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

Myanmar: Staff Report for the 2016 Article IV Consultation

International Monetary Fund. Asia and Pacific Dept
Published Date:
February 2017
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1. The National League for Democracy led by Daw Aung San Suu Kyi formed a new government in April 2016 after historic elections in November 2015. Following decades of isolation, prospects and expectations for the economy are high in both the private and public sectors. Development partners have been scaling up their engagement and support for Myanmar, and in October the United States lifted all remaining sanctions on trade, investment and financial flows.

2. The new government faces formidable challenges, and has prioritized the peace process amid ongoing ethnic conflict. First steps towards peace commenced with the 21st Century Panglong Peace conference in late August, which sought to bring into the peace process the armed ethnic groups currently outside of the Nationwide Ceasefire Agreement. Peace and national reconciliation will remain a priority for the new government as it continues with the effort to build a stable political foundation for socioeconomic development. Regional growth has been uneven, and GDP per capita and living standards differ significantly across regions and states. Progress on the peace process would improve the reach of infrastructure and social services and enhance the inclusiveness of growth.

3. The new government has launched a high-level economic vision and is in the process of articulating detailed action plans. With the economy hitting a soft patch in the first half of FY 2016/17, the authorities have strengthened consultation with the business community to address concerns over policy uncertainty, including by expediting passage of the Investment Law. Nevertheless, the government continues to face challenges, including capacity constraints, in formulating detailed economic policies and supporting regulations, which are urgently needed to provide clarity on the business environment.

Recent Developments, Outlook, and Risks

4. Although growth fundamentals remain strong, activity slowed in the first half of FY 2016/17. The economy grew broadly as expected in FY 2015/16, at a healthy pace of 7.3 percent, despite massive floods after Cyclone Komen in July 2015 and a weak external environment. Taking into account sluggish activity in the first half of the year, staff projects a slower growth rate of 6.3 percent for FY 2016/17—a downward revision of around 2 percentage points from last year’s projection (which was made amid signs of economic overheating). The slowdown was largely associated with a temporary halt in construction projects in Yangon—which accounts for more than 20 percent of the country’s economic activity—for regulatory compliance purposes. The growth of agricultural production was also softer than expected, disappointing predictions of a rebound from last year’s floods, while the suspension of investment approvals by the Myanmar Investment Commission (MIC) earlier in the year contributed to the slowdown. At the same time, the external environment has been weak due to slowing demand from major trading partners and significant natural gas and other commodity price declines in 2015–16.

5. Inflation and credit growth remain strong, notwithstanding some recent moderation.1 Inflation has been underpinned by money supply growth resulting from CBM purchases of government securities (Box 1), with flood effects on food prices adding further pressure. Inflation peaked at 14 percent in November 2015, before base effects caused a significant decline to 3.6 percent (y/y) in October 2016. However, inflation averaged 8 percent for the year to October, and excluding base effects underlying inflation remained at around 7 percent in October (Text Chart). Meanwhile, credit growth continued at 34 percent (y/y) in March, far outpacing nominal GDP growth. Preliminary data suggest that bank credit remains concentrated in the trade and construction sectors, and that credit expansion in the latter has slowed (Text Chart). While the strong credit growth partly reflects deepening from a very low base, it also raises potential credit risks.

Removing the Flood Effect, Inflation Remains High

(Percent change y/y)

Sources: Authorities’ data; and IMF staff calculations.

Private Banks: Credit by Sector and Growth 1/

(Left: percent of GDP; right: percent change, y/y)

Sources: Authorities’ data; and IMF staff calculations.

1/ It does not include credit to private sector by state-owned banks.

6. The fiscal deficit widened sharply in FY 2015/16, reaching 4.1 percent of GDP from 0.9 percent in FY 2014/15. The increase in the deficit resulted mainly from a decline in revenues from underperforming state economic enterprises (SEEs), on the back of lower energy prices and inefficiencies, as well as a rise in public sector wages (Table 2). Nevertheless, the deficit outturn was below the original budget estimate of 4.9 percent of GDP, as a result of over-performance in tax collection, under-execution of capital expenditure, and commendable efforts by the government to rationalize current expenditure. In net terms the deficit was entirely financed by the Central Bank of Myanmar (CBM) through automatic purchases of treasury bills.

Table 1.Myanmar: Selected Economic Indicators, 2012/13–2018/19 1/
Output and prices(Percent change)
Real GDP 2/
CPI (end-period; base year=2006)
CPI (end-period; base year=2012)
CPI (period average; base year=2006)
CPI (period average; base year=2012)
Consolidated public sector 3/(In percent of GDP)
Total revenue19.020.121.918.817.216.516.8
Union government8.710.012.110.810.09.69.9
Of which: Tax revenue6.
SEE receipts10.
Total expenditure18.121.422.922.921.821.121.3
Net acquisition of nonfinancial assets7.
Gross operating balance8.
Net lending (+)/borrowing (-)0.9−1.3−0.9−4.1−4.6−4.5−4.5
Underlying net lending (+)/borrowing (-) 4/0.9−1.7−3.1−5.3−5.6−4.5−4.5
Domestic public debt16.615.415.318.119.720.220.6
Money and credit(Percent change)
Reserve money38.516.34.619.614.513.512.5
Broad money46.631.717.626.324.221.821.0
Domestic credit5.124.622.932.327.723.622.1
Private sector50.552.536.534.328.528.426.1
Balance of payments(In percent of GDP)
Current account balance−4.0−4.9−3.3−5.2−6.5−6.6−6.7
Trade balance−3.6−5.1−6.3−9.1−10.1−10.4−10.4
Financial account9.
Foreign direct investment, net4.
Overall balance4.42.11.8−0.7−
CBM reserves (gross)
In millions of U.S. dollars3,1564,4194,8034,5114,4365,3606,476
In months of total imports2.
Total external debt (billions of U.S. dollars)13.710.
Total external debt (percent of GDP)
Exchange rates (kyat/$, end of period)
Official exchange rate879.5965.01,027.01,216.0
Parallel rate878.0964.71,085.51,200.5
Memorandum items:
GDP (billions of kyats)51,25958,01265,26272,78083,47996,479111,395
Sources: Data provided by the Myanmar authorities; and IMF staff estimates and projections.

Fiscal year from April 1 to March 31.

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.

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

Fiscal year from April 1 to March 31.

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.

Table 2.Myanmar: Summary Operations of the Nonfinancial Public Sector, 2012/13–2018/19(Consolidated accounts)
Act.Staff est.Amend. budgetStaff proj.Staff proj.
(In billions of kyat)
Revenue and grants9,75411,65414,32013,68414,10214,39715,95218,743
Tax revenue3,2444,2365,0765,4415,3676,4507,6959,163
Private sector1,9423,2143,6614,3354,5545,7116,5277,720
Profit transfers (from SEEs to Union Gvt.)7747465388025724128301,066
SEE receipts (excluding contributions to Union Gvt. and grants) 1/5,2585,6466,1795,2076,3105,5055,9866,851
Other nontax revenue 2/4538802,3231,7731,5151,515765883
Union Government3,8444,3076,1037,6398,4248,4249,83511,654
SEEs (before contributions to Union Gvt.) 1/1,5393,6934,3804,6515,2985,3345,2995,910
Net acquisition of nonfinancial assets3,8874,4354,4494,3924,4494,4495,1906,159
Net lending (+)/borrowing (-)484−781−612−2,998−4,068−3,809−4,372−4,980
Domestic (net)−1,3042392582,4103,2553,0363,419
Of which: CBM645408183,2571,200900700
External (net)8205423555885541,3351,561
(In percent of GDP)
Revenue and grants19.020.121.918.816.917.216.516.8
Tax revenue6.
Private sector3.
Profit transfers (from SEEs to Union Gvt.)
SEE receipts (excluding contributions to Union Gvt. and grants) 1/
Other nontax revenue 2/
Union Government7.57.49.410.510.
SEEs (before contributions to Union Gvt.) 1/
Net acquisition of nonfinancial assets7.
Union Government5.
Net lending (+)/borrowing (-)0.9−1.3−0.9−4.1−4.9−4.6−4.5−4.5
Domestic (net)−
Of which: CBM1.
External (net)
Memorandum items:(In percent of GDP, unless otherwise indicated)
Primary balance2.30.00.4−2.9−3.5−3.2−2.3−2.1
Underlying net lending (+)/borrowing (-) 3/0.9−1.7−3.1−5.3−4.9−5.6−4.5−4.5
Economic breakdown of Union Gvt. expenditure 4/
Wages and salaries 5/
Contributions 6/
Other expenditures4.
Net acquisition of nonfinancial assets5.
Functional breakdown of Union Gvt. expenditure 4/
Economic services2.
Social services3.
Of which: education1.
Of which: health1.
Interest, subsidies and transfers, reserve fund2.
Other expenditures0.
Public debt40.132.329.
GDP (in billions of kyat)51,25958,01265,26272,78083,47983,47996,479111,395
Sources: Data provided by the Myanmar authorities; and IMF staff estimates and projections.

