Thursday, August 17, 2017

Moody’s views NLD landslide as credit positive

The National League for Democracy’s landslide win in the November 8 election is credit positive for the sovereign, according to Moody’s rating agency.

Myanmar is not rated by any of the three main international agencies – Moody’s, Fitch Ratings or Standard & Poor’s. However, earlier this year the Central Bank of Myanmar engaged Citigroup and Standard Chartered to advise on a debut rating.

Moody’s analyst Atsi Sheth said in a note yesterday that the NLD win should result in remaining international sanctions being removed, and an increase in foreign investment.

However, the need for the party to collaborate with the military “points to a risk of incoherence in policymaking and the potential for more serious rifts”, she said.

Myanmar has already made a number of “bold economic reforms” since 2010, Moody’s analyst Anushka Shah told The Myanmar Times.

“We view these as credit positive developments that will lend shape to Myanmar’s still-nascent credit profile,” she said.

She was unwilling to comment on whether Moody’s had any plans to issue a rating for Myanmar and declined to give a ballpark figure for what its rating might be.

Industry sources previously suggested the country could be rated between B/B2 and BBB/BAA2 – on a par with sovereigns including Bangladesh, Bolivia, Cambodia, Ghana and Vietnam.

A credit rating can help individuals, businesses or governments to raise money. In the case of governments, securing a credit rating is often the first step toward accessing international financing through the bond market.

Ms Shah said if the new government continues to liberalise investment, it will provide more stable support for Myanmar’s current account position.

This has shifted from a surplus of 0.4 percent of GDP in fiscal year 2008 to a deficit of around 9pc by the end of this fiscal year, as projected by the International Monetary Fund.

“Eventually, the increase in foreign exchange inflows from investment reform will help deepen the domestic foreign currency market,” said Ms Shah.

However, she warned that Myanmar’s strong growth potential is balanced by credit constraints, primarily stemming from its institutional framework.

“As investor interest increases, Myanmar could face challenges that confront many emerging economies, such as inflation, exchange-rate instability and credit bubbles,” she said.

Additional risks to Myanmar’s credit profile under the new government include its relationship with the military, continuing progress on the peace process and the NLD’s lack of governing experience, said Ms Shah.

“This could hinder effective policymaking,” she said, though noted that Daw Aung San Suu Kyi and others have been members of parliament since the party won 43 of the 44 seats that it contested in a by-election in 2012.

Limited technical capacity to implement reforms could lead to a build up in price pressures and act as a break on the liberalisation process, she said.

“The NLD’s election manifesto provides little detail on the policies it intends to pursue, but national reconciliation and a ramp-up in the country’s existing infrastructure network will likely be topmost on its agenda.”

Until there is more clarity on who will be included in the NLD’s new cabinet, particularly in key posts such as the Ministry of Finance, a smooth transition will be “crucial to preventing capital outflows or weaker confidence in the currency”, she said.

The kyat has depreciated by more than 25pc versus the US dollar since January to K1289 yesterday, according to the official Central Bank of Myanmar rate.

“Heightened political risk may dampen nascent foreign investment inflows and stymie the country’s ongoing reintegration with the global economy,” said Ms Shah.