MYANMAR
ECONOMIC
MONITOR
May 2018
Growth Amidst
Uncertainty
The Myanmar Economic Monitor (MEM) periodically analyzes economic developments, economic
prospects, and policy priorities in Myanmar. The MEM draws on available data reported by the
Government of Myanmar and additional information collected as part of the World Bank Group’s regular
economic monitoring and policy dialogue. The MEM team is very grateful to the Ministry of Planning
and Finance (MOPF), the Ministry of Commerce (MOC) and the Central Bank of Myanmar (CBM) for
their excellent collaboration.
The MEM was prepared under the guidance of Deepak K. Mishra (Practice Manager, Macroeconomics
and Fiscal Management) and Shabih A. Mohib (Program Leader, Equitable Growth, Finance and
Institutions) by a team led by Hans Anand Beck (Lead Country Economist) and including Thi Da Myint
(Country Economist), Arvind Nair (Young Professional), Gabriel Roberto Zaourak (Young Professional)
Thanapat Reungsri (Fiscal Economist) and Martin Kessler (Research Economist, MTI GP).
The team is grateful for inputs from: Indira J. Ekanayake (Senior Agriculture Economist), Reena Badiani-
Magnusson (Senior Poverty Economist), Sjamsu Rahardja (Senior Trade Economist), Kyi Kyi Thin
(Private Sector Specialist), Claudia Ines Vasquez Suarez (Senior Energy Specialist), Arvind Jain (Senior
Economist, Development Economics Group), Mohammad Amin (Senior Economist), Smita Wagh
(Senior Financial Sector Specialist), Trang Thu Tran (Economist), Central Statistics Organization team
(MoPF), Tuan Minh Le (Lead Economist) and Waewnet Sukkasem (consultant) . We are also grateful for
help with data inputs from the IFC (Thitsar) and Yangon City Development Corporation.
The team thanks Ellen Goldstein (Country Director for Myanmar, Laos and Cambodia), Sudhir Shetty
(Chief Economist, East Asia and the Pacific), Gevorg Sargsyan (Operation Manager), Shabih Ali Mohib
(Program Leader), Ekaterine T. Vashakmadze (Senior Country Economist), Ha Nguyen (Economist),
Francesca de Nicola (Economist), Vera Kehayova (Research Analyst), Shanaka Jayanath Peiris (IMF
Mission Chief) and team (IMF), Yasuhisa Ojima (IMF Resident Representative), and colleagues from the
MOPF, MOC, and CBM for their comments and advice on earlier drafts.
The team discussed recent economic developments with several business associations and private
businesses and appreciates very much their time and insights. The team thanks Kyaw Soe Lynn and team
from EXT for their support and guidance on publication and outreach; and Sandi Soe Lwin for
impeccable administrative support.
The preparation of the MEM was generously supported through the Myanmar Partnership Multi-Donor
Trust Fund by the UK Department for International Development, the Australian Department of
Foreign Affairs and Trade, and the Kingdom of Denmark.
Views expressed in the MEM are those of the authors and do not necessarily reflect the views of the
World Bank Group, its Executive Directors, or the countries they represent; the Government of
Myanmar; the UK Department for International Development; the Australian Department of Foreign
Affairs and Trade; and the Kingdom of Denmark.
Contents
Executive Summary ................................................................................................................................... 1
Recent developments ............................................................................................................................... 1
Economic outlook and risks ...................................................................................................................... 2
Policy Priorities ......................................................................................................................................... 2
Selected Topic 1: Drivers of Foreign Investment ...................................................................................... 4
Selected Topic 2: Myanmar Productivity Analysis .................................................................................... 4
Selected Topic 3: Making Finance Work for All ........................................................................................ 4
Recent economic developments ............................................................................................................... 5
Economic growth .................................................................................................................................... 5
Growth recovered in 2017/18 .................................................................................................................. 6
Strong industry output driven by manufacturing ..................................................................................... 7
Growth in aggregate demand supported by stable consumption, rising investment, and a declining
trade deficit ............................................................................................................................................. 14
Foreign trade and investment............................................................................................................. 14
Estimated improvement in the current account in 2017/18 .................................................................. 14
Declining trade deficit, and increasing trade volumes ........................................................................... 15
Exports growth led by natural gas, garments, and agriculture............................................................... 16
Import growth tapered, but demand for intermediate goods remains strong ...................................... 19
Foreign direct investment commitments continue to decline, but flows remain comparable with the
region ...................................................................................................................................................... 20
Inflation, monetary and exchange rate .............................................................................................. 22
Disinflation reversed, driven by food and fuel prices ............................................................................. 22
Reserve money growth slowed further in 2017/18, while broad money growth increased ................. 24
Credit growth tapered but remains high ................................................................................................ 25
The exchange rate appreciated slightly in nominal terms, with some variation across bilateral real
exchange rates with major trading partners .......................................................................................... 27
Fiscal policy ........................................................................................................................................... 29
Narrowing fiscal deficit in 2016/17, budgeted to increase in 2017/18 .................................................. 29
Revenue collection remains below potential, with need to address leakages ...................................... 32
Challenges to budget execution in priority areas ................................................................................... 34
Economic outlook and policies ................................................................................................................ 37
Medium-term economic outlook ........................................................................................................ 37
Favorable medium-term economic outlook ........................................................................................... 37
Increased downside risks to economic outlook from domestic and external sources ........................... 38
Policy Priorities ..................................................................................................................................... 39
Buttressing macroeconomic stability...................................................................................................... 39
Complementing macro-stability with improving the operating environment for the private sector .... 40
Coordinating and monitoring Doing Business and related reforms ....................................................... 40
Special topics ............................................................................................................................................ 43
Topic 1: Drivers of Myanmar Foreign Direct Investment ................................................................. 43
Topic 2: Myanmar Productivity Analysis ........................................................................................... 49
Demographics of Myanmar’s productive sector .................................................................................... 49
The productivity challenges .................................................................................................................... 52
The role of industrial zones as a policy tool............................................................................................ 55
Conclusion ............................................................................................................................................... 56
Topic 3: Making Finance Work for All ................................................................................................ 57
On a more solid footing .......................................................................................................................... 61
Getting the structure fit for purpose ...................................................................................................... 62
And it all comes down to…...................................................................................................................... 63
Annex 1: Medium-Term Outlook (Baseline scenario) ........................................................................... 64
Annex 2: Gross Domestic Product .......................................................................................................... 65
Annex 3: Consumer Price Index .............................................................................................................. 66
Annex 4: Balance of Payments ............................................................................................................... 67
Annex 4: Monetary Survey ...................................................................................................................... 68
Annex 5 a: Fiscal operations (Kyat billion)............................................................................................. 69
Annex 5 b: Fiscal operations (% of GDP) ................................................................................................. 70
Annex 6: Financial inclusion .................................................................................................................... 71
Annex 7: Enterprise Survey ..................................................................................................................... 73
Annex 8: Logistics Performance Index .................................................................................................. 75
Annex 9: Health......................................................................................................................................... 76
Annex 10: Education ................................................................................................................................. 77
Bibliography............................................................................................................................................... 78
List of Figures
Figure 1 Real GDP growth and sector contribution ...................................................................................... 6
Figure 2 Real GDP growth (EAP Region), percent ......................................................................................... 6
Figure 3 Manawthukha (Paddy/Rice) average maximum price (in thousands)............................................ 7
Figure 4 Output, Employment, Price, Future Output PMI ............................................................................ 8
Figure 5 Construction Permits issued (Number)........................................................................................... 9
Figure 6 Total tourist arrival (in thousands) ............................................................................................... 10
Figure 7 Tourist arrival by country of origin (in thousands) ....................................................................... 10
Figure 8: Expectations about activity over the next 12 months ................................................................. 11
Figure 9: Activity over the last 6 months ................................................................................................... 11
Figure 10: Problems in hiring skilled workers ............................................................................................. 12
Figure 11: Problems in hiring skilled workers seems to have increased over time .................................... 12
Figure 12: Percent of firms that report credit more easily available now compared to two years ago .... 13
Figure 13: Current account ......................................................................................................................... 15
Figure 14: Financial Account ....................................................................................................................... 15
Figure 15: Trade values over April-February of each year .......................................................................... 16
Figure 16: Monthly trade evolution ............................................................................................................ 16
Figure 17: Export year-on-year growth decomposition, 2015/16–17/18 .................................................. 16
Figure 18: Natural gas exports: Quantities and prices ................................................................................ 16
Figure 19: Agricultural exports by subcategory .......................................................................................... 17
Figure 20: Rice - Acceleration of exports and diversification of destinations ............................................ 17
Figure 21 Share of ten products subject to new export regime in 2016 exports (%) ................................. 18
Figure 22 Comparison of negative list items in old and new export regimes ............................................ 18
Figure 23: Exports by destination ............................................................................................................... 20
Figure 24: Composition of imports by categories ....................................................................................... 20
Figure 25: FDI by destination sector ........................................................................................................... 20
Figure 26: Inflation drivers .......................................................................................................................... 23
Figure 27: Contribution to CPI inflation ...................................................................................................... 23
Figure 28: Non-food price components ...................................................................................................... 23
Figure 29: Money growth ........................................................................................................................... 24
Figure 30: Contribution to Reserve Money growth .................................................................................... 24
Figure 31: Deposit Auctions ........................................................................................................................ 25
Figure 32: Net financing to the government .............................................................................................. 25
Figure 33: Credit to the private sector ........................................................................................................ 26
Figure 34: Composition of lending to private sector .................................................................................. 26
Figure 35: Bank’s liquidity indicators .......................................................................................................... 27
Figure 36: Capital adequacy ratio ............................................................................................................... 27
Figure 37: Selected Nominal Exchange Rates (National Currency per dollar, Dec-2005=100) .................. 27
Figure 38: The real effective exchange strengthened slightly in 2017/2018…. .......................................... 28
Figure 39: …. but considering the bilateral real exchange rates individually, the effects are
heterogeneous ............................................................................................................................................ 28
Figure 40: Fiscal balances, Percent of GDP ................................................................................................. 29
Figure 41: Revenue and expenditure aggregates, Percent of GDP (Expenditure is negative, Revenue is
positive)....................................................................................................................................................... 29
Figure 42: Actual outturns as a ratio of original and revised budgets ........................................................ 30
Figure 43: Real interest rates on T-Bill auctions, percentage points .......................................................... 31
Figure 44: Union Government and SEE revenue, Percent of GDP .............................................................. 32
Figure 45: UG and SEE Income and Commercial Taxes, Percent of GDP .................................................... 32
Figure 46: Breakdown of public sector expenditure, Share of GDP ........................................................... 35
Figure 47: Breakdown of public sector expenditure, Share of GDP ........................................................... 35
Figure 48: Ratio of Preliminary Actuals as a share of Budget Estimates .................................................... 36
Figure 49: Capital expenditure across the public sector, Percent of GDP .................................................. 36
Figure 50: Myanmar’s performance on Doing Business indicators compared with East Asia & Pacific..... 41
Figure 51: Business perceptions of the new MIL ........................................................................................ 43
Figure 52: Business perceptions of the benefits of the new Law .............................................................. 44
Figure 53: Management time and regulations .......................................................................................... 45
Figure 54: Time to secure land lease and clear customs reported by foreign firms .................................. 45
Figure 55: Foreign premium........................................................................................................................ 46
Figure 56: Foreign premium and potential for spillovers ........................................................................... 47
Figure 57: Domestic sourcing of inputs for foreign firms ........................................................................... 47
Figure 58: Size of firms by industry ............................................................................................................. 50
Figure 59: Firms, workers and output by region......................................................................................... 51
Figure 60: Distribution of firms size by region ............................................................................................ 51
Figure 61: Number of workers by age group .............................................................................................. 51
Figure 62: Average firm size by age group .................................................................................................. 51
Figure 63: Size composition by sector (Manufacturing) ............................................................................. 52
Figure 64: Share of foreign firms ................................................................................................................ 52
Figure 65: Distribution of labor productivity by sector .............................................................................. 53
Figure 66: Firm size and labor productivity ................................................................................................ 53
Figure 67: Banking Sector Landscape, June 2017 ....................................................................................... 57
Figure 68: Financial Depth: Myanmar and Comparators, 2016 .................................................................. 58
Figure 69: Sources of Financing for Purchase of Fixed Assets (% of firms reporting) ................................ 59
Figure 70: Use of Financial Services by Firm Size ........................................................................................ 59
Figure 71: Account Ownership in East Asia, 2017....................................................................................... 60
Figure 72: Barriers to Account Ownership in Myanmar ............................................................................. 60
Figure 73:Opportunities for use of mobile financial services (% of cash recipients).................................. 61
List of tables
Table 1: General Government Revenue (Share of GDP) ............................................................................. 33
Table 2: Public Sector Expenditures (Share of GDP) ................................................................................... 36
Table 3 Regression results to test determinants of productivity................................................................ 54
Table 4: Regression results to test determinants of performance when located in an SEZ ....................... 55
List of Boxes
Box 1 Results of World Bank Repeat Myanmar Survey of Economic Conditions ......................................... 10
Box 2 Myanmar softens export licensing requirements to support exports ................................................... 18
Box 3 Highlights of the Myanmar Company Law (MCL) ............................................................................. 21
Box 4 The Change in the Fiscal Year in Myanmar: Issues and Options ........................................................ 30
Executive Summary
Myanmar’s economy performed better in 2017/18 with a modest growth acceleration that partially
reversed the deterioration experienced in 2016/17. While the outlook remains positive, risks have
intensified. The economy experienced a broad-based increase in real GDP growth to 6.4 percent in 2017/181
from 5.9 percent in 2016/17. Inflation moderated from 7 percent in 2016/17 to 5.5 percent in 2017/18. The
exchange rate was stable and appreciated slightly towards the end of the year, the current account deficit
narrowed slightly on strong export growth, and the fiscal deficit also narrowed in the first three quarters of the
fiscal year. While performance remains strong and the macroeconomic outlook is positive, there are concerns
that the slow pace of reforms, vulnerabilities in the financial sector, and limited progress in addressing the
humanitarian crisis in Rakhine are starting to affect business sentiment and could weaken performance. External
risks from uncertainty in global trade policy and in commodity prices intensify the downside risks to the growth
outlook.
The Government of Myanmar is in a position to improve Myanmar’s economic outlook. For instance,
implementing the cogent new Myanmar Sustainable Development Plan (MSDP), collecting more revenue and
spending it better, and providing greater policy certainty and a simpler operating environment for businesses
can support investment and economic prospects, as evidenced by Special Topic analysis in this report.
Recent developments
Myanmar experienced a broad-based pick-up in economic growth in 2017/18. On the supply side,
growth was driven by a recovery in agriculture as farmers stepped up crop production, strong industrial and
especially manufacturing performance with garments continuing to excel, and strong services growth despite a
slight slowdown likely due to tourism and banking sector uncertainties. Aggregate demand is estimated to have
improved due to private consumption supported by disinflation in the first half of 2017/18 and a stable Kyat,
private investment especially in manufacturing, and strong export performance. 2
Myanmar’s external balance improved slightly in 2017/18 as the current account balance strengthened
due to growing exports offsetting a decline in ‘personal transfers and other sectors’. FDI approvals fell
compared with 2016/17 but flows slightly increased. Rice exports reached record highs and like garments
continued to access new markets. Gas exports were propped up by a significant, but uncertain, increase in
global gas prices, offsetting declining production from maturing fields. Imports of capital goods remains robust
supporting the prospect for continued industrial growth. The kyat and foreign exchange reserves levels both
strengthened slightly. FDI approvals declined by 14 percent in relation to 2016/17, possibly due to perceptions
of slowing government reforms and uncertainties arising from the Rakhine crisis, but FDI flows adequately
financed the current account deficit. The ‘personal transfers and other sectors’ category of the current account,
which includes remittances, declined significantly in the first two quarters of 2017/18 affecting the balance of
payments.
While inflation moderated overall relative to last year, movements during the year reflected broad
money growth and increases in food and fuel prices. The nominal exchange rate appreciated slightly
during 2017/18 and bilateral real exchange rate performance was mixed. While prices increased only
moderately in the first half of 2017/18, they rose more quickly in the second half. Food and fuel prices both
1
Year ranges with slashes indicate fiscal years. Those with N-dashes indicate calendar years.
2 Data on GDP by expenditure is lagged and more limited.
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contributed especially as global fuel prices increased. For instance, transport costs contributed 35 percent of
the non-food increase in prices in January 2018. The inflationary impact of continued Central Bank financing
of the fiscal deficit moderated as the fiscal deficit narrowed. The Kyat appreciated slightly in nominal terms
through 2017/18 relative to the US dollar. However, the real exchange rate depreciated in relation to individual
trading partners such as Thailand, Malaysia and China, squeezing the profits of retailers and other users of
imported inputs, but creating opportunities for exporting firms.
Despite a large budgeted fiscal deficit and declining State Economic Enterprise (SEE) and
government receipts, the 2017/18 fiscal deficit is likely to have narrowed due to budget execution
challenges and uncertainty created around the change in fiscal year. The fiscal deficit was initially
budgeted to increase significantly to 5.8 percent of GDP in 2017/18 from a provisional actual deficit of 2.7
percent of GDP in 2016/17. General government receipts were budgeted to decline as a share of GDP from
18.2 percent in 2016/17 to 16.9 percent in 2017/18, driven by assumptions in the budget of declining natural
gas prices and by falling SEE receipts owing to declining profitability. General government expenditures are
budgeted to increase from 20.9 percent of GDP in 2016/17 to 22.2 percent of GDP in 2017/18, driven by
budgeted increases in other recurrent expenditures in priority ministries like health, and increased domestic
interest payments because of payment of market interest rates on legacy Central Bank of Myanmar (CBM) debt.
However, actual outturns for 2017/18 may have led to a lower fiscal deficit, given long-standing challenges in
budget execution and underestimation of revenues in the original and revised budgets, partly due to stronger
than expected gas prices. Recurrent expenditure by the union government performed well against the budget,
while capital expenditure continues to decline as a share of GDP. The government continued expanding the
domestic debt market, but market participation remains below potential.
Economic outlook and risks
Myanmar’s baseline economic outlook remains favorable, with growth projected to increase to 6.8
percent in 2018/19. Consumer price inflation moderated to 5.5 percent in 2017/18 and is expected to ease
further to 4.9 percent in 2018/19. The current account deficit is forecast to remain stable in 2018/19 at 4.7
percent due to sustained growth in exports and imports. The government budget deficit outturns are expected
to be significantly lower than budgeted, lowering the deficit trend in the medium term.
However, risks to the baseline outlook have intensified. Domestic downside risks to the baseline outlook
have intensified due to the ongoing uncertainty related to the crisis in Rakhine State layered upon perceptions
of a slowdown in the pace of reforms. A significantly lower growth scenario, while unlikely, could lead to
growing macroeconomic imbalances, with implications for broader stability. A rapid decline in foreign
investment flows and to a lesser extent tourism related spending would put stress on the external balance and
currency. The banking sector faces a challenging transition to comply with international standards. Although
risks to the global outlook are more balanced than before, important downside risks remain. While growing
global trade policy uncertainties may affect the recovery in global trade, impacts on Myanmar are likely to be
modest.
Policy Priorities
Implementing the comprehensive new Myanmar Sustainable Development Plan (MSDP) can provide
policy certainty. The MSDP, which lays out a comprehensive and prioritized policy reform agenda, offers the
much-needed unifying and coherent roadmap for reforms for the country. It seeks to translate the government’s
12-point economic plan and sector plans into a clear set of policy priorities, and has been welcomed as a
significant step forward.
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Implementing a fiscal strategy to break the cycle of low revenue and low public spending can support
development outcomes. Myanmar has one of the lowest tax to GDP ratios in the world, restricting the space
for essential public spending on infrastructure and human capital in absolute terms and in relation to peers. A
fiscal strategy to correct this could (a) reallocate spending from less important to priority areas, and (b) grow
the size of the overall fiscal envelope through domestic revenue mobilization and sustainable borrowing. This
would in turn require: (a) well selected and implemented projects through project appraisal, tracking project
performance, and introducing multiyear commitment budgets; (b) enhancing oversight of SEE fiscal
performance; (c) reducing revenue leakages from base erosion and tax expenditures; and (d) developing a
medium-term debt strategy that relies less on CBM financing and more on other concessional, and
noninflationary, sources of financing.
Carefully reviewing plans for a Tax Amnesty. International experience highlights that it is a popular measure
globally, but its impact on revenue collection and tax compliance varies greatly depending on design—with
success dependent on whether the amnesty is (a) used as a transition to a tax regime with more stringent
enforcement, (b) is part of a long-term tax compliance program, and (c) is constantly monitored by tax
compliance measurements.
Sustaining growth through Doing Business3 policy reforms can boost private investment and support
the economy to compete globally. Despite important progress such as the 2016 Investment Law and the
2017 Company Law (see Box 2 and Selected Topic 1), and making it less costly to start a business and register
property, perceptions are that bureaucratic inefficiency, centralized decision making, and emerging
protectionism are bottlenecks to improving the operating environment for the private sector. The Government
plans to bring Myanmar within the top 100 countries in the ease of doing business ranking from 171 out of 190
countries. It may accelerate this by:
o Strengthening coordination across government departments and public communication to
implement recent new economic legislation. The Private Sector Development (PSD) Committee,
chaired by the Vice President, can coordinate and monitor implementation of new legislation, such as the
Investment Law and the Company Law, for instance requesting standardizing criteria for ministerial
permits for foreign investments, streamlining registration, reporting, and tax filing for small and medium-
sized enterprises, reducing multiple applications for trade permits, physical inspections, and the arbitrary
approach to customs valuation.
o Monitoring progress in reforms related to Doing Business. The new “Improvement of the Doing
Business Working Group” chaired by the Ministry of Commerce can make clear and transparent the roles
of different departments in improving the business environment and using monitoring systems to check
implementation progress, which can be discussed at the PSD Committee.
o Further liberalizing regulations for foreign investment. Myanmar could build on the introduction of
the Investment Law and Company Law by further liberalizing sectors, such as insurance and banking
services, for foreign investment, along with simultaneous implementation of prudential regulations.
Currently, Myanmar has one of the highest levels of restriction for FDI on insurance and banking sectors
(OECD 2016). Such liberalization can potentially create a new momentum for driving private sector
investment
3
The Doing Business report measures policies (regulations and procedures) along the 10 indicators affecting the life
cycle of domestic companies, such as starting a business, getting a location and constructing a facility, getting financing,
paying taxes and trading across borders, and dealing with contracts or disputes. The indicator only measures policies that
are relevant for formal businesses, and data are collected only in the largest city (with the second-largest city included for
countries with a population of more than 100 million).
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Selected Topic 1: Drivers of Foreign Investment
The new investment law has been well received, especially by foreign investors who account for up to
a fifth of exports and of formal employment, but more needs to be done to raise awareness and build
capacity for implementation and coordination. The main changes to the investment regime include lower
entry barriers, more streamlined procedures, a dedicated mechanism to mediate investor disputes, and more
selective investment incentives. The World Bank Enterprise Survey (WBES) conducted in 2016 with an
extension in 2017 suggests that foreign firms account for about 20 percent of all exports and 18 percent of
formal employment. They are also more productive and more likely to train workers. Most firms aware of the
new law think it will positively impact their sector through better access to input/output markets and
technology transfers associated with increased FDI. Foreign firms spent significant management time to deal
with regulations under the old investment regime and consider the process as favoring those with government
connections. To successfully attract and maximize the impact of FDI, the government needs to raise awareness
of the new law and regulations, build staff capacity at the regional level, and clarify the setup of the Investor
Assistance Committee. Complementary reforms should also be accelerated to improve investors’ access to land,
infrastructure, skilled labor, and quality domestic inputs.