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.

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.

7. The external position has weakened due to a widening trade deficit and lower-than-expected FDI flows. The current account deficit widened from 3.3 percent of GDP in FY 2014/15 to 5.2 percent of GDP in FY 2015/16, mainly driven by falling revenue from natural gas exports and continued import growth. At the same time, FDI inflows fell short of expectations in FY 2015/16, partly reflecting a pre-election wait-and-see approach to disbursement of committed investment. As a result, foreign reserves at the CBM fell to 2.6 months of prospective imports at end-March 2016 and further to 2.3 months at end-October, well below the estimated adequate level of 5–6 months of prospective imports (Box 3). In addition, the foreign exchange (FX) position of state-owned banks (SOBs) has also declined (Figure 1).2 Mirroring the weaker BOP position, the kyat has fallen in value, having depreciated by about 17 percent against the U.S. dollar from mid-2015 to end-November 2016. However, in real effective terms the kyat moderately appreciated, due to Myanmar’s high inflation.

Figure 1.Myanmar: Macroeconomic Developments

Sources: Authorities’ data; and IMF staff calculations.

8. Staff projects a recovery in economic activity in coming months. This outlook is underpinned by an expected recovery in construction activity in Yangon and FDI inflows and increased development partner disbursements in the second half of FY 2016/17—following the resumption of both construction permit and FDI approval processes. Inflation is expected to remain elevated at 7 percent on average in FY 2016/17. Financial deepening will continue to boost credit growth, albeit at a more moderate pace as the stock of credit rises and slower economic activity (relative to previous years) weighs on demand. The fiscal deficit is projected to increase slightly to 4.6 percent of GDP in FY 2016/17, while the external current account deficit is likely to increase further to about 6.5 percent of GDP. The CBM’s foreign reserves are projected at 2.3 months of prospective imports, before gradually improving on account of improved foreign exchange inflows, including from FDI and development partner inflows as noted above.

9. Despite the positive outlook, risks are weighted towards the downside and challenges to maintain macrofinancial stability are significant.

  • Downside risk arises from concerns over policy clarity. Delays in phasing out CBM financing of the fiscal deficit could prolong high inflation, lowering real incomes, real interest rates, and external competitiveness. Rapid credit growth over the recent past may have weakened banks’ balance sheets, which remain opaque. Weak gas prices and inefficiencies are weighing on SEE performance and thus government revenues. Natural disasters continue to pose significant risks to the economy, as shown by last year’s floods and the earthquake earlier this year.3
  • On the external front, commodity prices remain a key risk, with lower gas prices dampening export receipts and government revenues. In addition, risks continue to arise from volatile global financial markets and the rebalancing of the Chinese economy. The potential for change in U.S. economic policy towards Asia as a result of the recent U.S. elections creates additional uncertainty.

10. Should these downside risks materialize, Myanmar’s economy would grow below potential in the near term and could even see the potential growth rate reduced over the longer run (Text Chart). A slow or stalled reform process—including a continued high level of monetary financing, stagnating revenue efforts, and failures to address risks to the external and financial sectors—would have a dampening effect on business confidence and reduce development partner and FDI inflows. This would exacerbate the current macroeconomic imbalances and increase the risk of abrupt policy adjustment. In an upside scenario, staff envisages Myanmar to rebound quickly from the current downturn toward the upper bound of its growth potential and maintain strong growth for a long time to come (see Box 2 for Myanmar’s long-term growth potential). Despite the modest size of the growth gain, faster reform implementation would improve the sustainability of growth through lowering debt and strengthening the external position, thereby reducing downside risks. For this scenario to materialize, a strong and coherent set of policies needs to be put in place quickly, which would lead to early phase out of central bank financing, accelerated structural reforms (e.g., strong revenue and PFM efforts, SEE and SOB restructuring, and financial sector reform), and a boost to business confidence that would underpin strong FDI and aid inflows.

Structural Reform Scenarios: Real GDP Growth

(Percent change y/y)

Source: IMF staff estimates.

11. The authorities have taken a number of steps to address downside risks, many of which were identified in past Article IV consultations (Appendix I). In particular, they have for the first time outlined a plan gradually to phase out central bank financing of the fiscal deficit and launched a T-bond auction earlier this year. Significant progress has been made in revenue administration, and reform of public financial management is accelerating. The parliament has approved the Financial Institutions Law (FIL), and the CBM has brought banks in compliance with reserve requirements and made impressive strides in bank supervision. Nevertheless, continued efforts are needed to reduce macro imbalances and reduce financial sector risks, including through greater exchange rate flexibility and expeditious issuance of key prudential regulations.

Authorities’ views

12. The authorities broadly shared the staff’s assessment of recent developments, the outlook and risks. They agreed with staff’s growth outlook and concurred that factors weighing on growth in the first half of 2016/17 were temporary and that activity should pick up in the coming months. They were also concerned about persistent macroeconomic imbalances, and their forecasts of inflation and the current account balance were in line with staff projections. The authorities broadly agreed with staff’s assessment of risks, but considered risks to growth to be more balanced. They highlighted external risks, given the continued effects of low commodity prices and weak export demand on the trade balance and the exchange rate. The authorities noted that the new government was taking steps to improve the business environment, including the recent passage of the Investment Law and strengthened communications with the business community.

Safeguarding Macrofinancial Stability While Laying Foundations for Inclusive Growth

Achieving these twin objectives calls for a strengthened policy mix. Safeguarding macrofinancial stability requires tighter monetary conditions, greater exchange rate flexibility, and swift actions to continue strengthening bank regulation and supervision. While the current level of fiscal deficit is broadly appropriate in view of the huge development needs, the authorities should prioritize the phasing-out of monetary financing to help anchor inflation and exchange rate expectations. Meanwhile, to improve key infrastructure and social services, continued fiscal reforms to mobilize required domestic revenue are needed along with improved expenditure efficiency. Together with further reforms of the financial sector and business regulation, these are critical to creating conditions for inclusive growth.

A. Ensuring Exchange Rate Flexibility for External Stability

13. Greater exchange rate flexibility is needed to strengthen the external position. As noted earlier, despite nominal depreciation against the dollar, the kyat has appreciated moderately in real effective terms due to higher domestic inflation relative to trading partners. The real appreciation has not been offset by commensurate productivity improvements, and as a result, the real exchange rate is assessed to be moderately overvalued (Box 3). This assessment is consistent with the observed weakening of Myanmar’s external position, including the falling net FX assets of SOBs. Staff took note of the authorities’ concern over the impact of exchange rate depreciation on inflation and stressed the need for tighter monetary policy to prevent potential feedback effects between inflation and exchange rate depreciation. Staff also encouraged the authorities to strengthen communications on their policies which should help guide exchange rate expectations.

