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

Myanmar: Staff Report for the 2017 Article IV Consultation

Author(s):
International Monetary Fund. Asia and Pacific Dept
Published Date:
March 2018
Share
  • ShareShare
Information about Asia and the Pacific Asia y el Pacífico
Show Summary Details

Context

1. Myanmar’s economy is rebounding and long-term prospects remain strong. The economy is rebounding from the slowdown in 2016/17, and the medium-term outlook remains favorable, albeit moderately weaker than previously anticipated. Strong endowments, such as demographics, competitive labor force and strategic location, continue to underpin convergence. However, the economic transition faces increased downside risk, including from the Rakhine State crisis, and latent banking sector risks which are surfacing as banks adjust to new prudential regulations that upgrade the regulatory framework towards international standards.

2. The humanitarian crisis in Rakhine State has created downside risk, but direct economic impacts have been largely localized. In August 2017, the new government’s focus on the peace process faced a setback, due to the intensification of violence in northern Rakhine State. In the following months, more than 600,000 refugees are estimated to have fled to neighboring Bangladesh. Bangladesh and Myanmar in January 2018 agreed a timeframe for voluntary refugee repatriation that will be closely watched by the international community. The humanitarian crisis in northern Rakhine state has created uncertainty over development partner finance and foreign investor sentiment. While direct economic impacts have been largely localized, the social costs and full impacts of the crisis are yet unfolding.

3. A reinvigorated reform process is needed to sustain growth and achieve the Sustainable Development Goals (SDGs). Myanmar has embarked on a complex reform process, to build institutions and transition to a market-based economy. Reform progress has continued, and several detailed sectoral reform plans have been created. However, the development of an overarching economic roadmap would provide a clear policy context for private sector development. Structural reforms should focus on priority areas with strong productivity payoffs, and making growth more inclusive.

Recent Developments

4. The economy weakened but macroeconomic imbalances were reduced in 2016/17 (Table 1 and Figure 1). The new government faced a challenging first year in 2016/17, with lower-than-expected growth of 5.9 percent. The growth slowdown was mainly due to the temporary suspension of construction permits in Yangon, and weak agricultural production and exports. In addition, the fiscal deficit was lower than expected, at around 2.5 percent of GDP, and down from the election year deficit of 4.4 percent of GDP in 2015/16 (Table 2). The lower fiscal deficit reduced the government’s financing need, causing central bank financing of the deficit to fall in nominal kyat terms, although the target ceiling of 40 percent of domestic financing for 2016/17 was not met. On top of the reduced monetary financing, lower food prices took inflation to 6.8 percent (period average). The fiscal adjustment also contributed to a lower current account deficit, which fell to about 3.9 percent of GDP in 2016/17, from 5.1 percent in 2015/16. The current account deficit has continued to be principally financed by strong FDI, and the real exchange rate and international reserves were broadly stable over 2017 (Table 3 and Figure 2).1 Foreign exchange reserves were US$5.2 billion or around 3 months of prospective imports as of November 2017, still below staff’s assessment of adequate reserve levels (5–6 months of prospective imports).

Table 1.Myanmar: Selected Economic Indicators, 2013/14–2019/20 1/
2013/142014/152015/162016/172017/1820182018/192019/20
Est.Est.Proj.Proj.Proj.Proj.
Output and prices(Percent change)
Real GDP 2/8.48.07.05.96.76.47.07.2
CPI (end-period; base year from 2014/15=2012)6.36.18.47.05.55.96.16.3
CPI (period average; base year from 2014/15=2012)5.75.110.06.85.15.65.86.2
Consolidated public sector 3/(In percent of GDP)
Total revenue20.122.018.718.818.217.418.318.3
Union government10.012.110.910.710.710.110.610.7
Of which : Tax revenue7.37.87.57.88.17.88.48.7
SEE receipts9.79.57.47.77.06.77.06.9
Grants0.30.30.40.40.60.60.60.6
Total expenditure21.422.923.221.321.721.322.322.4
Expense13.816.117.116.516.215.916.416.5
Net acquisition of nonfinancial assets7.66.86.14.85.55.45.95.9
Gross operating balance6.35.91.72.32.11.61.91.8
Net lending (+)/borrowing (-)−1.3−0.9−4.4−2.5−3.5−3.9−4.0−4.1
Underlying net lending (+)/borrowing (-) 4/−1.7−3.1−5.6−3.7−4.4−4.7−4.7−4.7
Domestic public debt16.216.018.620.120.320.119.920.2
Money and credit(Percent change)
Reserve money16.34.622.88.811.913.113.213.5
Broad money31.717.626.319.416.518.418.420.0
Domestic credit24.622.931.425.521.220.718.720.9
Private sector52.536.534.333.826.225.224.224.0
Balance of payments(In percent of GDP)
Current account balance−4.9−2.2−5.1−3.9−5.3−5.4−5.6−5.9
Trade balance−5.1−2.8−6.8−6.9−7.1−7.0−7.1−7.2
Financial account8.24.66.56.95.77.68.17.4
Foreign direct investment, net 5/4.44.45.85.36.36.36.26.2
Overall balance2.61.6−0.70.60.42.22.51.5
CBM reserves (gross)
In millions of U.S. dollars4,4445,1254,7645,1345,3706,3077,2448,528
In months of prospective GNFS imports3.73.83.53.23.03.23.73.9
Total external debt (billions of U.S. dollars)10.28.89.59.19.611.011.012.0
Total external debt (percent of GDP)17.013.516.014.514.514.514.714.5
Exchange rates (kyat/$, end of period)
Official exchange rate965.01,027.01,216.01,362.0
Parallel rate964.71,085.51,200.51,357.0
Memorandum items:
GDP (billions of kyats)58,01265,26272,71479,72290,26932,933103,095118,221
GDP (billions of US$)60.165.659.563.366.524.175.083.0
GDP per capita (US$)1,179.61,275.31,147.31,210.51,263.91,339.01,414.11,555.3
Sources: Data provided by the Myanmar authorities; and IMF staff estimates and projections.

The fiscal year is from April 1 to March 31, up to 2017/18. From 2018/19 onwards the fiscal year is from October 1 to September 30. The six month transition period from April 1, 2018 to September 30, 2018 is shown in the column headed 2018.

Real GDP series is rebased to 2010/11 prices by the authorities.

Union and state/region governments and state economic enterprises.

Excludes one-off receipts from telecoms licenses and signature bonus from gas contracts.

FDI from 2017/18 onwards reflects improved forex transaction data collection, which has caused a break in the data series.

Sources: Data provided by the Myanmar authorities; and IMF staff estimates and projections.

The fiscal year is from April 1 to March 31, up to 2017/18. From 2018/19 onwards the fiscal year is from October 1 to September 30. The six month transition period from April 1, 2018 to September 30, 2018 is shown in the column headed 2018.

Real GDP series is rebased to 2010/11 prices by the authorities.

Union and state/region governments and state economic enterprises.

Excludes one-off receipts from telecoms licenses and signature bonus from gas contracts.

FDI from 2017/18 onwards reflects improved forex transaction data collection, which has caused a break in the data series.

Figure 1.Myanmar: Macroeconomic Developments

Table 2.Myanmar: Summary Operations of the Nonfinancial Public Sector, 2013/14–2019/20 1/(Consolidated accounts)
2013/142014/152015/162016/172017/1820182018/192019/20
Act.Act.Act.Proj.Proj.Proj.Proj.
(In billions of kyat)
Revenue and grants11,66014,34013,62015,00016,4575,74318,83321,618
Tax revenue4,2365,0765,4426,1887,2782,5568,62110,241
Private sector3,2213,6814,4105,4656,4292,2947,6029,071
SEEs1,0151,3951,0327248492621,0191,169
Profit transfers (from SEEs to Union Gvt.)746538819595632248793927
SEE receipts (excluding contributions to Union Gvt. and grants) 2/5,6526,1995,3786,1566,2782,2227,2568,184
Other nontax revenue 3/8802,3231,6851,7691,7285191,5451,557
Grants146204295292542198619709
Expenditure12,44114,95216,83417,00619,6097,02122,94726,467
Expense8,00610,50312,41913,15514,6045,22816,87119,500
Net acquisition of nonfinancial assets4,4354,4494,4153,8525,0041,7936,0766,968
Deficit−781−612−3,214−2,006−3,151−1,278−4,114−4,850
Financing1,3481,4713,9102,6033,1511,2784,1144,850
Domestic8061,1163,3112,5882,4828702,1813,439
CBM408213,4861,471745261436344
CBM as percent of domestic financing5730302010
External (net)542355599156694091,9331,411
(In percent of GDP)
Revenue and grants20.122.018.718.818.217.418.318.3
Tax revenue7.37.87.57.88.17.88.48.7
Private sector5.65.66.16.97.17.07.47.7
SEEs1.82.11.40.90.90.81.01.0
Profit transfers (from SEEs to Union Gvt.)1.30.81.10.70.70.80.80.8
SEE receipts (excluding contributions to Union Gvt. and grants) 2/9.79.57.47.77.06.77.06.9
Other nontax revenue 3/1.53.62.32.21.91.61.51.3
Grants0.30.30.40.40.60.60.60.6
Expenditure21.422.923.221.321.721.322.322.4
Expense13.816.117.116.516.215.916.416.5
Union Government7.49.410.610.710.510.310.811.1
SEEs (before contributions to Union Gvt.) 2/6.46.76.55.85.75.65.65.4
Net acquisition of nonfinancial assets7.66.86.14.85.55.45.95.9
Union Government5.75.34.83.94.44.44.74.8
SEEs2.01.51.30.91.11.01.21.1
Deficit−1.3−0.9−4.4−2.5−3.5−3.9−4.0−4.1
Financing2.32.35.43.33.53.94.04.1
Domestic (net)1.41.74.63.22.72.62.12.9
CBM0.70.04.81.80.80.80.40.3
External (net)0.90.50.80.00.71.21.91.2
Memorandum items:(In percent of GDP, unless otherwise indicated)
Primary balance0.00.4−3.2−1.1−2.2−3.9−2.5−2.5
Underlying deficit 4/−1.7−3.1−5.6−3.7−4.4−4.7−4.7−4.7
Economic breakdown of Union Gvt. expenditure 5/13.114.615.314.614.914.715.515.8
Expenses7.49.410.610.710.510.310.811.1
Wages and salaries 6/2.62.63.03.22.92.92.92.9
Contributions 7/1.02.62.72.72.62.62.72.8
Other expenditures3.84.14.94.95.04.85.15.4
Net acquisition of nonfinancial assets5.75.34.83.94.44.44.74.8
Functional breakdown of Union Gvt. expenditure 5/13.114.615.314.614.914.715.515.8
Economic services2.32.32.22.92.40.02.42.4
Social services3.33.54.04.13.93.64.14.4
Of which: education1.71.92.12.11.91.62.02.2
Of which: health1.11.11.11.11.21.21.31.4
Defense3.83.84.33.73.23.22.92.8
Interest, subsidies and transfers, reserve fund2.33.94.04.24.04.34.44.6
Other expenditures1.31.10.9−0.31.43.61.61.7
Public debt33.229.534.634.634.834.634.634.7
Of which: held by CBM15.013.416.817.216.015.214.412.9
Of which: other and external18.216.117.817.418.819.420.221.9
Domestic public debt16.216.018.620.120.320.119.920.2
External public debt17.013.516.014.514.514.514.714.5
GDP (in billions of kyat)58,01265,26272,71479,72290,26932,933103,095118,221
Sources: Data provided by the Myanmar authorities; and IMF staff estimates and projections.