Selected Topic 2: Myanmar Productivity Analysis
Ownership, firm size and stable electricity provision affect firm productivity, according to this joint
analysis of Myanmar’s firm demographics and productivity.4 The note uses a novel survey of businesses
to highlight the speed of the evolution of the private sector in Myanmar, in particular in the manufacturing
sector. But productivity has remained low, and is widely dispersed across firms, suggesting that policymakers
should pay attention to the opportunity for reallocation of labor across firms, and to the forces that hold back
small productive firms. The note also highlights the high correlation between access to electricity and
productivity, reinforcing existing findings from Enterprise Surveys.
Selected Topic 3: Making Finance Work for All
A sound, efficient, and inclusive financial system can play a critical role in creating and sustaining a
market-based economy and ensuring inclusive growth in Myanmar. Myanmar’s financial system is small,
shallow, tightly-held, vulnerable and significantly underserves large parts of the private sector and general
public. The reform agenda necessary to develop a “fit for purpose” financial system in Myanmar runs both
deep and wide, even as recent changes have yielded significant gains. On the one hand, the financial sector
needs to move on to a more solid footing, on the other hand it needs to significantly expand outreach and the
range of available instruments. A stable solution therefore requires complex and simultaneous reforms.
Policymakers have to implement a realistic, minimally disruptive, clearly articulated roadmap that is also
sufficiently transformative so as to carry the benefits of more effective financial services to the general public.
4
Based on a joint paper prepared with the Myanmar Government Central Statistics Organization
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Recent economic developments
Economic growth
1. Myanmar’s economy performed better in 2017/18 with a modest growth acceleration that
partially reversed the deterioration experienced in 2016/17. While the outlook remains positive, risks
have intensified. The economy experienced a broad-based increase in real GDP growth to 6.4 percent in
2017/18 from 5.9 percent in 2016/17 (Figure 1). Inflation moderated from 7 percent in 2016/17 to 5.5 percent
in 2017/18. The exchange rate was stable and appreciated slightly towards the end of the year, the current
account deficit narrowed slightly on strong export growth, and the fiscal deficit also narrowed in the first three
quarters of the fiscal year. While performance remains strong and the macroeconomic outlook is positive, there
are concerns that the slow pace of reforms, vulnerabilities in the financial sector, and limited progress in
addressing the humanitarian crisis in Rakhine are starting to affect business sentiment and could weaken
performance. External risks from uncertainty in global trade policy and in commodity prices intensify the
downside risks to the growth outlook
2. A stronger-than-expected broad-based global economic recovery in 2017 provided a boost to
global trade. Global growth rose to 3.1 percent in 2017, the highest level since 2011, from a post-global
financial crisis low of 2.6 percent in 2016. In advanced economies, the recovery in growth was led by strong
investment. Emerging market and developing economy (EMDE) growth accelerated in 2017 to 4.4 percent,
reflecting a pickup in investment in 2017 and a recovery in commodity exporters amid continued robust activity
in commodity importers. Oil prices averaged US$53 per barrel in 2017, up 22 percent from 2016 and remained
stable at above US$60 per barrel in the first quarter of 2018. Despite strengthening U.S. long-term bond yields,
capital inflows to EMDEs have remained strong so far in 2018, and bond spreads continued to narrow,
although they recently widened in the East Asia and Pacific region.
3. In developing East Asia and Pacific (EAP), economic growth strengthened slightly in 2017.
The region grew at 6.6 percent in 2017 (5.4 percent excluding China), up from 6.3 percent in 2016 and slightly
higher than expectations (Figure 2). In China, output expanded at 6.9 percent in 2017—a deviation from the
economy’s structural slowdown, helped by robust consumption and a recovery in exports, as investment growth
continued to slow.
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Figure 1 Real GDP growth and sector contribution Figure 2 Real GDP growth (EAP Region), percent
9.0
2013 2014 2015 2016 2017 2013-17 average
8.4%
9% 8.0% 8.0
8% 7.0% 6.8%
7% 6.4% 7.0
5.9%
6% 6.0
5%
5.0
4%
3% 4.0
2%
3.0
1%
0% 2.0
-1% 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19F
1.0
Agriculture Industry Services GDP production -
MMR LAO CH CAM VIET INDO MAL THA
Source: MOPF, WB staff estimates Source: WB Global Economic Prospects
Growth recovered in 2017/18
4. The economy is estimated to have grown at 6.4 percent in 2017/18, marking a broad-based
recovery from a low of 5.9 percent in the previous year. On the supply side, improved performance in
agriculture (26 percent of GDP and 49 percent of employment) and industry (33 percent of GDP and 18
percent of employment), and especially the manufacturing industry, were the main contributors, while growth
in services (41 percent of GDP and 33 percent of employment) slowed slightly but remained strong. More
specifically, favorable weather conditions and increased external demand caused agricultural output to rise by
an estimated 2.5 percent in 2017/18, reversing negative growth of 0.4 percent in 2016/17. Industry grew by
8.9 percent, making the largest contribution of 2.6 percentage points to overall GDP growth, supported by a
continued rapid expansion in manufacturing. Construction industry growth remained stable at 7.6 percent,
although still only half the growth rate observed in 2015/16. Growth in the services sector is estimated to
have moderated to 7 percent in 2017/18 from 8 percent in 2016/17 partly due to a slowdown in tourism-
related services, in particular transport and rental and hospitality services, which contributes 37 percent of
GDP. On the demand side, data is less reliable and lagged, but there are indications that the increase in growth
was supported by external demand, and strong and stable domestic private consumption and private
investment.
5. Increased crop and forest production and a change in composition driven by demand and
weather, supported a recovery in agricultural growth in 2017/18. Crop production (69 percent of
agricultural output) grew 3.6 percent supported by paddy and other grains. The composition of crop
production also changed. Rice output increased by 3.1 percent from 28.6 million tons in 2016 to 29.5 million
tons in 2017, as many farmers switched to growing paddy in 2017/18 responding to rising external demand
and higher farm gate prices. In 2017/18, external demand notably from China and the European Union (EU)
as well as from new markets in Japan, Bangladesh, and several countries in Africa, led to the highest rice
exports in 50 years (see section on Trade and Foreign Investment) and higher farm gate paddy prices (Figure
3). Beans and pulses are grown on 28 percent of the total sown area, but account for close to 64 percent of
value added in crops. The anticipated increase in the production of beans and pulses did not materialize due
to sustained import restrictions imposed by India in 2017/18 that stifled external demand. Forest output
(timber and hardwood) rebounded from a contraction in 2016/17 as the log export ban put in place to tackle
rapid deforestation was relaxed, in part to provide inputs to the local wood product manufacturing industry.
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Figure 3 Manawthukha (Paddy/Rice) average maximum price
900 29
Thousands
Thousands
800 27
25
700
23
600
21
500
19
400 17
300 15
Apr
Aug
Apr
Aug
Apr
Feb
Feb
Feb
Jun
Dec
Nov
Dec
Dec
Oct
Jun
Oct
2014 2015 2017 2018
Paddy Price Rice Price (RHS)
Source: etrade Myanmar
6. Livestock and fishery activity grew faster than in 2016/17 to meet increasing domestic and
external demand. Livestock and fisheries production, which together account for 9 percent of total value
added and 4 percent of merchandize export, grew by 60 percent year-on-year in October 2017.5 The increase
in domestic demand for livestock products was supported by the high income-elasticity of animal products,
continued rapid urbanization, and expansion of organized retail markets in Myanmar. The government lifted
the ban on livestock export in late 2017 in an effort to meet rising external demand and to restrict illegal
livestock exports.
7. The prospect for continued increases in agricultural growth is limited by constraints to
agricultural productivity. Agriculture’s share in GDP shrank to 26 percent in 2017/18 compared to 37
percent in 2010/11, although the sector still employs nearly 50 percent of the total workforce, or 64 percent of
the workforce in rural areas. Mechanization rates are improving but remain very low in relation to peers.
Myanmar’s agricultural productivity is constrained by an insufficient supply of quality seeds and lack of
knowledge of soil nutrients, compounded by a lack of proper storage and transport facilities and processing
techniques.6
Strong industry output driven by manufacturing
8. Industrial growth remained strong supported by a pickup in manufacturing. Industry gross
value added is estimated to have grown at a robust rate of 8.9 percent in 2017/18, due in large part to accelerated
manufacturing activity. Manufacturing activity, which constitutes 75 percent of the industry sector, is estimated
to have grown by 11 percent in 2017/18, supported by strong food processing performance and external
demand for garments. The observed pick-up in imports of intermediate goods supports this estimate (see trade
and investment section below).
9. The Myanmar Purchasing Managers’ Index (PMI) reached its highest level on record in
March, indicating strong manufacturing performance.7 The PMI composite index breached the 50 percent
threshold, signaling expansion in manufacturing output in all but four months of 2017/18, and reached a record
high of 56 in March. Performance was driven by increased domestic demand for agricultural products and
5 Animal products export only.
6
Myanmar agriculture guide (2018). EUROCHAM Myanmar
7
IHS Markit and Nikkei: https://www.markiteconomics.com; http://asia.nikkei.com
7|Page
construction sector inputs. The PMI employment index rose to 51 in March from an average of 50 in the third
quarter of 2017/18, consistent with the strong performance in the PMI production index (Figure 4 ).
Figure 4 Output, Employment, Price, Future Output PMI
70
68
66
64
62
60
58
56
54
July'17
Sept'17
May'17
Jan'18
Mar'18
Dec'17
Feb'18
April'17
Aug'17
Oct'17
Nov'17
June'17
Output Employment
Output Price Future output index
Input Price(RHS)
Source: IHS Markit and Nikkei
10. However, business sentiment and profitability are falling, in part driven by rising input costs
until January 2018 and slow progress on improving the business climate. In contrast to the composite
and production PMI indexes, the PMI perceptions index indicates declining business confidence and increasing
production costs. Prolonged increases in raw material prices and higher transportation costs have eroded
manufacturers’ profit margins, and many producers are concerned about a slowdown in economic reform
momentum. A survey conducted by the World Bank in late November 2017 (see Box 1) complements these
findings on production activity, although it finds stronger investor sentiment than the PMI survey.
11. The recent increase in the minimum wage could add to cost pressures. In March 2018, the
national committee on minimum wage approved a 33 percent increase in the minimum wage to K4,800
(US$3.70) per day, with the intention to attract workers into the formal sector and motivate higher productivity.
However, the move could raise input costs to manufacturing and services and result in higher unemployment
as employers retrench or delay employment or hire temporary workers to avoid the higher cost. Small
businesses may be especially affected as wages represent a larger share of their operating expenses than larger
firms. In the absence of complementary structural reforms to raise productivity, the higher minimum wage
alone may not be an effective policy instrument to reduce poverty. The poor are often employed in the informal
sector where minimum wages are not binding, and they often have limited skills. If the higher minimum wage
causes employers to cut back on the number of workers, then the poor with limited skills are likely to be the
first to face retrenchment.
12. Growth in manufacturing was supported by improving access to credit and rising foreign
investment, which raises the long-term prospects for the sector (see also Selected Topics 1 and 3 on
Foreign Direct Investment (FDI) and on Financial Inclusion). FDI in manufacturing grew over 65 percent in
2017/18 compared to 2016/17, accounting for about one-third of total FDI commitments compared with just
17 percent in 2015/16. Easing of credit conditions to the manufacturing sector also helped. The World Bank’s
survey of business conditions (see Box 1) confirms that surveyed manufacturing firms found it easier to access
credit in 2017/18 than in 2015/16, although this may be in part be attributable to the growth in the non-banking
(e.g. micro-finance) sector.
8|Page
13. Construction activity grew at a stable rate, although committed FDI for real estate increased.
Construction accounts for around 5.7 percent of GDP and around 18 percent of industrial output. The number
and value of approved real estate projects increased in 2017/18 compared to 2016/17 (Figure 5). Approved
FDI in real estate activities reached US$1.1 billion in 2017/18, an increase of 21 percent compared to the
growth of 10 percent in the previous year. Demand for existing office and retail space in modern shopping
centers in major cities is rising, but new projects face slower growth in demand for pre-sales, and there are
concerns about potential excess capacity, particularly for condominiums. There is anecdotal evidence that
private investors are holding back investment in high-rise building projects, shifting instead toward small and
affordable housing projects.
Figure 5 Construction Permits issued (Number)
500
450
400
350
300
250
200
150
100
50
0
May
May
May
May
May
Sep
May
May
Jan
Sep
Jan
Sep
Jan
Sep
Jan
Sep
Jan
Jan
Sep
Jan
Sep
Jan
2011 2012 2013 2014 2015 2016 2017 2018
Fencing High rise low low_localcontract
Source: Yangon City Development Committee
14. The construction sector is an important source of income for urban workers. As almost 6 percent
of total employment (9 percent of the total urban employed population) is generated by construction activity,
any moderation in this sector will affect the time worked and income of the poor, affecting the pace of poverty
reduction.
15. Service sector growth moderated slightly. Service sector activity is expected to grow by 7 percent
in 2017/18, representing a slight moderation from 8 percent in 2016/17 and an annual average of 9 percent in
the previous two years. Financial and telecommunications services performed well, although growth in
wholesale and retail trade services fell.
16. Despite increased tourist arrivals, tourism activity slowed due to uncertainty created by the
ongoing crisis in Rakhine, affecting tourism-related services. Despite international concerns about the
Rakhine crisis, official data suggest tourist arrivals rose by 18 percent (year-over-year), reaching 2.2 million
visitors by November 2017 (Figure 6). Asia accounted for roughly 70 percent of all tourists in 2017. However,
tourism-related earnings in 2017/18 are estimated to be flat in relation to last year as visitors from Western
countries deterred by the crisis in Rakhine State cancelled travel, but may have been offset by a growing number
of visitors from the region who have tended to have shorter stays and spend less per day (Figure 7). More
generally, tourism sector growth remains stunted by lack of promotion, poor infrastructure, and high cost.
9|Page
Figure 6 Total tourist arrival (in thousands) Figure 7 Tourist arrival by country of origin (in thousands)
360 55
50
340
45
320 40
35
300 30
280 25
20
260 15
10
240
5
220
200
2016 2017
Source: CSO Source: CSO
Box 1 Results of World Bank Repeat Myanmar Survey of Economic Conditions
As part of regular monitoring of the Myanmar economy, the World Bank conducts regular surveys
of economic conditions in the manufacturing and services sectors. The short panel survey builds on
the most recent Enterprise Surveya to monitor: (a) business performance in the manufacturing and services
sectors, and (b) business conditions that might explain that performance. The results of the second survey,
conducted in February–March 2018 and covering March 2017–September 2017 (henceforth, “follow-up
survey”b), indicate that businesses are optimistic about the next year, but experienced a slowdown in
production/sales and employment over the last six months. Availability of skilled workers, identified as one
of the most pressing problems in the 2016 Enterprise Survey (ES 2016c), remains a constraint. However,
availability of credit seems to have improved over the last two years. Unless stated otherwise, all results below
are based on the follow-up survey, and all references to the situation ‘now’ or ‘currently’ refer to the time
covered by the follow-up survey.
Businesses in Myanmar are generally optimistic about the future. Asked about their expectations over
the next 12 months, about 52 percent believe that their sales will increase, while only 12 percent believe that
it will decrease. Medium and large firms are particularly optimistic about the future (source: 2018 World
Bank follow up survey) (Figure 8). Expectations regarding employment and investments follow a similar
pattern. The optimism is particularly encouraging as many businesses have experienced declines in
production/sales, employment, and prices over the last six months. For instance, 45 percent of the firms
saw their production/sales decrease over the last six months, and the average decrease was 35 percent; in
contrast, only 22 percent of the firms saw their production/sales increase, and the average increase was only
22 percent (Figure 9).
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Figure 8: Expectations about activity over the next 12 months Figure 9: Activity over the last 6 months
100% 100%
90% 90%
80%
70% 80%
% of firms
60% 70%
50%
% of firms
60%
40%
50%
30%
20% 40%
10% 30%
0%
20%
Small
Medium
Small
Medium
Small
Medium
All firms
Large
All firms
Large
All firms
Large
10%
0%
Sales Employment Investment Production/sales Orders (Mfg. only)
Increase Remain the same Decrease Increased Remained the same Decreased
Source: Follow up survey 2018 Source: Follow up survey 2018
Problems with finding skilled labor persist. In the ES 2016, firms were asked about the top obstacle they
faced in conducting their business. From the list of 15 different obstacles, “inadequately educated workforce”
was the most commonly chosen top obstacle (by 17 percent of the firms), followed by poor access to finance
(15 percent) and poor power supply (14 percent). The data seem to suggest that problems with finding
adequately skilled labor remain, and perhaps with greater intensity. That is, the follow-up survey shows that
about 12 percent of all firms in Myanmar tried to hire skilled workers, which include non-production
technicians, associate professionals, or sales workers. The proportion of such firms is much higher at 29
percent among large firms, followed by 25 percent among medium firms, and 9 percent among small firms.
All the firms that did attempt to hire faced at least one of the following problems related to the availability
of skilled workers: no or few applicants, lack of required job skills among existing applicants, and lack of
required personal skills or behaviors among existing applicants (Figure 10). There is also evidence that
problems with finding skilled workers affect proportionately more firms now than in the past (Figure 11).
The only exception is the percentage of firms reporting that applicants did not like working conditions,
which is much higher in ES 2016 than in the follow-up survey.
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Figure 10: Problems in hiring skilled workers
% of all firms that tried to hire non- 90%
production technicians, associate
professionals, and sales workers
80%
70%
60%
50%
40%
30%
20%
10%
0%
No/few Applicants Applicants Applicants Applicants did
applicants lacked required lacked personal expected higher not like working
job-specific skills skills/behavior wages conditions
All firms Small Medium Large
Source: Follow-up survey 2018.
Note: The figure covers only those firms that tried to hire non-production workers, associated professionals, or sales
workers in the last six months.
Figure 11: Problems in hiring skilled workers seems to have increased over time
80%
70%
technicians, associate professionals, and sales
% of firms that tried to hire non-production
60%
50%
40%
workers
30%
20%
10%
0%
No/few applicants Applicants lacked Applicants lacked Applicants Applicants did not
required job- personal expected higher like working
specific skills skills/behavior wages conditions
All firms (Follow-up survey, 2018) All firms (ES 2016)
Source: Follow-up survey 2018 and ES 2016.
Note: The figure covers only those firms that tried to hire non-production workers, associated professionals, or sales
workers in the last six months.
12 | P a g e
Most firms report credit is available more easily now than two years ago, although this may not
necessarily be bank credit. As mentioned, limited access to finance was the second most commonly
reported biggest obstacle (by over 14 percent of firms) to firms’ operations in the ES 2016. However, the
situation seems to have eased at least to some extent. That is, as figure 5 shows, 60 percent of the firms
reported easier availability of credit currently compared with two years ago. Some of this improved access
may be from the non-banking (micro-finance) sector, which has experienced significant growth recently. The
proportion of such firms is particularly high among relatively young firms and the faster-growing firms
(Figure 12). The percentage figures here do not reveal the extent to which finance is more easily available to
any given firm. Some indication comes from two pieces of information in the follow-up survey. First, about
47 percent of the firms reported an increase in their investments in 2017 compared with 2016, while only 5
percent reported a decrease. Second, the number of firms that applied for a loan or a line of credit during
the previous year is up from 12 percent in ES 2016 to 19 percent in the follow-up survey.
Figure 12: Percent of firms that report credit more easily available now compared to two years ago
80%
70%
60%
50%
40%
30%
20%
10%
0%
All firms Young (<10 years) Old (>=10 years) Below median Above median
annual sales annual sales
growth rate growth rate
Source: Follow-up survey 2018 and ES 2016.
Note: a. Of the 607 firms interviewed in the Myanmar 2016 Enterprise Survey, 559 firms were successfully re-interviewed
in a follow-up survey that was conducted during February and March 2018. b. The reference period for the follow-up
survey covers the last six months from the date of the interviews conducted in February –March 2018. c. The reference
year for the ES 2016 is 2015.
a. The subcategories of young vs. old firms is based on the age of the firm as reported in ES 2016. b. Below and above
median growth subcategories are based on the annual growth rate of sales during 2013 –15 as reported by firms in ES
2016. The median cut-off level is based only on those firms that answered the question on whether credit availability
has become easier or more difficult over the last year.
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Growth in aggregate demand supported by stable consumption, rising investment, and a
declining trade deficit
17. Stable private consumption. While official data on GDP by expenditure is more limited and lagged
than production data, private consumption, which constitutes nearly 50 percent of GDP, is likely to have grown
at a stable rate in 2017/18. Growth in public consumption spending rose slightly, particularly in the areas of
goods and services. Private consumption growth was supported by falling consumer price inflation during the
first half of 2017/18, although consumer purchasing power likely was eroded by the pickup in inflation in Q3
and Q4. Private consumption has been buoyed by better access to consumer durables and services, for instance,
as behavioral shifts supported more spending toward non-food items like telecommunications services and
devices.
18. Growth in private investment spending is likely to have picked up in 2017/18, although there
are signs of deteriorating investor sentiment. While growth in private investment spending is likely to have
risen especially from foreign sources and to manufacturing and agriculture, growth in public investment is likely
to have moderated. However, investor sentiment likely softened in 2017/18. Weak investor and consumer
confidence reflects protracted political and economic uncertainty, while high expectations of rapid
improvement in the business climate are not being met. In particular, investors remain wary of the frequent
changes in regulations, lack of basic infrastructure, and limited access to financial services and utilities (Box 1).
Foreign trade and investment
Estimated improvement in the current account in 2017/18
19. Despite a fall in ‘personal transfers and other sectors’ in 2017/18, the current account balance
as a share of GDP is expected to improve in relation to 2016/17 on strong export performance. Over
the first two quarters of 2017/18, ‘personal transfers and other sectors’, which includes remittances, fell by 79
percent in relation the same period in 2016/17, but net exports improved as a share of GDP. The current
account remains nearly fully financed by FDI flows (Figure 13 and Figure 14). Gross foreign reserves were
estimated at US$5.3 billion at the end of November 2017 which is 1 percent higher compared to the same
month in 2016, and represents roughly 3.4 months of imports. While this remains low, reserve levels have
steadily improved since falling to 2.5 months of import cover in 2015.8 Increasing exchange rate flexibility and
continuing reserve accumulation will support greater resilience to external shocks.
8 In March 2015, the ratio was equivalent to 2.5 months of imports.
14 | P a g e
Figure 13: Current account Figure 14: Financial Account
10% 2.0%
0.0%
5%
-2.0%
0%
Share of GDP
-4.0%
Share of GDP
-5% -6.0%
-10% -8.0%
-15% -10.0%
-12.0%
-20%
-14.0%
-25%
Direct Invesment Portfolio Investment
Secondary income balance Primary income balance
Services balance Trade balance Other Investment Financial account
Current account
Sources: CBM; World Bank staff estimates. Sources: CBM; World Bank staff estimates.
Note: Negative values are an accounting convention
(IMF BPM6) and reflect that FDI inflows represent the
rest of the world financing Myanmar.
