Information about Asia and the Pacific Asia y el Pacífico
Journal Issue

Myanmar: Selected Issues

International Monetary Fund. Asia and Pacific Dept
Published Date:
September 2015
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Information about Asia and the Pacific Asia y el Pacífico
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Managing Natural Resources for People’s Development

Myanmar’s natural resource endowments provide much needed national wealth to finance the country’s development, including addressing wide infrastructure and human capital gaps. Given Myanmar’s low tax revenue, mobilizing resource revenues is particularly important in the current macroeconomic environment of widening fiscal and current account deficits, inflationary pressures and exchange rate depreciation. However, natural resource wealth can be a mixed blessing if it is not well managed and there are difficult challenges related to transforming natural resource wealth into other productive assets that support sustained development. This paper provides a conceptual approach to identifying and addressing these challenges, and points to the directions in the reform of Myanmar’s natural resource management. In particular, the government should consider revising the fiscal regime for natural resources and introducing a resource rent tax to maximize the revenue stream in an efficient way, possibly with IMF technical support. To better manage the impact of volatile resource revenues on the budget, consideration could be given to anchoring fiscal policy on an expenditure rule over the medium term. The financial requirements for SOEs involved in collecting natural resource revenues should also be revised to ensure that a fair share of revenue from national wealth accrues to the government. Structural reforms to improve transparency, accountability and capacity in public financial management should be accelerated.

A. Overview of Myanmar Extractive Industry Sector

1. Myanmar is one of Southeast Asia’s most natural resource-rich countries. Its natural resources include gems, jade, industrial minerals, logs, oil and natural gas. Natural resource exports accounted for 70 percent of national exports, or about 11 percent of GDP in 2012/13, with natural gas alone making up 40 percent of the total (US $3.6 billion) (Figure 1). Natural resources are the country’s prime source of foreign exchange earnings and a major attraction for FDI, and contribute significantly to the government budget. With 10 trillion cubic feet of proved gas reserves in 2014, Myanmar ranks 38th in the world (US Energy Information Administration) and is the largest natural gas exporter in Southeast Asia. The recently completed onshore and offshore oil and gas bidding rounds bode well for future production.

Figure 1.Natural Gas Revenues

Sources: CSO; and MOGE.

2. Multiple agencies and government levels are responsible for the regulation and management of the natural resource sector. State-owned enterprises have important responsibilities for issuing licenses and collecting resource tax and non-tax revenue. Each sector is regulated by one or more SOEs under the respective ministries and departments, according to sector-specific and largely obsolete laws. Regulating SOEs typically also carry commercial business activities without clear separation of functions. Although there are important differences by sector and contract, natural resource revenues contribute to the budget directly through tax revenues and one-off proceeds, and indirectly through the financial contributions of regulating SOEs to the union government. Non-tax payments are deposited in the accounts of the regulating SOEs with Myanma Economic Bank (MEB) and only partly transferred to the government.

3. The exact share of revenues derived from natural resources is difficult to estimate. There are pervasive data gaps on prices and extraction volumes; the division of responsibility for revenue collection and appropriation between ministries and SOEs is unclear; payments are deposited in multiple bank accounts; and information on production volumes and payments is not publicly disclosed. All these factors make it particularly challenging to accurately estimate revenue flows. Additional sources of uncertainty include the largely informal extraction and payment practices (especially in non-gas sectors); extensive tax holidays; the involvement of military-owned companies; and parallel administration of some resources by subnational entities.

4. There is substantial scope for improving Myanmar’s natural resource management. Given Myanmar’s extremely low tax yield compared to peer countries (Figure 2), natural resource revenues represent a vital source of income for the country. In order to realize the revenue potential of this endowment, there is a need to review current practices to identify weaknesses and address them based on international best practices. In particular, the fiscal regime for natural resources should be revised to maximize the stream of net government revenues; the fiscal framework should ensure a smooth and sustainable path of public investment in development; and the institutions and procedures in support of these efforts should ensure transparency, accountability and good governance to minimize revenue leakages.