The fiscal year is from April 1 to March 31, up to 2017/18. From 2018/19 onwards the fiscal year is from October 1 to September 30. The six month transition period from April 1, 2018 to September 30, 2018 is shown in the column headed 2018.

State economic enterprises’ (SEEs) contributions comprise profit transfers, income and commercial taxes paid to the Union Government (UG).

Includes proceeds from sales of telecom licenses; and signature bonuses from gas production sharing contracts for on- and off-shore blocks.

Excludes one-off receipts from telecom licenses and gas contracts signature bonuses.

Data on a comparable breakdown for SEEs is not available.

Excludes defense wages and salaries.

Includes mostly grants to subnational governments.

Sources: Data provided by the Myanmar authorities; and IMF staff estimates and projections.

The fiscal year is from April 1 to March 31, up to 2017/18. From 2018/19 onwards the fiscal year is from October 1 to September 30. The six month transition period from April 1, 2018 to September 30, 2018 is shown in the column headed 2018.

State economic enterprises’ (SEEs) contributions comprise profit transfers, income and commercial taxes paid to the Union Government (UG).

Includes proceeds from sales of telecom licenses; and signature bonuses from gas production sharing contracts for on- and off-shore blocks.

Excludes one-off receipts from telecom licenses and gas contracts signature bonuses.

Data on a comparable breakdown for SEEs is not available.

Excludes defense wages and salaries.

Includes mostly grants to subnational governments.

Table 3.Myanmar: Balance of Payments, 2013/14–2019/20 1/
2013/142014/152015/162016/172017/182018/19A2018/192019/20
Est.Proj.Proj.Proj.Proj.Proj.
(In millions of U.S. dollars)
Current account−2,936−1,419−3,010−2,475−3,532−1,311−4,207−4,869
Trade balance−3,053−1,859−4,048−4,394−4,695−1,696−5,318−5,963
Exports11,26410,3859,4989,47110,7663,90612,15513,368
Imports−14,317−12,244−13,546−13,865−15,461−5,602−17,473−19,331
Nonfactor services, net1931,3001,0781,3151,3314821,4871,635
Income, net−1,475−3,154−2,527−2,191−2,994−1,085−3,374−3,715
Of which: Interest due−220−391−363−335−350118−355−360
Transfers, net1,4002,2932,4882,7952,8269892,9983,174
Official205210384368399145450498
Private1,1952,0832,1042,4272,4278442,5482,676
Capital and financial account4,9013,0283,8864,3693,7681,8316,0816,153
Direct investment, net2,6212,9163,4433,3604,2251,5314,6755,162
Other investment556260266−4454932991,406991
MLT debt disbursements7615397863669224551,8721,552
Repayments due−206−225−344−401−428−155−466−561
Other flows1,724−1481771,454−950000
Errors and omissions−381−527−1,296−1,5150000
Overall balance1,5841,081−4193792365211,8741,284
Change in gross official reserves (increase: -)−1,584−1,081361−370−236−521−1,874−1,284
(In percent of GDP)
Current account−4.9−2.2−5.1−3.9−5.3−5.4−5.6−5.9
Trade balance−5.1−2.8−6.8−6.9−7.1−7.0−7.1−7.2
Exports, fob18.715.816.015.016.216.216.216.1
Of which: Gas5.55.74.22.32.52.42.32.1
Imports−23.8−18.7−22.8−21.9−23.2−23.2−23.3−23.3
Nonfactor services, net0.32.01.82.12.02.02.02.0
Income, net−2.5−4.8−4.2−3.5−4.5−4.5−4.5−4.5
Of which: Interest due−0.4−0.6−0.6−0.5−0.50.5−0.5−0.4
Transfers, net2.33.54.24.44.24.14.03.8
Official0.30.30.60.60.60.60.60.6
Private2.03.23.53.83.63.53.43.2
Capital and financial account8.24.66.56.95.77.68.17.4
Direct investment, net 2/4.44.45.85.36.36.36.26.2
Other investment0.90.40.4−0.70.71.91.2
MLT debt disbursements1.30.81.30.61.41.92.51.9
Repayments due−0.3−0.3−0.6−0.6−0.6−0.6−0.6−0.7
Other flows2.9−0.20.32.3−1.40.00.00.0
Errors and omissions−0.6−0.8−2.2−2.40.00.00.00.0
Overall balance2.61.6−0.70.60.42.22.51.5
Change in gross official reserves (increase: -)−2.6−1.60.6−0.6−0.4−2.2−2.5−1.5
Memorandum items:
Gross CBM reserves (US$ millions)4,4445,1254,7645,1345,3706,3077,2448,528
In months of prospective GNFS imports3.73.83.53.23.03.23.73.9
Gas export volume (percent change)−6.725.42.6−14.70.00.00.00.0
Other exports volume (percent change)21.313.76.310.010.80.012.910.1
Import volume (percent change)17.3−13.714.06.110.05.011.89.2
Public external debt (in percent of GDP)17.013.516.014.514.50.014.715
External debt service due (in percent of GNFS exports)33454444
Official exchange rate (kyat/US$, eop)9651,0271,216....
Sources: Data provided by the Myanmar authorities; and IMF staff estimates and projections.

The fiscal year is from April 1 to March 31, up to 2017/18. From 2018/19 onwards the fiscal year is from October 1 to September 30. The six month transition period from April 1, 2018 to September 30, 2018 is shown in the column headed 2018.

FDI from 2017/18 onwards reflects improved forex transaction data collection, which has caused a break in the data series.

Sources: Data provided by the Myanmar authorities; and IMF staff estimates and projections.

The fiscal year is from April 1 to March 31, up to 2017/18. From 2018/19 onwards the fiscal year is from October 1 to September 30. The six month transition period from April 1, 2018 to September 30, 2018 is shown in the column headed 2018.

FDI from 2017/18 onwards reflects improved forex transaction data collection, which has caused a break in the data series.

Figure 2.Myanmar: Macro-Structural Developments

Fiscal Revenue and Expenditure, 2016/17

(In percent of GDP)

Sources: Myanmar authorities; and IMF staff calculations.

Reserve Money and Inflation

(Year-on-year percent change)

Sources: Myanmar authorities; and IMF staff estimates.

Private Banks’ Credit Growth: Contribution by Sector

(Contributions to annual growth, in percent)

Source: Authorities’ data.

5. Deceleration of rapid credit growth is having a contractionary impact on corporate investment and the real estate sector while moderating financial stability risks (Figure 3). The banking system is adjusting to new prudential regulations, which are starting to shed light on previously under-reported fragilities. Against this background, credit growth has moderated from its peak though it was still strong at 27 percent (y/y) in September 2017 (Table 4). The slowdown in bank credit has affected corporate activity and contributed to softening in construction and the property market. The reduction in credit exposures to real estate and related lending to conglomerates that began in mid-2016 with the temporary suspension of construction permits in Yangon will help lower systemic risks.