14. The exchange rate needs to be set through a transparent mechanism that reflects market conditions, in line with the de jure managed float regime. Staff continues to support Myanmar’s managed float exchange rate regime, which has helped to mitigate terms of trade shocks with limited foreign reserves. In order for the exchange rate regime to fulfill this important role, the CBM needs to conduct the daily FX auction in a manner to serve as a price discovery mechanism, rather than a signaling device (Box 4). Specifically, the cut-off rate, or the reference rate, at the auction must reflect demand and supply conditions in the broad, deep parallel markets to avoid persistent excess demand at the auction.4 The misalignment between the auction rate and parallel market rates is detrimental to the long-term objective of achieving a unified, deep FX market, and to the exchange rate adjustment necessary for strengthening the external position. If the authorities are unable to change their current practice in conducting the auction, an alternative mechanism to set the exchange rate could be explored, such as setting the exchange rate based on market transactions, and accelerating inter-bank market development. However, should an alternative be pursued, any rate setting mechanism must operate in a transparent and independent manner. In addition, the government and SEEs would need to commit to using the new market-based reference rate for their FX transactions.

15. Continued structural reform is critical to strengthening Myanmar’s external position in the longer run. Staff estimates that the CBM’s current FX reserves are well below the estimated adequate level of 5–6 months of prospective imports, and baseline projections suggest a slow accumulation over the medium term. Tighter monetary policy and a flexible exchange rate, together with automatic transfer of state-owned foreign exchange from SOBs to the CBM, are key to preventing FX reserves from declining further. Moreover, Myanmar needs to deepen structural reforms in order to strengthen its external position on a sustained basis. Apart from infrastructure impediments (for example, inadequate electricity supply and transport networks), the business community considers onerous regulation and limited credit access for SMEs and agriculture to be major constraints to growth, including of exports. Staff encourages the development of a coherent plan to create an enabling environment for private enterprise, building on the existing national export strategy supported by the Diagnostic Trade Integration Study, national financial inclusion roadmap, and the Investment Law. In addition, staff encourages the timely release of regulations under the Investment Law and expeditious approval of the company law. These reforms would also help contain Myanmar’s risk of debt distress, which is assessed to be low on account of prudent fiscal policy and expected broadening of the export base over time (see the Debt Sustainability Analysis).

Authorities’ views

16. The authorities remained committed to the managed float exchange rate regime, while expressing concern about continued depreciation pressures. They recognized the importance of sound fiscal and monetary policies in anchoring the exchange rate and agreed that a more flexible reference rate was needed to unify the foreign exchange markets. However, the authorities were concerned about a potential depreciation-inflation spiral, and found it challenging to manage communications on the exchange rate regime and currency volatility in light of the public’s desire for exchange rate stability. In this context, the CBM welcomed the discussion of options in setting the reference rate, and requested TA to study the feasibility of a fixing regime based on market transactions. The CBM believed that such a regime would help ease its communication challenge by attributing exchange rate volatility more to the market than mainly to the CBM.

B. Tightening Monetary Policy to Contain Inflation

17. Despite the recent economic slowdown, a stimulatory monetary policy is inappropriate at this juncture, as inflation and exchange rate pressures persist. A tighter monetary policy stance is needed to reduce inflation and depreciation pressures on the exchange rate. High inflation has eroded the purchasing power of households and negatively affected investment and competitiveness. In addition, rising inflation has pushed down real interest rates, reducing returns to depositors and making it more difficult for lenders to price credit risk as nominal lending and deposit interest rates are administratively set (paragraphs 28 and 29).

18. Staff encourages the authorities to accelerate the phase-out of monetary financing of the fiscal deficit. The government plans to cap central bank financing at 40 percent of domestic financing in FY 2016/17, with gradual declines thereafter. While welcoming the right direction this plan sets, staff continues to recommend a faster switch from CBM to domestic market financing, over the next two years, and stress the importance of market-determined interest rates in attracting investors at the T-bill and T-bond auctions. The recent change to allow foreign banks to participate in the government securities auctions is a positive step.

19. To prevent high inflation from becoming entrenched, the CBM should step up deposit auctions to mop up liquidity. Bringing banks into compliance with reserve requirements and issuing the instruction to impose automatic penalties on non-compliant banks, have been important achievements. To attract sufficient volumes of bank deposits, the CBM should ensure that the interest rate at the deposit auctions is fully determined by the market.

20. Adopting a medium-term inflation objective would help improve monetary policy communication and anchor inflation expectations. Staff considers an inflation objective of around 5 percent as appropriate, in keeping with inflation targets/objectives for peer countries at similar stages of development. The objective should be framed as a medium-term guide rather than a fully fledged inflation target. By guiding reserve money targets the objective would clarify the nominal anchor for the economy, facilitating monetary policy communication and the setting of inflation expectations. To strengthen the design and implementation of monetary policy, staff encouraged the CBM to set up a monetary policy committee, supported by a monetary policy working group.

Authorities’ views

21. While acknowledging the inflationary impact of CBM financing of the fiscal deficit, the authorities preferred a gradual approach to phasing out such financing due to concerns about the increased cost to the budget of market financing. They also believed that a gradual approach would help ensure that targets are achievable in switching to market financing. The authorities recognized that such a switch would require a major scaling up of treasury auctions and close cooperation between the CBM and the Ministry of Planning and Finance. Having granted permission for foreign banks in Myanmar to participate in the T-bill and T-bond auctions, the authorities expected treasury issuance to grow over time as interest rates were increasingly determined by the market. The CBM welcomed staff’s recommendation to set a medium-term inflation objective and noted its intention to continue using the reserve money targeting framework to manage liquidity and respond to inflation, with continued enforcement of reserve requirements and scaling up of deposit auctions as needed.

C. Balancing Fiscal Sustainability and Development Needs

22. The FY 2015/16 fiscal outcome was broadly in line with an adequate medium-term target that is consistent with long-term debt sustainability, and a prudent fiscal stance will help anchor inflation and exchange rate expectations. Debt sustainability analysis suggests that a fiscal deficit of around 4½ percent of GDP over the medium term would be consistent with keeping Myanmar at low risk of debt distress while providing some fiscal space to respond to shocks, including frequent, climate-related natural disasters.5 In addition to phasing out central bank financing, deeper reforms to mobilize domestic revenue are needed (see below), and the authorities should continue to prioritize expenditure on critical infrastructure and social services while improving efficiency, and containing fiscal risks—especially those emerging from SEEs (including SOBs) as well as public private partnerships.

23. Building on considerable achievements, it is time for the next phase of revenue reform. Myanmar has significantly improved revenue administration, including by establishing a large taxpayer office (LTO), with general government revenue (excluding grants) rising from 12 percent of GDP in FY 2011/12 to around 20 percent in FY 2015/16.6 Myanmar now needs to tackle its tax system at a deeper level, including updating tax legislation, beginning with the income tax law. Meanwhile, high-level commitment will be needed to accelerate the reform of SEEs, to improve their efficiency and revenue contribution, while reducing contingent liabilities, including those in the banking sector. Over time, Myanmar should also tap its large revenue potential in the mining sector, building on good progress made in implementing the EITI. Priority actions on the revenue front include the following:

  • Rationalize tax exemptions and investment incentives. As the first step, tax expenditures should be presented in annual budgets to increase transparency.
  • Introduce anti-corruption measures to protect the integrity and reputation of the tax system.
  • Recruit more professional staff to strengthen IRD and LTO’s capacity, including in the area of tax payer services.
  • Pass the draft Tax Administration Procedure Law as soon as possible.
  • Scale up sustained public education on the importance of taxation for economic development.

Tax Revenue, 2015

(Percent of GDP)

Sources: Authorities’ data; WEO; and IMF staff estimates.