Figure 2.Tax Revenues, 2014

B. Fiscal Regimes: raising natural resource revenues1

5. A fiscal regime for natural resources is a set of laws and regulations that govern the allocation of economic benefits derived from natural resource extraction. A distinct fiscal regime for natural resources is justified by key tax-relevant characteristics of the sector. These include: (i) potentially sizable rents, which are an attractive tax base on both efficiency and equity grounds; (ii) pervasive uncertainty due to highly volatile commodity prices and unknown reserves; (iii) asymmetric information between the resource owner and the contractor; (iv) high sunk costs that create time consistency problems; (v) extensive involvement of multinationals and SOEs; and (vi) the exhaustibility of natural resources, with a key opportunity cost of extraction today being foregone extraction in the future.

6. The main objective of a fiscal regime is to maximize the total revenue potential of natural resources and allocate a fair share of benefits to the host country. A well-designed fiscal regime provides predictable and stable revenue stream starting from the early years of production, and captures a greater share of the revenues during periods of natural resource windfalls. It should be easy to administer for the government, and easy to comply with for taxpayers, and minimize discretionary and negotiated elements. It should also provide incentives to maximize efficient production and avoid distortions, such as disincentives and sub-optimization. Such objectives have important implications for fiscal regime design.

7. Although no one fiscal regime is ideal for all countries, combining ad valorem royalty, CIT and resource rent tax has a considerable appeal for developing countries. While the specific fiscal regime should be tailored to country characteristics, the recommended approach include the following components, with their balance being determined by the relative ability to bear risk and the government’s tolerance for delays in receiving revenue:

  • An ad-valorem royalty on gross revenue, ensures some revenues whenever production is ongoing, including the very early stages of production;

  • A standard corporate income tax (CIT) ensures that normal return to equity is taxed at corporate level as in other sectors;

  • A resource rent tax exploits the distinct revenue potential of extractive industries and targets the excess profits resulting from the non-renewable and exhaustible nature of natural resources.

There may also be scope for other instruments, such as bonuses, which can also serve as a bid variable in competitive allocation of licenses or contracts.

8. A resource rent tax ensures progressive revenues to the government while minimizing incentive distortions to production and investment. A rent tax is similar to a CIT but only applies to profits in excess of the normal return to capital (i.e., revenue minus expenditure minus a normal return to the investor). Since it taxes the full return to investors, including the required return to equity holders, the CIT is a blunt instrument for extracting rents because a high CIT rate can discourage investment by increasing the required pre-tax return. Other tax instruments, such as royalties, also cause distortions whose effect is to erode the value of pre-tax rents. A rent tax is non-distortionary as it taxes rents after the investor has already received a normal rate of return. As a result, it preserves the total pre-tax value of the resource rent with the objective of transferring a substantial part of it to the government.2

9. A wide range of mechanisms is used in practice. There is considerable variation in the design of fiscal regimes for extractive industries. Tax/royalty systems dominate in mining, while contractual schemes are common in the oil and gas sectors, often in combination with a royalty/tax regime. Some countries use state ownership to capture rents but this approach can result in mismanagement, corruption and waste of resources, particularly in countries where the rule of law is lacking and transparency, accountability, and management of SOEs are weak. Table 1 presents data on revenue instruments used by countries from surveys of the oil and gas, and mining sectors.

Table 1.International Experience with Fiscal Regimes for Extractive Industries, 2012
Oil and gas: survey of 67 countries
Fiscal InstrumentNo. of Countries
Signature bonus16
Production bonus10
Resource rent taxes9
Additional income taxes3
Production sharing34
State participation27
Social investments/infrastructure6
Mining: survey of 25 countries
Fiscal InstrumentNo. of Countries
Signature bonus1
Production bonus0
Royalties – Specific2
Royalties – Ad Valorem21
Resource rent taxes5
Variable Income Tax3
Additional income taxes1
State participation5
Social investments/infrastructure1
Source: IMF staff.
Source: IMF staff.