Table 4.Myanmar: Monetary Survey, 2013/14–2020/21 1/2/(In billions of kyat at end-period, unless otherwise indicated)
2013/142014/152015/162016/172017/18 Proj.2018 Proj.2018/192019/202020/21
CENTRAL BANK OF MYANMAR
Net foreign assets3,1274,8615,3746,5506,5316,7598,1179,38410,698
Foreign assets4,2895,2765,8477,0167,0127,2358,6109,89511,227
Foreign liabilities1,162415473466480477493511530
Net domestic assets9,0367,86410,25810,45112,49711,97213,08414,67916,614
Net domestic credit9,6359,01112,61813,87815,80015,39916,51118,10620,041
Net claims on central government8,7268,74712,23313,70414,44913,84414,28014,62414,624
Net claims on deposit money banks9092633851741,3511,5562,2313,4835,417
Other items net−599−1,147−2,361−3,427−3,303−3,427−3,427−3,427−3,427
Reserve Money12,16312,72515,63217,00119,02818,73121,20124,06327,312
Currency in circulation8,96510,20211,77113,06414,08813,58815,37917,45619,812
ODC liabilities3,1992,5233,8613,9384,9415,1435,8226,6077,499
Transferrable deposits0.00.00.10.10.10.10.10.10.1
MONETARY SURVEY
Net foreign assets6,6298,0119,2639,2819,58710,10211,73513,53215,455
Foreign assets10,82011,51113,01212,87213,33414,15316,09618,47821,070
Foreign liabilities4,1913,4993,7493,5913,7474,0514,3614,9465,615
Net domestic assets17,63520,51326,77733,75340,54740,85048,59358,86672,008
Net domestic credit16,95820,84627,38634,36241,65241,45949,20259,47572,617
Net claims on government9,48710,64713,68716,03618,51818,51820,69924,13828,089
CBM8,7268,74712,23313,70414,44913,84414,28014,62414,624
Deposit money banks7611,9001,4532,5354,0694,6756,4199,51413,466
Net credit to the economy7,47110,19913,69918,32623,13422,94128,50235,33744,528
Other items net677−333−609−609−1,105−609−609−609−609
Broad money24,26428,52436,04043,03450,13550,95260,32772,39887,463
Narrow money10,99112,57414,81915,79918,10418,39921,78526,14431,584
Currency in circulation7,9678,60510,15710,92012,43712,31214,57717,49421,134
Transferrable Deposits3,0243,9694,6624,8805,6686,0887,2088,65010,450
Other deposits13,27315,95121,22127,23532,03032,55338,54246,25555,879
MEMORANDUM ITEMS
Money multiplier2.02.22.32.52.62.72.83.03.2
Velocity2.42.32.01.81.81.91.71.61.5
Reserve money (y/y percent change)16.34.622.88.811.913.113.213.513.5
Broad money (y/y percent change)31.717.626.319.416.518.418.420.020.8
Credit to private sector (y/y percent change)52.536.534.333.826.225.224.224.026.0
Net credit to central govt. (y/y percent change8.912.228.517.215.515.511.816.616.4
Credit growth (y/y percent change)24.622.931.425.521.220.718.720.922.1
Deposits (y/y percent change)38.922.229.924.117.420.318.420.020.8
Reserve money (in percent of GDP)21.019.521.521.321.919.720.620.420.1
Broad money (in percent of GDP)41.843.749.654.057.653.558.561.264.5
Credit to private sector (in percent of GDP)12.915.618.823.026.624.127.629.932.8
Credit to central government (in percent of GD16.416.318.820.121.319.420.120.420.7
Deposits (in percent of GDP)28.130.535.640.341.840.644.446.448.9
Credit to economy/deposits (in percent)45.851.252.957.161.459.462.364.467.1
Nominal GDP (in billions of kyat)58,01265,26272,71479,72290,26995,277103,095118,221135,560
Sources: Central Bank of Myanmar; and IMF staff estimates and projections.

The fiscal year is from April 1 to March 31, up to 2017/18. From 2018/19 onwards the fiscal year is from October 1 to September 30. The six month transition period is from April 1, 2018 to September 30, 2018. The column headed 2018 shows data for September 2018.

From 2012/13, foreign assets and liabilites are valued at the reference rate (before: at official exchange rate).

Sources: Central Bank of Myanmar; and IMF staff estimates and projections.

The fiscal year is from April 1 to March 31, up to 2017/18. From 2018/19 onwards the fiscal year is from October 1 to September 30. The six month transition period is from April 1, 2018 to September 30, 2018. The column headed 2018 shows data for September 2018.

From 2012/13, foreign assets and liabilites are valued at the reference rate (before: at official exchange rate).

Figure 3.Myanmar: Macrofinancial Developments

Sources: Myanmar authorities; and IMF staff calculations.

Outlook and Risks

6. The medium-term outlook remains favorable (Table 5). The near-term growth trajectory is weaker than previously expected, due to the subdued pick up in domestic investment and uncertainties related to the Rakhine state crisis, particularly for tourism. However, growth is expected to rebound to 6.7 percent in 2017/18, mainly supported by a recovering agricultural sector, exports, and higher public spending.2 Rice and garment exports are growing at above 40 percent y/y in 2017/18 while natural gas exports are expected to get a boost as contracted prices reset with lag (Figure 1). In addition, Myanmar is poised to benefit from trade service flows associated with oil and gas pipelines from Southern Rakhine state to Kunming, China. Buoyant tax revenues and the 2017/18 supplementary budget are expected to support higher fiscal spending in the second half of 2017/18. Headline inflation is projected to decline to 5.5 percent in 2017/18. Dissipating lower food price effects are expected to cause inflation to increase temporarily before declining back to around 5 percent in the medium term. Over the medium term, growth is expected gradually to pick up towards the estimated potential rate of about 7–7.5 percent, reflecting continued FDI inflows and higher public investment spending and efficiency. In line with development needs, the current account balance is expected to remain in deficit, with the improvement in commodity prices and exports more than offset by growth in FDI and infrastructure related imports.

Table 5.Myanmar: Medium-Term Projections 2013/14–2022/23 1/
2013/142014/152015/162016/172017/1820182018/192019/202020/212021/222022/23
Est.Est.Proj.Proj.Proj.Proj.Proj.Proj.Proj.
Output and prices(Percent change)
Real GDP (staff working estimates)8.48.07.05.96.76.47.07.27.37.47.5
CPI (end-period; base year=2012 )6.18.47.05.55.96.16.36.26.05.8
CPI (period average; base year=2012)5.110.06.85.15.65.86.26.16.05.7
Consolidated public sector 3/(In percent of GDP)
Total revenue20.122.018.718.818.217.418.318.317.817.818.0
Union government10.012.110.910.710.710.110.610.710.310.410.5
Of which : Transfers from SEEs to Union government1.30.81.10.70.70.80.80.80.80.80.8
Of which : Tax revenue7.37.87.57.88.17.88.48.78.88.99.1
SEE receipts9.79.57.47.77.06.77.06.96.96.96.9
Grants0.30.30.40.40.60.60.60.60.60.50.5
Total expenditure21.422.923.221.321.721.322.322.421.921.922.1
Expense13.816.117.116.516.215.916.416.515.915.916.1
Net acquisition of nonfinancial assets7.66.86.14.85.55.45.95.95.96.06.1
Gross operating balance6.35.91.72.32.11.61.91.81.81.91.9
Net lending (+)/borrowing (-)−1.3−0.9−4.4−2.5−3.5−3.9−4.0−4.1−4.1−4.1−4.2
Underlying net lending (+)/borrowing (-) 4/−1.7−3.1−5.6−3.7−4.4−4.7−4.7−4.7−4.1−4.1−4.2
Domestic public debt16.216.018.620.120.320.319.920.220.620.821.1
Money and credit(Percent change)
Reserve money16.34.622.88.811.913.113.213.513.513.513.5
Broad money31.717.626.319.416.518.418.420.020.820.920.8
Domestic credit24.622.931.425.521.220.718.720.922.122.322.1
Private sector52.536.534.333.826.225.224.224.026.026.525.7
Balance of payments(In percent of GDP, unless otherwise indicated)
Current account balance−4.9−2.2−5.1−3.9−5.3−5.4−5.6−5.9−6.0−5.9−5.8
Trade balance−5.1−2.8−6.8−6.9−7.1−7.0−7.1−7.2−7.1−6.9−6.7
Exports18.715.816.015.016.216.216.216.116.316.416.5
Gas exports5.55.74.22.32.52.42.32.11.91.91.9
Imports−23.8−18.7−22.8−21.9−23.2−23.2−23.3−23.3−23.4−23.3−23.2
Financial account8.24.66.56.95.77.68.17.47.27.27.1
Foreign direct investment, net 5/4.44.45.85.36.36.36.26.26.05.95.8
Overall balance2.61.6−0.70.60.42.22.51.51.31.31.3
CBM reserves (gross)
In millions of U.S. dollars4,4445,1254,7645,1345,3706,3077,2448,5289,68111,01412,424
In months of total imports3.73.83.53.23.03.23.73.94.04.14.2
External debt
Total external debt (billions of U.S. dollars)10.28.89.59.19.611.011.012.013.214.515.9
(In percent of GDP)17.013.516.014.514.514.514.714.514.314.214.2
Exchange rates (kyat/$, end of period)
Official exchange rate9651,0271,2161,362
Parallel rate9651,0861,2011,357
Memorandum items:
GDP (billions of kyats)58,01265,26272,71479,72290,26932,933103,095118,221135,560155,306177,154
GDP (billions of US$)60.165.659.563.366.524.175.083.091.9101.6112.0
GDP per capita (US$)1,1801,2751,1471,2101,2641,3391,4141,5551,7101,8802,061
Sources: Data provided by the Myanmar authorities; and IMF staff estimates and projections.

The fiscal year is from April 1 to March 31, up to 2017/18. From 2018/19 onwards the fiscal year is from October 1 to September 30. The six month transition period from April 1, 2018 to September 30, 2018 is shown in the column headed 2018.

Real GDP series is rebased to 2010/11 prices by the authorities.

Union and state/region governments and state economic enterprises.

Excludes one-off receipts from telecoms licenses and signature bonus from gas contracts.

FDI from 2017/18 onwards reflects improved forex transaction data collection, which has caused a break in the data series.

Sources: Data provided by the Myanmar authorities; and IMF staff estimates and projections.

