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Myanmar : Requests for Disbursement Under the Rapid Credit Facility and Purchase Under the Rapid Financing Instrument—Debt Sustainability Analysis

Author(s):
International Monetary Fund. Asia and Pacific Dept
Published Date:
July 2020
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Information about Asia and the Pacific Asia y el Pacífico
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Risk of external debt distress:Low2
Overall risk of debt distress:Low
Granularity in the risk ratingNot applicable
Application of judgement:No
Macroeconomic projectionsThe main changes in the current macroeconomic assumptions, compared with those in the 2019 DSA, stem from the estimated impact of COVID-19 (see text table for detailed comparison). Assuming a localized outbreak, real GDP growth is expected to slow down considerably to 1.4 percent in FY19/20. The current account deficit is expected to widen due to lower garments and gas exports, higher medical imports, and weaker tourism and remittances. FDI is expected to slow as projects are delayed. Inflation is expected to decline reflecting commodity prices and subdued domestic demand. The fiscal stimulus required to manage the impact of the pandemic together with weak revenues will widen the budget deficit by about 2 percent of GDP annually over the next two years. A gradual recovery starting Q1 FY20/21 is projected.3
Financing strategyTo keep adequate reserves given uncertainties around the length of the pandemic and preexisting financial sector vulnerabilities, an external financing gap amounting to US$1.7 billion is expected in FY19/20. The external gap, which is expected to fill the fiscal gap, will be filled by a mix of external financing (IMF, the World Bank, ADB, EU and Japan, and the DSSI). Such a strategy will help reduce pressure on monetizing the deficit and risks of disorderly external market conditions.

Myanmar’s risk of external and overall debt distress continues to be assessed as low. External debt indicators are projected to continue on a downward trend; however, rapidly evolving circumstances have raised the projected FY 2019/20 deficit and public debt levels, and made prominent several vulnerabilities (see text table). The IMF’s RCF/RFI financing arrangement and the Debt Service Suspension Initiative (DSSI), supported by the G-20 and the Paris Club, will enable a quick increase in priority spending in response to the effects of the pandemic. The DSA shows that, under the baseline, which reflects the COVID-19 shock, all external public and publicly guaranteed (PPG) debt indicators remain below their policy relevant thresholds and benchmarks. A slowdown in exports and the aftermath from a natural disaster are shocks that worsen the debt outlook the most.4

Under the baseline, the magnitude of a shock from contingent liability through the financial sector is assumed to be the default 5 percent of GDP. A more prolonged global outbreak could result in more adverse economic outcomes that interact with banking sector fragilities. This could potentially result in the realization of contingent liabilities arising from recapitalization needs. An adverse scenario, which considers the macroeconomic impact from such an assumption, reflects the impact of this downside risk. Here, the PV of public debt-to-GDP ratio deteriorates significantly. It also raises the PV of public debt-to-GDP ratio under the most extreme shock, and breach its benchmark (55 percent) in the medium term suggesting a possible worsening of the risk rating from low to moderate (see figure).

It is imperative that the authorities address the immediate gross financing needs arising from the impact of the COVID-19 crisis, without resorting to potentially more destabilizing central bank financing given Myanmar’s experience. At the same time, there may be limited potential to borrowing from domestic banks given vulnerabilities and the risks of crowding out needed credit. Thus, external financing on concessional terms, and the DSSI, will be key to support the policy stimulus while containing risks to price and external stability.5 Over time, to avoid an excessive recourse to central bank financing, the authorities should embark on a medium-term revenue strategy underpinned by a revenue target and comprehensive tax policy reforms building on recent administrative reforms. The authorities should remain vigilant of the potential impact from the fragilities in the banking system and put in place a framework for better monitoring and managing fiscal risks including from PPPs. Strengthening debt management capacity remains priority.

Key Macroeconomic Assumptions, FY2020–24(Average)
BaselinePrevious DSA
Real GDP growth (in percent)5.26.3
Inflation (percent change, y/y)6.26.7
Primary fiscal balance (in percent of GDP)-3.4-2.5
Overall fiscal balance (in percent of GDP)-5.3-4.4
Current account (in percent of GDP)-4.1-3.9
FDI (in percent of GDP)3.43.5
Source: IMF staff estimates.
Source: IMF staff estimates.

PV of PPG Debt-to-GDP Ratio

(Adverse Scenario)

Myanmar: Indicators of Public and Publicly Guaranteed External Debt Under Alternatives Scenarios, 2020–2030 1/2/

Sources: Country authorities; and staff estimates and projections.