10. Myanmar fiscal regime is a hybrid between a contractual scheme and tax/royalty system. Although there are important variations by sector, production sharing contracts regulate the allocation of profits between the relevant SOEs and private contractors. In addition, royalties and commercial taxes on domestic sales and exports are also levied at different rates depending on the sector, along with CIT and specific additional entitlements and fees. Tax revenues are transferred to the Internal Revenue Department (IRD) via line ministries. The amount of tax revenues are typically lower than those accruing to SOEs based on production sharing contracts (Lynn and Oye, 2014) and only 20 percent of SOEs profits is transferred to the union governments as an annual dividend. Myanmar does not have a resource rent tax, suggesting that the government may be foregoing an important source of non-distortive tax revenues.

C. Fiscal Policy Frameworks: spending natural resource revenues3

11. The volatility, uncertainty and exhaustibility of resource revenues pose challenges in the design of appropriate policy framework in resource-rich countries. A fiscal framework is a set of fiscal rules that determines the level and composition of government spending. Commodity price volatility complicates fiscal planning because revenue variability makes it difficult to ensure a stable level of public expenditure. Moreover, the uncertainty over natural resource reserves and its exhaustibility raise issue of spending sustainability and intergenerational equity. Additional challenges arise because government spending financed through natural resource windfalls has an expansionary impact on the economy as it injects revenues into the economy without reducing the purchasing power of the private sector through taxation.

12. As in other countries, a well-designed fiscal framework needs to address issues of demand management and sustainability. In resource-rich countries, this implies ensuring (i) macro-fiscal stability in the face of revenue volatility; (ii) adequate accumulation of precautionary savings; (iii) fiscal sustainability if resource revenue flows are temporary; (iv) scaling up growth-enhancing expenditure for developing countries. The precise weight assigned to each of these objectives should reflect country-specific characteristics such as the degree of resource dependence and the reserve horizon. For countries with temporary resource revenues, the key issue should be to accumulate sufficient financial savings for future generations and avoiding the need for massive fiscal adjustment once resource wealth has been depleted. Countries with long-lasting resource revenues should focus on managing volatility and achieving macro stability. If the economy is capital scarce, the fiscal framework should give a greater weight to investing revenue domestically to build up infrastructures and improve conditions for non-resource growth (Figure 1).

13. Since Myanmar is a capital-scarce economy with long-lasting resource revenues, the key issue is ensuring macro-stability while scaling up public investment. There is a need to limit the pro-cyclicality of public spending by delinking expenditures from resource revenue volatility. Given pressing development needs there is also scope for frontloading investment to generate growth and improve the living standards for current generations. The Myanmar government has adopted an overall deficit target of 5percent of GDP. Although this target has helped strengthen fiscal discipline, latest debt sustainability analysis suggests that a lower target, of about 4½ percent of GDP, would be more appropriate for keeping public debt on a low risk of distress over the long run. Moreover, an overall deficit target does not adequately address the issue of resource price volatility and it subjects the economy to a procyclical fiscal policy. Under this fiscal rule, expenditure tends to be higher whenever revenue is higher, and vice versa.

Figure 3.Fiscal framework priorities

14. Structural balance rules can be used to delink expenditure from resource price volatility. This approach mitigates the transmission of externally driven resource price volatility by linking expenditures to structural resource revenues based on a reference price. Commodity reference prices can be calculated by formulas or, as in Chile, by an independent committee. Price formulas can be a moving average either of past prices or, as in Mexico and Trinidad and Tobago, of past spot and futures (markets) prices. If the economic cycle is well defined, an additional adjustment to non-mineral revenue for the economic cycle is typically applied. The choice of price formula implies a trade-off between smoothing expenditures and a need to adjust to changes in price trends. In the current environment of falling international commodity prices, however, using a backward looking formula would result in overestimated resource revenues. In this respect, an expenditure rule may be more appropriate given recent trends in international commodity prices.