The fiscal year is from April 1 to March 31, up to 2017/18. From 2018/19 onwards the fiscal year is from October 1 to September 30. The six month transition period from April 1, 2018 to September 30, 2018 is shown in the column headed 2018.

Real GDP series is rebased to 2010/11 prices by the authorities.

Union and state/region governments and state economic enterprises.

Excludes one-off receipts from telecoms licenses and signature bonus from gas contracts.

FDI from 2017/18 onwards reflects improved forex transaction data collection, which has caused a break in the data series.

7. Risks to growth are tilted to the downside. Long-standing weaknesses in the banking sector have surfaced as banks adjust to new regulations, raising the risk of a sharp reversal of previously-strong credit growth. The humanitarian crisis in Northern Rakhine state has created uncertainties regarding DP finance and investor sentiment. The highly targeted U.S. sanctions are not expected to affect the broader economy, but any broadening of sanctions would add to downside risks. The upcoming change in the fiscal year, from October 1, 2018, will challenge limited public sector capacity and may introduce greater risks on revenue and budget under execution. Other risks stem from external sources, including commodity prices, potentially volatile global financial markets, and exposure to spillovers from China. Flood effects were relatively moderate in 2016/17, but natural disasters remain an ever-present risk (Annex 1).

8. A reduction in external financing would raise risks to growth and stability, while the economy could be boosted by reinvigorated reforms and greater use of concessional finance. The Rakhine state crisis has created uncertainty over DP budgetary financing, that may have macroeconomic consequences depending on the authorities’ response. As an illustration, a temporary pause in anticipated DP budgetary financing (0.8 percent of GDP lower compared to the 2017/18 baseline) would result in a cut in spending, lower growth and higher central bank financing.3 An equal cut in spending and higher fiscal deficit would result in a moderate exchange rate depreciation and higher inflation, assuming no indirect negative confidence effects. Under the assumption that the financing shortfall is limited to budgetary financing and does not trigger stability risks, the impacts would be manageable, but economic activity and the poor would be negatively affected. On the other hand, a second wave of reforms and higher public investment using greater concessional finance would raise potential growth and foster inclusion.4

Myanmar: Key Macroeconomic Assumptions
BaselineLow External FinancingHigh External Financing
2017/18–2019/202017/18–2019/202017/18–2019/20
Real GDP growth (in percent)7.06.87.3
Inflation (period average, in percent)5.76.25.9
Overall fiscal balance (in percent of GDP)−3.9−3.6−4.2
Net external financing (in percent of GDP)1.30.51.5
Current account (in percent of GDP)−5.6−6.0−5.8
Reserves (in months of imports)3.52.63.2
Source: IMF staff calculations.
Source: IMF staff calculations.

Authorities’ Views

9. The authorities broadly agreed with staff’s view of the recent developments and outlook. The authorities noted that the lower deficit was driven by greater fiscal prudence, which had helped to reduce central bank deficit financing and inflation. While limited capacity had hindered budget execution, implementation should improve with the change in the fiscal year. The authorities noted that although lower inflation was welcome, this had also reflected negative food price shocks and reduced farm incomes. Regarding the Rakhine state, they noted that public spending would be redirected to aid the reconstruction along with other efforts to address regional disparities.

A Second Wave of Reforms to Sustain the Growth Momentum

Myanmar’s initial phase of economic liberalization led to an impressive growth take-off; now a second wave of reforms is needed to sustain the momentum. Articulation of an overarching economic roadmap will help to set economic direction and support investor confidence.

10. Myanmar’s initial economic liberalization led to an impressive growth take-off and poverty reduction, underpinned by FDI. The growth take-off has been even stronger than in Myanmar’s fast-growing neighbors and was led by a surge in FDI, with investors attracted by Myanmar’s status as one of Asia’s last frontier markets. World Bank estimates show a sharp decline in the poverty rate, from 48.2 percent in 2004/5 to 42.4 percent in 2009/10, and 32.1 percent in 2015—although 46 percent of the population remains under the near-poverty line.5 The rate of poverty reduction is comparable to early-liberalization success stories in the region.

Growth Index, Years from Reform Commencement

(Year 0=100)

Sources: World Economic Outlook database; and IMF staff calculations.

FDI Inflow, Years from Reform Commencement

(Percent of GDP)

Sources: World Economic Outlook database; and IMF staff calculations.

11. Recent reform progress has included the updated prudential regulations and directives pertaining to the banking sector, and good progress on revenue mobilization and statistics. Financial sector reforms have also included developing a benchmark government bond yield curve and liberalizing trade finance activities of foreign bank branches. A civil service reform action plan was released and a rise in the minimum wage was announced recently.6 A higher minimum wage may support more inclusive growth by raising incomes of workers near the poverty line while average labor costs in Myanmar would remain regionally competitive and support continued job creation (see Figure 2). A new Companies Act has been enacted, and is expected to be effective in FY2018/19. The new Companies Act replaces the 1914 Act, and will allow foreigners to take up to a 35 percent stake in Myanmar companies. The recent issuance of bylaws to the January 2016 Condominium Law which clarifies nonresident ownership should help stabilize the softening property market.

Poverty Reduction Following Economic Reforms

(Change in percent of total population)

Sources: World Bank’s World Development Indicators; and IMF staff calculations.

12. An overarching medium-term plan is needed to provide strategic direction. A well sequenced second wave of reforms and greater infrastructure investment would help Myanmar’s economy to further integrate with global value chains (GVCs).7 Cross-country experience suggests that simultaneous reform in multiple areas can have strong productivity payoffs, due to gains from complementarities, particularly for low income developing countries (LIDCs).8 For Myanmar, increased private sector consultation and development of an overarching medium-term development plan with a fiscal framework, would help to provide strategic direction and facilitate reform implementation. Structural reforms should focus on agriculture, the banking system and interest rate liberalization, infrastructure, trade and the legal framework. Further opening up of the economy to foreign participation building on the new Companies Act (e.g., by allowing majority foreign ownership and reducing sectoral restrictions) will assist in providing opportunities for skills and technology transfer.

ASEAN Economies: Infrastructure Quality Index, 2016–17

(Index, Highest = 7 and Lowest = 1, weighted by GDP in US$ at current PPP)

Sources: World Economic Forum; and IMF staff estimates.

FDI Restrictive Index

(0=open, 1=restrictive)

Source: OECD.

Structural Reform Priorities

Source: IMF staff estimates

Doing Business, Distance to Frontier Score

(Frontier = 100)

Source: World Bank.

Authorities’ Views

13. The authorities agreed on the importance of a medium-term growth strategy. They noted that the government was now implementing the Twelve Economic Policies, which were focused on inclusive sustainable development. However, they shared staff’s view that an overarching strategy to set economic direction and clarify development priorities would be beneficial, with prioritization of the agricultural and financial sectors, infrastructure, and human capital development. They noted that investment interest in Myanmar remained strong, as indicated by continued FDI, but agreed that risks were currently to the downside.

Fiscal Policy and the Sustainable Development Goals

Fiscal policy should be geared towards achieving the Sustainable Development Goals (SDGs) while being anchored on debt sustainability and lowering central bank financing of the deficit. Achieving the SDGs will require increasing fiscal resources through continued domestic revenue mobilization, expenditure rebalancing, and improving Public Financial Management (PFM). Concessionary external financing can supplement domestic revenues, while reducing the historical reliance on monetary financing and bolstering reserves.

14. The fiscal deficit fell to 2.5 percent of GDP in 2016/17, due to higher revenues and lower spending relative to budget. Increased tax collection led to a 9 percent overperformance relative to the revised budget in 2016/17. In part this reflected improved tax administration, including introduction of self-assessments for large taxpayers and capacity development within IRD. At the same time, commodity price declines weighed on non-tax revenues. Spending was under-executed relative to budget for both recurrent (by 6 percent) and capital spending (by 21 percent), leading to a large reduction in the deficit. However, at 57 percent, CBM financing exceeded the authorities’ target ceiling of 40 percent of domestic financing. The authorities remain committed to reducing CBM financing, and have retained their target to limit CBM financing at 30 percent of domestic financing for 2017/18.

CBM Financing as Share of Total Domestic Financing

(In percent)

Source: IMF Monetary and Financial Statistics.

15. Myanmar’s fiscal year will change from April-March, to October-September. Following a six-month transition period, from April 1, 2018 to September 30, 2018, the new fiscal year will commence from October 1, 2018. The transition to a new fiscal year should be carefully planned, with the six-month transition period best handled by linking budget ceilings to the previous year to minimize fiscal risks. Early and clear communication on tax filing and processes is needed to minimize risks to revenues and ensure stakeholders can make adequate preparations.9 On the expenditure side, PFM reforms and significant adjustments to budget ceilings could be postponed to the full-year October 2018–19 budget given low implementation capacity.

