Sunday, August 20, 2017

World Bank revises GDP growth to 6.8%

The World Bank last week revised its 2013 economic forecast for Myanmar up to 6.8 percent, from 6.5pc, following better-than-expected results in gas production, services and construction.

Despite having robust economic growth, Myanmar’s gains may be threatened by high inflation and government instability. Photo: StaffDespite having robust economic growth, Myanmar’s gains may be threatened by high inflation and government instability. Photo: Staff

They also warned however that possible risks, including government stability and high inflation driven by high food and property costs, could offset economic gains moving forward.

Myanmar has benefitted from gas exports that earned US$4 billion in the 2012-13 fiscal year, surpassing $3.5 billion last year, according to bank’s East Asia and Pacific Economic Update. Foreign direct investment this year has also risen sharply from 3.7pc to 5.2pc in the same period.

“Gas production is expected to increase significantly, with new fields coming on stream in 2013-14, while many development partners, including the World Bank, are likely to ramp up their support to Myanmar,” the report states.

It also said that exports would improve with Myanmar’s recent reinstatement into the EU’s Generalized System for Preferences for least-developed countries, which will give it duty-free access to the lucrative EU market for most goods.

The forecast of 6.8pc gross

domestic product (GDP) growth in 2013 comes after posting an impressive 6.5pc last year. It also echoes a prediction by the Asian Development Bank earlier this month, who improved Myanmar’s GDP outlook from 6.7pc to 6.8pc. The government has said it expects the economy to grow this year by 8.9pc.

Despite the optimism, the World Bank expressed worry about

government stability and rapidly growing inflation.

“The outlook remains positive in the short to medium term, but there are also challenges, particularly from the political front,” the report states.

“An emerging challenge is likely to be the capacity of the government to remain focused on the economic reform agenda in the run-up to the fast approaching watershed elections in 2015,” it said.

It also said that where Myanmar enjoyed low inflation rates averaging 2.8pc in 2012-13, an increase in food prices and housing rental costs have sent inflation up to 6pc in December 2012, with indications that it may have reached 7pc in August.

According to a Central Bank official, the weakening of the kyat against the US dollar in the past year has

further increased inflation. The dollar now trades for about K970, compared with K850 a year ago, he said.

“I think there is 7pc [inflation] at the moment and we have to try to reduce it. Too much inflation is bad obviously but it should around 2pc in a country,” he said.

Inflation hit 20-30pc during the 2003 banking crisis, although far short of the 60pc level recorded in the 1990s when the government resorted to printing money – now euphemistically called “quantitative easing” when used by Western governments – to account for spending.

Sean Turnell, an expert in Myanmar’s economy at Australia’s Macquarie University, said the current inflation undermines the nation’s competitiveness as the misallocation of resources through arbitrary changes in price relativities put a dent in the real purchasing power of money, especially among those on fixed or low-wage incomes.

“The World Bank report sounds plausible in terms of a representative basket of consumer goods,” he said by email. “Prices in other areas, especially with respect to real estate, have risen much faster and higher of course,” he said.

On the other hand, the current US dollar exchange rate of K970 seems an “appropriate ballpark” that is not too low to invite inflation.

“It gives a boost to the competitiveness of Myanmar’s exports and import substitutes, while at the same time making the country a more attractive location for foreign investment,” he said.

For the moment there is probably not a lot the central bank could do about surging property prices, he said.

U Aung Thura, chief executive of Thura Swiss consultancy firm, said the economic growth could be further hindered by the lack of an educated workforce able to implement the flooding of new legislation passing through the Capitol.

“Myanmar doesn’t have experienced people in a lot of areas, so although we are always talking about reforms – and they look good on paper – their implementation will be difficult,” he said.

“The main danger is that so many things are being done at the same time and nothing is being done particularly well, so a better approach might be to slow the process down a bit.”