15. An expenditure rule can limit the growth of government spending in nominal or real terms or in percent of non-resource GDP. Such a rule is desirable when scaling up expenditure in the presence of absorption constraints (Berg and others, 2012) and if the volatility of resource windfalls requires precautionary saving (van der Ploeg, 2011). Relative to a simple structural balance rule, the increase in spending would be more gradual, and buffers would be built up in good times, when revenue windfalls can make spending pressures difficult to resist (Ayuso-i-Casals, 2012). These countercyclical properties make an expenditure rule particularly attractive for Myanmar where the economic cycle is not well defined (Cordes and others, 2015). By reducing incentives for spending overruns, expenditure rules can lead to better prioritization and greater efficiency in spending (Debrun, 2014). Adjustments to the expenditure growth limits should ideally be informed by an analysis of absorption capacity. To accommodate a preference for investment expenditure, growth limits could be set higher for capital expenditures than for current expenditures.

16. Given institutional and absorptive capacity constraints in Myanmar, the pace of expenditure scale-up needs to be gradual. At the macro level, spending resource windfalls domestically can significantly increase demand on the non-resource sector, leading to higher inflation, especially of non-tradables, and a real appreciation of the kyat (effect commonly known as Dutch disease) although this risk is moderate in Myanmar given the low level of wages and high unemployment. At the micro level, domestic supply constraints and shortcomings in institutional capacity increase the cost and reduce the efficiency of public investment. A gradual approach to scaling up public investment is also warranted by the limited fiscal space if an unsustainable debt trajectory is to be avoided.

D. Structural Policies: supporting resource management

17. Well-designed fiscal institutions are necessary to support macro-fiscal frameworks and the scaling up of public investment. Sound fiscal institutions are essential to ensure transparency and accountability in the collection and utilization of natural resource revenues. Strong public financial management (PFM) capacity is critical to provide reliable revenue forecasting and credible medium-term budget planning. Ensuring that higher spending will yield the expected growth benefits requires strong capability in appraisal of project proposals, good implementation capacity, and sound procurement practices.

18. As part of Myanmar’s economic and political transition, the government has announced a commitment to greater transparency. Myanmar has joined the Extractive Industries Transparency Initiative (EITI) (Box 1). Implementation of the EITI will improve transparency and good governance in the management of natural resources and it is important that Myanmar meets the January 2016 deadline for the submission of the first EITI report according to the agreed terms of reference. However, broader measures are needed to ensure public and regular disclosure of information and systematic audits of SOEs operations.

19. A resource fund can be a useful tool in support of macro-fiscal management in the long term. A resource fund could help meet medium-term fiscal stabilization and long-term saving objectives as well as enhance the transparency and credibility of fiscal policies. However, resource funds are complementary policy tools, not a substitute for sound fiscal policy rules, and can complicate fiscal policy management in the presence of weak PFM frameworks. Funds should be integrated into the budget and saving be derived from fiscal surpluses. Considering Myanmar’s developing PFM framework and limited fiscal space at present, establishing a resource fund should be seen as longer-term objective.

Box 1.The Extractive Industry Transparency Initiative (EITI)

The Extractive Industries Transparency Initiative (EITI) is a global Standard to promote open and accountable management of natural resources. It seeks to strengthen systems of revenue management in governments and companies, inform public debate, and enhance trust. In each implementing country it is overseen by a multi-stakeholder group of government, company and civil society representatives. Countries implement the EITI Standard to ensure full disclosure of taxes and other payments made by oil, gas and mining companies to governments. These payments (taxes, royalties, etc.) are disclosed—companies report their payments to the government and the government reports what it has received. The information is then compiled and reconciled by an independent auditor chosen by the country, and published in the annual EITI report. The report allows citizens to see for themselves how much their government is receiving from their country’s natural resources. Myanmar was accepted as an EITI candidate at the International EITI board meeting on July 2, 2014. Since achieving candidate status in July 2014, nine multi-stakeholder group meetings have been held. Three sub-committees have been established to take forward the work on reporting, outreach and communications, and work plan and governance. Progress has been made in agreeing on the scope and Terms of Reference for the first EITI Report, which is due on January 2, 2016 and will cover data from FY 2013/14. The report will be produced in accordance with the EITI Standard. The scoping study which is being undertaken to prepare for the report will include an assessment of the feasibility to disclose contractual terms relevant to the EITI, explore mechanisms for disclosure of the beneficial owners of extractive companies operating in Myanmar, and overview artisanal extractive activities.