1/ The most extreme stress test is the test that yields the highest ratio in or before 2030. The stress test with a one-off breach is also presented (if any), while the one-off breach is deemed away for mechanical signals. When a stress test with a one-off breach happens to be the most exterme shock even after disregarding the one-off breach, only that stress test (with a one-off breach) would be presented.

2/ The magnitude of shocks used for the commodity price shock stress test are based on the commodity prices outlook prepared by the IMF research department.

Myanmar: Indicators of Public Debt Under Alternative Scenarios, 2020–2030 1/

Sources: Country authorities; and staff estimates and projections.

1/ The most extreme stress test is the test that yields the highest ratio in or before 2030. The stress test with a one-off breach is also presented (it any), while the one-off breach is deemed away for mechanical signals. When a stress test with a one-off breach happens to be the most exterme shock even after disregarding the one-off breach, only that stress test (with a one-off breach) would be presented.

Myanmar: Drivers of Debt Dynamics—Baseline Scenario

1/ Difference between anticipated and actual contributions on debt ratios.

2/ Distribution across LICs for which LIC DSAs were produced.

3/ Given the relatively low private external debt for average low-income countries, a ppt change in PPG external debt should be largely explained by the drivers of the external debt dynamics equation.

Myanmar: Realism Tools

Table 1.Myanmar: External Debt Sustainability Framework, Baseline Scenario, 2017–40(In percent of GDP, unless otherwise indicated)
Sources: Country authorities; and staff estimates and projections.1/ Includes both public and private sector external debt.2/ Derived as(r – g – ρ(1 +g) + εα (1+r)]/(1+g+ρ+gρ) times previous period debt ratio, with r = nominal interest rate; g = real GDP growth rate, ρ = growth rate of GDP deflator in U.S. dollar terms, ε = nominal appreciation of the local Currency, and α = share of local currency- denominated external debt in total external debt3/ Includes exceptional financing (i.e.. changes in arrears and debt relief]; changes in gross foreign assets; and valuation adjustments. For projections also includes contribution from price and exchange rate changes.4/ Current-year interest payments divided by previous period debt stock.5/ Defined as grants, concessional loans, and debt relief.6/ Grant-equivalent financing includes giants provided directly to the government and through new borrowing (difference between the face value and the PV of new debt).7/ Assumes that PV of private sector debt is equivalent to its face value.8/ Historical averages are generally derived over the past 10 years, subject to data availability, whereas projections averages are over the first year of projection and the next 10 years.Sources: Country authorities; and staff estimates and projections.
Sources: Country authorities; and staff estimates and projections.1/ Includes both public and private sector external debt.2/ Derived as(r – g – ρ(1 +g) + εα (1+r)]/(1+g+ρ+gρ) times previous period debt ratio, with r = nominal interest rate; g = real GDP growth rate, ρ = growth rate of GDP deflator in U.S. dollar terms, ε = nominal appreciation of the local Currency, and α = share of local currency- denominated external debt in total external debt3/ Includes exceptional financing (i.e.. changes in arrears and debt relief]; changes in gross foreign assets; and valuation adjustments. For projections also includes contribution from price and exchange rate changes.4/ Current-year interest payments divided by previous period debt stock.5/ Defined as grants, concessional loans, and debt relief.6/ Grant-equivalent financing includes giants provided directly to the government and through new borrowing (difference between the face value and the PV of new debt).7/ Assumes that PV of private sector debt is equivalent to its face value.8/ Historical averages are generally derived over the past 10 years, subject to data availability, whereas projections averages are over the first year of projection and the next 10 years.Sources: Country authorities; and staff estimates and projections.
Table 2.Myanmar: Public Sector Debt Sustainability Framework, Baseline Scenario, 2017–40(In percent of GDP, unless otherwise indicated)
1/ Coverage of debt: The central, state, and local governments plus social security, central bank, government-guaranteed debt, Definition of external debt is Residency-based.2/ The underlying PV of external debt-to-GDP ratio under the public DSA differs from the external DSA with the size of differences depending on exchange rates projections.3/ Debt service is defined as the sum of interest and amortization of medium and long-term, and short-term debt.4/ Gross financing need is defined as the primary deficit plus debt service plus the stock of short-term debt at the end of the last period and other debt creating/reducing flows.5/ Defined as a primary deficit minus a change in the public debt-to-GDP ratio ((-): a primary surplus), which would stabilizes the debt ratio only in the year in question.6/ Historical averages are generally derived over the past 10 years, subject to data availability, whereas projections averages are over the first year of projection and the next 10 years.