Declining trade deficit, and increasing trade volumes
20. The merchandise trade deficit narrowed over the first 11 months of 2017/18 compared with the
same period last year. The cumulative April 2017–February 2018 merchandise trade deficit, which is the
biggest driver of the current account, reached US$3.5 billion—a significant improvement compared to the same
period in 2016/17 (US$ 4.6 billion deficit). The main driver of this reduction is the sharp rise in exports over
that period to US$13.5 billion compared with US$10.7 billion, while imports also rose from to US$17 billion
from US$15.3 billion (Figure 15). The monthly dynamics of the trade deficit within the 11 months shows the
decline of the deficit over the year. It reached its maximum late last year and fell from an import-driven high
of US$1.5 billion in February 2017 to a low of US$270 million in December 2017 as merchandise and gas
exports picked up and import growth tapered. Over the year, net exports are thus estimated to have made a
slight positive contribution to economic growth in 2017/18.
21. The impressive growth in exports and imports in 2017/18 compared to last year, reflects a
strong global economic recovery and Myanmar’s trade integration. Both merchandise exports and
imports rose by around 20 percent in the first three quarters of 2017/18 compared to the same period the
previous year. Exports reached US$4 billion in Q3 of 2017/18, their highest value since 2013. When the “re-
export” category is excluded (goods that are exported without any local value addition), exports grew by a n
even healthier 25 percent year-on-year, up from just 2 percent growth in 2016/17 (Figure 16). Myanmar’s rising
trade integration is happening through land and sea channels. On the export side, cross-border trade (especially
at the Muse border post with China in Shan state) is rising and accounted for 65 percent of exports in 2017/18
compared to an average of 60 percent in previous years. In contrast, 85 percent of imports come through
maritime ports.
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Figure 15: Trade values over April-February of each year Figure 16: Monthly trade evolution
2.0
17.0
15.1 15.1 15.3
1.5
13.5
11.1 10.7 1.0
10.1
US$ billion
US$ billion
0.5
5.0 4.6
4.0 3.5 0.0
-0.5
Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov
2013/14 2014/15 2015/16 2016/17 2017/18
2014/15 2015/16 2016/17 2017/18 Exports Imports
Trade deficit Exports (6-month moving average)
Exports Imports Trade deficit Imports (6-month moving average) Trade deficit (6-month moving average)
Source: Ministry of Commerce Source: Ministry of Commerce
Note: For trade deficit, a positive number denotes a deficit.
Exports growth led by natural gas, garments, and agriculture
22. In 2017/18, the two largest contributors to exports growth were natural gas (4 percentage
points) and other industrial products (9 percentage points), with agriculture also playing a role (2
percentage points) (Figure 17). Rising global gas prices offset declining gas production, leading to a pickup in
the value of gas exports in H1 2017/18 and reversing a historical decline in the share of gas in exports. The
share of gas exports in total exports declined to 25 percent compared with over 40 percent in 2014/15, when
gas prices and production were at their peak. However, gas exports increased by 13 percent in value in the first
three quarters between 2016/17 and 2017/18. This increase is attributable to rising gas prices, which more than
doubled in calendar year 2017, with a sharp increase toward the end of the year (Figure 18). The price increase
more than offset the 43 percent decline in gas export volumes in the 10 months to December 2017, as
production continued to decline in the Yedagon and Zawtika fields connected to the Thai market.
Figure 17: Export year-on-year growth decomposition, Figure 18: Natural gas exports: Quantities and prices
2015/16–17/18
30%
200
Index: April 2017 = 100
20%
Year-on-Year growth
10% 150
0%
100
-10%
-20%
50
Dec
Feb
Dec
Feb
Dec
Feb
Dec
Jun
Apr
Jun
Aug
Aug
Jun
Aug
Aug
Oct
Apr
Oct
Apr
Oct
Apr
Jun
Oct
-30%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2015/16 2016/17 2017/18
2014/15 2015/16 2016/17 2017/18
Agriculture Animal products Fishery products
Forest products Natural gas Other industrial products Value Quantity Price
Minerals Other products Total exports
Total excl. "Other"
Source: Ministry of Commerce. Source: Ministry of Commerce.
Note: All series are smoothed by a moving average of six months. Index
normalized at 100 in April 2017.
23. Myanmar garment exports continue to grow rapidly and are now the second-largest export
item after gas. Garments exports continued their strong performance, increasing in value by 40 percent in the
16 | P a g e
first three quarters of 2017/18 compared to the same period in 2016/17. Garments now represent about 18
percent of total exports, compared to 15 percent in 2016/17. Myanmar garment exports continued to grow at
a rate similar to other regional garment exporters during their sector take-off, as was initially illustrated in the
December 2017 Myanmar Economic Monitor.
24. Agricultural exports, and especially rice, continued their rebound from the 2015/16 floods and
are expanding into new markets. Agricultural exports continued recovering from the 2015/16 floods, rising
in value by 10 percent in the first three quarters of 2017/18 compared to the same period the previous year.
However, some commodities performed better than others. Rice exports rebounded strongly, growing by 23
percent following a dip in 2016/17 that was caused in part by Chinese rice import restrictions. Myanmar also
made progress in diversifying its rice exports. For example, rice exports to the EU reached US$78 million over
the first half of 2017/18, which is more than the total rice exports to the EU in 2016/17. Exports to Sri Lanka
and Bangladesh have also increased.
25. In contrast, beans and pulses exports continue to be affected by the Indian ban, although
Myanmar is also finding new markets for this product. In Q3 2017/18, the value of beans and pulses
exports reached the lowest level since 2014 (Figure 19). The overall impact has been felt through the price
rather than the volume channel. The export price of beans and pulses fell by 35 percent compared to 2016/17.
However, total export volumes to all destinations remained stable, suggesting that exports have been diverted
from India to other markets.
Figure 19: Agricultural exports by subcategory Figure 20: Rice - Acceleration of exports and
diversification of destinations
1000
300
800
USD million
600 200
USD billion
400
100
200
0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 0
Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2014/15 2015/16 2016/17 2017/18 2013/14 2014/15 2015/16 2016/17 2017/18
Beans and Pulses Maize Other Rice Border Sea Total
Source: Ministry of Commerce Source: Ministry of Commerce
26. Despite progress in diversifying merchandise export destinations, overall trade remains
heavily concentrated. In 2017/18, China remained the largest trading partner by far, accounting for up to 38
percent of exports and 33 percent of imports. Thailand’s share has declined in relative terms, especially as an
export market, accounting for 20 percent of total exports in 2017/18, compared to 26 percent in 2015/16 and
more than 30 percent in previous years (Figure 20 and Figure 23). This trend has been balanced by a broader
diversification, especially toward Western countries: the EU now represents about 11 percent of total exports
and 7 percent of total trade supported by the expansion in rice and garment exports.
27. Myanmar introduced a new export “negative list” which releases most products from the
export license requirement (Box 2). Prior to this list, about 71 percent of export products required a Ministry
of Commerce (MOC) license. The new policy is part of a broader reform of trade facilitation in Myanmar. The
17 | P a g e
policy marks a shift in MOC policy from controlling trade towards facilitating trade and managing its associated
risk. As a member of the World Trade Organization (WTO), Myanmar has taken steps to ensure alignment in
its policies with WTO commitments. In this regard, the change towards a negative list in export and import
licenses is a gradual alignment towards the WTO Agreement, which discourage members to restrict or prohibit
exports except on a temporary basis to relieve domestic shortages of food9. The policy is also a gradual
improvement in the use of non-tariff measures because it focuses the export license requirement on products
that can potentially have a negative impact on health, the environment, and social norms.
Box 2 Myanmar softens export licensing requirements to support exports
In February 18, 2018 the Union Ministry of Commerce (MOC) announced a “negative list” for
products requiring an export license. Under Myanmar’s tariff-product schedule of 11,146 items at 9-digit
Harmonized System (HS), 3,345 product items will still need a license for export. The policy implies that
MOC will not require a license for exporting products outside the list. Instead, exporters need to obtain a
simpler clearance from line Ministry (e.g., Ministry of Agriculture Livestock and Irrigation or Ministry of
Health). The products covered by the new list now contribute to about 57 percent of Myanmar exports.
Under the new regime, the top ten export products from Myanmar that need a license will include peas and
vegetables, mining and minerals (including gems), petroleum gas, and raw and semi-processed woods (Figure
21).
Figure 21 Share of ten products subject to new export regime Figure 22 Comparison of negative list items in old and new
in 2016 exports (%) export regimes
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Arms
Base Metals
Machinery
Fats & Oils
Mineral Products
Chemicals
Plastics
Leather
Pulp & Paper
Textile & Clothing
Footwear & Headgear
Optics
Jewelry
Animal Products
Works of Arts
Food, Bev. & Tobacco
Wood
Transport Equipment
Vegetable Products
Stone, Glass & Cement
Msc. Manufactures
Were subject to export licenses
Subject to license under the new negative list
Source: analysis based on data from the Ministry of Commerce
Source: analysis based on data from the Ministry of Commerce and UN-Comtrade
The negative list for export licenses should have a positive impact on time and cost for exporting
goods from Myanmar. The list presented in (Figure 22)suggests MOC has relaxed licenses requirement for
exports of agriculture and processed food products for which Myanmar has a strong comparative advantage
and can potentially bring benefits for the rural economy, particularly near border areas. The policy also
significantly reduced license requirement for exports in footwear and garments, which have demonstrated
strong performance, and machinery which Myanmar seeks to further develop. By cutting export license
9
GATT Article X1.2.a
18 | P a g e
requirements, Myanmar exporters can reduce time to process export documents by 1 to 2 days depending
on the products.
Nevertheless, compared to other countries Myanmar’s performance in trade facilitation is still
lagging. The Trading Across Border indicator in the 2018 Doing Business Report, Myanmar scored 47.7
percentage point in the distance to frontier (out of 100 for the best performing country and 69.9 percentage
for average score for East Asia and Pacific)10. Traders in Myanmar spend a considerable amount of time to
process documents (e.g., permits, certificates) from various Departments before goods can be cleared by
Customs for export or import. Myanmar may want to consider a coordinated effort to review business
processes in key Departments (e.g., Customs, FDA, Quarantine, Ministry of Commerce, Ministry of
Industry) to reduce the amount of paperwork, delegate decisions, allow full on-line payment, and introduce
registration systems for traders based on their compliance record. This review is a necessary step for
Myanmar to introduce a National Single Window (NSW) which is a platform that allow traders to do a single
submission of requests for all trade documents and receive final clearance from a single authority (instead
going to multiple Departments).
Myanmar can take advantage of the WTO Trade Facilitation Agreement (WTO TFA) to coordinate
an action plan and mobilize resources, including from Development Partners, to support reform
implementation. The WTO TFA entered into force in February 2017 and will be the primary guide for a
multilateral approach to improve trade facilitation. All WTO members are obliged to implement the twenty-
four articles of the agreement. As a least developed country member, Myanmar can access various resources
to support implementation of the agreement. In this regard, the National Trade Facilitation Committee co-
chaired by the Ministry of Commerce and Ministry of Planning and Finance can play a vital role to coordinate
an action plan.
Import growth tapered, but demand for intermediate goods remains strong
28. Import growth tapered in 2017/18 in relation to a peak in 2016/17, although accelerating
imports of intermediate goods remain consistent with strong manufacturing growth. Following two
years of negative import growth in 2014/15 and 2015/16, import growth turned positive in 2016/17 and peaked
in Q4 of that year as demand for industrial intermediates picked up. While still growing, imports decelerated
again in the first three quarters of 2017/18. The main driver of imports in 2017 was the demand for industrial
raw materials (intermediate goods). This includes petroleum products, which represent about 45 percent of that
category in value terms. Demand for petroleum products was in turn driven by the increasing number of
vehicles in Myanmar, industrial activity (the Enterprise Survey 2016 indicates that 20 percent of electricity
consumed by firms is produced by generators), and by recent rises in fuel prices. In contrast, the import of
investment products contributed negatively to overall import growth (Figure 24). While historically volatile, this
small decline in levels may nevertheless signal a decline in producer sentiment and investor expansion plans,
also reflected in the PMI sentiment indicator (see real sector section above).
10
http://www.doingbusiness.org/data/exploreeconomies/myanmar#trading-across-borders
19 | P a g e
Figure 23: Exports by destination Figure 24: Composition of imports by categories
100%
30%
Percentage of total export/import
80%
20%
Y-o-Y growth
60% 10%
40% 0%
-10%
20%
-20%
0% Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
EXPORT IMPORT EXPORT IMPORT EXPORT IMPORT
2015/16 2016/17 2017/18
2013-2014 2015-2016 2017-2018 (up to January)
Consumer goods Industrial raw materials
China Thailand Japan Singapore India European Union Others Investment products Total
Source: Ministry of Commerce Source: Ministry of Commerce
Foreign direct investment commitments continue to decline, but flows remain
comparable with the region
29. FDI approvals in 2017/18 are likely to decline in relation to last year’s already weaker
performance, despite FDI flowing to new sectors. Based on data from the first 11 months of 2017/18,
approved FDI declined compared to the previous year, which was already well below 2014/15 and 2016/17
(Figure 25). Most notably, FDI approvals in the transport and communications sector have declined following
the entry of a fourth mobile phone service provider (Vietnam-based Viettel) into the market in 2016/17. As
investors eyed opportunities across sectors, there were strong inflows to the manufacturing sector, real estate,
and other services. There were 126 approved manufacturing FDI projects worth US$1.7 billion, which
reinforces the likelihood of continued growth in manufacturing exports. In addition, agriculture FDI, which
has traditionally been limited, saw a large pickup in inflows in 2017/18 from a low base with US$133 million,
compared to a total across the last five years of US$77 million. With US$5 billion in approved projects by
February 2018, Myanmar remains an attractive investment destination. Furthermore, actual flows (UNCTAD)
amounted to US$2.2 billion in 2016, or 3.2 percent of GDP, which is similar to the average for Southeast Asia.
Figure 25: FDI by destination sector
10
USDBillion
8
6
4
2
0
2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 (until
Feb.)
Manufacturing Real Estate Other Services Transport & Communication Power Hotel and Tourism Agriculture Other
Source: Directorate of Investment and Company Administration
20 | P a g e
30. Sources of FDI also continue to diversify. While still accounting for the largest share, Singapore’s
dominance as a source of FDI continued to decline, from over half of FDI flows two years ago to a quarter in
2017/18. This rebalancing is likely due to base effects and the fact that the incentive for Myanmar investors to
channel investment back into Myanmar via Singapore has waned in favor of more direct engagement. Other
sources have become more important. Between 2016/17 and 2017/18, FDI originating in China rose by US$1
billion, two American projects worth US$130 million were the first major American investments in a decade,
while the Netherlands and the UK represented a combined US$750 million in flows.
31. Following approval of the Myanmar Investment Law in 2016, Parliament in December 2017
passed the much-anticipated Myanmar Companies Law (MCL), which can help attract FDI (Box 3).
The MCL is expected to come into force in August 2018 once bylaws are issued. The new MCL will replace
nearly all provisions of the existing Myanmar Companies Act (MCA) (1913) (formerly known as the Burma
Companies Act, which came into force in 1914). The MCL is expected to modernize business operations in
Myanmar, and provide a more level playing field for potential foreign investors who could bring much-needed
capital and technical know-how to local firms (see also Special Topic 1).
Box 3 Highlights of the Myanmar Company Law (MCL)
The MCL contains elements of international best practice and is appropriately adapted to
Myanmar’s institutional context. The MCL is similar to the Australian corporations law, that is, the
Corporations Act (2001), which deals with business entities at the federal and interstate levels in Australia.
However, the MCL is distinct with respect to the administration of the law. For example, the new law
includes provisions for an electronic company registration system, which will be implemented by the
Directorate of Investment and Company Administration (DICA). DICA, as the administrative body, is
also given powers similar to subject-matter regulators in the Australian model.
The law contains several provisions that, if implemented effectively, could considerably
strengthen the business landscape in Myanmar. These provisions include the following.
Redefinition of local and foreign companies. Under the new MCL, a company is designated as a
“foreign company” if foreign investors own or control, directly or indirectly, “an ownership interest of
more than thirty-five percent.”a This suggests that foreign investors can own or control up to 35 percent
of company ownership without it becoming a foreign company.
This change is important for several reasons. For instance, foreign investors may now enjoy access to local
company asset (including land) as long as they do not own more than 35 percent of the company’s shares.
In addition, the provision also could allow foreign companies to carry out some investment activities, b
which are currently barred by Myanmar Investment Commission Notification 15/17, such as freshwater
fisheries.
Provision on permit to trade. The new law removes the requirement for foreign companies to have a
separate permit to trade.c
Relaxation of prior approval requirements for the purchase of shares by foreign partners. Under
the MCL, foreign companies will no longer be required to obtain prior approval from the regulator if they
wish to purchase shares from or exchange shares with other firms. Instead, these companies will only need
to notify the regulator if and when foreign ownership exceeds the 35 percent threshold.
Strengthen corporate governance. For instance, Division 18 in Part IV of the new law requires
companies to have a clear set of powers and duties, including limitations on powers and voting rights,
established for directors as a legal framework to balance the interest between the company and
shareholders.d
21 | P a g e
Protection for minority shareholders. In the new law, a single shareholder may challenge in court the
behavior of a third party as being against the interest of shareholders a whole. In other words, under the
new law, the rights of minority shareholders will be protected. Compared to the existing MCA, the new
law will improve protection for minority shareholders because the MCL requires that the number of
decisions affecting the rights of minority and majority shareholders will need approval from the minority
shareholders.e
Provision on classes of shares. Companies may also find additional financing channels, and explore
voting rights and dividend entitlements through the issuance of different classes of shares.f
Other changes include:
• Changing a company’s name will no longer require approval from the President of the Union. This
can provide flexibility for companies to restructure.
• Allowing companies to amend their constitutions as they see fit without any requirement to use
standard articles prepared by authorities, making companies nimbler.
• Increasing flexibility for small and family-owned businesses, as small companies are exempt from many
aspects of financial reporting and audit requirements.g
Source: DICA; World Bank staff.
Note: a. The Myanmar Companies Law (2017), s. 1 (c) (xiv). b. The Republic of the Union of Myanmar – Myanmar
Investment Commission. (2017, April 10). Paragraph 1. (b) of the Notification No. 15/2017. Restricted investment activities
include “fresh water fisheries and relevant services, manufacturing of forest products from forest area and government
administered natural forest, prospecting, surveying, performing feasibility study and developing mineral for small and
medium scale business in accordance with the Mines Law, refinement of minerals by medium scale and small scale,
performing shallow oil wells up, prospecting, exploration and production of jade/gem stones, tour-guide services, mini-
market, convenience store,” and so forth. (https://www.dica.gov.mm/sites/dica.gov.mm/files/document-
files/20170410_eng_42.pdf). c. Berwin L. Paisner LLP. Guide to the Myanmar Company Law: Minority shareholder protections
(https://www.blplaw.com/media/international/myanmar/BLP's_guide_to_Myanmar_Company_Law.pdf). d. The
Myanmar Companies Law (2017), § 160 to 172, Division 18. Directors and their powers and duties. e. Berwin L. Paisner LLP.
Guide to the Myanmar Company Law: Minority shareholder protections.
(https://www.blplaw.com/media/international/myanmar/BLP's_guide_to_Myanmar_Company_Law.pdf). f. Berwin
L. Paisner LLP. Guide to the Myanmar Company Law: Minority shareholder protections.
(https://www.blplaw.com/media/international/myanmar/BLP's_guide_to_Myanmar_Company_Law.pdf). g. The
Myanmar Companies Law (2017), § 1(c)(xxxviii) defines a small company as having no more than 30 employees and an
annual revenue of less than 50,000,000 kyats. Under this definition, small companies are exempt from financial and
auditing requirements described in § 260 to 268, and 279 (b).
Inflation, monetary and exchange rate
Disinflation reversed, driven by food and fuel prices
32. Inflation measured by the Consumer Price Inflation (CPI) picked up at the end of the second
quarter of 2017/18, largely driven by food price inflation. After continuing its decline in the first quarter of
2017/18, the CPI rebounded from 2.3 percent (year-over-year) in July 2017 to 5.2 percent in January 2018
(Figure 26). The deceleration and subsequent acceleration of the cost of living is mostly explained by the rise
in the food and beverages component of the CPI, which constitutes almost 60 percent of the official basket of
goods and services (Figure 27).
22 | P a g e
Figure 26: Inflation drivers Figure 27: Contribution to CPI inflation
8%
14%
7%
12%
6%
10%
yoy change
8% 5%
yoy change
6% 4%
4% 3%
2% 2%
0% 1%
0%
Feb-16
Dec-15
Dec-16
Feb-17
Dec-17
Oct-15
Oct-16
Oct-17
Apr-15
Jun-15
Apr-16
Jun-16
Apr-17
Jun-17
Aug-15
Aug-16
Aug-17
CPI Food CPI Non Food CPI Headline
Food Non-Food
Sources: CSO; World Bank staff estimates. Note: yoy = year-over-year.
Note: yoy = year-over-year.
33. Non-food items also contributed to rising inflation from the second quarter of 2017/2018. While
the average monthly rise in inflation for this component was 0.2 percent during the first five months of the
fiscal year, it rose to 0.9 percent in the following five months.11 Overall, the non-food CPI component reached
6.3 percent (year-over-year) in January of 2018 from 5.4 percent at the beginning of the fiscal year. Three
subcomponents explain the non-food CPI dynamics: (a) Restaurants and Hotels, (b) Transportation, and (c)
Housing and Utilities (Figure 28).12 Transportation (almost 25 percent of the non-food basket) explained 35
percent of the increase in non-food prices observed in January 2018, due to higher fuel import costs and rising
costs of storage in warehouses located close to industrial zones.
Figure 28: Non-food price components
17%
12%
yoy change
7%
2%
-3%
-8%
May-15
May-16
May-17
Nov-15
Nov-16
Nov-17
Sep-15
Sep-16
Sep-17
Mar-16
Mar-15
Mar-17
Jul-15
Jul-16
Jul-17
Jan-16
Jan-17
Jan-18
Housing and utilities Transport
Restaurants and Hotels
Sources: CSO; World Bank staff estimates.
11 Annualized inflation for the first five months was 1.8 percent, while the following five months implied a rate of 6.8
percent.
12 These three components account for 58.2 percent of the Non-Food Index.
23 | P a g e
Reserve money growth slowed further in 2017/18, while broad money growth increased
34. Despite the CBM just breaching the 40 percent ceiling in 2016/17 on the share of fiscal deficit
financing from the Central Bank, growth in reserve money moderated in 2017/18 while broad money
growth rose. Annual growth in reserve money creation by the CBM dropped to 8 percent in 2017/18, from 9
percent annual growth in Q4 2016/17 (Figure 29). This was due to a lower growth of lending to commercial
banks and to the central government, and to a slower growth in net accumulation of foreign reserves (Figure
30). As the economy returns to its trend growth rate of just over 7 percent, it is expected that reserve money
growth will also approach the CBM’s 13 percent annual growth target. Broad money growth picked up to 21
percent annual growth in Q2 2017/18 supported by continued commercial bank credit expansion. However,
anecdotal evidence suggests that uncertainties and remedial actions in the banking sector led to a sharp but
temporary slowdown in lending during December 2017–February 2018. Broad money growth remains below
the 24 percent CBM target. Consistent with the developments in reserve and broad money, the money
multiplier grew from 2.5 in Q4 2016/2017 to 2.8 in Q2 2017/2018.