E. Summary of Policy Recommendations

21. Myanmar needs to capitalize on its resource endowments to meet its development needs. Myanmar’s richness in natural resources presents the government with an opportunity to raise revenues to finance the country’s large development needs. Mobilizing revenues is particularly important to create fiscal space in the current macroeconomic environment characterized by inflationary pressures, a widening current account deficit, and a depreciating kyat. In order to maximize the revenue potential from natural resources, the current fiscal regime for extractive industries should be reviewed and reformed with a view to meeting international best practices and improve transparency and accountability. In this respect, the government should consider imposing a resource rent tax on super-normal profits from the extraction of exhaustible natural resources.

22. There are significant challenges involved in spending natural resource revenues, including how to achieve short-term macro-stabilization objectives. In order to minimize vulnerabilities to external shocks the fiscal framework should be anchored on an expenditure rule that delinks expenditure from volatile resource revenues thus avoiding pro-cyclical policies. Coordination with monetary and external sector policies is also essential to avoid macroeconomic imbalances and inflationary pressures from domestic spending of natural resource revenue windfalls. Structural reforms to improve efficiency of non-resource sector will also be important. This would help accelerate the process of economic diversification to avoid enclave effects of resource extraction and mobilize non-resource revenues.

23. The financial requirements for transfers to the Union Government of those SOEs collecting and retaining natural resource revenues should be revised in the context of the ongoing reform of the sector. Since these SOEs are responsible for collecting the nation’s resource revenue, their financial requirements in terms of profit transfers to the Union Government should be different from the rest of the sector. Alternatively, the current collection and retention model should be reformed to ensure that all revenues automatically accrue to the budget.

24. The IMF stands ready to provide technical assistance to build capacity and improve Myanmar’s natural resource management framework. The IMF helps countries undertake general tax policy reviews and provides tax policy advice with focus on oil, gas and mining sectors. It also helps countries to improve tax administration, PFM, asset and liability management and statistics. Since 2006, over 130 missions have been carried out in around 40 countries, with a strong focus in Africa and the Asia-pacific regions. Such TA activities are delivered in partnership with the Norwegian Agency for Development (NORAD), which is already assisting the Government of Myanmar in developing an oil and gas framework. However, IMF TA is demand driven and it is only initiated upon country governments’ request.


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    BergAndrewRafaelPortilloChu-ShunS. Yang and Luis FelipeZanna2012Public Investment in Resource Abundant Developing CountriesIMF Working Paper No. 12/274 (Washington: International Monetary Fund).

    CordesT.T.KindaP.Muthoora and A.Weber2015Expenditure Rules: Effective Tools for Sound Fiscal Policy?IMF Working Paper No. 15/29 (Washington: International Monetary Fund).

    DebrunX.2014How Expenditure Rules Can Help Get Public Spending RightPublic Financial Management Blog Post available at:

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    LynnT.A. and M.Oye2014Natural Resources and Subnational Governments in Myanmar: Key considerations for wealth sharingDiscussion Paper No. 4Subnational Governance in Myanmar Discussion SeriesJune2014.

    Van der PloegFrederick2011Natural Resources: Curse or Blessing?Journal of Economic Literature Vol. 49 No. 2 pp. 366420.

This section draws on IMF (2012a)

See IMF (2012a) and references therein for a detailed discussion of rent taxation, leading schemes and main differences.

This section draws on Baunsgaard and others (2012) and IMF (2012b).

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