16. The fiscal deficit is projected to increase to 3.5 percent of GDP in 2017/18, and to 4 percent in 2018/19 following the six-month transition budget. The deficit is projected to rise in 2017/18 notwithstanding buoyant tax revenues in the first half of 2017 as spending picks up in line with the expansionary supplementary budget. The deficit is expected to increase further to 4.0 percent of GDP in 2018/19 following the six-month transition budget, during which budget execution may be weaker (Table 2). A greater share of the fiscal expansion is expected to be allocated to recovery and reconstruction efforts in Rakhine state including on facilitating the planned return of refugees from Bangladesh. Revenue is projected gradually to rise, largely due to continued tax buoyancy as well as further tax policy and administration reforms. At the same time, the recent increase in commodity prices is expected to mitigate the projected decline in natural gas related revenues, as gas reserves are gradually exhausted. Tax revenue improvement will support increased spending, enabling increased infrastructure and social expenditure. The proposed minimum wage hike would have a fiscal impact by increasing entry level civil service wages, and should be integrated into the civil service reform initiative, including by reflecting other allowances in the base wage to minimize the rise in the wage bill.10

17. The deficit is expected to remain at around 4–4.5 percent of GDP in the medium term, a level consistent with low debt distress and the phasing out of CBM financing. A fiscal deficit of between 4–4.5 percent of GDP would maintain public debt at a low level of debt distress, based on the updated joint Bank-Fund Debt Sustainability Analysis (DSA). Phasing out CBM financing will require supportive domestic financial reforms and the development of the government securities market (Table 2). In particular, the government should attempt to accept all bids at the government securities auctions and avoid cut-off rates except for outliers.

18. Fiscal policy should be increasingly geared towards achieving the Sustainable Development Goals (SDGs, Figure 4).11 Spending on education and health has remained low relative to peer countries, although it has significantly increased in recent years. Fiscal space for priority spending can be achieved through a combination of expenditure rebalancing towards social sectors (education and health) and priority infrastructure, improved Public Financial Management (PFM) and further revenue mobilization, as highlighted in the 2017 Public Expenditure Review. Additional public spending needs to reach the education and health SDGs are estimated at 2.5 percent of GDP in each of the sectors.12 An increase in capital expenditure and efficiency is also needed to develop infrastructure, within the context of a strengthened public investment management (PIM) framework. Fiscal policy can also facilitate structural transformation and foster inclusion, by mitigating adjustment costs and addressing regional disparities. Greater access to external concessionary finance and structural reforms could allow the economy to sustain a higher level of spending to achieve the SDGs faster, consistent with the alternative scenario above and the DSA.

Figure 4.Myanmar: Progress Towards Sustainable Development Goals

Union Government Expenditure Composition

(In percent of GDP)

Sources: IMF’s Government Financial Statistics database; and IMF staff calculations.

19. Building on progress made since 2012, deeper PFM reform is needed to improve the effectiveness of fiscal policy. Progress achieved in building core PFM capabilities include: (i) reinforced Treasury functions, by establishing a Treasury department in the Ministry of Finance, moving to a system of market-based financing through treasury bill auctions, and modernizing cash and debt management; (ii) enhanced budget formulation through a top-down approach and the preparation of a medium-term fiscal framework; (iii) strengthened PFM legal and regulatory framework; and (iv) improved financial reporting. Building on these efforts, the authorities are preparing a new PFM strategy for the next five years with Bank and Fund TA. Further reform measures should prioritize:

  • Fiscal transparency and reporting. With good progress being made toward producing Government Financial Statistics (GFS), both the authorities’ accounting and the GFS presentations should be included in the October 2018/19 budget and in the medium term fiscal framework.

  • Developing a Financial Information Reporting System for the Treasury (FIRST). Myanmar is one of the last countries in the world where PFM is managed on a fully manual basis. A simple IT solution could consolidate and validate financial information to strengthen fiscal reporting. In parallel, ongoing efforts to building capacity in treasury management need to continue.

  • Strengthening budget credibility would improve strategic allocation and expenditure efficiency. A stronger interrelationship between planning and budget is needed to improve the budget-policy linkage and help deliver much needed infrastructure and social spending. And stronger revenue forecasting capacity would reinforce budget credibility.

  • Better managing fiscal risks from SEEs and large public investment projects. The authorities should limit and manage fiscal risks from SEEs, including through restructuring and privatization. SEE performance has declined, in part reflecting lower commodity prices, but also poor financial management. A quarter of the 32 on-budget SEEs incurred losses in their most recent reporting year, with most of the loss arising from the Electric Power Generation Enterprise (EPGE). A gradual increase in electricity tariffs would help reduce EPGE losses, while mitigating negative effects on the poor through adequate design. The recent Government announcement of the intention to transform some of the SEEs to joint ventures with the private sector is also welcome and should avoid any government guarantee. In addition, large and much needed infrastructure projects, including through Public-Private Partnerships (PPPs), may generate significant fiscal risks and call for improved PIM.

20. Successful efforts towards revenue mobilization should continue to raise the low tax ratio. Modernizing indirect tax laws (commercial tax and special goods tax) and targeted administrative reforms under the first phase of reforms at the IRD, with Fund-supported TA, has paid dividends in terms of revenue buoyancy and taxpayer services. The next phase of revenue reforms approved by the Cabinet Economic Committee should be fully implemented with a focus on the following:

  • Complete the modernization of tax laws, starting with the Tax Administration and Procedures Law, the Income Tax Law (including rationalizing incentives and a tax expenditure statement), and then amendments to the Commercial Tax Law (broadening the base and codifying the tax rates). Natural resource revenues could also be enhanced, and the petroleum production sharing agreements and mining tax regime reviewed.

  • Develop staff capacity and operations, extend administrative reforms to the medium taxpayer segment, and link the regional offices through IT systems.

  • Improve customs administration, both to increase tax revenue and to facilitate trade and investment, with the support of Fund TA.

Tax Revenue, 2015

(In percent of GDP)

Source: World Bank; and IMF staff calculations.

Authorities’ Views

21. The authorities emphasized that their medium-term fiscal framework was anchored on maintaining debt sustainability and phasing out CBM financing. They were continuing strong efforts to improve tax administration, and had been conducting public education on taxation. The Tax Administration and Procedures Law, and the Income Tax Law would be submitted to Parliament to be effective for the new fiscal year beginning October 2018. The authorities reiterated their commitment to reducing CBM financing of the deficit, and noted the missed target was due in part to insufficient government securities issuance in the under-subscribed auctions. They noted that SEE restructuring had commenced, with 12 SEEs brought back under line ministries as administrative units, and six SEEs corporatized.13 The change in fiscal year was intended to improve implementation of capital and infrastructure expenditure, given the timing of the monsoon season. The authorities intend to release fiscal data in line with GFS in 2018.

Macrofinancial Stability and Development

The central bank should formally adopt a new market-determined mechanism for setting the exchange rate and continue to allow exchange rate flexibility to cushion against exogenous shocks. Given moderate inflation, monetary tightening can be put on hold, pending further development of interbank markets and financial reforms. New financial regulations should be implemented with a view to ensuring stability and deepening, while forming contingency plans to address systemic banking risks and strengthening the resolution framework.

A. Exchange Rate and Monetary Policy

22. The kyat exchange rate remained stable through 2017, with the official reference exchange rate in line with market conditions. Exchange rate stability in 2017 contrasted with depreciation pressures over much of the previous year.14 During 2016, the official reference rate was frequently out of line with market conditions as large spreads emerged between the official reference rate and the informal market rates, due to operational problems with the FX auction system. The greater exchange rate stability in 2017 could thus be seen partly as a response to the market correction in 2016 as well as the lower current account deficit and higher government securities yields supporting financial flows. The FX auctions have continued but with very limited participation and are no longer being used as a price discovery mechanism. Instead, the CBM has set the reference exchange rate taking account of FX transaction data reported by banks, bringing the reference rate closer to the informal market rate. However, this procedure has not been formally established. A prohibition on trading outside of the FX trading band (+/- 0.8 percent around the official reference rate) has been lifted and communicated to the market, although a formal regulation is yet to be issued.

Foreign Exchange Intervention

(Kyat/U.S. dollar)

Source: Central Bank of Myanmar.

23. It is an opportune time to formally adopt the new exchange rate mechanism and remove the trading band. First, the external position is broadly in line with medium term fundamentals and desirable policy settings, based on the IMF’s EBA-light approach (Box 1). Second, the current CBM reference exchange rate is consistent with a new transaction-based mechanism for setting the market exchange rate in line with the MCM TA report of 2017. Third, the informal/hundi rate is aligned with current reference rate, and the announcement of a new market exchange rate setting mechanism and removal of the trading band to all banks should not lead to undue volatility. Formalizing the new mechanism and clear communication will provide credibility to the de jure managed floating exchange rate regime and help anchor market expectations. To avoid a multiple currency practice (MCP), the government and SEEs will need to use the prevailing market rate when they make FX transactions.

24. Continued exchange rate flexibility is needed to help manage shocks while building reserves. With limited interbank trading and bank customer transactions representing the bulk of FX trade, the market rate should be set as a weighted average of both types of transactions until the interbank develops further, with close supervisory monitoring but no administrative control of rates. Staff continues to recommend a managed exchange rate regime to avoid misalignment and greater exchange rate flexibility to enhance monetary autonomy. However, staff advises an asymmetric FX intervention strategy of building reserves during capital inflow episodes and letting the exchange rate act as a shock absorber during outflows. FX sales should be limited to avoiding disorderly market conditions, using the FX auction mechanism currently in place until an FX intervention strategy is developed further.

25. Monetary tightening can be put on hold, given the improved inflation outlook and other factors. Good progress has been made towards withdrawing excess liquidity from the banking system and gradually developing a market-determined government bond yield curve. Reserve requirements now apply to all banks and have been enforced, in line with TA recommendations. Given the more moderate inflation outlook, slower growth, and potential banking sector risks, it is appropriate to maintain deposit auction volumes, pending further developments in inflation and liquidity. Efforts to improve liquidity forecasting and further developing indirect monetary instruments should continue. Should liquidity start to expand rapidly, or inflation pressures rise, deposit auction volumes should be increased.