24. Sustained efforts are needed to improve the efficiency of public spending and build fiscal buffers for future shocks. As the authorities continue to prioritize spending on key infrastructure and service delivery, greater attention needs to be paid to balanced allocation within sectors to achieve better development outcomes. Moreover, the authorities should continue to improve the medium-term fiscal framework, better integrate recurrent and capital expenditures, strengthen in-year monitoring and reporting (which would be greatly facilitated by automation), and improve cash management. To put these reforms on a sound legal footing, the authorities should ensure early approval of the Financial Rules and Regulations while preparing ground for a Public Financial Management (PFM) law. Given Myanmar’s vulnerability to natural disasters, more budgetary resources should be allocated to reserves to meet contingency spending needs.7

Authorities’ views

25. The authorities broadly concurred with staff’s recommendations. They intended to keep the fiscal deficit within 3–4 percent of GDP (authorities’ accounting method definition) for 2017/18 and over the medium term, and were committed to maintaining a low risk of debt distress. The authorities fully recognized the importance of revenue mobilization and were working closely with the Fund and other development partners to continue deepening reforms including by moving to Phase II of revenue reform. On expenditure management, the authorities planned to release an update on the Financial Rules and Regulations in the near term while preparing the groundwork for a PFM Law. Improving the performance of SEEs was a key policy priority, and the authorities were working with development partners to formulate a reform strategy. Increasing investment in key infrastructure and social services remained a priority for the authorities, though they noted the constraints on absorptive capacity in the short term.

D. Addressing Financial Sector Risks and Improving Intermediation

26. The financial sector reform agenda is well underway. A new FIL was passed in early 2016, and progress has been made in finalizing regulations and strengthening supervision. Important advances have been made in undertaking full-scope bank examinations, and financial soundness indicators (excluding SOBs) have been developed with a view to publication in 2017. Efforts to extend T-bill maturity, the launch of T-bond auctions, and the recent change to allow foreign banks to participate in treasury auctions have been welcome. In addition, banks now fully comply with reserve requirements, as noted above. Given progress in improving the AML/CFT regime, Myanmar is no longer subject to the FATF’s monitoring process under its on-going global AML/CFT compliance process. Ongoing work to address outstanding AML/CFT issues, including preparing for the national risk assessment, remains a priority.

27. Further reforms are needed given a growing, largely opaque, and undercapitalized financial system. Despite the recent slowdown in credit growth, and the fact that credit is extended in local currency and funded by deposits, concerns remain regarding the quality of banks’ assets given the limited availability of prudential data, ever-greening practices, concentration risk, and weak risk management. The banking system in general remains undercapitalized relative to risks, and the CBM is working with several banks to bring capital levels up to the requirements of the FIL. However, this process is being impeded by delays in the issuance of supporting regulations for the FIL, including those on capital adequacy and asset classifications. At the same time, growth in the number of banks operating in Myanmar continues to stretch supervisory capacity—arguing against permitting additional banks to enter the market until supervisory capacity has been substantially strengthened.

28. Reform of systemically important SOBs should be accelerated. Although their dominance of the financial system has declined, SOBs retain the largest network of bank branches and attract 36 percent of national deposits. Given the large amount of deposits at the SOBs and their poor financial conditions, key objectives of reform should include minimizing risks to the financial system and public finance, and to improve financial intermediation and inclusion. An immediate priority is to clarify the SOB’s capital and net FX open positions. Ultimately, a restructuring plan needs to be formulated to guide the reform process, building on the World Bank’s continued support in this area.

29. Despite the rapid credit growth over the last few years, agriculture and small and medium-sized enterprises (SMEs) have been underserved. With nearly two-thirds of households engaged in agriculture, this sector is key to inclusive growth. However, productivity levels are low due to the lack of modern inputs and technologies (seeds, fertilizer, irrigation facilities, and post-harvest services). In part this reflects lack of access to credit. Extensive controls in the wake of past banking crises—including a floor on deposit rates (8 percent) and a ceiling on lending rates (13 percent)—have made it difficult for farm households and SMEs to access credit. Over the past year, high inflation has exacerbated financial repression and there has been growing call for rapid liberalization of interest rates, which could bring large benefits. However, Myanmar is not yet ready for full liberalization of interest rates, and needs to continue working on the necessary conditions, including by further strengthening bank regulation and supervision, improving banks’ risk management, and anchoring inflation expectations.

30. Staff recommends a carefully sequenced increase in lending interest rates, supported by appropriate complementary policies. Higher, tiered lending rates for new loan products permitted under the FIL (including unsecured and secured on moveable collateral) should be allowed, to help develop an interest rate structure for loans of longer than one year. In view of the critical need to improve access to finance for agriculture and SMEs, the authorities could also raise the interest rate caps on microfinance loans, along with measures to ensure their adequate supervision and regulation. Staff also encourages the authorities to consider complementary policy measures to ensure that the benefits of gradual financial liberalization are widely distributed. For example, improving rural infrastructure (particularly electricity supply and transport networks, which would increase access to mobile banking and bank branches), financial literacy, and business book keeping, as well as establishing a credit bureau, would help rural households and SMEs share the benefits of financial liberalization. Liberalization of interest rates without complementary measures to improve financial access to the rural population and SMEs could increase income inequality, as the bulk of the benefits from liberalization would accrue to businesses and households that already have access to finance.8

31. Current priority actions for financial sector reform include the following: 9

  • Issue and enforce bank regulations as soon as possible. This would empower the supervisors to enforce the FIL.
  • Complete full-scope bank examinations of all banks (including state-owned and policy banks), identify and audit weak banks, and require capital and liquidity recovery plans to meet new regulatory requirements.
  • Further increase the size and training of the supervision team at the CBM, including on AML/CFT.
  • Resource the function at the CBM to develop plans for bank recovery and resolution, to enable the CBM to deal with weak banks using its new FIL powers and to develop lender of last resort capabilities.

Authorities’ views

32. The authorities broadly shared staff’s views on financial sector risks and reform priorities and were moving forward with their reform agenda. They were near completion of full-scope examinations of all banks, and were targeting end-March 2017 for issuing five key regulations to implement the FIL. With regard to bank capital adequacy, the authorities were committed to implementing, as the next step, more stringent capital requirements aligned closely with enhanced international standards. The authorities appreciated the importance of strengthening the supervision team and were seeking more resources while continuing with training. They planned to accelerate interbank money market development and contingency planning for bank recovery and resolution, and have requested TA in both areas. With regard to gradual liberalization of interest rates, they preferred to change bank lending and deposit rates simultaneously but keep rates on microfinancing low.

Capacity Development and Other Issuess

33. Myanmar is a top recipient of Fund capacity development resources and has made substantial progress in strengthening capacity (Appendix III).10 Staff exchanged views with the authorities on Myanmar’s priorities in capacity development in line with its surveillance objectives. The authorities welcomed Fund assistance and provided feedback on how to enhance the effectiveness of Fund capacity development, including through early engagement and close interactions at the planning and delivery stages and tailoring Fund recommendations to capacity constraints to improve short-term absorption and long-term sustainability.

34. Statistics. Improvement has been made in reducing the time lags in releasing data, and the recent rebased CPI series is a major achievement. However, data shortcomings continue to hamper surveillance significantly, particularly in the areas of external sector and government finance statistics. Sustained efforts will be needed for further progress (Information Annex III), and staff appreciated the authorities’ strong commitment to improving statistics.

35. Article VIII issues. The authorities plan to accept Myanmar’s obligations under Article VIII soon. An exchange restriction relating to transfer of salaries abroad was removed with the passage of the FIL, and work is in progress to remove the last remaining exchange restriction, relating to a tax certification requirement. The authorities have requested Fund approval of the multiple currency practice arising from the multiple-price FX auction.

Staff Appraisal

36. The successful general elections in November 2015 ushered in a historic period of political and socioeconomic transition. Peace and national reconciliation will help lay the foundation for stability and shared prosperity, and continued economic reform is integral to this great endeavor. Maintaining economic and financial stability is important for the transition.

37. Greater exchange rate flexibility is critical to strengthening Myanmar’s external position and developing a fully unified FX market. Staff continues to support the managed float regime and encourages the CBM to conduct the daily FX auction in a competitive manner, which would minimize the exchange rate spread between the formal and informal markets. Should it be impossible to achieve these objectives under the auction regime, the authorities could explore an alternative way of setting the reference rate based on prices of market transactions.