Figure 29: Money growth Figure 30: Contribution to Reserve Money growth
25%
45% 3.0
40%
yoy change and contribution
2.5
35%
30% 2.0
25%
yoy change
1.5 5%
20%
15% 1.0
10%
0.5
5%
0% 0.0
-15%
Q4/2015
Q1/2016
Q2/2016
Q3/2016
Q4/2016
Q1/2017
Q2/2017
Q3/2016 Q4/2016 Q1/2017 Q2/2017
Other Items (Net) Shares and Other Equity
Private sector Broad Money Claims on Other Sectors Net Claims on CB
Net Claims on CG Reserve Money Net Claims on CG NFA
Money Multiplier (RHS)
Reserve Money
Sources: CBM; World Bank staff estimates. Sources: CBM; World Bank staff estimates
Note: yoy = year-over-year. Note: yoy = year-over-year
24 | P a g e
35. The CBM reduced its intervention through the deposit auction market in support of economic
growth and as inflation moderated, after actively pursuing open market operations in 2016/17. In
2017/18, the CBM accepted bids for a total of 7 trillion kyat, which was 7.0 percent less than the volume of
transactions accepted in 2016/17. During this fiscal year, the demand for deposit auctions from the CBM
increased by 3.2 percent, implying a large unsatisfied demand for this policy instrument. Fewer deposit auctions
translates into less money taken out of active circulation, thereby supporting the economy. During the year,
bids submitted rose as real interest rates on deposits increased to 3.8 percent. Bids submitted fell toward the
end of the year as real interest rates declined to 1.1 percent due to rising inflation and lower nominal interest
rates (Figure 31).13 Finally, the CBM monetary financing to the government is estimated to be 30 percent smaller
in 2017/18 relative to the previous fiscal year as the actual fiscal deficit turns out smaller than the budgeted
deficit (see fiscal section below). While direct financing to the government was 2.4 trillion Kyat last year, this
year’s estimates is closer to 1.7 trillion Kyat, which represents approximately 2 percent of GDP (Figure 32).
Figure 31: Deposit Auctions Figure 32: Net financing to the government
4,500 6.0 3,500.0
4,000 4.0
3,500 2,500.0
3,000 2.0
Percentage
Kyat billion
1,500.0
Kyat billion
2,500 0.0
2,000 -2.0 500.0
1,500 -4.0
1,000 (500.0)
500 -6.0
- -8.0 (1,500.0)
Q4
Q3
Q1
Q2
Q3
Q1
Q2
Q3
Q4
Q1
Q2
Q4
Q1
Q2
Q3
Q4
(2,500.0)
2014/15 2015/16 2016/17 2017/18 2014-2015 2015-2016 2016-2017 2017-2018
Bids accepted Bids submitted
Real Interest Rate (RHS) CBM Financing Other Foreign financing
Sources: CBM; World Bank staff estimates. Sources: CBM; World Bank staff estimates.
Credit growth tapered but remains high
36. Credit growth moderated in the first half of 2017/18 as banks sought to understand and comply
with prudential regulations. (Figure 31). Anecdotal evidence suggests that uncertainties in the banking sector
led to a further sharp but temporary slowdown in lending during December 2017–February 2018. With average
inflation of 5.7 percent during the first three quarters, real credit grew on average at 25 percent. Credit to the
transportation sector picked up in the second quarter after growth in lending to the sector slowed by more than
20 percentage points in Q4/2016 (Figure 34). Lending growth remains concentrated, with 62 percent of new
loans directed to three sectors: agriculture, construction, and trade. This concentration should continue to be
carefully monitored as the profitability of the construction sector is under pressure from excess capacity and
the agriculture sector remains sensitive to weather- and trade-related shocks. Finally, lending remains biased
toward large enterprises, as micro-, small, and medium-sized enterprises still face limited access to bank finance.
13The quarterly ex-post real interest rate is approximately equal to the quarterly nominal interest rate minus the inflation
rate in the same period. This is different from the ex-ante interest rate, which considers expected inflation instead of actual
inflation.
25 | P a g e
Figure 33: Credit to the private sector Figure 34: Composition of lending to private sector
100%
70%
60% 80%
Lending shares
50% 60%
40%
yoy change
40%
30%
20% 20%
10% 0%
0% Q3/2016 Q4/2016 Q1/2017 Q2/2017
Q2/2015
Q3/2015
Q4/2015
Q1/2016
Q2/2016
Q3/2016
Q4/2016
Q1/2017
Q2/2017
Agriculture Manufacturing Trade Transportation
Trade Transport Construction Services Real Estate Miscellaneous
Construction Private Sector
Sources: CBM; World Bank staff estimates. Sources: CBM; World Bank staff estimates.
Note: yoy = year-over-year.
37. The introduction of necessary new prudential regulations for the banking sector created some
uncertainty. Estimates suggest a large share of lending is in the form of overdrafts that are backed by real
estate collateral. Small businesses are less likely to have assets to collateralize.14 With the new regulations
released last July, overdrafts had to be reclassified by January 2018. However, in November 2017, the CBM and
banks agreed on an extended three-year window to restructure overdrafts to standard loans.
Private banks’ profitability improved in 2017/18 while liquidity indicators remained robust. Preliminary
data show that after-tax profits of private banks doubled in the first two quarters of 2017/18 compared with
the same period in 2016/17. This performance is something of an anomaly as banks are still facing a floor of 8
percent on deposit rates, and a ceiling of 13 percent on lending, which limits their ability to grow their interest
income if loan growth is moderating.15 In terms of banks’ liabilities, deposit growth has remained robust and
liquidity ratios while low by regional standards, remained essentially unchanged. Loans to deposits increased 9
percentage points in Q2 2017 compared to the same quarter last year, and deposits to broad money experienced
a modest decline compared to Q2 2016/2017 (Figure 35). Finally, by the end of the second quarter of 2017/18,
the overall banking sector capital adequacy ratio fell to 7.8 percent, just below the recommended 8 percent
prudential norm. But this industry average masks a significant variation among banks with regards their capital
adequacy (Figure 36).16
14 An overdraft is an extension of credit when an account reaches zero balance. In Myanmar, overdrafts have a maturity
of one year. However, these overdrafts have been rolled over indefinitely.
15 There is no market-based interest rate. The CBM caps the lending rate at 13 percent, and the deposit rate has a floor of
8 percent.
16 Capital Adequacy Ratio (CAR) is also known as the Capital to Risk (Weighted) Assets Ratio (CRAR). It measures banks’
capital as a percentage of assets weighted by their risk, and indicates the capacity to absorb losses.
26 | P a g e
Figure 35: Bank’s liquidity indicators Figure 36: Capital adequacy ratio
70% 20%
61% 18%
60% 53%
48% 16%
Ratios
40% 34% 14%
26%
22% 23%
12%
20%
10%
0% 8%
Loans/Deposits Deposits/M2 Loans/Deposits Deposits/M2
(private banks) (private banks) (state banks) (state banks) 6%
Q2/2017 Q2/2016 Q3/2016 Q4/2016 Q1/2017 Q2/2017
Sources: CBM; World Bank staff estimates. Sources: CBM; World Bank staff estimates.
The exchange rate appreciated slightly in nominal terms, with some variation across
bilateral real exchange rates with major trading partners
38. The nominal exchange rate provided a strong anchor for the first three quarters of 2017/18 and
appreciated by 2 percent in Q4 against the U.S. dollar. The nominal exchange rate started the fiscal year at
1,361 kyats to the U.S. dollar in the reference market and 1,362.5 kyats in the parallel market. In the first three
quarters of the year, the average monthly depreciation of the official rate was -0.1 percent, with a monthly
change volatility of just 0.6 percent, implying a high stability of the currency that contributed to the disinflation
in the first part of the year (Figure 37).17 The nominal exchange rate and the monthly change in food prices are
highly correlated.18
Figure 37: Selected Nominal Exchange Rates (National Currency per dollar, Dec-2005=100)
110
105
100
95
90
85
Apr-16
May-16
Apr-17
May-17
Aug-16
Sep-16
Aug-17
Sep-17
Nov-16
Nov-17
Dec-15
Mar-16
Jun-16
Dec-16
Mar-17
Jun-17
Dec-17
Feb-16
Jul-16
Oct-16
Feb-17
Jul-17
Oct-17
Feb-18
Jan-16
Jan-17
Jan-18
Myanmar China, P.R.: Mainland Indonesia
Malaysia Philippines Thailand
Sources: CBM; BIS; Haver Analytics; and World Bank staff calculations.
Note: An increase corresponds to a nominal depreciation.
17 The measure of volatility used in this paragraph is the standard deviation, which measures how much the exchange rate
deviates each month relative to the average in the period. A low standard deviation implies that the monthly observations
are close to the average of the period.
18 The correlation between the nominal exchange rate and the monthly change of the food component of the CPI one
month ahead is equal to 0.47. As a result, large swings in the exchange rate are translated to food inflation.
27 | P a g e
39. Myanmar’s slight loss in competitiveness was similar to the loss in regional peers, but was
driven by higher inflation than peers. Myanmar’s real effective exchange rate is estimated to have appreciated
0.5 percent between March 2017 and January 2018, similar to the average of 0.3 percent experienced by other
countries in the region (Figure 39)19. However, the strengthening was driven by different factors. The loss of
competitiveness in most countries was due to appreciating nominal exchange rates, while the driver in Myanmar
was the rising inflation differential with major trading partners. This reinforces the need for Myanmar to tackle
cost drivers through structural reforms to protect its competitiveness in the medium to long term.
40. While the kyat strengthened slightly in nominal and real effective terms, its performance varied
across bilateral real exchange rates with major trading partners in 2017/18 (Figure 38). For example, the
kyat appreciated in real terms against the weakening global currencies like the U.S. dollar and the Japanese yen.20
In contrast, the kyat depreciated 4 percent in real terms against the Thai baht, 8.1 percent against the Malaysian
ringgit, and 4 percent against the Chinese renminbi. This depreciation in the real exchange rate squeezed profit
margins and created concerns among firms that rely on imports from those countries, such as retailers
importing fast-moving consumer goods for resale, and manufacturers of goods with high imported content.
However, it also provides a potential boost to exporting firms.
Figure 38: The real effective exchange strengthened slightly in Figure 39: …. but considering the bilateral real exchange rates
2017/2018…. individually, the effects are heterogeneous
Real effective exchange rate based on CPI a, Dec-2005=100. Change March Real exchange rate based on CPI, Dec-2005=100. Change March
2017–Jan 2018 2017–Jan 2018
10.0%
8.0% 8.0%
6.0% 6.0%
4.0% 4.0%
2.0% 2.0%
0.0% 0.0%
-2.0% -2.0%
-4.0%
-4.0%
-6.0%
-6.0%
Sources: CBM; BIS; Haver Analytics; and World Bank staff Sources: CBM; BIS; FRED; Haver Analytics; and World
calculations. Bank staff calculations.
Note: An increase corresponds to a real depreciation. Note: An increase corresponds to a real depreciation.
19
The REER is a weighted average of bilateral real exchange rates of major trading partners, where the weights are
given by trade shares. The REER in this report was constructed using five major trading partners constituting 90 percent
of total trade and variable weights. The REER calculation remains sensitive to the choice of trading partners and the
weights, and may exhibit a slight depreciation if more trading partners are included, or weights kept constant. Overall,
however, the differences in results are small.
20 The bilateral real exchange rate considers nominal exchange rates and relative inflations of the corresponding
countries, and it is an input to construct the real effective exchange rate.
28 | P a g e
Fiscal policy
Narrowing fiscal deficit in 2016/17, budgeted to increase in 2017/18
41. The fiscal deficit is budgeted to increase significantly to 5.8 percent of GDP in 2017/18 from a
provisional actual rate of 2.7 percent in 2016/17 (Figure 40). General government receipts are budgeted to
decline as a share of GDP from 18.2 percent in 2016/17 to 16.9 percent in 2017/18, driven by falling State
Economic Enterprise (SEE) receipts owing to declining profitability, particularly from budget assumptions of
declining natural gas prices. General government expenditures are also budgeted to increase from 20.9 percent
of GDP in 2016/17 to 22.2 percent of GDP in 2017/18 (Figure 41), driven by budgeted increases in other
recurrent expenditures in priority ministries like health, and increased domestic interest payments because of
payment of market interest rates on legacy CBM debt.
Figure 40: Fiscal balances, Percent of GDP Figure 41: Revenue and expenditure aggregates, Percent of
GDP (Expenditure is negative, Revenue is positive)
25
2% 1.1%
15 12.4
1% 0.4% 11.3 11.1 10.5
0% 5 9.8
-1.1% 7.5 7.1 5.9
-1% -0.5%
-1.1% -5 -8.7 -8.0 -6.7 -7.0
-2% -2.7%
-3% -3.9% -15 -14.2 -15.3
-2.2% -14.6 -15.1
-4.7%
-4% -3.1%
-5% -25
-4.3% PA PA PA RE
-6% -5.8%
PA PA PA RE 2014/15 2015/16 2016/17 2017/18
2014/15 2015/16 2016/17 2017/18 SEE Net Revenue SEE Net Expenditure
Public Sector SEEs Union Government UG Revenue UG Expenditure
Source: MOPF, WB Staff Estimates Source: MOPF, WB Staff Estimates
42. The change in the fiscal year in Myanmar makes it challenging to assess the actual fiscal
deficit, which may be considerably lower than the budget (Box 4). Actual outturns for 2017/18 may
reflect a lower fiscal deficit, given long-standing challenges in budget execution and underestimation of
revenues in the original and revised budgets (Figure 42), partly due to stronger than expected gas prices.
Myanmar announced a change in the fiscal year from April–March to October–September, coming into effect
October 1, 2018, with a view to improve implementation of capital and infrastructure projects by aligning the
start of the fiscal year with the end of the monsoon season.21 The government enacted a six-month “bridge”
budget for April–October 2018, with plans to limit spending during this period.22 While the fiscal year has
moved by six months, the tax year has been retained as April–March, although not for SEEs. They are now
expected to align their tax year with the new fiscal year. As Box 4 highlights, changing the fiscal year and having
different tax and fiscal years, may introduce short-term challenges in budget execution and misalignment of
spending patterns with revenue collection, thus increasing the uncertainty of short-term fiscal outturns and the
medium-term fiscal outlook.
21Statement by Mr. Juda Agung, Executive Director for Myanmar, as part of IMF 2017 Article IV Staff Report.
22In particular, the six-month budget plan includes a provision that no new capital expenditure projects will be approved
during this period, with capital spending limited to implementation of existing projects.
29 | P a g e
Figure 42: Actual outturns as a ratio of original and revised budgets
120% 109% 104% 103%
101% 100%
100% 90% 90% 94% 93%90% 93% 89%
72% 76%
80%
60% 50%
44%
40% 26%
18%
20%
0%
BE RE BE RE BE RE
2014/15 2015/16 2016/17
Overall Revenue Overall Expenditure Fiscal Deficit
Source: MOPF, WB Staff Estimates
Box 4 The Change in the Fiscal Year in Myanmar: Issues and Options
The Government of Myanmar changed the fiscal year from April–March to October–September
starting from fiscal year 2018/19 (that is, beginning 1 October 2018), with a view to facilitating more
effective implementation of capital and infrastructure projects. Governments around the world have adopted
different fiscal years (s). The Gregorian calendar year is used by about 70 percent of the 189 IMF and World
Bank member countries. Aside from the tradition of following the calendar year, country decisions on fiscal
years have also been driven by climate, alignment with tax years of multinational companies, and religious
considerations.
Myanmar has opted to retain the existing tax year, April–March, for almost all filers except for State
Economic Enterprises. This is at variance with common international practice: over 75 percent of the 159
countries surveyed by PricewaterhouseCoopers have a personal income tax year aligned with the fiscal year,
and only 6 percent have completely different tax and fiscal years for corporate filers, although many countries
(nearly 62 percent) offer companies the option of choosing their own tax year.
Maintaining different fiscal and tax years creates challenges for revenue forecasting and budget
execution. To ensure a credible budget framework, it is critical that the Ministry of Planning and Finance
(MOPF) produces accurate and timely quarterly and half-yearly revenue forecasts to feed into annual and
multiyear budget plans. At present, MOPF does not produce half-yearly revenue forecasts, which
complicates budget planning. In addition, current patterns of spending by line ministries may be aligned with
expectations of in-year availability of resources. For instance, spending may be increasing at the end of the
fiscal year in line with in-year increases in revenue collections. When the two years are not aligned, it puts
pressure on ministries to adjust spending patterns to spend more in the beginning of the year, when revenues
are available. However, as procurement and budget execution processes take time to adjust, this may hinder
budget execution in the medium term.
In the short term, increased coordination and greater investment in forecasting capabilities is
critical to manage the transition. It is critical that the MOPF improve capabilities to produce timely half-
yearly and quarterly forecasts and coordinate with the budgeting and planning departments, to ensure that
forecasts are reflected in the Medium Term Fiscal Framework. The case of Thailand is instructive in this
regard, as the country recently changed its tax year, allowing flexible filing for companies, and subsequently
established a “revenue taskforce” comprising representatives from the revenue, budget, planning,
departments, and the central bank, to ensure accurate, timely forecasts and appropriate in-year cash planning.
30 | P a g e
In the medium term, Myanmar could consider aligning the tax year with the fiscal year. Making such
a change could introduce a significant additional burden on the tax administration, with significant changes
in business processes as well as changes in the supporting information technology (IT) administration system.
But there are also potential benefits, arising particularly from improved links between revenue collection and
budget planning and execution. If Myanmar chooses to change the tax year, it is critical that any change is
accompanied by extensive taxpayer consultation and education to minimize disruptions to business and
economic activity.
43. On deficit financing, the government continued expanding the domestic debt market, but
market participation remains below potential. The domestic debt market expanded in terms of value of
debt, but with mixed trends on treasury bills and treasury bonds. The value of Treasury bills auctioned, including
for new longer tenor bills (6- and 12-month bills), increased by 60 percent in 2017/18 compared to 2016/17.
In contrast, the take-up of treasury bonds slowed, with a 30 percent decline in value of monthly bond auctions
in 2017/18 compared to 2016/17. Despite the expansion, market participation remained below potential,
reflected in the widening gap between bid and offer at auctions. Successful bids on a purely competitive basis
in Treasury bond auctions are on average 46 percent of auction targets in 2017/18, declining from 60 percent
in 2016/17, and for Treasury bill auctions around 28 percent of auction targets, declining from 31 percent in
2016/17.
44. Allowing interest rates to better reflect market conditions is essential for domestic debt market
development. Interest rates do not fully reflect market conditions because of concerns over rising debt
servicing costs. Auction discount rates remain close to (or below) bank deposit rates. Real interest rates on T-
bills were marginally positive as of end-2016/17 but have been declining since and returned to negative 1
percent in Q3 2017 (Figure 43). Maintaining interest rates in line with inflation would likely encourage greater
participation and support a lower inflation target. The absence of such market participation puts increased
pressure on the CBM to finance the fiscal deficit, but, as highlighted in the monetary section, CBM financing
may be tapering toward the end of 2017/18, signaling a potential slowdown in expenditure driven by budget
execution challenges.
Figure 43: Real interest rates on T-Bill auctions, percentage points
3%
2%
1%
0%
-1%
-2%
-3%
-4%
-5%
Qtr1Qtr2Qtr3Qtr4Qtr1Qtr2Qtr3Qtr4Qtr1Qtr2Qtr3
2015/16 2016/17 2017/18
Nominal IR (T-Bill auctions)
Real IR (T-Bill auctions)
Source: CBM, WB Staff Estimates
45. Myanmar can afford to finance a fiscal deficit averaging 4 to 4.5 percent in the medium term,
absent growth and fiscal slippages. As highlighted in the recently completed Myanmar Public Expenditure
Review and the joint World Bank-IMF Debt Sustainability Analysis (DSA),23 a fiscal deficit of 4 to 4.5 percent
would maintain public debt at a low level of debt distress in a baseline scenario. Any severe slippages in growth
or unanticipated fiscal slippages could, however, lead to total public debt becoming unsustainable. Reducing
23 World Bank-IMF Joint Debt Sustainability Analysis, IMF 2017 Article IV Staff Report.
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the reliance on central bank financing of the deficit in the medium term will depend on supportive actions on
domestic debt market, including allowing interest rates to reflect market conditions, and domestic financial
sector reform.
Revenue collection remains below potential, with need to address leakages
46. Myanmar’s overall revenue collection remains below potential and is budgeted to decline from
18.2 percent of GDP in 2016/17 to 16.9 percent of GDP in 2017/18. SEE receipts are projected to continue
to decline, from 7.1 percent of GDP in 2016/17 to 5.9 percent of GDP in 2017/18, driven by falling gas prices
and declining profitability of SEEs, especially in heavy industry sectors (Figure 44). This is also reflected in the
declining share of SEEs in income and commercial tax collections (Figure 45). Higher than expected 2017/18
gas prices may boost actual collection. General government receipts are also projected to decline, from 10.7
percent of GDP in 2016/17 to 9.8 percent of GDP in 2017/18, on the back of declining income and
commercial taxes, which are only partially offset by continued strengthening in special goods tax collection
(Table 1).
Figure 44: Union Government and SEE revenue, Percent of Figure 45: UG and SEE Income and Commercial Taxes, Percent
GDP of GDP
13% 12.4% 5% 4.6%
4.4%
12% 11.3% 11.1% 4.0%
10.5% 4% 3.7%
11%
10% 9.8% 3%
9% 1.9%
8% 7.5% 7.1% 2% 1.4% 1.2%
5.9% 1.1%
7%
6% 1%
5% PA PA PA RE
PA PA PA RE 2014/15 2015/16 2016/17 2017/18
2014/15 2015/16 2016/17 2017/18 SEE Income and Commercial Taxes
UG Revenue SEE Revenue Private Income and Commercial Taxes
Source: MOPF, WB Staff Estimates Source: MOPF, WB Staff Estimates
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Table 1: General Government Revenue (Share of GDP)
2014/15 2015/16 2016/17 2017/18
PA PA PA RE
Total General Government Revenue 12.1% 10.8% 10.7% 9.8%
Tax 7.0% 6.7% 7.1% 6.7%
Income Tax 3.4% 3.2% 2.9% 2.6%
o/w SEEs 1.2% 0.9% 0.6% 0.6%
Commercial Tax 2.8% 2.9% 2.4% 2.3%
o/w SEEs 0.7% 0.5% 0.6% 0.6%
Customs duties 0.8% 0.6% 0.6% 0.5%
Excise Tax 0.0% 0.0% 0.0% 0.0%
Special Goods Tax 0.0% 0.0% 1.2% 1.3%
Non-Tax 5.1% 4.1% 3.6% 3.1%
Receipts on use of national properties 2.3% 1.3% 1.2% 1.1%
o/w oil and gas 0.5% 0.5% 0.6% 0.4%
o/w telecommunications 1.7% 0.7% 0.6% 0.7%
SEE contributions 0.8% 1.1% 0.7% 0.7%
License and fees 0.5% 0.4% 0.4% 0.2%
Other 1.5% 1.3% 1.1% 1.0%
Sources: MOPF; World Bank staff estimates.
Note: SEEs = State Economic Enterprises.
