May 2018 Growth Amidst Uncertainty Hans Anand Beck Lead Economist, - - PowerPoint PPT Presentation

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May 2018 Growth Amidst Uncertainty Hans Anand Beck Lead Economist, - - PowerPoint PPT Presentation

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Myanmar Economic Monitor May 2018 Growth Amidst Uncertainty Hans Anand Beck Lead Economist, Myanmar May 17, 2018 Key Takeaways The economy performed better in 2017/18 amidst uncertainty. A stronger-than-expected global economic recovery

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May 17, 2018

Myanmar Economic Monitor May 2018 Growth Amidst Uncertainty

Hans Anand Beck Lead Economist, Myanmar

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The economy performed better in 2017/18 amidst uncertainty.

  • A stronger-than-expected global economic recovery in 2017

provided a boost to global trade.

  • Myanmar’s economy saw a broad based recovery in growth led

by agriculture and manufacturing while services growth declined slightly as tourism was affected by Rakhine uncertainties.

  • Inflation moderated, the current account and fiscal deficits

narrowed and the Kyat strengthened slightly within the year. While the economic outlook remains positive, domestic risks in particular have intensified.

  • Rising input costs, policy uncertainty and the perception of

slowing reforms and banking sector uncertainty.

  • Revenue leakage and low budget execution hinder basic service

provision and infrastructure and hence productivity.

  • The external environment may deteriorate due to uncertainty in

global trade policy and commodity price volatility. The government has the reform tools to improve the outlook

  • Implement the Myanmar Sustainable Development Plan
  • Coordinate implementation and raise awareness of the

Investment law and companies act to generate FDI and knowledge, and employment.

  • Use evidence that ownership, firm size and stable electricity

provision affect firm productivity.

  • Access to credit is reported as improving, but the road to

financial stability and inclusion will be bumpy.

Key Takeaways

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Government reforms can raise the outlook and economic potential The outlook remains positive, but risks have intensified The economy performed better in 2017/18 than 2016/17

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Source: World Bank Global Economic Prospects January 2017

Global conditions improved, providing a favorable environment…

2.4 1.6 3.7 3 2.3 4.3 3.1 2.2 4.5

0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 World Advanced economies Emerging and developing economies

Percent

Real GDP Growth (Percent) 2016 2017e 2018f

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Myanmar capitalized on global recovery, but is losing its lead in the region.

In developing East Asia and Pacific (EAP), economic growth strengthened slightly in 2017

  • 1.0

2.0 3.0 4.0 5.0 6.0 7.0 8.0 LAO CH MMR CAM VIET INDO MAL THA 2016 2017 2012-17 average

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A broad based a broad based pick up in growth.

8.4% 8.0% 7.0% 5.9% 6.4% 6.8%

  • 1%

0% 1% 2% 3% 4% 5% 6% 7% 8% 9%

2013/14 2014/15 2015/16 2016/17 2017/18 2018/19F

Agriculture Industry Services GDP production

Real GDP growth and sector contribution Output, Employment, Price PMI

April'17 May'17 June'17 July'17 Aug'17 Sept'17 Oct'17 Nov'17 Dec'17 Jan'18 Feb'18 Mar'18 Output Employment Future output index

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Strong export performance narrowed the trade and current account deficits, and FDI flows picked up to cover.

  • 25%
  • 20%
  • 15%
  • 10%
  • 5%

0% 5% 10%

Q3/2015 Q4/2015 Q1/2016 Q2/2016 Q3/2016 Q4/2016 Q1/2017 Q2/2017 Q3/2017

Share of GDP Trade balance Services balance Primary income balance Secondary income balance Current account

  • 14.0%
  • 12.0%
  • 10.0%
  • 8.0%
  • 6.0%
  • 4.0%
  • 2.0%

0.0% 2.0%

Q3/2015 Q4/2015 Q1/2016 Q2/2016 Q3/2016 Q4/2016 Q1/2017 Q2/2017 Q3/2017

Share of GDP Direct Invesment Portfolio Investment Other Investment Financial account

Current account Financial Account

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Export growth led by natural gas prices which are volatile, garments and agriculture

Rice - Acceleration of exports and diversification of destinations (m tons)

50 100 150 200 Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2014/15 2015/16 2016/17 2017/18 Index: April 2017 = 100 Value Quantity Price

Natural gas exports: Quantities and prices

100 200 300 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2013/14 2014/15 2015/16 2016/17 2017/18 USD billion

Border Sea Total

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Inflation fell on average, and within the year, before picking up in August, driven by food prices

0% 2% 4% 6% 8% 10% 12% 14% yoy change CPI Food CPI Non Food CPI Headline

Inflation drivers

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Actual fiscal deficit may be considerably lower than the budget

  • 1.1%
  • 4.3%
  • 2.7%
  • 5.8%

1.1%

  • 0.5%

0.4%

  • 1.1%
  • 2.2%
  • 3.9%
  • 3.1%
  • 4.7%
  • 6%
  • 5%
  • 4%
  • 3%
  • 2%
  • 1%

0% 1% 2% PA PA PA RE 2014/15 2015/16 2016/17 2017/18 Public Sector SEEs Union Government

Fiscal balances, Percent of GDP

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Government reforms can raise the outlook and economic potential The outlook remains positive, but risks have intensified The economy performed better in 2017/18 than 2016/17

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Favorable medium-term economic outlook

2015 2016 2017 2018 2019 2020 Real GDP growth (% change) 7.0 5.9 6.4 6.8 6.9 7.1 CPI Inflation (end of period) 8.4 7.0 5.2 4.9 5.3 5.3 Current account balance (% of GDP)

  • 7.2
  • 5.3
  • 4.7
  • 4.7
  • 4.1
  • 3.8

Fiscal balance (% of GDP)

  • 5.1
  • 3.0
  • 4.7
  • 4.8
  • 4.4
  • 4.4
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But downside risks have intensified

14

Upside

Downside

External risks Domestic risks

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Government reforms can raise the outlook and economic potential The outlook remains positive, but risks have intensified The economy performed better in 2017/18 than 2016/17

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Buttress macroeconomic stability

  • MSDP offers the much-needed unifying and coherent

roadmap for reforms

  • Key fiscal priority for Myanmar: to break out of the cycle of

low revenue and low and inefficient public spending

  • Could consider a fiscal strategy to increase spending on critical

priorities for growth, such as capital investments in energy and transport, and for inclusive development, such as on education and health

  • Good progress in improving transparency in the extractives

sector, however, more can be done under the Extractives Industry Transparency Initiative

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Improve operating environment for the private sector

  • Coordination across government departments to implement recent

new economic legislations (e.g., Company Law, Investment Law)

  • Consider using indicators in Ease of Doing Business as measurable

targets for reforms and establish a mechanism to monitor reform progress, and to facilitate consultations with the private sector.

  • Further liberalize sectors: such as insurance and banking services for

foreign investments along with implementation of prudential regulations

  • Ministries to develop communication strategies for public
  • utreach/coherence in message (policy reforms)

Perception of bureaucratic inertia, centralized decision making, and emerging protectionism are bottlenecks to improving the operating environment for the private sector