38. Monetary policy should be tightened by phasing out CBM financing of the fiscal deficit and stepping up deposit auctions to mop up liquidity. These steps are essential to containing inflation and reducing pressure on the exchange rate. Market-determined interest rates for treasury securities are required to ensure the successful transition from CBM to domestic market financing. Staff welcomes the authorities’ commitment to phasing out monetary deficit financing and encourages a more ambitious pace.

39. Deeper fiscal reforms are needed to balance development and sustainability needs. The current fiscal stance is appropriate, and the authorities should keep the fiscal deficit in check going forward to build fiscal buffers and maintain low risk of debt distress. To finance large needs for infrastructure development and social services, domestic revenue mobilization should move to the next level, including reform to tax legislation, building on the success of the first phase of reform. At the same time, continued efforts are required to ensure effective prioritization and implementation of expenditure plans.

40. Further financial sector reform is critical to safeguarding financial stability and improving financial intermediation. Rapid credit growth and lack of transparency in the banking system could pose systemic risks and contingent fiscal liabilities. Staff commends the authorities for passing the FIL and strengthening supervisory capacity, and continues to urge the authorities to issue supporting regulations for the FIL soon, and to formulate an SOB reform plan.

41. Staff appreciates the authorities’ commitment to improving macroeconomic statistics, and envisages a full capacity development agenda. Building on good progress, further development of macroeconomic statistics is needed to better inform policy decision making and improve transparency. Staff looks forward to continuing capacity development work with Myanmar in statistics and other policy areas.

42. Staff supports the authorities’ request for approval of a multiple currency practice subject to Fund jurisdiction under Article VIII, Section 3. The MCP arises from the mechanism of the foreign exchange auction which allows for a multiplicity of winning bids (Information Annex on Fund Relations), and is maintained principally for non-balance of payments reasons. The MCP does not materially impede the member’s balance of payments adjustment, harm the interests of other members, or discriminate among members; it is temporary; and the authorities are unable to replace it at present. Staff therefore recommends Executive Board approval for its retention until January 18, 2018 or the conclusion of the next Article IV consultation, whichever is earlier. The authorities did not request, and staff does recommend, approval of the exchange restriction maintained inconsistent with Article VIII obligations.

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

Box 1.Myanmar: Recent Inflation Dynamics1

Myanmar’s inflation has been persistently above 10 percent since mid-2015, apart from recent data that has reflected base effects from the flood.2 The higher inflation rates appear to have mainly resulted from rising food prices, which represented more than two-thirds of the CPI basket. This can partly be explained by the severe floods in July–September 2015, caused by Cyclone ‘Komen’. However, the double-digit inflation has been more persistent than can be explained by supply shocks alone. This box, therefore, aims to analyze other possible factors that have been driving inflation dynamics in recent years.

Using quarterly data from 2005:Q1 to 2016:Q2, inflation in Myanmar is found to be driven by its past dynamics, reserve money supply, international food prices, public sector wage growth, and exchange rate depreciation (pass-through effect).3 Past dynamics have contributed to approximately 40 percent of contemporaneous inflation for the whole period of the study. However, this contribution declined during the period 2011–2016:Q2 whereas changes in the exchange rate and money supply have increasingly driven inflation dynamics. Public sector wage growth has also contributed to inflation in the latter period. This includes the latest increase of public wages in FY 2015/16, which occurred at around the same time as the floods and may have contributed to inflation persistence.

A variance decomposition of inflation confirms the role of past inflation, the exchange rate, and money supply in driving inflation dynamics. For the first year, exchange rate pass-through explained around 20 percent of inflation variation, international food prices around 7 percent, and money supply around 5 percent. Over the medium term, exchange rate pass-through and changes in money supply have gained further explanatory power, contributing approximately 30 percent and 25 percent, respectively, to inflation variance. International food prices have a minimal contribution to inflation variation over the medium term.

The above results suggest that a tighter monetary will be required to bring down persistently high inflation. Monetization of the increased fiscal deficit in 2015/16 contributed significantly to the expansion of reserve money. At the same time, the CBM has not mopped up excess liquidity sufficiently through deposit auctions to offset deficit monetization. Although inflation itself is likely to have contributed to exchange rate depreciation, a rising current account deficit suggests that aggregate demand has outpaced domestic supply, putting pressure on the exchange rate.

Contribution to Myanmar’s Inflation Dynamics

Souce: IMF staff calculations.

Contribution to Myanmar’s Inflation Variation

Source: IMF staff estimates.

Note: The analysis applies VAR on first difference of log-transformed series of all variables.

1 Prepared by Chanaporn Sereevoravitgul.2 This analysis uses the 2006 base year CPI, as limited official historical data is available for the new 2012 base year CPI. The 2012 base year CPI shows lower inflation than previous series, due to a lower weight on food in the CPI basket.3 The estimation uses the OLS method. The contribution from each factor was obtained by multiplying the regression coefficients by the means of each variable.

Box 2.Myanmar: Potential Growth1

Reliable estimates of potential output are critical to formulating an appropriate macroeconomic policy framework. They are an essential input for calculating output gaps that help policymakers determine the cyclical position of the economy and for designing sustainable macroeconomic policies over the medium and long run. In the case of Myanmar, there has been limited empirical work in estimating its potential output even though rapid structural change over the last few years has made it imperative to gauge the country’s new growth potential. This box presents preliminary results from three approaches: analysis of historical comparisons, the HP filter, and the Cobb-Douglass production function.

Average Sectoral and Overall GDP Growth

(In real terms; percent per annum)

Sources: World Bank, World Development Indicators (2016); and IMF staff calculations.

Myanmar’s growth potential is substantial based on the experience of its regional peers. The growth record of Cambodia, China, Laos, Thailand, and Vietnam suggests that, with appropriate policies, high growth in the range of 7-8 percent can be sustained over a relatively long period of time. Myanmar’s per capita income today (about US$1,400 in constant 2011 PPP U.S. dollars) is similar to the levels of these countries (US$1,000-2,000 in constant PPP U.S. dollars) when they embarked on economic reforms and subsequently achieved sustained growth at 7-8 percent per year. China achieved even higher growth.

The results from the other two approaches also suggest that Myanmar can achieve long-term growth in the 7-8 percent range. Both the HP filter and production function approaches show a notable pickup in trend growth since 2011 when Myanmar embarked on political and economic reforms (Charts 2 and 3). The estimated production function shows that the growth contribution of total factor productivity (TFP) has been rising in recent years, although the pace of factor accumulation—at 10 percent per year for capital and 1.1 percent for labor force since 2011—has been modest compared with that in neighboring countries during their economic expansion.

Real GDP Growth

(In percent)

Source:IMF staff calculation

Myanmar needs to take advantage of its current position to emulate the successes of its neighbors. The slowdown of global economic growth since the Global Financial Crisis makes it more difficult for Myanmar to increase its exports to advanced countries. However, China’s rebalancing and moving up value chains have provided Myanmar with opportunities to export labor-intensive products and services, including through attracting Chinese FDI and tourists. Over the long run, there is also potential for Myanmar to export labor-intensive manufactured goods directly to China, in addition to agricultural and horticultural products. For this to materialize, Myanmar needs to continue improving its productivity, particularly given its low fertility rate that reduces demographic dividends. Continued efforts to build up human capital and integrate with regional economies are key to achieving sustained growth.

Contributions to Potential Growth

(In real terms; percent change)

Sources: IMF staff calculation

1 Prepared by Yiqun Wu.

Box 3.Myanmar: External Sector Assessment1

Myanmar’s external position worsened in 2015/16 and is assessed to be moderately weaker than the level consistent with medium-term fundamentals and desirable policy settings. This is consistent with the real exchange rate appreciation, relatively slow productivity improvement, and falling international reserves over the past year.

The kyat real effective exchange rate (REER) appreciated by about 7.3 percent in the year to September 2016, primarily driven by higher domestic inflation relative to Myanmar’s trading partners (Figure 1). The nominal effective exchange rate depreciated by about 2 percent during the same period.