47. Declining revenue collection underscores the importance of maintaining momentum on
implementing tax administration reforms, despite the new administrative burden of managing
differing tax and fiscal years. Myanmar has made significant strides in reforming its tax system since 2012/13,
focusing on improving tax administration by moving to a self-assessment system and restructuring tax
administration to focus on taxpayer segments by size. As at 2017/18, the Large Taxpayer Office (LTO) and
Medium Taxpayer Offices (MTO-1, 2, and 3) are fully functional, and all large taxpayers and medium-sized
taxpayers under MTO-1 are filing self-assessed returns, which are subsequently subject to audit. Maintaining
the momentum on tax administration reforms will be critical to reaping the benefits in terms of improved
compliance. Major priorities in the next two to three years include enacting the Tax Administration and
Procedures Law (TAPL); introducing an integrated tax administration system and using the information to
strengthen audit and compliance functions; and building the human resources base within the Internal Revenue
Department (IRD) for compliance, audit, IT, and other critical functions. As noted in Box 4, IRD is also likely
to face additional administrative burdens from managing different tax and fiscal years, and it is critical that
broader tax administration reform momentum is maintained in this period to avoid slippages.
48. Myanmar is gradually introducing tax policy changes at a pace aligned with the administrative
capacity constraints. The 2017/18 Union Tax Law, enacted in March 2018, saw few major tax policy
changes,24 with no new tax instruments introduced, no changes in income tax rates and tax brackets, and only
a marginal decrease in special goods tax rates for tobacco and alcohol, and commercial tax exemptions for pure
gold, jet fuel, air transport, and publication services. The last major tax legal changes were the amendments to
the Income Tax Law (ITL) in 2012 to expand the tax base by allowing coverage of foreign transactions and
requiring military-owned companies to pay income tax; and the enactment of the Special Goods Tax (SGT) in
24 https://www.dfdl.com/resources/legal-and-tax-updates/myanmar-tax-alert-myanmar-passes-the-2018-union-tax-
law/.
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2016. The government plans to overhaul the Income Tax Code in the next two to three years to align with the
new self-assessment regime, and to broaden the tax base in line with the changing nature of economic activity
in Myanmar since 2012.
49. Revenue leakages are a growing concern affecting short-term revenue collection. As noted in
the Myanmar Public Expenditure Review (PER), revenue leakages arising from tax base erosion on domestic
and international transactions, and the provision of tax incentives and exemptions, are pressing concerns
driving down revenue collection. The PER estimates that revenue foregone from CIT incentives to large
taxpayers alone could be as high as 1 percent of GDP—this excludes tax expenditures from MTO filers and
foregone commercial taxes. Increased exemptions on commercial taxes for gold and other items in 2017/18
further increase the tax revenues foregone. In addition, Myanmar is currently considering a new tax amnesty
law, which is discussed further in the policy developments section.
Challenges to budget execution in priority areas
50. The 2017/18 revised budget continues to emphasize spending through line ministries ahead
of SEEs. Spending by line ministries is budgeted to marginally increase from 12.3 percent of GDP in 2016/17
to 12.9 percent of GDP in 2017/18, while SEE spending is expected to remain flat in line with declining SEE
revenues (Figure 46). Public sector expenditure grew by an annual average of 11 percent from 2014/15 to
2017/18, while revenues have been growing by an annual average of 7 percent, thus leading to a widening fiscal
deficit. However, the declining trend in in-year reserve money growth in 2017/18 suggests that budget
implementation challenges in 2017/18 may yield a significantly lower deficit outturn than budgeted.
51. Recurrent expenditure by the union government continues to be emphasized, while capital
expenditure continues to decline (Figure 47). Recurrent expenditures have increased significantly, from 9.3
percent of GDP in 2014/15 to an estimated 10.9 percent of GDP in the 2017/18 revised budget. Within
recurrent expenditure, wages, transfers to subnational governments, and interest payments have remained
stagnant. The increase in recurrent expenditure has thus been driven by other recurrent spending. In 2017/18,
allocations were doubled to the Ministry of Health and Sports and the Ministry of Planning and Finance, driving
a 0.5 percent of GDP increase in other recurrent spending over 2016/17. In contrast, capital expenditures
declined from 5.4 percent of GDP in 2014/15 to 4.3 percent in the 2017/18 revised budget at a time when
Myanmar’s infrastructure needs are growing. The 2017/18 revised budget saw a modest improvement in capital
expenditure outlay, which increased from 4.0 percent of GDP to 4.3 percent, with sharp increases in the capital
budget for the Ministry of Electric Power and Energy (87 percent) and Ministry of Construction (68 percent)
from last year as the government pursues its electrification targets.
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Figure 46: Breakdown of public sector expenditure, Share of Figure 47: Breakdown of public sector expenditure, Share of
GDP GDP
14% 12.9% 12.3% 12.9% 16%
12.0%
12% 14%
4.9% 4.3%
12% 5.4% 4.0%
10% 11.5%
10.6% 10%
8%
8.8% 8.8% 8% 4.4% 4.4% 4.9%
6% 3.8%
2.5% 6% 1.0%
4% 2.4% 2.2% 2.0% 1.1% 1.2% 1.3%
4% 2.7%
2% 2.6% 2.5% 2.7%
2%
0% 1.7% 2.2% 2.2% 2.0%
PA PA PA RE 0%
PA PA PA RE
2014/15 2015/16 2016/17 2017/18
2014/15 2015/16 2016/17 2017/18
Ministries SEEs Other Wages Transfers Interest Other Capital
Source: MOPF, WB Staff Estimates Source: MOPF, WB Staff Estimates
52. While increased spending allocations are important to support policy priorities, budget
execution and implementation capacity remain critical challenges. The Ministries of Health, Agriculture,
and Energy spent at most 90 percent of their original budget allocations in 2016/17—an execution rate lower
than in 2014/15 (Figure 48). This implies that these ministries are facing increased bottlenecks in executing
larger budgets, which may include (a) lack of clear procurement guidelines and rules; (b) late timing of the
supplementary budget, leading to delayed implementation of the revised budget; (c) dated financial rules, which
are not fit for purpose, particularly around advances and travel allowances; (d) inflexible budget rules that do
not allow for transfer between budget lines during the year to reflect changing needs; and (e) low capacity for
financial management at line ministries.
53. Myanmar needs quality public infrastructure investment and management to sustain long-
term growth. In 2017/18, capital spending is expected to be 5.5 percent of GDP for the public sector and
only 4.3 percent for general government (Figure 48). As per the recently completed Myanmar PER, this is about
half the level of public investment that fast-growing lower middle-income countries undertook preceding their
periods of strong growth. Increased capital spending levels is by itself insufficient to support economic growth,
as it is critical that projects are anchored within a strategic and credible Public Investment Program, as
highlighted in the Myanmar Strategic Development Plan (MSDP). As highlighted in the Myanmar PER, the
building blocks for a Public Investment Program include mechanisms for developing and screening project
proposals, improving sectoral project appraisal and central project appraisal review capabilities, selecting
appraised projects in the budget through a process of strategic prioritization, and introducing multiyear
commitment budgets to facilitate multiyear project execution. The absence of these building blocks could lead
to significant time and cost overruns on critical projects.
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Figure 48: Ratio of Preliminary Actuals as a share of Budget Figure 49: Capital expenditure across the public sector,
Estimates Percent of GDP
8% 6.9%
100%
80% 7% 6.2%
6% 5.5% 5.4%
60% 4.9% 4.9%
40% 5% 4.3%
4.0%
20% 4%
0% 3%
2% 1.5%
1.3% 1.2%
0.9%
1%
0%
Consolidated SEE Operations Union
Public Sector Government
2014/15 2015/16 2016/17
2014/15 PA 2015/16 PA 2016/17 PA 2017/18 RE
Source: MOPF, WB Staff Estimates Source: MOPF, WB Staff Estimates
Table 2: Public Sector Expenditures (Share of GDP)
2014/15 2015/16 2016/17 2017/18
PA PA PA RE
Total Expenditure 26.2% 26.0% 23.4% 23.8%
Ministries 12.0% 12.9% 12.3% 12.9%
Defense 3.8% 4.3% 3.7% 3.5%
Agriculture 1.5% 1.5% 1.2% 1.1%
Energy 0.2% 0.2% 0.3% 0.5%
Education 1.9% 2.1% 2.0% 2.0%
Health 1.1% 1.1% 0.9% 1.2%
Planning and Finance 1.3% 1.2% 1.5% 2.3%
Other Ministries 2.4% 2.5% 2.7% 2.4%
SEEs 11.5% 10.6% 8.8% 8.8%
SAOs 0.2% 0.1% 0.1% 0.1%
Other 2.5% 2.4% 2.2% 2.0%
Sources: MOPF; World Bank staff estimates.
Note: PA = Preliminary Actual; RE = Revised Estimates; SAOs = State Administrative Organizations; SEEs = State
Economic Enterprises.
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Economic outlook and policies
Medium-term economic outlook
Favorable medium-term economic outlook
61. Myanmar’s baseline economic outlook remains favorable, with growth projected to increase to
6.8 percent in 2018/19. Growth is expected to be supported by continued recovery in agricultural production
supported by investment and domestic and external demand; and investment in agriculture value added, for
instance in food processing, and broader manufacturing. The services sector will continue to grow to meet the
needs in agriculture, industry, logistics, and transport for trade. Over the medium term, growth is projected to
increase to 6.9 percent in 2019/20, and 7.1 in 2020/21.
62. Consumer price inflation is expected to ease further to 4.9 percent in 2018/19 from 5.5 percent
in 2017/18. This is based on a projected slowdown in monetary expansion due to lower fiscal deficits and a
planned reduction in monetization of those deficits. It also assumes a slowdown in food price inflation driven
by a combination of continued recovery in agricultural output and a moderate increase in global food prices.25
However, pressures are anticipated from rising energy prices as oil prices are projected to average US$65 per
barrel in 2018/19.26 Inflationary pressure could be exacerbated with exchange rate pass through, particularly
through its effects on imported fuel, processed foods, construction materials, and retail products. Finally,
inflationary pressures as a result of the increase in minimum wages, increases in raw material prices, and higher
transportation costs have to be closely monitored.
63. The current account deficit is forecast to remain stable in 2018/19 at 4.7 percent on sustained
growth in exports and imports. Export volumes are expected to rise with the pickup in the global economy
and trade. Garment exports are likely to continue growing in volume terms and as a value share of exports. The
increase in agricultural production and a diversification of export markets will also support exports. Growth in
imports is expected to be driven by growth in domestic demand, the need for intermediate inputs for
manufacturing output, and capital imports for investment.
64. The government budget deficit outturns are expected to be significantly lower than budgeted,
lowering the deficit trend in the medium term. Discussions with the Ministry of Finance and the central
bank indicate that the deficit outturn in 2017/18 is likely to be considerably lower than budgeted, at about 2.5
percent of GDP compared to 5.8 percent of GDP in the 2017/18 revised estimates. The actual deficit will only
be confirmed in May once provisional actuals are available. Regardless, expenditure as a share of GDP will
likely grow at a slower pace over the medium term than projected in the last Myanmar Economic Monitor
(MEM), driven by budget execution challenges from the change in the fiscal year, and mismatch of tax and
fiscal years. Projected budget deficits are thus revised downward from the last MEM, to the 3.5 to 4 percent of
GDP range over the medium term.
25 World Bank, “Commodity Markets Outlook,” October 2017.
26 World Bank Global Economic Prospects, January 2018.
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Increased downside risks to economic outlook from domestic and external sources
65. Domestic downside risks to the baseline outlook have intensified due to the ongoing insecurity
and international response to the crisis in Rakhine State. While the direct impacts of the crisis are
geographically limited, there are a number channels for indirect impacts on the economy as a whole. The level
of official development assistance may decline, limiting an important source of concessional financing. The
level and composition of tourism arrivals may weaken tourism spending and demand for related services such
as hospitality and transport. Investors concerned about the reputational risk of operating in Myanmar may defer
already committed FDI or new investments. A slowdown in investments would feed into slower growth in
manufacturing, financial services, and agriculture. In industry, a slowdown in investment flows to light
manufacturing and the power sector would have negative spillover effects on infrastructure construction
activity. Anecdotally, many investors are expressing greater concern about the pace of government reforms
rather than the insecurity in Rakhine State.
66. A significantly lower growth scenario, while unlikely, could lead to growing macroeconomic
imbalances, with implications for broader stability. Current and fiscal account deficits would widen.
Exports would slow, with moderating investments in the tradable sector and associated infrastructure services,
though import demand would also decelerate. With lower foreign investment flows, the exchange rate would
come under pressure. An expansion of the fiscal deficit would heighten risks to debt sustainability, which is
sensitive to fiscal slippages or slower growth. More generally, the pace of job creation would be negatively
affected, which has wider implications for poverty.
67. The banking sector faces a challenging transition to comply with international standards. The
introduction of these necessary reforms brought to the forefront the vulnerabilities in a banking sector that has
typically relied on overdrafts for lending purposes. These vulnerabilities persist even as the central bank has
been working with commercial banks to allow for an extension of three years to adapt to the new standards. If
banks reduce the supply of credit while adjusting to the new environment, sectors that highly depend on
external finance, like the construction sector, could be severely affected. The slowdown in construction will
adversely impact poorer households, which are disproportionately employed as unskilled labor.
68. Although risks to the global outlook are more balanced than before, important downside risks
remain. Disorderly financial market movements, such as an abrupt tightening of global financing conditions
or a sudden rise in financial market volatility, could trigger financial turbulence and potentially derail the global
growth pickup. In addition, escalating trade protectionism or rising geopolitical risk could negatively affect
confidence, trade, and overall economic activity. While the aggregate impact of tariff increases announced by
the United States and China so far appears limited, the risk of further escalation exists. Over the longer term, a
more pronounced slowdown in potential output growth in both advanced economies and EMDEs would make
the global economy more vulnerable to shocks and worsen prospects for continued improvements in living
standards.
69. While growing global trade policy uncertainties may affect the recovery in global trade, direct
impacts on Myanmar are likely to be modest. Developed economies may seek new sources of imports
including from Myanmar, and Myanmar’s participation in global value chains remains limited. While commodity
prices are expected to rise gradually, trade in gas and minerals could be adversely affected if increasing global
trade policy uncertainty translates into higher volatility of commodity prices. The agriculture and garments
sectors, in particular, remain exposed to fluctuations in demand from major trading partners such as China and
supply shocks, which have a propagation through input-output links to other sectors of the economy.
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70. Tighter global financial conditions could generate a slowdown in financial flows to emerging
and developing countries.27 Global financing conditions, which remained benign throughout 2017, are likely
to tighten in 2018, as monetary policy gradually normalizes in major advanced economies. Inflation expectations
and prospects of a faster normalization of U.S. monetary policy have increased. As global interest rates continue
to increase, EMDE external financing conditions could become increasingly challenging in 2018 and 2019.
Myanmar remains at low risk of debt distress and has access to significant sources of concessional financing.
Policy Priorities
Buttressing macroeconomic stability
71. The government has launched a comprehensive development plan for reform. The Myanmar
Sustainable Development Plan (MSDP), which lays out a comprehensive and prioritized policy reform agenda,
holds the promise of offering the much-needed unifying and coherent roadmap for reforms for the country. It
seeks to translate the government’s 12-point economic plan and sector plans into a clear set of policy priorities,
and has been welcomed as a significant step forward.
72. A key fiscal priority for Myanmar is to break out of the cycle of low revenue and low public
spending. As noted in the last Myanmar Public Expenditure Review (PER) on Fiscal Space for Economic
Growth, Myanmar has among the lowest tax collection as a share of GDP in the world. The general government
spending, at about 15 percent of GDP, is significantly lower than the average for other lower middle-income
countries (20 percent of GDP). In addition to low spending levels, Myanmar spends less as a share of the
budget on capital projects and on critical priorities such as education and health, despite improvements since
2012/13, than other lower middle-income countries. In the last three years, budget execution rates have been
92 percent on average and have never risen above 94 percent.
73. It is critical that Myanmar implements a strategy that breaks this vicious fiscal cycle. Myanmar
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. Key elements of the
strategy could be policies that (a) reallocate spending from less important to priority areas, and (b) grow the
size of the overall fiscal envelope through domestic revenue mobilization and sustainable borrowing. The
Myanmar PER provides further recommendations in these two broad policy areas, such as (a) improving
allocative and productive efficiency of capital spending, by introducing project appraisal, tracking project
performance, and introducing multiyear commitment budgets; (b) enhancing oversight of SEE fiscal
performance; (c) reducing revenue leakages from base erosion and tax expenditures; and (d) developing a
medium-term debt strategy that relies less on CBM financing and more on other concessional, and
noninflationary, sources of financing. A number of these ideas are being implemented by the government,
though more energetic execution would help.
74. Myanmar is considering an income tax amnesty, with an option for citizens with undisclosed
sources of income to pay tax at reduced rates. A draft clause in the Union Tax Law, which was subsequently
not included in the Law, highlighted a reduced tax rate of 3 percent, if income is disclosed in the first half of
2018/19, and 5 percent, if income is disclosed in the second half of 2018/19. Reports indicate that the issue of
tax amnesty may be considered in a separate tax amnesty law. International experience highlights that it is a
popular measure globally, but its impact on revenue collection and tax compliance varies greatly depending on
design—with success dependent on whether the amnesty is (a) used as a transition to a tax regime with more
27 World Bank Global Economic Prospects, January 2018.
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stringent enforcement, (b) is part of a long-term tax compliance program, and (c) is constantly monitored by
tax compliance measurements.
75. While good progress is being made to improve transparency in the extractives sector, more
can be done, including under the Extractives Industry Transparency Initiative (EITI). Statistics from
the oil and gas industry are reliable and cover all fiscal contributions from operators. Statistics from the mining
industry (jade and gems, in particular) remain incomplete since illegal mining and undeclared exports are not
captured. Bureaucratic inefficiencies complicate tax collection and systematic oversight and reporting.
Computerized tax collection and customs control could lead to important improvements. Almost one-third of
fiscal contributions are retained as internal revenue on the own accounts of State Economic Enterprises
(predominantly Myanmar Oil and Gas Enterprise [MOGE] and Myanmar Gems Emporium [MGE]), which
are subject to less scrutiny than other revenues. Finally, the mineral license management system is in urgent
need of modernization.
Complementing macro-stability with improving the operating environment for the
private sector
76. Sustaining growth in the medium and long term will require further institutional and policy
reforms to attract private investments. The private sector, and particularly foreign investors, have highlighted
the lack of focus and progress on economic reforms as a major hindrance to investment.28 Despite new
important legislation such as the 2016 Investment Law and the 2017 Company Law (see Box 2 and selected
topic 1), the perception is that bureaucratic inefficiency, centralized decision making, and emerging
protectionism are bottlenecks to improving the operating environment for the private sector. Without
addressing these problems, it is difficult for Myanmar to attract more and diversified foreign investments to
sustain job creation and drive productivity growth and compete with emerging market peers.
Coordinating and monitoring Doing Business and related reforms
77. The Government of Myanmar has set an ambitious target to improve Myanmar’s ranking in
the Doing Business report. In July 2017, the government expressed plans to bring Myanmar within the top
100 countries in the ease of doing business ranking from its then ranking of 171 out of 190 countries. The
Doing Business report measures policies (regulations and procedures) along the 10 indicators affecting the life
cycle of domestic companies, such as starting a business, getting a location and constructing a facility, getting
financing, paying taxes and trading across borders, and dealing with contracts or disputes.29 Experience from
other countries suggests that improvement in the respective Doing Business indicators have been associated
with increasing the size of the formal private sector, more job creation, and more inclusive private sector
growth.
78. Myanmar’s efforts to improve the business environment have been recognized by the Doing
Business report in the last decade. Since 2013, Myanmar has implemented eight positive reforms as
measured by Doing Business. Over the last year, Myanmar made registering property less costly by reducing
the stamp duty, and it improved access to credit information by adopting a regulation allowing the establishment
of credit bureaus. Through the years, Myanmar has also made starting a business easier by reducing the cost to
register a company (from 500,000 kyats to 250,000 kyats starting April 1, 2018), eliminating the minimum capital
requirement, and simplifying the process of company registration. In February 2018, the Ministry of Commerce
reduced the number of products requiring an export license, which is expected to help ease the document
requirements for exports.
28 For critical views, see, for instance: https://www.mmtimes.com/news/govt-risks-derailing-economy-despite-
legislative-reforms.html; and https://www.mmtimes.com/news/economy-yet-take-despite-govts-promise-growth-fixes-
needed.html.
29 The indicator only measures policies that are relevant for formal businesses, and data are collected only in the largest
city (with the second-largest city included for countries with a population of more than 100 million).
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79. Despite some progress, the Doing Business 2018 report shows that Myanmar’s overall
performance on ease of doing business lags the average for East Asia and Pacific (EAP) economies in
most areas. Myanmar’s overall ranking in Doing Business 2018 was 171st out of 190 countries, and 24th out
of 25 economies in the EAP region. Myanmar’s ranking reflects an overall distance to the frontier of 44.2
percentage points (out of a possible 100). Myanmar’s performance is behind its EAP peers in most areas,
suggesting room for improvement especially in a range of indicators from their current position to the frontier
of 100 points: obtaining credit (from 10 points), protecting minority investors (25 points), resolving insolvency
(20.4 points). and enforcing contracts (24.5 points) (Figure 50).
Figure 50: Myanmar’s performance on Doing Business indicators compared with East Asia & Pacific
Myanmar East Asia & Pacific
Starting a Business
100
Dealing with
Resolving Insolvency 80 Construction Permits
60
40
Enforcing Contracts Getting Electricity
20
0
Trading Across Borders Registering Property
Paying Taxes Getting Credit
Protecting Minority
Investors
Source: 2018 Doing Business.
80. Efforts by the government to better coordinate reforms to improve Doing Business
performance are welcomed. Establishment of the “Improving Myanmar’s Doing Business Ranking Working
Group” is a step in the right direction. The group is chaired by the Deputy Minister of Commerce and has been
taking steps to prepare and implement a reform action plan and engage in an effective communication of policy
changes to the private sector. The Working Group is also a subset of the Private Sector Development
Committee chaired by the Vice President. The government may consider constituting a full-time secretariat to
develop a long-term work plan, a mechanism to monitor reform progress, and to facilitate consultations with
the private sector.
81. In addition, strong political support with a long-term vision is important for sustaining Doing
Business reform momentum. Improving Doing Business performance is not about introducing short-term
fixes or issuing notifications. Instead, it is about steady implementation of reforms (policy and institutional
changes). The scope of reforms is multi-sectoral by nature. It spans investment policies, where Myanmar has
already begun to reform, to topics with less direction to date such as land registration, interest rate controls,
and quality of the court system. All of those will require improving capacity (human resources, use of ICT),
changes in legislation, changes in business processes, and delegation of authority. Hence, strong political
support can help ministries lock in commitment to reform and better articulate their reform plan to the public.
82. To help overcome the situation, the government may want to consider the following actions:
• Strengthening coordination across government departments to implement recent new economic
legislation. The Private Sector Development (PSD) Committee, chaired by the Vice President, is a good
platform to impose coordination to discuss issues and implementation of new legislation, such as the
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Investment Law and the Company Law. The Committee can request standardizing criteria for ministerial
permits for foreign investments, as stipulated in the 2016 Investment Law; streamlining registration,
reporting, and tax filing for small and medium-sized enterprises, as stipulated by the new Company Law;
and reducing multiple applications for trade permits, physical inspections, and arbitrary approach to
customs valuation.
• Monitoring progress in reforms related to Doing Business. The establishment of the “Improvement
of the Doing Business Working Group” chaired by the Ministry of Commerce to coordinate reforms is
greatly welcomed. The Working Group can pilot an approach to make clear and transparent the roles of
different departments in improving the business environment and using monitoring systems to check
implementation progress, which can be discussed at the PSD Committee.