26. With several building blocks in place, the CBM needs to further strengthen the monetary policy framework. A CBM directive has allowed for the formation of a monetary policy committee (MPC) but it is yet to be formally constituted, and the price stability mandate should be clarified by adopting a medium-term inflation objective. While continued exchange rate flexibility and phasing-out of CBM financing of the fiscal deficit will strengthen monetary policy independence, a gradual liberalization of interest rates (see below) and interbank market development are needed to improve monetary policy transmission. Interbank cash market development is hindered by excessive concentration of liquidity at some banks, including Myanmar Economic Bank, as well as fees charged for the return of banknotes by the CBM, which may contribute to a large share of currency in circulation.

Authorities’ Views

27. The authorities intend to formally introduce the new exchange rate mechanism in the near future. The authorities noted that the official reference rate has been in line with market rates, and attributed exchange rate stability to continued FDI inflows and lower current account deficit, partly related to the weaker economy. They intended to formally adopt the new trade-based mechanism for determining the official reference exchange rate soon, but remained cautious due to concerns about the potential for rate manipulation. They saw value in retaining the FX auction for future intervention purposes. The authorities strongly agreed with the need to improve interbank markets, including by developing the repo market. They agreed that deposit auction volumes should not be raised further given liquidity conditions and the inflation outlook. They also concurred that the exchange rate trading band should be formally removed.

B. Financial Stability

28. Banking sector vulnerabilities are coming to the fore. Rapid credit growth has been in the form of one-year overdrafts secured on real estate, which have been continuously rolled over (evergreened). This practice has increased banks’ exposure to property values, while potentially obscuring risks.15 Domestic private commercial banks are now the largest players and are systemically important, particularly given large corporate exposures. A significant portion of lending has been to related parties. Various controls, notably on interest rates and product options, have negatively affected banks’ profitability and ability to price risks.16 Profitability has also been impeded by other factors, such as lack of proper liquidity management in some banks. The banking system is undercapitalized including shortfalls in some SOBs and systemic domestic private banks, even under current NPL recognition levels. The CBM is working with several banks to bring capital levels up to the requirements of the FIL. At the same time, progress is being made strengthening onsite and off-site supervision with Fund TA but supervisory resources are stretched thin, and will be further challenged by the recent approval of five new domestic banks.

Private Sector Credit

(Percent change y/y, and in percent of GDP)

Source: Myanmar authorities.

Regulatory Total Capital and Tier1 Ratios to Risk Weighted Assets

Source: M. Dobler (2016).

Structure of the Banking System as of March 2017In Kyat billions
NumberBranchesTotal Deposits% of SystemTotal Assets% of SystemTotal Loans% of System
State owned Banks45169,97928%17,34736%2,23412%
Private Banks24152023,32466%26,88955%16,15586%
Foreign Bank Branches13132,1206%4,5979%3272%
Total banking system35,42448,83418,716
In percent of GDP44%61%23%
Source: Myanmar authorities.
Source: Myanmar authorities.

29. The CBM released four key regulations in July 2017, to implement the FIL and strengthen regulation and supervision.17 The new regulations impose new capital and liquidity ratio requirements, asset classification and provisioning requirements, and a large-exposure limit. A further directive allows for the restructuring of viable overdrafts to term loans of up to three years.18 A key challenge will be to restructure the viable overdrafts and wind down large exposures while avoiding a credit crunch and an excessive property price correction. Recapitalization needs will need to be assessed as banks submit their overdraft and large exposure conversion plans, and recognize losses as loans become overdue.19

30. Over time banks will need to enhance their credit risk management, and reduce the over reliance on collateral values to safeguard lending. A banking system action plan has been been drawn up with the Fund, to enhance the banking system’s resilience and long-term role in supporting the economy, as well as strengthen the resolution framework.20 This will feed into the broader financial system development strategy that was developed with IMF and WB TA and adopted in 2013. Priorities are to:

  • Move ahead with restructuring of state-owned banks (SOBs). Following the review of diagnostic reports with World Bank assistance, key tasks will relate to requiring state-owned banks to submit plans for remedial actions, with associated timeframes and follow-up action plans to ensure compliance.

  • Continue financial sector and interest rate liberalization at a pace commensurate with the CBM’s capacity to regulate and supervise. The CBM intends to allow banks to lend unsecured where adequate risk management is in place, and has issued a directive to permit foreign banks to provide retail export financing services. Lifting of the tiered interest rate caps should be carried out in a gradual manner and foreign banks’ domestic lending activities liberalized once the domestic banks are in a stronger and more competitive footing.

  • Increase bank capital. Banks with capital shortfalls will need to be brought into compliance with the new regulations within realistic timeframes, or face penalties. Gradual interest rate liberalization will help banks better price credit risks and raise capital through improved profitability. Capital can also be injected through foreign minority equity investments, following amendments to the Companies Act.

  • Form contingency plans to address emerging systemic banking risks and strengthen the resolution capacity.21 Resource the function at the CBM to develop contingency plans for bank recovery and resolution, and enable lender of last resort operations to solvent banks while avoiding public sector bailouts.

31. Work is underway to improve financial inclusion and address outstanding AML/CFT concerns. Building on the Financial Inclusion Road Map, several recent initiatives should support improved financial inclusion. The CBM has established a basic regulatory framework for mobile financial services, in a step towards enabling mobile network operators to offer mobile financial services. Regulations passed in 2016 and 2017 to support the 2011 Microfinance Business Law will assist with development of the microfinance sector. The credit reporting system regulation issued in March 2017 has paved the way for the establishment of a credit bureau, to help banks better assess credit risks and broaden loan collateral. Myanmar was removed from the FATF’s monitoring process in June 2016, and will need to make good progress on outstanding AML/CFT issues. Myanmar underwent an APG Mutual Evaluation (ME) in late 2017, the report of which will be discussed and adopted by the APG Plenary in July 2018, and its national risk assessment will be released in 2018.

Authorities’ Views

32. The authorities are committed to improving financial regulation and supervision. The authorities were very appreciative of the banking sector action plan and TA provided by the Fund and World Bank, and looked forward to its implementation. The CBM was actively consulting with banks in the transition to new regulatory requirements and was working to increase supervisory resources and training, but noted that capacity was highly constrained. The authorities agreed that interest rate caps should be removed gradually, and noted their intention to allow uncollateralized loans to SMEs at higher rates, once banks’ risk management practices were strengthened. The authorities intended to use the ME results to assist with finalization of the draft AML/CFT bill, to allow for areas of weakness identified by the APG ME to be addressed in the AML/CFT law. They noted that improving customer due diligence in banks and implementing risk based AML/CFT supervision were key challenges.

Capacity Development and Other Issues

Myanmar’s economic transition is heavily dependent on capacity development, which should be elevated to a higher level of strategic importance. While much remains to be done, good progress is being made towards improvements in macroeconomic statistics. The authorities should soon be in position to accept Myanmar’s obligations under Article VIII.

33. Capacity Development (CD) is strategically important to economic reform. Significant progress has been achieved in CD in the short period since reforms began in 2011—in large part due to active engagement from Myanmar counterparts. Given large and broad CD needs, and multiple DP engagement, a strong link between surveillance and CD is needed (Annex 3). Myanmar is one of the IMF’s largest recipients of CD resources.

TA Delivery to Low Income Developing Countries

(Person years of field delivery, FY2016)

Source: IMF staff calculations.

34. Although data provision seriously hampers surveillance, steady progress is being made to improve macroeconomic statistics for informed policy-making. The CBM’s publication of its inaugural Quarterly Bulletin, monetary and financial statistics, and FSIs have been important steps forward. In addition, the MOPF expects to release GFS fiscal data in 2018, and the Central Statistical Organization (CSO) is actively engaged in improving price and external sector statistics. Data dissemination should also benefit from Myanmar’s participation in the Enhanced General Data Dissemination System (EGDDS).

35. Myanmar will soon be in position to fully meet its obligations under Article VIII. To this end, work is in progress to remove the last remaining exchange restriction, relating to a tax certification requirement. Furthermore, the adoption of a new mechanism to set the official exchange rate, which would replace the current multi-price auction, would remove the MCP that arose from the FX auction.

Staff Appraisal

36. Myanmar’s economy is rebounding and long-term prospects remain strong, but downside risks have increased. While the economy is rebounding from the slowdown in 2016/17, downside risks to the economic transition have increased. In particular, the humanitarian crisis in Rakhine State has created uncertainty regarding development finance and investor sentiment. While direct economic impacts have been largely localized, the social costs and full impacts of the crisis are yet unfolding. Peace and a favorable external environment would help Myanmar realize it’s strong growth potential. Over the medium term, growth is expected gradually to pick up towards the estimated potential rate of about 7–7.5 percent, underpinned by higher investment.

37. A medium-term economic roadmap is needed to provide strategic direction and support continued strong investment and job growth. A second wave of reforms can help sustain the growth take-off and impressive poverty reduction. Reform sequencing and implementation would benefit from increased private sector consultation and an overarching development plan anchored by a medium term fiscal framework.

38. Fiscal policy should be geared towards achieving the SDGs, while remaining anchored on debt sustainability and lowering CBM financing of the deficit. Fiscal space for increased social and infrastructure spending can be created through a combination of expenditure rebalancing, improved PFM and further revenue mobilization. Greater use of concessional financing from DPs could also be used to expand fiscal resources for achieving the SDGs and fostering inclusion by addressing regional disparities. Better managing fiscal risks from SEEs and large public investment projects will be critical going forward with the new normal of lower global commodity prices and the envisaged infrastructure push. Restructuring and privatization of SEEs will be important to reduce the burden on budgetary resources, with a rationalization of the electricity tariff macro-critical.