Nominal and Effective Exchange Rates

(2010 = 100, increase=appreciation)

Source: IMF staff calcualations.

Model-based estimates of the external position suggest the kyat is now moderately overvalued. All three IMF models—the Current Account (CA), REER, and external sustainability (ES) approaches—show that the real exchange rate (RER) is moderately stronger than the level consistent with external balance, medium-term fundamentals and desirable policy settings (Table 1). The CA approach suggests an RER overvaluation of 3.3 percent in 2016/17, but after adjusting for the adverse flood effects, the overvaluation disappears. The REER approach suggests a somewhat larger overvaluation of 16 percent, while estimates under the ES approach show that an REER adjustment of 6.9 percent is needed to stabilize net foreign assets (NFA)-to-GDP at -40 percent in 20 years.2

Table 1.Current Account and Real Exchange Rate Assessments(In percent of GDP)
CA approachREER approachES approach
CA Actual−7.7%
Cyclically adjusted CA Norm−7.0%
CA Gap−0.7%
Of which: Policy Gap3.2%−5%
Real Exchange Rate Gap5.8%17%7.7%

Anecdotal evidence suggests Myanmar has lost some competitiveness over the past year. There have been increasing complaints by domestic producers that imports, including possibly smuggled imports, of processed foods, have posed strong competition to domestic products. It has also been reported that Myanmar rice, a major foreign exchange earner for the country, has also been facing sluggish demand overseas because it is too expensive. Thus it appears that rising domestic inflation has contributed to the loss of competitiveness, which also continues to be hampered by non-price factors. Business surveys show that despite low wages, weak domestic supply chains and poor access to electricity, transport services and affordable financing are major impediments to business activity.

Improving competitiveness would also help improve the CBM’s foreign reserves buffer, which is assessed to be far below the estimated adequate level. At end-September 2016 the CBM’s net foreign reserves stood at US$4.5 billion and covered about 2.3 months of prospective imports, well below the estimated adequate level of 5-6 months of imports.3 Inadequate reserves also suggest that it is important for the CBM to maintain a flexible exchange rate to absorb external shocks.

1 Prepared by Yevgeniya Korniyenko.2 Provisional estimates put Myanmar’s current NFA at -22.5 percent of GDP. It is assumed that with large development needs, Myanmar will increasingly rely on foreign saving over the next 20 years, pushing NFA to -40 percent of GDP.3 This estimate is based on the method set out in IMF Board Paper SM/14/334, which results in a reserve adequacy metric of 4 months of imports for a free floating exchange rate regime. However, given Myanmar’s vulnerability to natural disasters and the fact that its exchange rate de facto is not fully flexible, the metric has been revised upwards.

Box 4.Myanmar: Recent Developments in the Foreign Exchange Markets

Myanmar’s exchange rate regime is underpinned by a daily foreign exchange auction. The multi-price, two-way auction was designed to enable authorized dealers—mostly domestic banks—to bid for purchase and sale of FX in a competitive manner. The cut-off rate, which is intended to maximize market transactions and equilibrate demand and supply, is set in the early morning each day to serve as the reference rate for the day for the formal market—trade between authorized dealers, customers, and the CBM and the government. There is a trading band of 0.8 percent on either side of the reference rate.

Deviation Between Reference and Informal Market Rates

(Percent, inverted axis, truncated at -4 percent)

Sources: Authorities; and IMF staff calculations.

Deviation between Reference and Informal Market Rates

(Gray bars show days when the informal market rate is outside the exchange rate trading band)

Sources: Authorities and IMF staff calculations.

The auction has been under stress over the past two years and its function has been undermined by failures to adhere to the rules. The auction served its purposes well in most of the period up to late 2014, when a strengthening of the U.S. dollar and adverse terms of trade shocks led the CBM to deviate from the well-designed auction rules. The reference rate has frequently deviated from the parallel market rate by more than 0.8 percent and the CBM has limited FX sales at the auction (see the chart below).1 At deviations of such magnitude, authorized dealers that are bound by the band cannot compete with dealers in the parallel markets. Although technical difficulties contributed to some of the deviations, as parallel market rates have drifted away from the reference rate after it is set in the morning auction, heavy smoothing of the reference rate by the CBM has been the main reason for the deviations. Such smoothing occurs when the CBM does not determine the cut off rate based on broad demand and supply conditions. In such instances the CBM no longer makes the bid allocation on the basis of relative prices.

CBM Net FX Intervention at Auction

(In millions of U.S. dollars)

Sources: Central Bank of Myanmar; and IMF staff calculations.

1 However, staff has not identified at this time instances of shortages in the formal FX market.

Box 5.Myanmar: Domestic Revenue Mobilization1

Myanmar has one of the lowest tax revenue collections in the world with high potential to collect more. Tax revenues total 7.5 percent of GDP, compared to the regional average of 14.6 percent. Less than half of the total revenue is derived from taxes. IMF estimates a ratio of 15 percent tax to GDP is needed to achieve sustainable growth. A revenue mobilization program began in 2012 based on IMF recommendations.

The revenue reform momentum achieved by the Internal Revenue Department (IRD) is very encouraging. Since 2012 tax revenues have increased on average by around 20 percent year-on-year. The new Large Taxpayer Office (LTO) became operational in 2014, and is adopting international good practice for a self-assessment system. Compliance by large taxpayers with core tax obligations (registration, on-time filing and payment) is nearing international good practice. Policy reforms include a separate excise tax (Specific Goods Tax) and some reform of the commercial tax; and the IRD headquarters was restructured to introduce some modern management and governance practices.

Nevertheless, strategic revenue reforms of this nature need continuous and unwavering political commitment and support from key stakeholders including development partners. Good progress has been made in formulating an updated reform plan, which forms the basis of communications and priorities for Phase II (2017-2022) of the reform program. Phase II needs to focus on:

  • Modernizing the tax policy and legislation framework to increase certainty of tax liability and remove loopholes – start with income tax and a unified tax procedure law to streamline taxpayers’ rights and obligations across all tax types.
  • Extending the new processes and systems to medium size taxpayers.
  • Introducing a new technology system. Sufficient budget will be needed to allow this to happen.
  • Recruiting experienced staff and developing existing staff to match the skills of professional tax advisors in the private sector.
  • Developing an environment of integrity and good governance with modern human resource management practices to provide transparency of taxpayer rights and mechanisms that guarantee integrity.
  • Building strong political support and stronger public understanding about the importance of taxation.

Reforms in the Myanmar Customs Department (MCD) are in their early stages but some progress has been made. MCD has progressively received more assistance from the IMF and some recommendations have been partly implemented. Greater recognition of the importance of the Strategic Plan and the operational plan would help strengthen reform traction in MCD. MCD should focus on: upgrading its capacity to scan the environment and develop and manage the reform program on its own, developing the MCD information and communication technology strategy; and implementing effective management systems and practices, including human resource management.

The MCD will need ongoing external assistance and support. This support will be most needed in: (i) consolidating and modernizing the customs legislation; (ii) introducing modern risk-based procedures; and (iii) reinforcing powers and capacities in the detection and investigation of commercial fraud. Procedures and processes will have to be reviewed, rationalized and simplified to reflect opportunities offered by new technology, e.g., the Myanmar Automated Customs Clearance System (MACCS).

1 Prepared by Margaret Cotton and Janos Nagy.

Figure 2.Myanmar: Inflation and Real Sector Developments

Sources: Authorities’ data; and IMF staff calculations.

Figure 3.Myanmar: Fiscal Sector Developments

Sources: Authorities’ data; and IMF staff calculations.

Figure 4.Myanmar: External Sector Developments

Sources: Authorities’ data; and IMF staff calculations.

Figure 5.Myanmar: Monetary Sector Developments

Sources: Authorities’ data; and IMF staff calculations.

Figure 6.Myanmar and Its Peers: Selected Indicators

Sources: Authorities’ data; and IMF staff calculations.

