Uncertainty weighs on Myanmar’s economy | WPN World People News

Myanmar’s economy remains subject to significant uncertainty, with ongoing conflict disrupting business operations, a World Bank report released says, on January 30.

While some firms are showing signs of resilience, household incomes remain weak, and Myanmar’s potential for inclusive growth has been severely weakened by recent shocks, according to the report, Myanmar Economic Monitor: Coping with Uncertainty.

Gradual economic recovery is expected in the near term and growth is estimated at 3 percent for the fiscal year ending September 2023. Even so, economic activity continues to be adversely affected by conflict, electricity shortages, and changing rules and regulations, with per capita GDP expected to remain about 13 percent below its pre-COVID-19 level. The depreciating kyat, combined with high global prices and ongoing logistics constraints, has caused import costs to rise sharply.

The cumulative impact of these shocks fuels inflation and further reduces real incomes. In July and August 2022, almost half of all households in the country reported income losses. Families have been reducing food and non-food consumption in response.

“Although business conditions improved toward the end of 2022, the recent economic indicators are mixed,” said World Bank Country Director for Myanmar, Cambodia, and the Lao PDR, Mariam Sherman. “While conflict remains, families suffer from insecurity and violence. Firms, particularly those in the agriculture sector, are experiencing higher costs and delays. Funding for critical health and education services is falling, and lack of trust in public services is increasing. These problems will hinder Myanmar’s long-term economic prosperity.”

Economic recovery from the shocks of COVID-19 and the military coup is likely to be constrained by macroeconomic and regulatory uncertainty. The gloomy global economic outlook, which affects Myanmar’s major trading partners including the United States, the European Union, and China, will further weigh on the country’s growth prospects.

Frequent changes to rules and regulations have led to greater uncertainty around access to foreign exchange and imports, reducing confidence in payment systems and delaying customs processes. Some businesses are findings ways to cope with the challenging conditions, through access to favorable exchange rates or exemptions from regulatory requirements. Others have switched to informal channels for payments and goods trade.

In the absence of more shocks, the economy is expected to expand slowly beyond 2023, but at rates well below those observed before the pandemic. Downside risks include the possibility that conflict may intensify in 2023, while geopolitical tensions could escalate. Growth is likely to suffer in the medium to long term as resources are taken from competitive and export-oriented areas. Lost months of education, with rapid increases in unemployment and internal displacement, will reduce already low levels of human capital and productive capacity over the long term.

Myanmar could strengthen economic growth by reconsidering its exchange rate policy, which causes high inflation, fiscal deficits, weak exports and low growth rates. The report recommends a more unified and market-oriented exchange rate system, which would help stabilize the economy, reduce inflation, boost trade, and minimize market distortions.

The World Bank publishes the Myanmar Economic Monitor twice a year

Source: World Bank