On February 19, 2014, the staff of International Monetary Fund completed the second and final review of the Staff-Monitored Program (SMP) with Myanmar.1
Myanmar is undergoing a far-reaching economic transition. Key recent economic reforms include adopting a floating exchange rate and removing exchange restrictions; establishing an autonomous central bank; and significantly increasing spending on health and education.
The current economic outlook is favorable. Real GDP growth in fiscal year (FY) 2012/13 (year ending in March) reached 7.3 percent, led by services, and is expected to rise further to 7½ percent in FY2013/14 and 7¾ percent in 2014/15. Growth of credit to the private sector is projected to moderate from current high levels but remain rapid at around 30 percent. The fiscal deficit in FY2013/14 is expected to be broadly in line with the budget target of 5 percent of GDP, but should fall to 4½ percent in FY2014/15, as a result of one-off revenues from telecommunications licenses.
However, inflation is expected to exceed 6 percent by end FY2013/14 and remain elevated in FY2014/15. The external current account deficit is projected to widen further to about 5 percent of GDP in this period. As a result, the Central Bank of Myanmar (CBM)’s accumulation of international reserves during FY2013/14 has been slower than projected, but should pick up in FY2014/15 as foreign direct investment and other inflows outweigh the current account deficit.
Risks to the outlook arise largely from limited macroeconomic management capacity and thin international reserve cushions. Inflation remains elevated and there are pressures from rapid money and credit growth, kyat depreciation and possible electricity price hikes. International reserves are still low and vulnerable to shocks.
The SMP has been successfully implemented, supporting the ongoing transformation of the economy. The program focused on maintaining macroeconomic stability, building international reserves, and developing the institutions and tools needed for macroeconomic management.
Reforms in these areas have advanced significantly, and all quantitative and structural benchmarks were achieved. They included building the CBM’s reserves, maintaining an appropriate fiscal deficit, liberalizing the foreign exchange market, and building monetary and fiscal policy tools and institutions.
Broader economic reforms also proceeded well, most notably in modernizing the financial sector and increasing social spending. Capacity constraints moderated achievements in some areas but progress continues to be made.
The staff of IMF is pleased to have assisted the authorities achieve a successful outcome to the 2013 SMP and stands ready to continue to support the government implement its ambitious economic reform agenda. The staff is prepared to assist the authorities in a range of ways, including policy advice, monitoring of reform progress and through intensive and tailored technical assistance (TA) delivered in close coordination with other donors.
A staff-monitored program is an informal and flexible instrument for dialogue between the Fund staff and a member country on its economic policies. It is not accompanied by financial support. In Myanmar’s case, it involved joint monitoring of progress on the government’s own reform plans for 12 months through end-2013.