1/ Coverage of debt: The central, state, and local governments plus social security, central bank, government-guaranteed debt, Definition of external debt is Residency-based.2/ The underlying PV of external debt-to-GDP ratio under the public DSA differs from the external DSA with the size of differences depending on exchange rates projections.3/ Debt service is defined as the sum of interest and amortization of medium and long-term, and short-term debt.4/ Gross financing need is defined as the primary deficit plus debt service plus the stock of short-term debt at the end of the last period and other debt creating/reducing flows.5/ Defined as a primary deficit minus a change in the public debt-to-GDP ratio ((-): a primary surplus), which would stabilizes the debt ratio only in the year in question.6/ Historical averages are generally derived over the past 10 years, subject to data availability, whereas projections averages are over the first year of projection and the next 10 years.
Table 3.Myanmar: Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2020–30(In percent)
Projections 1/
20202021202220232024202520262027202820292030
PV of debt-to GDP ratio
Baseline131312121110101010109
A. Alternative Scenarios
A1. Key variables at their historical averages in 2020–2030 2/1310754210-2-3-4
B. Bound Tests
B1. Real GDP growth1313121211111010101010
B2. Primary balance1313121211111110101010
B3, Exports1315181717161515141413
B4. Other flows 3/1316181817161515141413
B5. Depreciation1316121111101010101010
B6. Combination of B1-B51316171615151414131312
C. Tailored Tests
C1. Combined contingent liabilities131413131l2121211111111
C2. Natural disaster1314131312121212121111
C3. Commodity pricen.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.
C4. Market Financingn.a.n.a.n.a.n.a.n.a.n.an.a.n.a.n.a.n.a.n.a
Threshold4040404040404040404040
PV of debt-to-exports ratio
Baseline7272666258565452514847
A. Alternative Scenarios
A1. Key variables at their historical averages in 2020–2030 2/7257402819125-2-8-1420
B. Bound Tests
B1. Real GDP growth7272666258565452514847
B2. Primary balance7273686461585756555250
B3. Exports7293129120114109106102978985
B4. Other flows 3/72911019489858379766966
B5. Depreciation7272524946444241413939
B6. Combination of B1-B57295889691878480787269
C. Tailored Tests
C1. Combined contingent liabilities727772686563626160S756
C2. Natural disaster7279736966656463625958
C3. Commodity pricen.a.n.a.n.a.n.a.n.a.n.a.n.a.na.n.a.n.a.n.a.
C4. Market Financingn.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a
Threshold180180180180180180180180180180180
Debt service-to-exports ratio
Baseline66766655444
A. Alternative Scenarios
A1. Key variables at their historical averages in 2020–2030 2/66655432100
B. Bound Tests
B1. Real GDP growth66766655444
B2. Primary balance6676765S445
B3. Exports6791010989988
B4. Other flows 3/66888767766
BS. Depreciation66766544333
B6. Combination of B1-B567989877767
C Tailored Tests
C1. Combined contingent liabilities66777655555
C2. Natural disaster66777655555
C3. Commodity pricen.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.an.a.
C4. Market Financingn.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a
Threshold1515151515151515151515
Debt service-to-revenue ratio
Baseline78888656555
A. Alternative Scenarios
A1. Key variables at their historical averages in 2020–2030 2/7886643200
B. Bound Tests
B1. Real GDP growth78988766555
B2. Primary balance78888766555
B3. Exports78999877777
B4. Other flows 3/78999878877
BS. Depreciation7101199766455
B6. Combination of B1-B5781099878777
C. Tailored Tests
C1. Combined contingent liabilities78988766555
C2. Natural disaster78988766555
C3. Commodity pricen.a.n.a.n.a.n.a.n.a.n.an.a.n.a.n.a.n.a.n.a
C4. Market Financingn.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.
Threshold1818181818181818181818
Memorandum item:
Grant element assumed on residual financing (i.e., financing required above baseline) 6/0.00.00.00.00.00.00.00.00.00.00.0
Sources: Country authorities; and staff estimates and projections.

A bold value indicates a breach of the threshold.

Variables include real GDP growth, GDP deflator (in U.S dollar terms), non-interest current account in percent of GDP, and non-debt creating flows.

Includes official and private transfers and FDI.

Sources: Country authorities; and staff estimates and projections.

A bold value indicates a breach of the threshold.