39. It is an opportune time to formally adopt the new transactions-based exchange rate mechanism. With the auction no longer used as a price discovery mechanism, the CBM has informally set the official exchange rate near the informal market rate. To enhance market certainty regarding exchange rate determination, the CBM should now formally adopt the new transaction-based mechanism for setting the reference exchange rate.

40. Monetary policy tightening can be put on hold, given the more moderate inflation outlook. Good progress has been made towards withdrawing excess liquidity from the banking system and developing a market-determined government bond yield curve. Given recent inflation developments, slower growth, and potential risks in the banking sector, it would not be appropriate to raise deposit auction volumes further in the near term. Further development of debt and interbank markets will help enhance monetary policy effectiveness.

41. New prudential regulations should be implemented with a view to ensuring financial stability and growth, while forming contingency plans to address systemic banking risks. The CBM should continue to work with the banks as they transition to the updated regulatory environment, with appropriate consultation and communication. Encouraging an orderly restructuring of the banking system and recapitalization will be a key challenge including for the SOBs. Financial sector and interest rate liberalization should proceed at a pace commensurate with the CBM’s capacity to regulate and supervise.

42. Capacity development merits strong strategic focus; good efforts on improving statistics should be continued. Greater recognition and focus on capacity development is needed, given the importance of CD to Myanmar’s economic transition and reform implementation. While much remains to be done to improve statistics, steady progress should be continued.

43. Myanmar should soon be in position to fully meet its obligations under Article VIII. Work is in progress to remove the last remaining exchange restriction as well as the MCP. The authorities did not request and staff does not recommend approval of the exchange restriction and MCP maintained inconsistently with Myanmar’s Article VIII obligations.

44. It is proposed that the next Article IV consultation be held on the standard 12-month cycle.

Box 1.External Sector Assessment

The kyat real effective exchange rate (REER) depreciated by about 6 percent in the year to August 2017, and more than 13 percent since mid-2016, primarily driven by the depreciation of the nominal exchange rate against the U.S. dollar. This has reversed the trend of REER appreciation during 2015–16. The nominal effective exchange rate depreciated by about 3.6 percent since the beginning of 2017.

Nominal and Effective Exchange Rates

(2010=100, increase=appreciation)

Sources: Authorities’ data; and IMF staff calculations.

The external position is broadly consistent with medium-term fundamentals and desirable policy settings. Reflecting stronger exports and a lower account current deficit, the Current Account (CA) approach of EBA suggests a real exchange rate gap of −2.6 percent and a modest undervaluation, which is substantially lower than the near 6 percent gap and overvaluation in last years’ assessment. The two other models—the REER and external sustainability approaches—suggest an overvaluation. However, a lower weight is attached to these approaches for EMDEs and the degree of overvaluation suggested by these two models have also substantially fallen and are within the uncertainty bands.

Table 1.Current Account and Real Exchange Rate(In percent of GDP)
CA approachREER approachES approach
CA Actual−5.3%
Cyclically adjusted CA Norm−5.5%
CA Gap0.5%
Of which: Policy Gap2.1%−4.7%
Real Exchange Rate Gap−2.6%8.1%4.0%
Source: IMF staff estimates.
Source: IMF staff estimates.

Competitiveness needs to be strengthened to ensure external balance and adequate reserves in the medium term. The World Bank’s Doing Business Indicators show that Myanmar ranks behind its regional peers in the ease of enforcing contract, getting credit and trading across borders. Indeed, the country performs poorly in most areas in the life cycle of a business. Other business surveys also suggest that despite low wages, weak domestic supply chains and poor access to electricity, transport services and affordable financing and corruption are the major impediments to investment. At end-December 2017, the CBM’s gross foreign reserves stood at US$5.2 billion and covered about 2.9 months of prospective imports (well below the estimated adequate level of 5–6 months of imports).1 Reserves were equivalent to 10.5 percent of broad money. Inadequate reserves highlight the importance of maintaining a flexible exchange rate to absorb external shocks and taking opportunities to build a reserve buffer, including through concessional external financing, while working to improve competitiveness.

Doing Business Indicators, 2018

(Distance to frontier score, higher implies a more favorable environment)

Source: World Bank Group, Doing Business 2018.

Reserves Adequacy in 2016
MyanmarAsian LICsLICs
Reserved/Broad money (in percent)10.641.740.1
Reserved/Prospective GNFS imports (in month)2.95.94.3
Source: IMF staff calculations.
Source: IMF staff calculations.
1 This estimate is based on the method set out in IMF Board Paper SM/14/334; also see CR 17/30.
Table 6.Myanmar: Financial Soundness Indicators, 2016 1/(In percent)
1. Regulatory Capital to Risk-Weighted Assets10.8
2. Regulatory Tier 1 Capital to Risk-Weighted Assets9.2
3. Nonperforming Loans Net of Provisions to Capital
4. Nonperforming Loans to Total Gross Loans
5. Sectoral Distribution of Loans (Resident)100.0
6. Return on Assets0.4
7. Return on Equity6.0
8. Interest Margin on Gross Income53.5
9. Noninterest Expenses to Gross Income71.7
10. Liquid Assets to Total Assets (Liquid Asset Ratio)42.6
11. Liquid Assets to Short-Term Liabilities60.6
12. Net Open Position in Foreign Exchange to Capital
Sources: Myanmar authorities’ data; and IMF staff calculations.

Banking system FSIs available at http://data.imf.org. Aggregate FSIs may not reflect risks that exist in sections of the banking system. Some accounting practices may be non-standard.

Sources: Myanmar authorities’ data; and IMF staff calculations.

Banking system FSIs available at http://data.imf.org. Aggregate FSIs may not reflect risks that exist in sections of the banking system. Some accounting practices may be non-standard.

Appendix I. Key Policy Recommendations from the 2016 Article IV Consultation
Policy adviceImplementation status
Monetary and exchange rate policies
Objective: Keep inflation in check and maintain exchange rate flexibility.
Mop up excess liquidity by scaling up deposit auctions.Good progress, deposit auctions were increased and liquidity has been reduced. The next step will be to address uneven distribution of liquidity.
Enforce the recalibrated reserve requirements.Banks are in compliance.
Phase out CBM financing of the deficit.Although the authorities exceeded their target ceiling in 2016/17, the proportion of domestic financing provided by the CBM has declined.
Allow the interest rate at T-bill auctions to rise.Progress made, with more flexible rates and extended T-bill maturity. Foreign banks are allowed to participate in treasury auctions. However, interest rate flexibility remains insufficient and auctions have been under-subscribed.
Ensure exchange rate flexibility to mitigate impacts of external shocks. If the FX auction can no longer be used for price discovery, explore an alternative mechanism for setting the official exchange rate based on market transactions.The official exchange rate has been in line with market conditions over 2017. The FX auction is no longer being used to set the official reference rate. A new transaction-based mechanism for setting the official exchange rate is expected to be adopted soon
Fiscal policy
Objective: Create fiscal space to finance development needs while maintaining macroeconomic stability and debt sustainability.
Keep the fiscal deficit below 4½ percent of GDP over the medium term.Achieved for 2016/17.
Rationalize tax exemptions and investment incentives.Not met.
Introduce anti-corruption measures to protect the integrity and reputation of the tax system.In progress.
Recruit more professional staff to strengthen IRD’s capacity.In progress.
Pass the draft Tax Administration and Procedures Law.Staff expects the bill to be passed in second half of 2018.
Scale up public education on taxation.In progress.
Financial sector
Objective: Maintain financial stability, and improve financial sector regulation and supervision.
Issue and enforce bank regulations.In progress. Issuance of key regulations in July 2017 was an important achievement.
Adopt the proposed three-year plan for bank supervision, and increase supervisory resources and training.The CBM did not formally adopt the proposed plan, but has made progress on some significant elements. Some progress is being made on recruiting new supervisory staff, but further increases and training remains needed.
Resource the function at the CBM to develop plans for bank recovery and resolution.In progress.
Acclerate reform of state-owned banks.In progress.
Allow a carefully sequenced increase in lending interest rates, supported by appropriate complementary policies.Good progress. The CBM intends to allow uncollateralized loans to SMEs at higher rates, once risk management practices are strengthened.
Source: IMF Country Report No. 17/30.
Source: IMF Country Report No. 17/30.
Appendix II. Risk Assessment Matrix1
Source of RisksRelative LikelihoodTransmission ChannelsExpected Impact of RiskRecommended Policy Response
(A) Domestic Risks
Weak bank sectorHigh• Possible credit crunch, if weak banks cut back on lending while adjusting to new regulations;

• Fears of bank fragility could lead to bank runs/collateral fire sales/contagion;

• Contingent fiscal liabilities related to recapitalization of state-owned banks or possible liquidity support;

• Pressure for further exchange rate depreciation.
High• Enforce prudential regulations in a way that supports financial stability and growth;

• Strengthen supervisory capacity, including bank resolution and contingency planning;

• Form a broader strategy designed to enhance the banking system’s long-term role in supporting the economy and improving credit risk management.
Internal Conflict and Rakhine State crisisHigh• Weaken investor confidence;

• Disrupt flow of development partner assistance;

• Risk of broader economic sanctions;

• Interrupt productive activities and slow economic growth;

• Ethnic and religious tensions as well as social unrests delay economic reforms.
High/Medium• If development parnter financial assistance is disrupted, rationalize public expenditures while preservering humanitarian spending and reducing regional disparities;

• Resist monetization of fiscal deficit;

• Allow the exchange rate to adjust to any external financing shortfalls.
Limited institutional capacityHigh• The public sector is unable to cope with speed of reform, leading to slippages and slower-than- expected growth;

• Growth effects compounded by weaker business confidence;

