IMF Staff Concludes Visit to Myanmar
At the conclusion of the mission, Mr. Yang issued the following statement:
“Economic growth is estimated at 7 percent in fiscal year (FY) 2015/16 (ending March 31)—about 1.5 percentage points lower than the last two years—reflecting the effect of floods in 2015, pre-election environment, and weak external demand and low prices for Myanmar’s exports. Real GDP growth is poised to rebound to about 8 percent in FY 2016/17 as the impact of the floods dissipates and investment increases following the smooth political transition.
“However, economic vulnerabilities remain. Despite the recent decline in headline inflation to about 10.7 percent, underlying inflationary pressures are likely to be persistent as domestic demand continues to be strong and supply bottlenecks remain. Although both external and overall public debt levels are low, the current account deficit is expected to remain elevated. The rapid credit growth over the past few years may have weakened banks’ balance sheets.
“Against this background, maintaining macroeconomic stability should remain a top priority for economic policy.
- The fiscal deficit needs to be placed on a gradual consolidation path to keep Myanmar’s debt at a low risk of distress. This could be achieved by keeping the overall fiscal deficit below 4.5 percent of GDP over the medium term. In this context, the improvement in tax administration is commendable but continued efforts in mobilizing domestic revenue will be essential to creating greater fiscal space for development while keeping the deficit in check.
- The immediate policy priority on the monetary policy front is to mop up excess liquidity by stepping up the CBM’s deposit auctions and implementing the recalibrated reserve requirements, including through enforcement of penalties on non-complying banks. The CBM should maintain exchange rate flexibility to absorb external shocks and any interventions in the foreign exchange market should be aimed at smoothing excessive volatility rather than targeting any particular level or path of the exchange rate.
- Significant progress has been made in strengthening bank regulation and supervision, but much more remains to be done. Following the enactment of the Financial Institutions Law, the CBM should expedite the issuance of prudential regulations, which, if implemented, would help safeguard financial stability.
“The IMF will continue to support Myanmar’s reform efforts, including through technical assistance and capacity development, for which Myanmar is already the largest recipient of IMF assistance.
“The IMF team wishes to thank the authorities for their cooperation. The next visit will be later this year for the 2016 Article IV consultation.”