Variables include real GDP growth, GDP deflator (in U.S dollar terms), non-interest current account in percent of GDP, and non-debt creating flows.

Includes official and private transfers and FDI.

Table 4.Myanmar: Sensitivity Analysis for Key Indicators of Public Debt 2020–30(In percent)
Projections 1/
20202021202220232024202520262027202820292030
PV of Debt-to-GDP Ratio
Baseline3941424344454645434139
A. Alternative Scenarios
A1. Key variables at their historical averages in 2020–2030 2/3939394041424343434343
B. Bound Tests
81. Real GDP growth3941444647495049484645
B2. Primary balance3942444647484847454341
B3. Exports3942484950515149474543
B4. Other flows 3/3944484950515150484543
B5. Depreciation3940403939393836333027
B6. Combination of B1-B53940414142434443413938
C. Tailored Tests
C1. Combined contingent liabilities3947484950515149484644
C2. Natural disaster3946484950515251494745
C3. Commodity pricen.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.
C4. Market Financingn.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.
TOTAL public debt benchmark5555555555555555555555
PV of Debt-to-Revenue Ratio
Baseline263276275270272273272260246235221
A. Alternative Scenarios
A1. Key variables at their historical averages in 2020–2030 2/263264257249251253257251245244239
B. Bound Tests
B1. Real GDP growth263281287285290293294284272263251
B2. Primary balance263284291285286286285272257246232
B3. Exports263289314306306305302288271258242
B4. Other flows 3/263298316307307306303289272259242
B5. Depreciation263273261247241234226208189173153
B6. Combination of B1-B5263272271258261262260249235225211
C. Tailored Tests
C1. Combined contingent liabilities263317313305305304302288273261246
C2. Natural disaster263315313306308309307295281270256
C3. Commodity pricen.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.
C4. Market Financingn.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.an.a.
Debt Service-to-Revenue Ratio
Baseline4053627279869268656259
A. Alternative Scenarios
A1. Key variables at their historical averages in 2020–2030 2/4054606975818763626261
B. Bound Tests
Bl. Real GDP growth4054647683919774716967
B2. Primary balance4053647683909672686562
B3. Exports4053637481879370676561
B4. Other flows 3/4053637481879370686562
B5. Depreciation4050606874798462595652
B6. Combination of B1 -B54051607077838966636057
C. Tailored Tests
C1. Combined contingent liabilities40537282899510276726966
C2. Natural disaster40547182899610377747168
C3. Commodity pricen.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.
C4. Market Financingn.a.n.a.na.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.
Sources: Country authorities; and staff estimates and projections.

A bold value indicates a breach of the benchmark.

Variables include real GDP growth, GDP deflator and primary deficit in percent of GDP.

Includes official and private transfers and FDI.

Sources: Country authorities; and staff estimates and projections.

A bold value indicates a breach of the benchmark.

Variables include real GDP growth, GDP deflator and primary deficit in percent of GDP.

Includes official and private transfers and FDI.

1

This joint World Bank/IMF DSA has been prepared in the context of the 2020 request for emergency financing from the IMF (RCF/RFI). The macro framework underlying this DSA is the same as that included in the staff report of the 2020 RCF/RFI request which reflects recent global developments. The current macroeconomic framework reflects currently available information. However, updates with respect to economic impact and policy response to the COVID-19 crisis are rapidly evolving and risks are tilted to the downside. Public debt covers the consolidated public sector debt, central bank debt borrowed on behalf of the government, government-guaranteed debt and social security funds. SOE debt is on lent and is therefore included in the coverage of public external debt.

2

The LIC DSF determines the debt sustainability thresholds by calculating a composite indicator (CI). Based on the CI score (2.72), for Myanmar, the final debt carrying capacity classification for this DSA is medium. This is based on the October 2019 WEO and CPIA 2018.

3

Myanmar’s fiscal year is on October-September basis. All tables and figures are on a fiscal year basis. In the DSA standard tables, for example, 2019 refers to FY2018/19 and ends in September 2019.

4

Public/Private investment rate charts are not available in the current DSA from data limitations. Technical assistance from the IMF and various partners continue is ongoing to strengthen macroeconomic data.

5

Based on data provided on mission, the DSSI is estimated to suspend US$322 million and US$67 million in external debt service in FY2019/20 and FY2020/21 respectively. It would contribute 19 percent of the financing gap in FY2019/20. The savings from suspended debt service in FY2019/20 and FY2020/21 under the DSSI and the related debt service considering this suspension have been incorporated into the macro framework and the DSA.

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