• CBM financing of the fiscal deficit rises rapidly.
Medium/High• Well-tailored TA programs that focus on staff training to raise institutional capacity;

• Coordinate TA programs with international donors and streamline and adjust the scope of the programs, if necessary;

• Further promote operational autonomy of the CBM.
Large natural disastersMedium/High• Human cost; damage to infrastructure and capital; macroeconomic volatility;

• Negative impact on both short-term and potential growth.
High• Identify and explicitly integrate risks into fiscal frameworks and budget planning;

• Build policy and financial buffers to enhance resilience to shocks;

• Enhance preparedness and invest in infrastructure that can better cope with natural hazards.
(B) External Risks
Tighter global financial conditionsMedium• Depreciation pressures lead the CBM to hold the official exchange rate more appreciated than the market, widening the gap between the official and wider market rates;

• Large sales of FX by CBM reduce the reserve buffer.
High• Allow the CBM reference rate to flexibly adjust to the parallel market rates and preserve CBM reserves;

• Tighten monetary and fiscal policies to support the kyat; and

• Enforce NOP limits and repatriation rules in Foreign Exchange Management Law to increase FX inflows to the official FX market.
Significant China slowdown and its spilloversLow/Medium• Reduced export growth and FDI inflow, since China is an important trading partner and source of FDI;

• Significantly reduce growth and contribute to kyat depreciation.
Medium• Allow greater exchange rate flexibility to absorb external shocks;

• Continue with structural reforms to diversify exports and trading partners;

• Improve business environment to attract more FDI from other sources.
Lower energy pricesLow• A further decline in pipeline gas prices, triggered by declines in global demand.

• Reduce government revenues;

• Reduce gas export earnings and FDI, weakening the balance of payments position.
Medium• Allow greater exchange rate flexibility to absorb external shocks;

• Promote diversification of export growth;

• Improve the business climate to attract FDI and develop SMEs.
Appendix III. Surveillance Priorities and Integrated Capacity Development
Surveillance priority: Fiscal financing for SDGs and stability
CD FocusPast ResultsCurrent and Future CDOutcomes
Internal revenuePhase 1:

• Set reform direction

• Developed a project management and governance framework

• Formed the Large Taxpayer Office
Phase 2:

• Modernize tax laws (Tax Administration and Procedures Law; Income Tax Law; Commercial Tax Law)

• Extend administrative reform to the medium tax payer segment (add new centralized services)

• Build staff capacity
• Mobilize domestic and customs revenue to provide fiscal space for growth and achievement SDGs, and to phase out CBM financing of the deficit
Customs modernization• Strategic reform plan

• Improvements to risk and HR management
• Improve trader compliance and build staff capacity
Public financial management (PFM)• Established the Treasury Department in MOPF

• Cash management CD

• Updated the Financial Rules and Regulations

• Preparation of draft PFM Law
• Advise on the new PFM Law

• Advise on gradual introduction of information technology in PFM

• CD on cash management, treasury function, and internal audit
• Improving budgeting processes and spending effectiveness
Surveillance priority: Financial Stability
CD FocusPast ResultsCurrent and Future CDOutcomes
Monetary policy framework and operations• Central Bank Act

• Adoption of reserve money targeting

• Reserve requirement penalty regime
• Strengthen capacity to implement reserve money targeting framework

• Money market development

• Liquidity management and forecasting
• Improve capacity to implement monetary policy
Foreign exchange markets• 2012 adoption of the de jure managed float exchange rate regime

• Aligned the official and parallel market exchange rates
• Advise on the official reference rate setting mechanism

• FX inter-bank market development
• Maintain exchange rate flexibility
CBM Financial Management• Increased staff capacity

• Regulation issued to establish Audit Committee
• Modernization of internal audit and accounting, including adoption of IFRS• Improve financial reporting to support effective central bank operations
AML/CFT• AML/CFT law

• Supporting directives and guidance notes
• Assist with completion of the National Risk Assessment• Reduce money laundering and financing of terrorism
Financial sector regulation and supervision• 2016 Financial Institutions Law and key prudential regulations issued July 2017

• Prepared 3-year plan to enhance bank supervision
• Implementation of prudential regulations

• Strengthen supervisory capacity

• Assist with development of CBM bank recovery and resolution functions
• Maintain financial system stability
Surveillance priority: Build analytical capacity and improve data for surveillance
CD FocusPast ResultsCurrent and Future CDOutcomes
Macroeconomic data and analysis• Established an inter-agency core macro group

• Published the new Consumer Price Index, Financial Soundness Indicators, and Monetary and Financial Statistics

• EGDDS participation.
• CD and training in statistical methodology and compilation

• Data-sharing arrangements between institutions

• Data dissemination including through EGDDS

• Government Financial Statistics

• Develop PPI and trade price indices
• Improve the quality and timeliness of information used in the policy making process.

• Increased transparency and availability of macroeconomic data and information
Appendix IV. Takeaways from Fund-Wide Pilot Work

Myanmar was a pilot for Fund work on domestic revenue mobilization, climate change, and inequality.

Domestic Revenue Mobilization

Myanmar has one of the lowest tax revenue collections in the world with high potential to collect more. The revenue reform momentum achieved by the Internal Revenue Department (IRD) is encouraging. Nevertheless, strategic revenue reforms need continuous political commitment and support from key stakeholders. Good progress has been made in formulating an updated IRD reform plan incorporating some of the suggestions of the enhanced revenue mobilization analytical work in the pilot (including tax policy issues). This formed the basis of communications and priorities for Phase II (2017–2022) of the reform program. Reforms in the Myanmar Customs Department are in early stages and will need ongoing external assistance and support.

Climate Change

Myanmar is prone to large scale climate-related natural disasters and is one of the most vulnerable countries among developing Asian countries. The SIP for the 2016 AIV showed that the policy response of the authorities to past natural disasters was more limited compared with other Developing Asia countries. Staff’s analytical work highlighted the need for addressing weaknesses in ex-ante resilience and ex-post adaptive capacity. The authorities concurred with staff on the need to continue with structural reforms to improve its growth potential and resilience, and enhance preparedness and response ability to more effectively mitigate the impact of climate-related disasters.

Inequality

Myanmar is one of the fastest growing countries in Asia. However, the quality of growth is also important, since growth alone is not sufficient to achieve poverty reduction. Achieving inclusive growth requires strengthening macroeconomic and financial stability, and deepening structural reforms. The analytical work in the SIP for the 2016 AIV (also featured in the 2017 Asia and Pacific Regional Economic Outlook) showed that higher infrastructure investments and financial sector reforms in Myanmar could significantly boost economic growth, reduce poverty, and improve nationwide income distribution. The authorities were acceptive to staff’s advice and has continued reform process to sustain growth and achieve the Sustainable Development Goals.

The sharp rise in FDI in 2017/18 partly reflects improved data collection from banks, which has caused a break in the data series.

Tourism arrivals for the year to December 2017 (April-December) were 17 percent higher than in the same period in the previous year. This was a recovery from the weak tourism arrival data seen in 2016/17, albeit likely to moderate in the last quarter of 2017/18.

The scenario only assumes a pause in budgetary financing (general and sector budget support) while project financing is expected to disburse as in the baseline.

The calibrated growth impact follows the 2016 SIP “Macroeconomic and Distributional Impacts of Financial Reforms in Myanmar” by Ruiz, Peralta-Alva, Wu, and Ziesemer.

See Selected Issues Paper (SIP) on Poverty Dynamics and Growth in Myanmar.

In early January 2018, the government announced a proposed 33 percent increase in the daily minimum wage, to 4,800 kyats (around US$3.60). If no objections are raised during the 90-day consultation period with stakeholders, the National Committee for the Minimum Wage will issue an official notification.

See Selected Issues Paper on the role of FDI and GVCs.

IMF, 2015, “Structural Reforms and Macroeconomic Performance: Initial Considerations for the Fund.”

A note on the pros and cons of whether to change the tax year consistent with the fiscal year was provided to the authorities, and a decision is expected soon.

Once officially confirmed, the increase in the minimum wage is likely to be reflected in the 2018/19 budget (October– September).

Selected Issues Paper on poverty.

Selected Issues Paper on Poverty Dynamics and SDGs.

Not including the Central Bank of Myanmar.

Myanmar has a managed floating de jure exchange rate regime, and the de facto exchange rate regime is classified as stabilized arrangement, effective January 12, 2017.

The authorities have published FSI indicators for the first time (Table 6), but the system-wide measures mask significant differences among banking groups and the data on non-performing loans (NPLs) do not conform to international standards.

Extensive controls were imposed following the 2003 banking crisis—including a floor on deposit rates (8 percent) and a ceiling on lending rates (13 percent).

Under the new regulations, minimum capital adequacy ratio requirements are 4 percent for tier 1 capital, and 8 percent for regulatory capital. Large exposures are limited to no more than 20 percent of core bank capital, and all overdraft loans must be cleared each year for a period of two consecutive weeks.

This directive, on Asset Classification and Provisioning, was issued in November 2017.

Conversion and recapitalization plans should be closely monitored, on a bank by bank basis, avoiding generalized forbearance.

See Selected Issues Paper.

The CBM has requested World Bank and IMF TA on the resolution framework.

The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path (the scenario most likely to materialize in the view of IMF staff). The relative likelihood is the staff’s subjective assessment of the risks surrounding the baseline (“low” is meant to indicate a probability below 10 percent, “medium” a probability between 10 and 30 percent, and “high” a probability between 30 and 50 percent). The RAM reflects staff views on the source of risks and overall level of concern as of the time of discussions with the authorities. Non-mutually exclusive risks may interact and materialize jointly.

Other Resources Citing This Publication