Table 3.Myanmar: Balance of Payments, 2012/13–2018/19
(In millions of U.S. dollars)
Current account−2,391−2,936−2,139−3,067−4,342−4,803−5,329
Trade balance−2,167−3,053−4,108−5,441−6,718−7,513−8,293
Exports, fob10,34111,26412,52411,13711,06612,20814,431
Of which: Gas3,6663,2993,7072,5141,7871,8591,944
Imports, mostly cif−12,508−14,317−16,633−16,578−17,784−19,721−22,724
Nonfactor services, net−751931,2131,0021,1281,2871,425
Income, net−681−1,475−1,645−1,127−1,424−1,571−1,758
Of which: Interest due−94−220−391−363−335−350−355
Transfers, net5331,4002,4012,4982,6722,9953,298
Capital and financial account5,8514,5804,6514,1544,2685,7266,445
Direct investment, net2,8002,6214,6324,2123,9344,7255,323
Other investment9265563194423341,0021,122
MLT debt disbursements1,0857615397868051,4991,659
Repayments due−159−206−220−344−471−497−537
Other flows2,1251,404−300−500000
Errors and omissions−835−381−1,343−1,506000
Overall balance2,6251,2631,169−419−749241,116
Change in gross official reserves (increase: -)−2,625−1,263−1,16941974−924−1,116
(In percent of GDP)
Current account−4.0−4.9−3.3−5.2−6.5−6.6−6.7
Trade balance−3.6−5.1−6.3−9.1−10.1−10.4−10.4
Exports, fob17.318.719.118.716.716.918.0
Of which: Gas6.
Imports, mostly cif−20.9−23.8−25.4−27.8−26.8−27.3−28.4
Nonfactor services, net−
Income, net−1.1−2.5−2.5−1.9−2.1−2.2−2.2
Of which: Interest due−0.2−0.4−0.6−0.6−0.5−0.5−0.4
Transfers, net0.
Capital and financial account9.
Direct investment, net4.
Other investment1.
MLT debt disbursements1.
Repayments due−0.3−0.3−0.3−0.6−0.7−0.7−0.7
Other flows3.62.3−0.5−
Errors and omissions−1.4−0.6−2.0−
Overall balance4.42.11.8−0.7−
Change in gross official reserves (increase: -)−4.4−2.1−−1.3−1.4
Memorandum items:
Gross CBM reserves (US$ millions)3,1564,4194,8034,5114,4365,3606,476
In months of prospective GNFS imports2.
Gas export volume (percent change)−2.2−6.725.
Other exports volume (percent change)−1.521.313.76.310.010.319.8
Import volume (percent change)19.315.917.
Public external debt (in percent of GDP)
External debt service due (in percent of GNFS exports)2334544
Official exchange rate (kyat/US$, eop)8809651,0271,216....
Sources: Data provided by the Myanmar authorities; and IMF staff estimates and projections.
Sources: Data provided by the Myanmar authorities; and IMF staff estimates and projections.
Table 4.Myanmar: Monetary Survey, 2012/13–2018/19 1/2/(In billions of kyat at end-period, unless otherwise indicated)
Net foreign assets1,7313,1274,5304,9614,1495,6137,415
Foreign assets2,5154,2885,2795,8505,1056,6168,457
Foreign liabilities7841,1617498899561,0021,041
Net domestic assets8,7259,0368,19510,25513,26714,14614,808
Domestic credit9,0179,6359,34112,83715,85016,72817,391
Claims on central government (net)8,3188,7268,74412,00113,20114,10114,801
Claims on deposit money banks (net)6999095973852,6482,6272,589
Other items net−293−599−1,147−2,583−2,583−2,583−2,583
Reserve money10,45612,16312,72515,21517,41619,75922,223
Currency in circulation7,4268,96510,20211,77113,47415,28717,193
Net foreign assets3,6606,6297,6818,8499,92411,38813,190
Foreign assets7,21810,81911,51413,01412,68014,19116,032
Foreign liabilities3,5574,1913,8334,1662,7562,8022,841
Net domestic assets14,76817,63520,84427,19134,83843,14352,781
Domestic credit13,61116,95820,84327,58335,23043,53653,173
Net claims on government8,4278,97910,18813,39516,69519,74423,178
Deposit money banks1092531,4431,3933,4935,6428,377
Credit to the economy5,1847,97910,65614,18818,53623,79229,995
Private sector4,9007,47110,19913,69917,60922,60228,495
Other items net1,1576771−392−392−392−392
Broad money18,42824,26428,52436,04044,76254,53265,972
Currency outside banks6,6957,9678,60510,15711,63814,17817,153
Money multiplier1.
Reserve money (y/y percent change)38.516.34.619.614.513.512.5
Broad money (y/y percent change)46.631.717.626.324.221.821.0
Broad money (in percent of GDP)36.041.843.749.553.656.559.2
Credit to private sector (y/y percent change)50.552.536.534.328.528.426.1
Credit to private sector (in percent of GDP)9.612.915.618.821.123.425.6
Deposits (in percent of GDP)22.928.130.535.639.741.843.8
Credit to economy/deposits (in percent)
Exchange rate (kyat/$, end of period)8809651,0351,2111,3011,3651,418
Nominal GDP (in billions of kyat)51,25958,01265,26272,78083,47996,479111,395
Sources: Central Bank of Myanmar; and IMF staff estimates and projections.

The fiscal year ends on March 31.

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 ends on March 31.

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

Table 5.Myanmar: Medium-Term Projections, 2012/13–2021/22 1/
Output and prices(Percent change)
Real GDP (authorities) 2/
Real GDP (staff working estimates)
CPI (end-period; base year=2006)
CPI (end-period; base year=2012)
CPI (period average; base year=2006)
CPI (period average; base year=2012)
Consolidated public sector 3/(In percent of GDP)
Total revenue19.020.121.918.817.216.516.817.117.317.4
Union government8.710.012.110.810.09.69.910.210.510.7
Of which: Transfers from SEEs to Union government1.
Of which: Tax revenue6.
SEE receipts10.
Total expenditure18.121.422.922.921.821.121.321.621.821.8
Net acquisition of nonfinancial assets7.
Gross operating balance8.
Net lending (+)/borrowing (-)0.9−1.3−0.9−4.1−4.6−4.5−4.5−4.5−4.5−4.4
Underlying net lending (+)/borrowing (-) 4/0.9−1.7−3.1−5.3−5.6−4.5−4.5−4.5−4.5−4.4
Domestic public debt16.615.415.318.119.720.220.621.021.421.6
Money and credit(Percent change)
Reserve money38.516.34.619.614.513.512.512.512.512.5
Broad money46.631.717.626.324.221.821.021.520.720.3
Domestic credit5.124.622.932.327.723.622.122.020.519.4
Private sector50.552.536.534.328.528.426.125.923.121.7
Balance of payments(In percent of GDP, unless otherwise indicated)
Current account balance−4.0−4.9−3.3−5.2−6.5−6.6−6.7−6.6−6.5−6.4
Trade balance−3.6−5.1−6.3−9.1−10.1−10.4−10.4−10.3−10.3−10.2
Gas exports6.
Financial account9.
Foreign direct investment, net4.
Overall balance4.42.11.8−0.7−
CBM reserves (gross)
In millions of U.S. dollars3,1564,4194,8034,5114,4365,3606,4768,0049,90112,438
In months of total imports2.
External debt
Total external debt (billions of U.S. dollars)13.710.
(In percent of GDP)
Exchange rates (kyat/$, end of period)
Official exchange rate8809651,0271,216
Parallel rate8789651,0861,201
Memorandum items:
GDP (billions of kyats)51,25958,01265,26272,78083,47996,479111,395128,102147,238168,945
GDP (billions of US$)59.760.165.659.566.372.480.088.798.4109.0
GDP per capita (US$)1,1821,1801,2751,1481,2691,3751,5101,6621,8322,017
Sources: Data provided by the Myanmar authorities; and IMF staff estimates and projections.

Fiscal year from April 1 to March 31.

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.

