e.g., Company Law, Investment Law)
• Consider using indicators in Ease of Doing Business as measurable targets for reforms and establish a mechanism to monitor reform progress, and to facilitate consultations with the private sector.
• Further liberalize sectors: such as insurance and banking services for foreign investments along with implementation of prudential regulations
• Ministries to develop communication strategies for public outreach/coherence in message (policy reforms)
Perception of bureaucratic inertia, centralized decision making, and emerging protectionism are bottlenecks to improving the operating environment for the private sector