• Ensuring coherence and clarity in communicating policy reforms to the public. Relevant ministries
could develop and coordinate communication strategies for public outreach and ensure coherence in
messages. This effort could potentially increase the depth of public awareness about the government’s
reform plan and progress.
• Further liberalize regulations for foreign investment. Myanmar could build on the introduction of the
Investment Law and Company Law by further liberalizing sectors, such as insurance and banking services,
for foreign investment, along with simultaneous implementation of prudential regulations. Currently,
Myanmar has one of the highest levels of restriction for FDI on insurance and banking sectors (OECD
2016). Such liberalization can potentially create a new momentum for driving private sector investment.
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Special topics
Topic 1: Drivers of Myanmar Foreign
Direct Investment
83. Between 2016 and 2017, the Government of Myanmar has put in place the key legal, regulatory,
and institutional framework for a new investment regime for both domestic and foreign investment .
The newly enacted Myanmar Investment Law (MIL 2016) and subsequent implementing rules (Notifications
35, 10, 13, 15, 57/ 2017) address shortcomings in the previous investment environment in four broad areas.
First, market access has been liberalized through simplified entry procedures and fewer sectoral restrictions.
Second, the new regime improves on investor protection by adopting stronger and more equitable guarantees
against expropriation, rights to transfer funds and use land. In addition, the MIL instituted new channels to
resolve early grievances through an Investor Assistance Committee as well as provisions for dispute settlement
through Court/Arbitral tribunal. Third, investment incentives were rationalized - from blanket tax exemptions
linked to admission - towards selected incentives for promoted sectors or regions. Fourth, and finally, the new
regime is shifting towards a more transparent and predictable approach to regulate investments by reducing
complexity and establishing clearer rules to reduce government discretion in the approval process.
84. With a sound law in place, an effective communication campaign on its benefits and
implementation arrangements will be critical. The World Bank Enterprise Survey (WBES) conducted in
2016 and 2017 shows that majority of foreign and domestic firms that are aware of the law consider that it will
have a positive impact on their sector (Figure 51). However, the low level of awareness at the time of the survey
– almost half of the firms were not aware of the new law - suggests that the Government needs to continue
communicating about the provisions of this new law.
Figure 51: Business perceptions of the new MIL
Do you feel businesses in your sector will benefit from the New Investment Law?
Domestic 34.9 14.9 4.0 46.2
Foreign or JV 31.3 20.4 2.0 46.3
0 20 40 60 80 100
Percentage of firms
Yes, the law has positive impact No, the law will hav e no effect Not aware of the law
No, law will hurt my business
Source: Myanmar WBES 2016, 2017
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85. Among those who think the law will have a positive impact, the most important expected
benefits appear to be linked to increases in market participation. Domestic firms value mostly the possible
transfers of technology from foreign firms and higher range of suppliers/buyers while foreign firms value the
possibility of sourcing better inputs from the increasing number of FDI firms in Myanmar (Figure 52). About
20 percent of all firms expect the dispute settlement mechanism associated with the new law to have a positive
impact on their activity.
Figure 52: Business perceptions of the benefits of the new Law
Principal reason the New Investment Law will be beneficial
Domestic 38.5 18.6 22.1 17.9 2.6
0.3
Foreign or JV 19.7 26.2 16.4 19.7 4.9 13.1
0 20 40 60 80 100
Percentage of firms
Transfer of technology Access to better inputs Higher range of buyers/ suppliers
Mechanism to settle disputes Protection against expropriation Other
Source: Myanmar WBES 2016, 2017
86. Streamlining procedures and mediating investor disputes can have significant impact on
firms’ productivity. The WBES shows that virtually all foreign firms in Myanmar dedicate some of their
managers’ time to dealing with government regulations and 30 percent of them dedicate more than 5 percent
of their managers’ time (Figure 53).
87. Figure 54 shows that 34 percent of foreign firms had to wait at least 6 months to secure their land
lease while 14 percent had to wait for more than a year when entering Myanmar. To clear imports through
customs, 54 percent of foreign firms had to wait more than one month for at least one transaction in the past
and 25 percent had to wait for more than 2 months. Thus, beyond investment incentives given in the new
MIL, it is still critical for the Government of Myanmar to improve the overall business climate. Farole (2011)
for example, provides suggestive evidence that trade facilitation contributes significantly to increasing FDI
flows, while financial incentives have little measurable impact.
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Figure 53: Management time and regulations
Percentage of senior management's time spent on dealing with government regulations
Domestic 67.5 28.6 4.0
Foreign or JV 69.4 30.6
0 20 40 60 80 100
Percentage of firms
0% 1 to 5 % > 5%
Source: Myanmar WBES 2016, 2017
Figure 54: Time to secure land lease and clear customs reported by foreign firms
88. The Investor Assistance Committee set up under the Investment law has the potential to
provide fair access to all firms to mediate disputes with government agencies. As of today, 75 percent
and 80 percent of foreign firms report that it is important to know the right people in government to resolve
land disputes and issues with customs respectively. These figures suggest that firms which are better connected
with government officials or political parties are able to solve disputes faster, creating unfair competition across
firms.
89. Greater inflow of foreign investment can play an important role in generating exports and
employment. (Figure 55 and Figure 56) The WBES results show that foreign firms employ on average 170
percent more labor than domestic firms and pay significantly higher wages for both production and non-
production (admin, finance, accounting) workers. Restricting the sample to firms in the manufacturing sector
which absorbs a large portion of Myanmar FDI, the numbers are comparable: foreign firms are about 165
percent larger and pay 12 percent and 3 percent higher wages for production and non-production workers
respectively. They also export about 60 percent more of their output than domestic firms, even controlling for
sector of specialization. While the number of foreign firms remain small, in aggregate, foreign firms account
for about 20 percent of all exports and 18 percent of formal employment.30 Thus, increasing FDI flows into
30
Estimates of aggregate exports and employment are extrapolated from the WBES. This is likely a lower bound
estimate on contribution of foreign firms since we do not include weights for foreign firms.
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Myanmar could contribute to reducing Myanmar’s $6.7 billion trade deficit and improving direct employment
opportunities in high wage activities.
Figure 55: Foreign premium
200150
Percent
100 50
0
Employment Production Average Wage Exports share of total sales
Production Employment Non Production Average Wage
Non Production Employment
Source: Myanmar WBES 2016, 2017
Note: This figure shows the marginal effect of being a foreign firm on various firm level observable metrics. Specifically, its reports the
foreign dummy coefficient of a series of regressions of performance measures at the firm level (employment, wage, export share of
sales) on sector fixed effects and a dummy for whether the firm is foreign or a JV. Employment and wages are in logs so the coefficient
can be interpreted as the foreign premium in percentage terms. Robust 95% confidence intervals are included
90. The long-run benefits of increasing FDI will also depend on the positive externalities that
foreign firms can generate for the domestic economy. First, as foreign firms generally use more advanced
technology, these spillovers could take the form of ideas and know-how radiating from foreign to domestic
firms.31 Foreign firms in Myanmar are indeed more productive than domestic firms (even though the difference
is not statistically significant at the 5 percent level). Foreign firms are also more likely to be more technologically
advanced as they are 27 percent more likely to produce more than one output product. Foreign firms can also
foster training and skill upgrading of local workers as they are about 25 percent more likely to offer a formal
training program to their new hires. Finally, these externalities could take the form of new market opportunities
upstream or downstream for domestic firms.32 However, as shown in (Figure 57), only 40 percent of foreign
firms are currently sourcing more than 20 percent of their inputs from domestic firms and less than 10 percent
of them have switched an input previously sourced abroad to a domestic supplier in the past 12 months. The
top perceived barriers preventing foreign firms from sourcing domestic inputs are low quality of output
produced by Myanmar firms and the difficulty of finding the right local suppliers.
31 Cipollina et al (2012) show using cross-country evidence that FDI has a growth-enhancing effect in part through
positive technology spillovers. Abebe et al (2018) show that exposure to foreign firms enhances Ethiopian firms’
production processes, managerial and organizational practices, logistics, and knowledge about exporting.
32 See Javorcik (2004) for evidence on how FDI firms can create productivity spillovers through contracts between
foreign affiliates and their local suppliers in upstream sectors.
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Figure 56: Foreign premium and potential for spillovers
100
50
Percent
0
-50
Value Added per worker Has formal training program Multi product firm
TFP
Source: Myanmar WBES 2016, 2017
Note: This figure shows the marginal effect of being a foreign firm on various firm level observable metrics. Specifically, its reports the
foreign dummy coefficient from regressions of firm performance (value added per worker, TFP, whether the firm has formal training
program, and whether the firms is multi-product) on sector fixed effects and a dummy for whether the firm is foreign or a JV. The
model with “Has formal training program” and “Multi product firm” dummies is estimated through a logit regression. Robust 95%
confidence intervals are included.
Figure 57: Domestic sourcing of inputs for foreign firms
91. The direct and spillover benefits from FDI need to be evaluated against the costs of forgone
revenues from tax holidays and revenue exemptions. While FDI is important for generating employment
opportunities and exports, they cannot alone solve Myanmar’s underemployment issues and be the only source
of economic development. In Myanmar, while incentives are important for attracting FDI (85 percent of
foreign firms characterize them as important in their decision to locate in Myanmar), they do not seem to be
the pivotal reason for why investors choose Myanmar over other comparable destinations. For firms that also
considered another destination for their investment before entering Myanmar, 65 percent reported that
incentives in Myanmar were comparable or less favorable than the other country they considered. Thus,
financial incentives should not lead to a race to the bottom with other competing FDI destinations. Incentives
should be evaluated by type (financial incentives vs. streamlined procedures, see above), targeting (they should
focus on sectors where the elasticity of investment to incentives and positive spillovers are the highest),
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administration and transparency (their design and implementation should be coordinated with the Internal
Revenue Department).
92. The impact of the new investment regime will depend on its implementation as well as
complementary reforms. Even as the key law, regulations, and procedures have been formally enacted and
applied, some new mechanisms under the new MIL remain to be set up, including the Investor Assistance
Committee. Some have encountered practical challenges and will need adjustments. For example, the delegation
of the Myanmar Investment Commission (MIC)’s authority to states and regions is meant to reduce entry cost
but its effectiveness will require improvements in staff capacity at DICA’s regional offices and regional
investment committees.33 As the results above have shown, other investor concerns will not be addressed
through the investment policy regime alone. Concerns about access to land, clearing customs, availability of
skilled labor, and quality of domestic suppliers should be the subject of complementary reforms.
33
Regional investment committees are formed with regional governments’ cabinet members and chaired by regional
chief ministers.
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Topic 2: Myanmar Productivity Analysis34
93. Raising economic productivity is one of the most pressing challenges that Myanmar faces to
sustain high levels of growth and to raise living standards. In 2015, labor productivity in Myanmar was
one of the lowest in East Asia, at about 40 percent of the average in emerging East Asia. Raising it to the level
of China or Philippines would immediately double Myanmar’s GDP per capita. The objective of this paper is
to describe Myanmar’s private sector in more details, and draw evidence for policy.
94. The Myanmar Business Survey 2015 and international evidence provide means to meet these
challenges. Given the limitations of existing data, little detailed analysis of productivity at the firm level has
been possible. The Myanmar Business Survey (MBS) is a 2015 survey of firms, which was produced by the
Myanmar Central Statistical Organization and the UNDP provides rich information on production for a
representative sample of firms outside the agriculture sector with at least one employee. For instance, with a
sample of 15,000 firms, the MBS provides novel perspectives on age, sectors, and geographic repartition of
firms and employment. An important academic literature documents the main stylized facts concerning firms
in developing countries (Syverson, 2011, Li and Rama, 2013), and draws important conclusions for firms-related
policies.
95. This topical note is structured in three parts analyzing Myanmar firm demographics,
productivity of firms in general and productivity of firms in industrial zones. The note illustrates the
importance of the changes that have taken place in the past 10-15 years in Myanmar. Until the late 1980s, the
formal private sector was considered as almost inexistent in Myanmar (Than, 2006). The note complements the
two Enterprise Surveys (2014 and 2016), the more detailed but smaller UNESCAP (2015) survey of firms, and
other quantitative analyses of the private sector in Myanmar, and provides some new insights.
96. While the first market reforms period in the 1990s were piecemeal, the step up in reform
momentum since 2000 led to impacts evident in this new data source. The analysis shows a rapid change
in the demography of firms, with many firms35 born since the year 2000, that are larger on average, and with a
significant share of the population employed by foreign firms (See also Special Topic 1). Yet, those large and
young firms are not significantly more productive - they have not yet been able to accumulate capital assets. As
in many developing countries, labor productivity dispersion is high - there are many low productivity firms,
with smaller firms being the least productive, and medium-sized firms the most productive on average. This
indicates that a growth policy could aim at correcting the distortions which prevent small productive firms to
grow. One of those policies, on which we focus here, is the creation of industrial zones opened in the 1990s
which aimed at clustering manufacturing firms together. We show that while they tend to be more productive,
this correlation is completely accounted for by a better access to electricity,
Demographics of Myanmar’s productive sector
97. The private sector in Myanmar is dominated by small firms, geographically concentrated and
subject to rapid change.
98. As in many developing countries, most firms in Myanmar are small, but a few large firms,
especially in manufacturing, employ a significant number. Even when excluding firms without hired
34
This note is the product of a collaboration between the Central Statistical Organization and the World Bank,
based on data from the 2015 Myanmar Business Survey.
35
Myanmar Business Survey’s sample is made of establishments. But since about 98% of firms in the MBS are
single-establishment, we will use the term firms in the rest of this note.
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employees, as is the case in the MBS dataset, 36 percent of firms have 1 or 2 workers and 72 percent have 5
workers are less, the median being at 3 employees (Figure 58). Note that MBS coverage excludes most informal
firms, which represent 83% of the 22 million persons in employment according to the most recent release of
the Labor Force Survey36. In the manufacturing sector, the Labor Force Survey counts a total of about 2.4
million laborers, and MBS records about 500,000 workers37. The average firm has 7.4 workers, which shows
that large firms (defined here as 50 workers and above), although there are few of them (1638, or 1.3 percent
of all firms) represent 32 percent of the total workforce found in MBS and 22 percent of value added. There
are variations across sectors - the largest firms tend to be in the manufacturing sector.
Figure 58: Size of firms by industry
100% 2% 1% 2%
2% 3%
4%
22% 23%
80% 32% 32%
32% 43% 45%
59% 12%
61% 14%
60%
10% 12%
42%
40% 47%
9%
10%
61% 64% 63% 29%
33%
20% 20%
23%
25%
16% 17%
12% 11%
7%
0%
Number of Workers Value added Number of Workers Value added Number of Workers Value added
firms firms firms
Industry Services & Trade Total
Micro (1-4) Small (5-19) Medium (20-49) Large (50+)
Source: Myanmar Business Survey 2015, World Bank calculations
99. Firms are geographically concentrated especially in Yangon and Mandalay. These two cities
combined representing about a third of all firms, but more than half of the number of workers, and 50 percent
of total value added and capital owned (Figure 59). This high concentration is especially prevalent in
manufacturing jobs, where Yangon represents 47 percent of all jobs and Mandalay 16 percent. The most striking
difference across regions is the shape of the distribution: the median firm is slightly larger in Yangon than in
other States & Regions, but more importantly most very large firms are located in Yangon, explaining most of
the difference of the distribution of employment (Figure 60).
36 Because definitions of formality vary, a proper comparison is not fully possible. As shown in CSO/UNDP (2016)
however, MBS seems to have coverage gaps when comparing to the Census, and possibly also the Labor Force Survey.
37 Exclusion of some outliers leads to some differences in results in this note in relation to Published MBS survey report.
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Figure 59: Firms, workers and output by region Figure 60: Distribution of firm size by region
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Value Added Number of workers Assets owned Number of firms
Yangon Region Mandalay Region Ayeyarwaddy Region Shan State
Thaninthary Region Sagaing Region Bago Region Magwe Region
Mon State Nay Pyi Taw Kachin State Rakhine State
Kayin State Kayah State Chin State
Source: Myanmar Business Survey 2015 Source: Myanmar Business Survey 2015
100. Third, and perhaps most importantly, demographics is rapidly changing with many young
firms accounting for most of employment( Figure 61 and Figure 62). 60 percent of firms are less than 15
years old (and were thus established after 2000), and 37 percent of firms are less than 10 years. More
importantly, and in contrast to most other business surveys, young firms tend to have most workers: in each
sector, half of the workers are employed in firms 10 years or less. There are about 230 000 workers in firms
younger than 5 years. This implies that on average, very young manufacturing firms are larger on average, in
contrast to the findings of the literature for most countries38 and the intuition that firms grow over time if they
are productive and close if they are not. (Hsieh and Klenow 2014).
Figure 61: Number of workers by age group Figure 62: Average firm size by age group
Manufacturing
Other Industries
Trade
Services
0 20 40 60 80 100
Percent of worker
Less than 2 years 3 to 10 Years
10 to 20 years 21 to 40 years
More than 40 years
Source: Myanmar Business Survey 2015
Source: Myanmar Business Survey 2015
38
Note that the question in the survey specifically asks about the year of establishment, but a possible interpretation is that it might
have been mistakenly interpreted as the year of a change in status – for example a privatization.
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101. The change in demography of manufacturing firms has several characteristics related to the
entry of foreign firms. First, there has been significant entry of foreign firms, which are still a relatively low
number but are much larger in size than the average of domestic firms, and thus represent 25 percent of
employment in the manufacturing sector (Figure 63); Second, the sector composition has evolved with firms
in the export oriented sector (textiles in particular) more likely to be younger. But even when controlling for
the nature of ownership and sector composition, newer firms remain significantly larger, mostly driven by a
small set of very large firms. Thus, despite the limitation of the cross-section nature of the data, it is clear that
the opening to trade and foreign investment has had large impact on the level and composition of employment
and production, at least in the manufacturing sector covered by the survey. This confirms the findings in the
December 2017 Myanmar Economic Monitor that a lot more jobs are created by new firms, both very small
(1-4 employees) and very large (100+ employees) rather than existing firms expanding.
Figure 63: Size composition by sector (Manufacturing) Figure 64: Share of foreign firms
Average size (no
Number of firms
of employees)
Sector (Manufacturing
Less More 20.6%
only) More
than than
Less than 10 years than 10 18.1%
10 10
years
years years
Food products, beverages
7760 17752 6.2 6.4
and tobacco products
Textiles, wearing apparel, 11.2%
10.0%
leather and related 1052 2665 95.1 22.2
products
Wood products 168 880 9.2 6.6
Paper products & printing 504 889 8.5 7.3 3.7%
1.9% 2.3% 1.4% 2.4%
Rubber and plastics 1807 4528 10.0 6.3 0.8% 0.9% 0.6%
Metals 749 2262 6.7 7.3
Furniture 439 739 6.1 6.5 Industry Services Young (10 years Old (More than
or less) 10 years)
Other manufacturing,
993 2914 8.3 5.8
repair
Number of firms Value added Employment
Source: Myanmar Business Survey 2015
Source: Myanmar Business Survey 2015
The productivity challenges
102. The analysis of firm demography guides the areas of analysis of productivity. This note focuses
on labor productivity as distinct from Total Factor Productivity.
103. Labor productivity varies considerably across regions and sectors in Myanmar. It is first useful
to characterize labor productivity in the aggregate. In this survey, labor productivity on average in Myanmar
ranges from about MMK4 million on average for services and manufacturing, and reaches 5 million for trade,
and 7 million for non-manufacturing industries (construction, mining, etc.). In PPP dollars39, this amounts to
about US$12,000 per year. In other words, the total amount of output per worker measured in US$ PPP on
average for surveyed firms is US$12,000 per year. This is somewhat above the macroeconomic value of
US$9000 (obtained from the World Development Indicators), as could be expected since MBS excludes all the
agricultural sector and most informal firms which are likely to have lower productivity.
39
Using PPP exchange rates for 2015 in the World Development Indicators
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104. There is strong variation in labor productivity across regions and by size as well by age and
ownership.
a. Geography
105. For instance, unexpectedly, the most productive states are not necessarily the ones with the highest
concentration of manufacturing. In theory, one would expect denser places to have higher productivity.
Mandalay and Yangon are in the average while Ayerawaddy, which is mostly an agricultural state and specializes
in food production (94 percent), has the highest average labor productivity in the sector (Figure 65 and Figure
66) and in manufacturing in general.
b. Dispersion and size effect
106. Labor productivity is also highly dispersed across firms providing an opportunity to raise
productivity by removing major market distortions that may also be restricting factor reallocation.
Median productivity is about half of mean productivity, and the 90th percentile to 10th percentile ratio is about
37 times, from MMK200,000 of value added per worker (per year) to MMK7.5 million. In manufacturing, the
density of very low productivity firms is even more striking, with 10 percent of firms with a productivity of
MMK140,000 or less. This is a well-known fact for firms in an emerging economy, and highlights the
opportunity to raise productivity by removing distortions, which can either stem from the labor markets, or
other causes (access to capital which would prevent productive firms to grow).
107. One potential driver of these differences is size with productivity rising up to a plateau of 100
employees, providing an opportunity to raise productivity by moving labor out of very small and very
large firms. As we have seen, there are many very small firms in Myanmar. The relationship between size and
value added per worker is positive: an increase in number of workers by 1 percent is associated with a 0.4
percent rise in productivity, with a plateau around 100 workers. There is a wide dispersion of productivity levels
among small firms, and especially one-worker firms (which might be accounted for the wide diversity of their
location as well as by less rigorous reporting), and the average productivity increases with size, but then plateaus
and slightly declines for large firms. This indicates potentially large reallocation gains from moving labor out of
both ends of the distribution – very small and very large firms.
Figure 65: Distribution of labor productivity by sector Figure 66: Firm size and labor productivity
Sector Other
Manufacturing Trade Services
Industries
Pctile10 138 131 278 337
Pctile25 493 844 848 818
Median 1298 2393 1828 1795
Mean 3135 4858 3959 3226
Pctile75 2950 8713 3894 3447
Pctile90 6810 9187 8493 6649
Source: Myanmar Business Survey 2015 Source: Myanmar Business Survey 2015
c. Age, ownership and productivity
108. We empirically test potential determinants of labor productivity and do not find significant
relationship with age or ownership. We separate regressions for manufacturing and services (Table 3). Given
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the rapid changes described earlier, especially the rapid entry of new firms and foreign investors, one hypothesis
is that age and ownership could help explain productivity. In other words, we consider the hypothesis that
young and foreign firms more productive as they may bring innovation. The analysis does not find any
systematic difference in productivity between age categories (Column 1 and 2 of Table 3). Similarly, average
labor productivity in the manufacturing sector is smaller for foreign firms than national private business,
although this result is sensitive to how the regressions are specified and the low number of foreign firms in the
sample (Column 3 table 3). Special topic 1 (See below), which explores the impact of FDI firms in 2016 (one
year later than MBS) and in a smaller sample finds a small non-significant productivity premium for foreign
firms. The common conclusion seems to be that the performance of foreign firms has been very diverse and
close to zero on average.