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

Fiscal year from April 1 to March 31.

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.

Appendix I. Myanmar—Key Policy Recommendations from the 2015 Article IV Consultation
CategoryPolicy adviceImplementation status
Monetary policy
Objective: Use reserve money targeting more effectively to keep inflation in check.
Mop up excess liquidity by scaling up deposit auctionsOngoing
Enforce the recalibrated reserve requirementsBanks are in compliance, and an instruction on noncompliance penalties has been issued
Phase out CBM financing of the deficitCommitted and gradual reduction is planned
Allow the interest rate at T-bill auctions to riseProgress made, with more flexible rates and extended T-bill maturity. In addition foreign banks are now allowed to participate in treasury auctions.
Fiscal policy
Objective: Create fiscal space to finance large development needs while maintaining macroeconomic stability and debt sustainability.
Reduce the fiscal deficit to about 4 percent of GDP in FY2015/16 (GFS definition), and keep it below 4½ percent of GDP over the medium termThe 2015/16 fiscal deficit of 4.1 percent of GDP was broadly in line with the medium-term target
Strengthen revenue mobilization, and provide more resources to the IRDGood progress with rising revenue collection. Strong reform momentum
Extend taxpayer self-assessment to medium taxpayersOngoing
Prioritize expenditures on infrastructure and social programsSocial spending is rising, but remains low
Improve public financial managementIn progress and efforts are intensifying
Financial sector and exchange rate policies
Objective: Maintain flexibility of the exchange rate and financial market stability.
Enforce bank prudential regulationsMajor achievements in bank supervision. Issuance of regulations has been delayed but in progress
Strengthening supervisory capacitySignificant progress, but staffing level needs to increase and training needs to continue
Approve the Banks and Financial Institutions Law and implement itA new Financial Institutions Law (FIL) was passed, and progress has been made in finalizing regulations
Strengthening the supervision of policy banks and non-bank financial institutionIn progress
Acclerate reform of state-owned banksIn progress
Ensure exchange rate flexibility to mitigate impacts of external shocksCommitted to flexible exchange rate but operational challenges remain
Source: IMF Country Report No. 15/267.
Source: IMF Country Report No. 15/267.
Appendix II. Myanmar—Risk Assessment Matrix 1/
Source of RisksRelative LikelihoodTransmission ChannelsExpected Impact of RiskRecommended Policy Response
(A) Domestic Risks
Prolonged high credit growth and weak bank sectorHigh• Lead to faster import growth, higher inflation and larger current account deficit, and reduce asset quality;

• Raise pressures for further depreciation, creating risks of financial market instability due to currency mismatch;

• Rapid credit growth over the past few years may have weakened banks’ balance sheets, posing risks to financial stability
High• Scale up deposit auctions to mop up excess liquidity to control credit growth;

• Tighten reserve requirements;

• Strengthen supervisory capacity and implement a revamped regulatory framework, including through enforcement of micro prudential measures;

• Enforce NOP limits and repatriation requirements.
Political instabilityMedium• Weaken investor confidence;

• Interrupt productive activities and slow economic growth;

• Ethnic and religious tensions as well as social unrests delay economic reforms.
Medium / High• Use resources effectively by sub-national governments for maintaining peace and continue to promote inclusive growth and poverty reduction;

• Resist monetization of government spending;

• Safeguard central bank autonomy.
Limited institutional capacityMedium• The public sector is unable to cope with speed of reform, leading to slippages and undermining confidence;

• CBM financing of the fiscal deficit rises rapidly;

• Delays in strengthening supervisory capacity of the CBM contributes to building up of vulnerabilities in the financial sector.
Medium / High• Continue to provide 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 and increase its operational budget to improve monetary policy operations.
Large natural disastersMedium/High• Destroy or damage infrastructure and other capital and bring devastating human cost, creating macroeconomic volatility;

• Have a negative impact on both short-term and potential growth.
High• Identify risks and explicitly integrate them into the fiscal frameworks and budget planning.

• Build policy and financial buffers to enha nce resilience to shocks

• Enhance preparedness and invest in infrastructure that better cope with natural hazards
(B) External Risks
Tighter and more volatile global financial conditions/Sharp rise in risk premia with flight to safetyMedium• Depreciation pressures lead the CBM to intervene in the FX auctions, 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 by following auction rules and preserve the 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• Reduce 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.
Persistently 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;

• Promotes diversification of export growth;

• Improve the business climate to attract FDI and develop SMEs.
Appendix III. Myanmar—Surveillance Priorities and Integrated Capacity Development
Surveillance PrioritiesCapacity Development FocusRecent ResultsFuture Capacity Development
Monetary and financial sector

Reduce CBM financing; improve exchange rate flexibility; maintain financial system stability.
Monetary policy framework and operationsAdoption of reserve money targeting; issuance of reserve requirement penalty regimeContinued CD on monetary policy implementation and money market development
Financial sector regulation and supervisionNew regulations ready for approval; full-scope on-site examinations near completionContinue to strengthen supervisory capacity and develop bank recovery and resolution functions at CBM
Foreign exchange marketsAligned the official and parallel market exchange rates and established a daily FX auction to set the official reference rate.Advising on a reference rate setting mechanism, and further developing FX inter-bank market
Central Bank financial managementImproved CBM accounting and budgetContinued CD in central bank accounting

Strengthen the AML/CFT regime
Legal/institutional framework needed to promote greater transparencyDevelopment of an AML/CFT law, and supporting directives and guidance notesAssist with completion of the National Risk Assessment
Fiscal sector

Reduce CBM financing; mobilize domestic revenue; improve spending effectiveness; maintain fiscal stability.
Tax policy and administration/ strengthen the Inland Revenue DepartmentPhase 1 of reform led to the setting of reform direction, development of a project management and governance framework, and formation of a Large Taxpayer Office and headquarters restructuringPhase 2 will continue to build staff capacity, extend administrative reform to the medium tax payer segment, introduce an automated tax system, and CD on tax policy and legislative reform
Public financial management (PFM)Establishment of a new Treasury Department, CD on cash management, and preparation of the Financial Rules and RegulationsImprovement in PFM strategy, finalization of the Financial Rules and Regulations, and CD on the PFM Law
Strengthen the Myanmar Customs DepartmentStrategic reform planning, improvements to risk and HR managementImprove trader compliance and build staff capacity
Macroeconomic analysis and statistics

Improve institutional capacity and adequacy of data for surveillance.
Training government and CBM officials; Building up external sector, government finance, and price statistics and financial soundness indicatorsEstablishment of a core macro group; publication of a new Consumer Price Index and development of Financial Soundness Indicators; expanded coverage of monetary statisticsContinue to train officials and build capacity in statistical methodology, compilation, and publication; develop PPI and trade price indices; build data-sharing arrangements between institutions.

Inflation numbers are based on the new CPI series, with a 2012 base year. The new CPI series was launched in August, and showed lower inflation compared to the previous CPI series (2006 base year), due to reduced weight on food prices in the CPI basket.


Foreign exchange assets at the SOBs are not classified as official reserves. Official FX reserves only include reserves held at the CBM.


See the companion selected issues paper on “Macro-Fiscal Risks: The Challenge of Climate Related Disasters,” by Kerstin Gerling and Chanaporn Sereevoravitgul.


However, staff has not identified at this time instances of shortages in the formal FX market.


Myanmar is a pilot on climate change issues at the Fund.


Myanmar is a pilot for domestic revenue mobilization in the context of Fund work to support Sustainable Development Goals.


See footnote 5.


See selected issues paper “Macroeconomic and Distributional Implications of Financial Reforms in Myanmar,” by Adrian Peralta-Alva, Sandra Valentina Lizarazo Ruiz, Yiqun Wu, and Vinzenz Ziesemer, Myanmar is a pilot case for Fund work on inequality.


See selected issues paper “Myanmar’s Financial Sector: Strategy and Priorities for Reform,” by Marc Dobler.


Myanmar is a pilot for the IMF’s capacity development initiative in fragile states.


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.

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