Tuesday, July 25, 2017

ADB predicts higher growth, inflation

Economic growth is expected to pick up in the fiscal year starting April 1, but inflation and a rising budget deficit may weigh on the economy, according to economic experts.

Children play in a river. The ADB highlighted the need to improve education for Myanmar’s long-term economic well-being. Photo: AFPChildren play in a river. The ADB highlighted the need to improve education for Myanmar’s long-term economic well-being. Photo: AFP

The Asian Development Bank (ADB) estimated GDP growth will reach 8.3 percent in the coming fiscal year, compared year-on-year, while it is at 7.7pc in the current fiscal year, according to its flagship annual economic publication.

“ADB also expects growth to remain over 8pc in fiscal year 2016, propelled by investments stimulated by the ongoing reforms, an improved business environment, and the country’s integration into Southeast Asia,” said deputy country director Peter Brimble at an ADB event in Yangon on March 24.

Inflation will likely accelerate to 8.4pc in the coming fiscal year, propelled by higher fiscal spending and expected higher wages, which will increase domestic demand. Consumer price pressures should then ease slightly in the 2015-16 fiscal year to 6pc, according to the 2015 Asian Development Outlook report.

“In [the current year], inflation is around 6pc, a bit lower than that, it is one of the serious issue in this year with the rapid growth … [in] spending on education, health and [civil servant] salary increases,” Mr Brimble said. “We see that inflation will be up, but will be down in 2016 again.”

Daw Sandar Oo, director general of the Central Bank of Myanmar’s department of monetary management, said the salary increase for civil servants may have less impact on the inflation rate than is forecast by the ADB.

“As this year the Central Bank forecast inflation rates around 5pc, and there are a lot of large infrastructure projects underway, so inflation will be up on past years – but I don’t think it will reach 8pc,” she said.

As long as inflation does not increase by more than 2pc, it will not be a major concern, she said. Daw Sandar Oo added the Central Bank already has some measures in place to keep inflation in check.

The ADB noted a number of risks to the economic outlook, including thin external and fiscal buffers, ethnic and sectarian tension, vulnerability to bad weather and possible slowing of reform momentum ahead of the elections. It also noted there have been positive steps taken in 2014 in economic data collection, which is “badly needed to support policy formulation and planning”.

“While the country has made big strides under its economic reform program, many development challenges remain including improving infrastructure, strengthening governance and public sector capacity, developing human capital, building a dynamic private sector, and revitalising agriculture,” said ADB country director Winfried Wicklein at the event.

The ADB also warned that Myanmar was likely to see a major increase in the fiscal deficit – from 4.3pc of GDP in the year to March to an estimated 6.3pc in the coming year – since the government is expected to ramp up spending before this year’s election.

Mr Brimble said that a jump to 5pc of GDP would be a high fiscal deficit, so an increase to 6pc of more may be something of a concern.

The ADB also said in its report there was a 10pc increase in business registrations in the first nine months of the 2014-2015 fiscal year, indicating that “business confidence remains robust”.

Foreign direct investment leapt to $6.6 billion between April and December last year, compared with $4 billion for the full year of 2013.

It also noted a number of general constraints in the report, including equipping young people for a modern economy.

“Many young people entering Myanmar’s workforce are poorly educated and skilled. This undercuts efforts to achieve inclusive economic growth and threatens to trap the economy in a model that adds little value and depends heavily on exploiting natural resources,” it said.

The report added that it appears secondary education is the bottleneck, and broadening the ranks of graduates is a prerequisite to expanding and modernising industry and services. Improved technical and vocational education and training also needs to play a role.

It added the government is preparing its National Education Sector Plan, 2016-2020, to address these challenges.

Meanwhile, the World Bank also suggested removing some barriers to doing business to help the domestic private sector grow.

It highlighted access to finance as the top constraint for private enterprise, after interviewing more than 1000 foreign and domestic non-agricultural businesses. Only 1pc of fixed-asset investments are financed through bank borrowing, while 92pc is financed by own funds – “a higher percentage than in any other comparable country”, the World Bank said in a press release on March 24. “Difficulties in getting land-use rights, power outages and inadequate workforce skills are other main barriers to business operation and growth in Myanmar,” it said. World Bank chief economist and senior vice president Kaushik Basu said the country has potential for enormous growth.

“Creating a level playing field for the private sector will help unleash its potential,” he said in the release. “Government’s role is to provide an efficient regulatory system that encourages and facilities individual creativity.”

– Additional reporting AFP