109. Explanations include regulatory barriers to capital accumulation in on firms, recent
corporatization of SEEs and lack of access to technology. One explanation is that newer firms, and young
foreign firms in particular, take more time to accumulate capital, for example for regulatory reasons, stunting
productivity. Indeed, assets ownership is smaller for younger firms, despite having on average larger workforces
(Columns 5 and 6). For foreign firms, special topic 1 provides some evidence for such a scenario as government
regulation is quoted as a reason for lower investment. Another explanation is that former State Economic
Enterprises or other large inefficient firms which were recently privatized are recorded as new firms, lowering
average productivity. Finally, poor technology choices may affect the productivity of new entrants.
Table 3 Regression results to test determinants of productivity
LHS variable: Log of labor productivity Log of assets
Manufacturing Services Manufacturing Services Manufacturing Services
Log of size 0.40*** 0.24*** 0.42*** 0.24*** 0.90*** 0.94***
0.05 0.04 0.05 0.04 0.04 0.07
Age: compared to less than 2 years
3 to 10 Years -0.08 -0.11 -0.11 -0.11 0.42 0.17
0.17 0.11 0.17 0.11 0.25 0.22
10 to 20 years 0.09 -0.05 0.05 -0.04 0.62* 0.32
0.16 0.11 0.16 0.11 0.25 0.22
21 to 40 years 0.15 -0.15 0.13 -0.14 0.86** 0.87***
0.18 0.13 0.18 0.12 0.26 0.24
More than 40 years -0.07 -0.17 -0.09 -0.17 0.75* 1.36***
0.22 0.19 0.21 0.19 0.33 0.33
Ownership: compared to "private national"
Private foreign & JV
foreign -1.33*** 0.02 -0.37 -0.56
0.24 0.29 0.63 0.67
Other -0.65* 0.29* 0.98* -0.17
0.31 0.14 0.4 0.43
Constant 6.62*** 6.98*** 6.62*** 6.98*** 7.94*** 7.77***
0.21 0.19 0.21 0.19 0.29 0.28
Industry dummies Yes Yes Yes Yes Yes Yes
R-squared 0.2 0.08 0.21 0.08 0.31 0.19
N 5723 7234 5723 7234 5632 7016
* p<0.05, ** p<0.01, *** p<0.001
Source: Myanmar Business Survey 2015
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The role of industrial zones as a policy tool
110. Developed during the 1990s, the objective of Industrial Zones was to pool infrastructure in the zone
while fostering synergies and spillovers across firms. During the 1990s and 2000s, the policy mostly aimed at
attracting SMEs serving the local market, with little emphasis on exports or FDI.
111. Firms in industrial zones are more productive than firms outside. Average firm size in industrial
zones tend to be larger by 36 workers, a number that does not change when controlling for sector composition
(Table 4 column 1 and column 2). Labor productivity is higher by 46 percent, including when we control for
sector and region fixed effects, and the difference is significant (columns 3 and 4).
Table 4: Regression results to test determinants of performance when located in an SEZ
Elec
Dependent variable: Number of workers Log of productivity consumption Log of productivity
>0
Located in industrial zone 36.56*** 37.92*** 0.46*** 0.33* 0.22*** 0.2 0.18
3.88 4.14 0.12 0.14 0.03 0.12 0.14
Log of size 0.92*** 0.80*** 0.10*** 0.75*** 0.67***
0.12 0.11 0.01 0.11 0.11
Log of size (squared) -0.12*** -0.11*** -0.10*** -0.09***
0.02 0.02 0.02 0.02
Dummy: electricity consumption > 0 0.73*** 0.61***
0.1 0.11
Constant 6.14*** 4.54*** 6.08*** 6.40*** 0.37*** 5.86*** 6.22***
0.25 0.45 0.14 0.18 0.05 0.14 0.19
Industry fixed-effect No Yes No Yes Yes No Yes
State & Region fixed effect No No No Yes Yes No Yes
R-squared 0.04 0.08 0.12 0.22 0.34 0.17 0.24
N 5757 5757 5747 5747 5757 5747 5747
* p<0.05, ** p<0.01, *** p<0.001
Source: Myanmar Business Survey 2015
112. Theory provides some explanation of the benefits of agglomerating firms in zones. The
economic geography literature has proposed several hypotheses for which co-location can improve firms’
productivity. One is the selection effect: more productive firms are attracted by Industrial Zones. Another is
spillovers: because of the high density of firms, ideas, technologies or management practices are shared and
improve productivity.
113. However, in Myanmar the main reason for the productivity premium in industrial zones
appears to be better access to electricity. Defining the indicator of access to electricity is ‘at least some
electricity is purchased’. Firms that are in a zone are 22 percentage points more likely to have access to electricity
than if they were outside the zone, even when controlling for the fact that larger firms have more access to
electricity. When including a control for electricity in the productivity regression, the coefficient for industrial
zones falls to 20 percent and is not statistically significant. This implies that there is no statistically significant
effect from IZ independent from access to electricity (and perhaps other infrastructure that we are not
measuring). Note that this analysis does not claim any causal effect: the same firms might have managed to
obtain electricity without locating in the IZ. The claim is simply that the correlation between IZ and productivity
is mostly accounted for by the correlation of those two variables with access to electricity.
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Conclusion
114. This note sought to highlight the challenges of a rapidly changing productive sector. The large
dispersion in labor productivity and the apparent large size of young manufacturing firms suggest the existence
of significant distortions that may be alleviated by policy. For instance, young firms seem to hold less capital
for a given size. Another potential distortion highlighted in the paper, is access to electricity. It appears as an
important factor for firm productivity, and the note shows that the policy of industrial zones is correlated with
better access to electricity, but that other attributes of being in a zone are not significant. . This evidence thus
complements the Enterprise Survey in pointing at the importance of infrastructure and electricity in particular
in promoting private sector development.
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Topic 3: Making Finance Work for All
115. Now more than ever, Myanmar’s successful transition to an open, market -based economy is
contingent on the its people experiencing the benefits of this transition. A top-down reform agenda can
only take the process so far. Eventually, it is mandatory that all stakeholders internalize the value of the eventual
outcome, and function both as its facilitators and beneficiaries. At the heart of this phenomenon is the
availability of dynamic business opportunities and good jobs for all groups, and the roles of a vibrant private
sector and strategic public sector are both critical in this context.
116. A sound, efficient, and inclusive financial system can play a critical role in creating and
sustaining a market-based economy and ensuring inclusive growth. Financial institutions and markets
can facilitate the efficient allocation of domestic and foreign resources, price and manage risk, allow people to
plan their future, enable the equalization of economic opportunities, and generally fashion a transparent
investment, production, and distribution system. To play this role effectively it is necessary that the financial
system evolves constantly to meet the needs of the real economy, and that the regulatory and oversight
framework keeps pace with the growing complexity. As aspirations and societal structures in Myanmar continue
to evolve at a rapid pace, it is critical that its financial sector also evolves to best meet the needs of the people.
117. The reform agenda necessary to develop a “fit for purpose” financial system in Myanmar runs
both deep (more products) and wide (broader ownership), even as recent changes have yielded
significant gains. Through decades of isolation the financial sector developed structures and practices that
made it fundamentally unsuited to serve the needs of a modern, market-based economy. Myanmar’s financial
system is small, shallow, tightly-held, and vulnerable. The system is almost entirely composed of banks in terms
of assets, and savings and credit products dominate. State Owned Banks (SOBs) continue to play a significant
role in the banking sector, but private banks are increasingly carving out their market share, as illustrated by
(Figure 67). While microfinance institutions and licensed insurance companies have proliferated recently, their
functioning is severely constrained by market conditions. There is a clear lack of instruments that can help
households and businesses manage their financial futures as insurance, pensions and capital markets products
remain significantly underdeveloped. Fintech offers a valuable opportunity to leapfrog and several companies
are now poised to scale up operations in Myanmar.
Figure 67: Banking Sector Landscape, June 2017
100%
80%
60%
40%
20%
0%
Assets Deposits Loans
State Owned Banks Private Banks Foreign Banks
Source: Central Bank of Myanmar
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118. On key indicators Myanmar’s financial sector lags behind its neighbors, some of whom
launched their own reform agendas to modernize their financial sectors a few years before. As illustrated
by (Figure 68) there is a vast potential for the Myanmar financial sector to grow. The system currently mobilizes
only 37 percent of GDP by way of deposits in the banking system and lends only 22 percent of GDP to the
private sector. It is worth noting though, that in 2011 at the point when Myanmar launched its reform agenda,
the ratios were 15 percent and 7 percent respectively. The legacy issues of the system are indicated by the
continued relatively high level of lending to the Government (GoM) and State-Owned Enterprises (SOEs)
which as indicated by Figure 67, equals the private sector in borrowing from banks.40
Figure 68: Financial Depth: Myanmar and Comparators, 2016
140 132
124
120
100
80 69 69
64
60
45
37 36 33
40
22 22 18
20 14
7
0
0
Myanmar Cambodia Philippines Vietnam Indonesia
Domestic Bank Deposits / GDP (%) Private Credit / GDP (%) Credit to Government and SOEs / GDP (%)
Source: Finstats
119. As expected, the limited depth of the financial sector in Myanmar has impacted financial
inclusion for businesses. As per the most recent Enterprise Survey, Myanmar businesses are
disproportionately reliant on internal sources for investment financing (Figure 69), significantly restricting their
growth opportunities. As expected, small firms are especially disadvantaged in their access to bank loans (Figure
70). This differential access constrains their growth and job creation potential and can be traced to a number
of factors including: the challenge small firms face in accessing real estate collateral; lenders’ lack of information
about their credit profile due to gaps in the credit infrastructure; and the inability of lenders to price
appropriately loans to such firms.
Since the data do not disaggregate by source of finance it is no possible to discern how much of the lending to the
40
GoM and SOEs originates in SOBs.
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Figure 69: Sources of Financing for Purchase of Fixed Assets (% of firms reporting)
Other
Financed internally
Financed by supplier credit
Financed by equity
Financed by banks
0 10 20 30 40 50 60 70 80 90 100
Lower Middle-Income East Asia & Pacific Myanmar2016
Source: Myanmar Enterprise Survey, 2016
Figure 70: Use of Financial Services by Firm Size
80
70
60
50
40
30
20
10
0
Small (5-19) Medium (20-99) Large (100+)
With checking/savings account With bank loan
Source: Myanmar Enterprise Survey, 2016
120. Similarly, individuals have limited access to the formal financial system. Recently released
FINDEX data indicate that financial inclusion has crept up just slightly since the last survey in 2014. More than
70 percent of adults in Myanmar do not have an account with formal financial institutions, including mobile
accounts (Figure 71). The latest Findex survey finds that 31 percent of adults in Myanmar cite insufficient funds
as the only reason for not having an account. Other important factors include documentation requirements
and distance to the nearest financial institution. Contrary to anecdotal evidence, the trust deficit is cited by only
2 percent as cause for staying away from the financial system (Figure 72).
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Figure 71: Account Ownership in East Asia, 2017
60
50
40
30
20
10
0
Myanmar Cambodia Lao PDR Indonesia Vietnam
Source: Findex 2018
Figure 72: Barriers to Account Ownership in Myanmar
Source: Findex 2018
121. Given the impressive penetration of smart phones it would be logical to expect that Myanmar
is poised on the edge of a massive takeoff on this front. The number of private sector players that are
positioning themselves in the market supports this notion. However currently only about 1 percent of adults
have a mobile account. While it might just be a matter of time, it is more likely that it would take specific actions
to unlock the full potential of digital finance in Myanmar. Preliminary data from a baseline survey indicates that
financial capability among Myanmar adults is at very low levels, with less than one-fifth of those surveyed being
able to calculate simple interest rates. Similarly, it is not evident that full functionality of a smart phone is being
utilized by its owners. Thus, rather than technology the most significant barrier to uptake of digital financial
products may be financial literacy. Nevertheless, the potential to move away from cash-based transaction
remains high due to the impressive levels of smart phone ownership, among both banked and unbanked adults,
currently receiving some sort of a regular cash payment (Figure 73).
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Figure 73:Opportunities for use of mobile financial services (% of cash recipients)
Receive agriculture payments in cash
Receive government payments in cash
Receive private wages in cash
60 65 70 75 80 85
Banked and own mobile phone Unbanked but own mobile phone
Source: Findex 2018
On a more solid footing
122. Myanmar is already on the path to modernize its banking sector by undertaking the
preliminary steps to upgrade the financial sector legal, regulatory and supervisory framework.
However, moving towards the minimum international prudential standards, is a long-haul agenda. There is a
general understanding that if Myanmar banks are to effectively play their role in domestic resource mobilization,
financial intermediation and inclusion it is mandatory that these institutions move onto a more solid footing.
But given the somewhat “unique” structures and practices that banks in Myanmar have adopted in the latter
half of the 20th Century, including an over-reliance on real estate collaterals, overdrafts as a lending instrument,
and an intended and unintended opacity in their operations, it is not expected that the actual transition to a
more modern, transparent financial system will be painless.
123. The impact of certain legacy restrictions on the lending behavior of banks, such as interest
rate restrictions) needs to be examined through the modernization agenda lens. Ideally, financial
institutions and markets - banks in particular - are on the frontline of risk evaluation and pricing. The credit
appraisal function in the bank is tasked with assessing the viability of a business idea or project and pricing
credit to reflect their risk assessment. Where banks are not allowed to price risk differentially for clients and/or
loans with a different risk profile this function tends to atrophy over time, and banks tend to over-rely on
immoveable collateral and generally restrict lending. A number of legacy restrictions, such as interest rate caps
and restrictions on loan tenor, distort incentives at the financial institution level. Recent initiatives to ease
lending conditions for SMEs are a good start, but more needs to be done in a systematic manner to catalyze
lending to the private sector.
124. Some banks have already made efforts to adopt a professional business model based on sound
lending and accounting practices. But it is critical that book keeping and reporting improve across the
industry. As banks increasingly mobilize public deposits they should come under greater scrutiny. There is a
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need to monitor non-performing assets and make sufficient provisions for bad loans, keep an eye on related
party lending and ensure that banks are managed professionally with sound credit risk management and reliable
oversight from their shareholders.
Getting the structure fit for purpose
125. The financial sector reform agenda is also about bringing about a structural transformation
that can best serve the needs of a vibrant real economy. With the growth of private banks in recent years,
the landscape has changed very rapidly, forcing a rethink on the role of the State in the financial sector.
Policymakers are considering a more strategic role for SOBs that is based on prudent fiscal management and
sound economic rationale. Myanmar’s SOBs have considerable non-financial assets, such as brand recognition
and brick and mortar outreach, that can be effectively leveraged. But at the same time their usefulness to the
Myanmar development agenda and their financial sustainability hinges on them being able to compete profitably
with private banks on a level playing field. Towards this end it is critical that these institutions be run
professionally, within a sound governance framework.
126. Further development of the financial market depends on the availability of a much wider array
of financial institutions and products. More than 90 percent of the financial sector assets are with the
banking sector, and savings and credit products dominate, leaving several gaps in the markets. There has been
a significant organic proliferation of microfinance institutions (MFIs) in recent years and they serve a very
important significant segment of the market, that banks do not typically reach out to. But the sector has faced
several of challenges, not least of which is the absence of an overarching strategic vision on the part of the
policymakers. While the industry also faces many operational challenges, including raising funding, the key
challenge is that there is no clear articulation of their development role, and thus no rewards and incentive
schemes for delivering on this mandate. With the results that MFIs are currently operating largely in the urban
areas.
127. The biggest gap in the Myanmar financial markets right now is the lack of long term products.
On both the supply and the demand front, capital markets are significantly underdeveloped. Debt markets are
hampered by a truncated yield curve in the absence of the issuance of benchmarking government paper, limited
secondary market trading, and interest rate caps. On the equity side, the Yangon Stock Exchange has been
relatively slow to take off since its establishment in 2015. At present there are five companies listed on the
exchange and trading volumes remain very low. While it is expected that the Investment Law, 2016 and new
Companies Act will strengthen corporate governance and support foreign investment the number of listings
will likely only rise gradually.
128. Developing the supply of long term savings seems just as challenging. Institutional investors,
such as insurance companies and pension funds, typically are the source for long term savings and both entities
are significantly missing in Myanmar. The pending legal overhaul of this sector only serves to underscore the
importance of the insurance sector, not just as a supplier of long term savings, but also to manage the risk
factors that plague the real economy. Similarly, retirement planning becomes increasingly important as
traditional family based support systems weaken. However, the general lack of exposure to long term savings
products and the lack of awareness about financial planning is likely to create resistance to the uptake of
retirement savings products, even if such products were available.
129. Fintech offers unprecedented opportunities for Myanmar to leapfrog and avail of the lessons
that have been learned in other countries. Technology has had a transformative impact on the provision of
financial services. Myanmar has an impressive rate of smart phone penetration and the excitement over the
potential opportunities offered by a vast untapped market have energized several new entrants as well as existing
providers of financial services. But technology is the easy part, the uptake of fintech products eventually comes
down to whether the products on offer, that typically originate as some sort of solution to remit money, serve
as a gateway for greater usage of the formal financial services for people to manage their daily lives.
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And it all comes down to…
130. The major challenge with the financial sector reform agenda is that several pieces of the puzzle
need to fall in place simultaneously for a stable solution to materialize. To illustrate just one part of the
puzzle; Banks, that are growing depositories of savings from the public, have an obligation to keep better
records of the uses of these funds and should be expected to operate more transparently while being subject to
greater oversight. At the same time, there are elements of their operating environment, such as loan pricing and
tenor restrictions, that need to be modernized and given a stronger market-orientation for these banks to work
profitably and withstand the additional compliance requirements. Thereby, setting up the classic chicken and
egg puzzle when it comes to the sequencing of reforms.
131. Financial sector reform agendas all have the same destination, it is the road to that destination
that is tricky. On that road policymakers have the difficult task of ensuring the reforms are minimally
disruptive while also ensuring that the pace and magnitude of the reforms is such that it has a real impact on
the functioning of the sector. There are several techniques that can help in managing the transition effectively.
Where there is a broad consensus on the direction of the eventual reforms, such as interest rate liberalization,
it is advisable to work out a realistic medium-term timeline with clearly communicated milestones that will
eventually culminate in the desired policy outcome. On the roll-out of prudential regulations clearly articulate
the difference between the date the regulation is issued and the date it is effective and closely monitor that the
industry is on the prescribed transition path. This would facilitate well-paced, linear reforms and minimize
disruptions.
132. Just as policymakers are charged with articulating a clear reform agenda, the private sector
must commit to allowing more daylight on their functioning. A more empowered regulatory apparatus is
critical to a healthy financial sector. While there are additional burdens associated with improved compliance
and risk management practices there are also the potential benefits associated with a wider customer base and
a growing business, for a financial system that currently has a significant scale issue.
133. Where there are gaps in financial markets, take advantage of the lessons from the experience
of others to take informed risks. The upside to being one of the late comers to a financial sector liberalization
agenda is that Myanmar does not have to repeat the mistakes of others. Myanmar can avoid the personal
indebtedness pitfall in microfinance by monitoring cross-borrowing data. And to develop an interoperable
digital financial system from the outset. It can adapt the secured transactions framework that has been
developed in similar contexts. Myanmar is well-placed geographically with neighbors that have implemented
some of the more successful economic transformations in recent times. They have worked out a policy mix
that allowed them to draw on foreign investment and talent in the financial sector while keeping national
interests paramount.
134. And the most important prescription is take the public along. The ultimate success of the
modernization of the Myanmar financial system will be measured by how directly it benefits the people of
Myanmar. Thus, it is critical that as the financial sector grows more sophisticated, consumers have a full
understanding of their rights and responsibilities. Financial literacy campaigns and consumer protection
frameworks are the key underpinning to the financial sector agenda in Myanmar.
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Annex 1: Medium-Term Outlook (Baseline scenario)
2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21
Economic growth and prices
Real GDP (kyat billion) 52,785 56,476 59,792 63,601 67,895 72,588 77,745
Agriculture 15,769 16,306 16,244 16,650 17,316 18,026 18,747
Industry 15,659 16,963 18,478 20,122 21,793 23,645 25,608
Services 21,357 23,207 25,071 26,828 28,787 30,917 33,390
CPI (% change, yoy) 6.1 8.4 7.0 5.5 4.9 5.3 6.0
Consolidated public sector (kyat billion)
Revenue 14,550 13,645 14,505 14,998 16,460 18,657 21,264
o/w Tax 4,586 4,901 5,677 6,153 7,242 8,432 9,797
o/w Non-Tax 3,332 2,969 2,841 2,826 3,257 3,609 4,068
Expenditure 15,248 16,806 16,671 20,297 22,582 25,314 28,871
Recurrent 10,733 12,301 12,776 15,243 17,109 18,959 21,048
Capital 4,514 4,505 3,895 5,054 5,470 6,356 7,838
Monetary (kyat billion)
Broad Money (M2) 28,524 36,040 43,034 47,093 52,892 59,050 67,206
Reserve Money 12,725 15,683 17,013 19,029 21,372 24,043 27,260
Balance of Payments (USD million)
Current account (3,597) (4,278) (4,039) (4,068) (3,148) (2,933) (2,910)
Trade balance (4,052) (5,368) (5,369) (5,486) (5,720) (5,934) (6,358)
Exports 12,145 10,221 10,649 11,288 12,067 12,888 13,764
Imports 16,197 15,589 16,018 16,774 17,787 18,822 20,122
Economic growth and prices (% change)
Real GDP 8.0% 7.0% 5.9% 6.4% 6.8% 6.9% 7.1%
Agriculture 2.8% 3.4% -0.4% 2.5% 4.0% 4.1% 4.0%
Industry 12.1% 8.3% 8.9% 8.9% 8.3% 8.5% 8.3%
Services 9.1% 8.7% 8.0% 7.0% 7.3% 7.4% 8.0%
CPI (% change, yoy) 6.1 8.4 7.0 5.5 4.9 5.3 6.0
Consolidated public sector (% of GDP)
Revenue 22.3 18.8 18.2 16.0 16.5 16.6 16.7
o/w Tax 7.0 6.7 7.1 6.6 7.3 7.5 7.7
o/w Non-Tax 5.1 4.1 3.6 3.0 3.3 3.2 3.2
Expenditure 23.4 23.1 20.9 21.7 22.6 22.6 22.7
Recurrent 16.4 16.9 16.0 16.3 17.1 16.9 16.5
Capital 6.9 6.2 4.9 5.4 5.5 5.7 6.2
Monetary (% change)
Broad Money (M2) 12.9 26.3 19.4 9.4% 12.3% 11.6% 13.8%
Reserve Money 4.6 23.2 8.5 11.9% 12.3% 12.5% 13.4%
Balance of Payments (% of GDP)
Current account -5.5% -7.2% -6.4% -5.9% -4.7% -4.1% -3.8%
Trade balance -6.2% -9.0% -8.5% -8.3% -8.9% -8.5% -8.6%
Exports 18.6% 17.1% 16.8% 17.0% 18.8% 18.5% 18.6%
Imports 24.7% 26.1% 25.3% 25.3% 27.8% 27.0% 27.2%
Sources: MOPF, CBM, MOC, IMF BOP Statistics, CSO, WB Staff estimates
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Annex 2: Gross Domestic Product
2013/14 2014/15 2015/16 2016/17 2017/18
GDP production (Current, Kyat million) 58,012 65,262 72,714 79,721 93,490
Agriculture 17,133 18,162 19,467 20,300 24,475
Industry 18,774 22,509 25,064 27,918 29,579
Services 22,105 24,591 28,184 31,503 39,436
GDP production (2010/11 prices, Kyat mil) 48,879 52,785 56,476 59,792 63,601
Agriculture 15,346 15,769 16,306 16,244 16,650
Industry 13,963 15,659 16,963 18,478 20,122
Services 19,570 21,357 23,207 25,071 26,828
Real GDP growth (%) 8.4% 8.0% 7.0% 5.9% 6.4%
Agriculture 3.6% 2.8% 3.4% -0.4% 2.5%
Industry 11.4% 12.1% 8.3% 8.9% 8.9%
Services 10.3% 9.1% 8.7% 8.0% 7.0%
GDP production (2010/11 prices, % share) 100% 100% 100% 100% 100%
Agriculture 31.4% 29.9% 28.9% 27.2% 26.2%
Industry 28.6% 29.7% 30.0% 30.9% 31.6%
Services 40.0% 40.5% 41.1% 41.9% 42.2%
Source: MOPF
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Annex 3: Consumer Price Index
2014/15 2015/16 2016/17 2017/18
CPI (All items, yoy % change) 6.1 8.4 7.0 5.5
CPI (Food and non-alcohol. bev., yoy % change) 8.3 11.8 8.0 4.8
CPI (Non food, yoy % change) 2.9 3.1 5.4 6.2
Alcoholic beverages, tobacco 8.9 11.7 4.0 19.6
Clothing and footwear 6.0 5.5 2.5 1.5
Housing, water, electricity, gas and other fuels 7.2 4.1 6.5 6.2
Furnishings, household equip and routine hh maintenance 4.2 7.7 1.0 2.8
Health 8.1 5.7 4.1 4.6
Transport -6.3 -5.8 11.8 8.9
Communication 0.8 -0.5 -2.3 9.6
Recreation and culture 2.2 4.8 0.9 0.7
Education 2.3 2.0 2.8 0.4
Restaurants and hotels 6.0 5.5 2.6 6.9
Miscellaneous goods and services 4.9 10.7 5.3 4.3
CPI (All items, annual average % change) 5.1 10.0 6.8 4.4
CPI (Food and non-alcohol. bev., annual average, % change) 6.9 13.9 8.8 4.1
CPI (Non-food, annual average, % change) 2.4 3.9 3.6 5.0
Alcoholic beverages, tobacco 10.5 14. 6.1 5.7
Clothing and footwear 2.5 6.8 4.1 1.8
Housing, water, electricity, gas and other fuels 5.5 7.2 6.0 5.0
Furnishings, household equip and routine and hh maintenance 1.8 6.5 4.4 1.8
Health 5.5 7.6 5.4 4.1
Transport -1.0 -5.5 -0.8 10.4
Communication 0.6 -0.3 -1.3 4.3
Recreation and culture 1.0 3.2 4.3 0.8
Education 3.0 1.9 3.9 1.1
Restaurants and hotels 1.7 5.9 3.8 3.7
Miscellaneous goods and services 1.0 10.8 6.6 4.7
Source: Central Statistical Organization
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Annex 4: Balance of Payments
2013/14 2014/15 2015/16 2016/17
Balance of Payments (US$ million)
Current account (2,277) (3,597) (4,278) (4039)
Trade balance (2,164) (4,052) (5,368) (5,369)
Exports 9,439 12,145 10,221 10,649
Imports 11,603 16,197 15,589 16,018
Services balance 555 1,207 1,134 825
Primary income balance (2,030) (3,146) (2,525) (2,185)
Secondary income balance 1,362 2,395 2,481 2690
Capital account (1) - - 5
Financial account 4,993 4,635 4,593 4,470
Direct Investment (2,619) (4,515) (4,219) (3,367)
Portfolio Investment (0) (7) (1) (39)
Other Investment (2,374) (113) (373) (1063)
Net Errors & Omissions (1,267) 704 149 (758)
Overall balance 1,450 1,742 463 435
Reserve Assets 1,450 1,742 463 381
Balance of Payments (% of GDP)
Current account -3.8% -5.5% -7.2% -6.5%
Trade balance -3.6% -6.2% -9.0% -8.6%
Exports 15.7% 18.6% 17.1% 17.1%
Imports 19.3% 24.7% 26.1% 25.7%
Services balance 0.9% 1.8% 1.9% 1.3%
Primary income balance -3.4% -4.8% -4.2% -3.5%
Secondary income balance 2.3% 3.7% 4.2% 4.3%
Capital account 0.0% 0.0% 0.0% 0.0%
Financial account 8.3% 7.1% 7.7% 7.2%
Direct Investment -4.3% -6.9% -7.1% -5.4%
Portfolio Investment 0.0% 0.0% 0.0% -0.1%
Other Investment -3.9% -0.2% -0.6% -1.7%
Net Errors & Omissions -2.1% 1.1% 0.2% -1.2%
Overall balance 2.4% 2.7% 0.8% 0.7%
Reserve Assets 2.4% 2.7% 0.8% 0.6%
Sources: IMF Balance of Payments Statistics, IMF Article IV (2016), CBM, WB Staff estimates
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Annex 4: Monetary Survey
Monetary Survey (Kyat billion) 2015/16 2016/17 2017/18
Assets 36,039.81 43,033.95 46,589.74
Net Foreign Assets 9,316.9 9,295.8 9,243.8
CMB (net) 5,428.6 6,564.4 6,618.4
DMB (net) 3,888.3 2,731.4 2,625.3
Net Domestic Assets 26,722.9 33,738.1 37,346.0
Net Claims on Government 13,416.4 15,780.9 14,328.4
CMB 12,452.4 13,953.5 12,994.6
DMB 964.0 1,827.4 1,333.8
Credit to the economy 14,188.3 18,823.5 22,913.6
Private sector 13,667.2 18,244.3 21,108.1
Other 521.1 579.1 1,805.5
Other items (net) (882) (866) 104
Liabilities 36,040 43,034 46,590
Broad money (M2) 36,040 43,034 46,590
Narrow money (M1) 14,819 15,799 15,054
Currency outside depository corporation 10,157 10,920 10,082
Transferable deposits 4,662 4,880 4,972
Quasi money 21,221 27,235 31,535
Central Bank of Myanmar Balance Sheet (Kyat billion)
CBM Assets (Kyat billion) 16,424 18,289 17,162
Net Foreign Assets 5,429 6,564 6,618
Net Claims on Central Government 12,452 13,954 12,995
Net Claims on Commercial Banks 1,126 1,450 945
Claims on Other Sectors - - -
Shares and Other Equity (2,471) (3,317) (3411.8)
Other Items (Net) (112) (362) 16.2
CBM Liabilities (Kyat billion) 15,683 17,013 16,752
Monetary Base 15,683 17,013 16,752
Currency in Circulation 11,771 13,064 12,343
Liabilities to Other Depository Corporations 3,912 3,949 4,409
Source: Central Bank of Myanmar . (FY2017/18 is the latest available data)
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Annex 5 a: Fiscal operations (Kyat billion)
2013/14 2014/15 2015/16 2016/17 2017/18 2017/18
PA PA PA PA BE RE
Consolidated Public Sector
Revenue 11,790 14,550 13,645 14,505 12,974 14,998
Expenditure 12,562 15,248 16,806 16,671 18,328 20,297
Recurrent 8,127 10,733 12,301 12,776 13,840 15,243
o/w Interest 769 879 866 1,078 1,154 1,325
Capital 4,435 4,514 4,505 3,895 4,488 5,054
Balance (772) (697) (3,162) (2,166) (5,354) (5,299)
SEE Operations
Revenue 7,554 8,209 7,360 7,262 6,428 7,038
Net of transfers to UG 5,790 6,428 5,444 5,634 4,757 5,368
Expenditure 6,729 7,474 7,713 6,976 7,089 8,037
Recurrent 5,583 6,476 6,738 6,263 6,142 6,932
Net of transfers to UG 3,819 4,694 4,823 4,635 4,471 5,262
Capital 1,147 998 975 714 947 1,105
SEE Balance 824 735 (353) 286 (661) (999)
Union Government
Revenue 5,999 8,123 8,200 8,871 8,217 9,631
Tax 3,868 4,586 4,901 5,677 5,313 6,153
o/w Income 1,800 2,235 2,326 2,324 2,382 2,356
o/w Commercial 1,704 1,855 2,106 1,878 1,752 2,076
Non-Tax 1,985 3,332 2,969 2,842 2,285 2,826
Grants 146 204 330 351 619 651
Expenditure 7,595 9,556 11,009 11,322 12,910 13,930
Recurrent 4,307 6,039 7,478 8,141 9,369 9,981
Wages 871 1,121 1,622 1,716 1,827 1,857
Transfers 594 1,705 1,949 1,964 2,369 2,461
Interest 647 736 719 925 1,007 1,152
Other 2,196 2,477 3,187 3,536 4,166 4,511
Capital 3,288 3,517 3,531 3,182 3,541 3,949
Union Government Balance (1,596) (1,433) (2,809) (2,452) (4,693) (4,299)
Sources: MOPF, WB Staff estimates
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Annex 5 b: Fiscal operations (% of GDP)
2013/14 2014/15 2015/16 2016/17 2017/18 2017/18
PA PA PA PA BE RE
Consolidated Public Sector
Revenue 20.3 22.3 18.8 18.2 14.2 16.4
Expenditure 21.7 23.4 23.1 20.9 20.1 22.2
Recurrent 14.0 16.4 16.9 16.0 15.2 16.7
o/w Interest 1.3 1.3 1.2 1.4 1.3 1.5
Capital 7.6 6.9 6.2 4.9 4.9 5.5
Balance -1.3 -1.1 -4.3 -2.7 -5.9 -5.8
SEE Operations
Revenue 13.0 12.6 10.1 9.1 7.0 7.7
Net of transfers to UG 10.0 9.8 7.5 7.1 5.2 5.9
Expenditure 11.6 11.5 10.6 8.8 7.8 8.8
Recurrent 9.6 9.9 9.3 7.9 6.7 7.6
Net of transfers to UG 6.6 7.2 6.6 5.8 4.9 5.8
Capital 2.0 1.5 1.3 0.9 1.0 1.2
SEE Balance 1.4 1.1 -0.5 0.4 -0.7 -1.1
Union Government
Revenue 10.3 12.4 11.3 11.1 9.0 10.5
Tax 6.7 7.0 6.7 7.1 5.8 6.7
o/w Income 3.1 3.4 3.2 2.9 2.6 2.6
o/w Commercial 2.9 2.8 2.9 2.4 1.9 2.3
Non-Tax 3.4 5.1 4.1 3.6 2.5 3.1
Grants 0.3 0.3 0.5 0.4 0.7 0.7
Expenditure 13.1 14.6 15.1 14.2 14.1 15.3
Recurrent 7.4 9.3 10.3 10.2 10.3 10.9
Wages 1.5 1.7 2.2 2.2 2.0 2.0
Transfers 1.0 2.6 2.7 2.5 2.6 2.7
Interest 1.1 1.1 1.0 1.2 1.1 1.3
Other 3.8 3.8 4.4 4.4 4.6 4.9
Capital 5.7 5.4 4.9 4.0 3.9 4.3
Union Government Balance -2.8 -2.2 -3.9 -3.1 -5.1 -4.7
Sources: MOPF, WB Staff estimates
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Annex 6: Financial inclusion
Myanmar EAP LIC LMIC
Account (% age 15+)
All adults 22.8 69.0 27.5 42.7
Women 17.4 68.0 23.9 36.3
Adults belonging to the poorest 40% 16.1 60.9 19.4 33.2
Young adults (% ages 15-24) 13.5 60.7 20.2 34.7
Adults living in Rural Areas 21.2 64.5 24.8 40.0
Financial Institution Account (% age 15+)
All adults 22.6 68.8 22.3 41.8
All adults, 2011 n.a. 55.1 21.1
Mobile Account (% age 15+)
All adults 0.2 0.4 10.0 2.5
Access to Financial Institution Account (% age 15+)
Has debit card 1.7 42.9 6.6 21.2
has debit card, 2011 n.a. 34.7 6.3 10.1
ATM is the main mode of withdrawal (% with an account) 4.8 53.3 20.2 42.4
ATM is the main mode of withdrawal (% with an account), 2011 n.a. 37.0 19.7 28.1
Use of Account in the Past Year (% age 15+)
Used an account to receive wages 0.4 15.1 3.2 5.6
used an account to receive government transfers 0.4 8.1 1.0 3.3
Used a financial institution account to pay utility bills 0.0 11.8 0.9 3.1
Other Digital Payments in the Past Year (% age 15+)
Used a debit card to make payments 0.4 14.8 2.1 9.6
Used a credit card to make payments 0.0 10.8 0.6 2.8
Used the internet to pay bills or make purchases 0.2 15.6 1.2 2.6
Domestic Remittances in the Past Year (% age 15+)
Sent remittances 6.8 16.6 18.3 14.2
Sent remittances via a financial institution (% senders) n.a. 36.9 15.4 30.9
Sent remittances via a mobile phone (% senders) n.a. 8.7 42.8 7.7
Sent remittances via a money transfer operation (% senders) n.a. 18.5 14.1 18.3
Received remittances 11.0 20.6 25.6 17.8
Received remittances via a financial institution (% receipients) 39.0 29.0 13.0 26.0
Received remittances via mobile phone (% receipients) 0.0 4.9 33.8 5.7
Received remittances via a money transfer operation (% receipients) 11.6 15.8 14.8 16.6
Continued
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Myanmar EAP LIC LMIC
Savings in the Past Year (% age 15+)
Saved at a financial institution 12.8 36.5 9.9 14.8
Saved at a financial institution, 2011 n.a. 28.5 11.5 11.1
Saved using a savings club or person outside the family 6.0 6.0 16.3 12.4
Saved any money 46.7 71.0 46.5 45.6
Saved for old age 15.8 36.5 8.3 12.6
Saved for a farm or business 19.0 21.3 16.7 11.8
Saved for education or school fees 16.5 30.7 16.6 20.0
Credit in the Past Year (% age 15+)
Borrowed from a finanical institiution 15.5 11.0 8.6 7.5
Borrowed from a finanical institiution, 2011 n.a. 8.6 11.7 7.3
Borrowed from family or friends 21.8 28.3 34.9 33.1
Borrowed from a private informal lender 16.3 2.5 6.5 8.5
Borrowed any money 42.8 41.2 52.5 47.4
Borrowed for a farm or business 22.4 8.3 12.2 9.2
Borrowed for education or school fees 5.7 7.1 10.9 10.1
Outstanding mortgage at a finanical institution 0.7 8.0 4.1 4.7
Source: Demirguc-Kunt et al., 2015, Global Financial Inclusion Database, World Bank
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Annex 7: Enterprise Survey
MMR2014 MMR2016 EAP LMIC
Firm Characteristics
Age of the establishment (years) 14.5 15.6 17.1
Gender
% of firms with female participation in ownership 27.3 35.1 47.4 34.2
% of firms with a female top manager 29.5 41.1 32.7 19.4
% of permanent full-time female workers 33.6 31.2 37.5 29.9
% of permanent full-time non-production female workers 29.9 42.7 35.6 29.1
% of permanent full-time production female workers 29.9 31.0 37.0 25.5
Workforce
% of firms offering formal training 15.1 5.9 32.2 31.8
% of workers offered formal training* 48.7 57.7 62.7 51.0
Years of the top manager's experience working in the firm 11.6 13.5 15.4 16.7
Number of permanent full-time workers 28.6 25.0 41.2 40.3
Number of temporary workers 0.7 0.5 5.2 5.6
Number of permanent production workers* 73.4 67.6 65.5 53.7
Number of permanent non-production workers* 10.4 11.1 17.2 13.6
Number of permanent skilled production workers* 25.6 14.9 46.9 35.9
Number of permanent unskilled production workers* 43.4 55.3 18.7 14.8
% of unskilled workers (out of all production workers) * 31.3 46.2 22.7 26.8
Performance
Real annual sales growth (%) 3.5 4.3 -0.5 0.6
Annual employment growth (%) 4.3 1.0 4.6 4.5
Infrastructure
Number of electrical outages in a typical month 12.5 11.0 4.9 9.3
Losses due to electrical outages (% of annual sales) n.a. 2.3 1.3 3.7
Days to obtain an electrical connection (upon application) 105.6 36.5 22.2 30.4
Number of water insufficiencies in a typical month* 0.2 0.4 0.4 1.6
Trade
Days to clear direct exports through customs 4.4 10.2 7.3 8.2
% of firms exporting (at least 1% of sales) 4.8 5.0 14.4 17.0
Days to clear imports from customs* 6.5 14.0 10.0 11.1
% of firms using foreign inputs and/or supplies* 24.5 28.3 41.1 54.5
Finance
% of firms with a checking or savings account 29.7 43.7 77.0 82.1
% of firms with a bank loan/line of credit 7.2 11.3 28.3 28.7
% of investment financed internally 91.6 91.4 77.8 71.6
% of investment financed by banks 1.4 3.2 10.4 12.1
% of investment financed by supplier credit n.a. 1.2 3.2 4.6
% of investment financed by equity or stock sales n.a. 1.1 3.3 5.2
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Continued
MMR2014 MMR2016 EAP LMIC
Crime
Security costs (% of annual sales) n.a. 0.6 1.8 2.3
Losses due to theft and vandalism (% of annual sales) n.a. 0.1 0.8 1.0
Informality
% of firms competing against informal firms 31.2 31.5 53.2 54.3
% of firms formally registered when they started 88.4 79.1 86.0 87.2
Regulations and Taxes
Senior management time dealing with regulation (%) 2.0 0.8 6.0 10.6
Number of visits or required meetings with tax officials n.a. 0.9 1.4 1.7
Days to obtain an import license 15.5 19.5 20.6 17.6
Days to obtain a construction-related permit 32.9 53.5 30.4 47.0
Days to obtain an operating license 26.6 39.2 19.5 24.7
Corruption
% of firms experiencing at least one bribe request 42.9 29.3 29.4 24.4
% of firms expected to give gifts for construction permit 46.5 47.6 42.4 30.6
% of firms expected to give gifts for government contract 32.5 9.8 45.6 37.0
% of firms expected to give gifts in meetings with tax officials 37.1 20.4 20.3 17.7
Biggest Obstacle
Access to finance 24.1 17.8 11.0 13.3
Access to land 22.7 14.3 6.4 3.8
Business licenses and permits 1.8 1.2 4.1 2.6
Corruption 0.7 0.4 8.7 9.2
Courts 1.5 0.7 1.2 0.9
Crime, theft and disorder 0.4 2.7 2.9 4.2
Customs and trade regulations 1.7 2.4 2.7 3.7
Electricity 17.9 13.4 5.9 11.0
Inadequately educated workforce 10.0 15.8 7.3 5.5
Labor regulations 5.2 0.8 3.1 2.3
Political instability 4.7 11.5 10.9 14.2
Practices of the informal sector 1.1 4.6 16.3 13.8
Tax administration 2.5 2.2 3.3 3.7
Tax rates 3.2 8.6 11.3 9.2
Transportation 2.3 3.7 4.8 2.6
Source: World Bank, Enterprise Survey
* These indicators are computed only for the manufacturing sector
1. The sample for each economy is stratified by industry, firm size, and geographic region. The level of detail of the stratification by
industry depends on the size of the economy. Stratification by size follows the three levels presented in the text: small, medium, and
large. Regional stratification includes the main economic regions in each economy. Through this methodology estimates for the different
stratification levels can be calculated on a separate basis while, at the same time, inferences can be made for the non-agricultural private
economy as a whole. For more details on the sampling strategy, review the Sampling Note available at www.enterprisesurveys.org
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Annex 8: Logistics Performance Index
Myanmar LMIC MIC Cambodia China Laos Thailand Vietnam
Logistics performance index: Overall 2.5 2.5 2.6 2.8 3.7 2.1 3.3 3.0
Lead time to export, median case (days) 1.0 5.8 5.0 3.0 3.0 0.0 1.0 3.0
Lead time to import, median case (days) 1.0 7.8 5.8 4.0 5.0 0.0 1.0 3.0
Ability to track and trace consignments 2.6 2.5 2.6 2.7 3.7 1.8 3.2 2.8
Competence and quality of logistics services 2.4 2.4 2.6 2.6 3.6 2.1 3.1 2.9
Ease of arranging competitively priced shipments 2.2 2.5 2.6 3.1 3.7 2.2 3.4 3.1
Efficiency of customs clearance process 2.4 2.3 2.4 2.6 3.3 1.8 3.1 2.8
Frequency with which shipments reach consignee within scheduled or expected time 2.8 2.9 3.0 3.3 3.9 2.7 3.6 3.5
Quality of trade and transport-related infrastructure 2.3 2.3 2.5 2.4 3.8 1.8 3.1 2.7
Source: WB, Logistics Performance Index
Score, 1=low to 5=high
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Annex 9: Health
Mortality rate, infant Mortality rate, adult, female Mortality rate, adult, male
(per 1,000 live births) (per 1,000 female adults) (per 1,000 male adults)
2000 2010 2015 2000 2010 2015 2000 2010 2015
Myanmar 60.7 45.8 39.5 211.5 182.8 171.1 271.4 239.2 227.6
Income Groups
Low Income 92.3 63.1 53.2 346.0 268.6 231.6 392.2 313.5 277.8
Lower Middle Income 65.7 47.3 39.8 195.9 166.9 156.7 257.4 234.0 222.3
Middle Income 52.2 36.6 30.4 153.4 130.4 121.8 219.7 193.8 178.0
Regional countries
Cambodia 80.4 36.7 24.6 226.7 164.5 140.1 292.2 224.7 205.9
China 30.2 13.5 9.2 96.3 77.3 70.7 129.6 105.4 96.6
Indonesia 5.2 3.5 2.9 60.0 38.9 35.3 157.0 101.3 87.2
Korea 41.1 27.4 22.8 167.7 154.9 144.9 213.8 213.2 202.9
Laos 83.2 59.0 50.7 250.5 195.2 171.5 298.4 237.4 212.8
Malaysia 8.7 6.8 6.0 99.3 85.7 77.6 171.0 170.9 164.1
Singapore 3.1 2.2 2.1 56.3 43.2 38.4 98.1 77.3 69.9
Thailand 19.1 12.5 10.5 137.1 111.1 104.0 257.7 215.5 204.6
Vietnam 26.1 19.8 17.3 78.3 69.6 0.0 200.5 192.9 0.0
Source: World Bank, World Development Indicators
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Annex 10: Education
School enrollment, primary (% net) School enrollment, secondary
(% net)
2000 2010 2014 2000 2010 2014
Myanmar 89.9 87.7 94.5 32.4 45.1 48.3
Income Groups
Low Income 54.2 76.9 80.2 19.2 29.6 31.5
Lower Middle Income 78.6 86.9 87.7 41.9 53.8 58.5
Middle Income 85.6 90.0 90.4 54.1 61.7 66.2
Regional countries
Cambodia 92.1 93.3 94.7 15.6 0.0 0.0
China 0.0 0.0 0.0 0.0 0.0 0.0
Indonesia 0.0 93.8 89.7 0.0 66.7 75.0
Korea, Rep. 97.2 98.0 0.0 0.0 0.0 0.0
Laos 75.7 94.1 95.1 27.5 39.3 50.8
Malaysia 97.8 96.6 98.4 66.0 66.4 68.0
Singapore 99.6 98.2 96.5 95.0 94.6 96.8
Thailand n.a. n.a. n.a. n.a. n.a. n.a.
Vietnam n.a. n.a. 92.4 n.a. 78.2 83.6
Source: World Bank, World Development Indicators
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MYANMAR ECONOMIC MONITOR | May 2018