A World Bank report released on Tuesday detailed how policy failures have slowed Myanmar’s struggling economic recovery under the military regime, likely damaging people’s future earning capacity as well as inflicting short-term hardship.
The economy has stabilised since the 2021 coup, but growth continues to lag behind other economies in the Asia-Pacific region. The report projected a three percent increase in GDP by September 2023, which will still be 10 percent lower than GDP in 2019.
New domestic regulations, as well as restrictions on foreign trade and financial transactions, have created impediments to business activity. These, along with lower demand from abroad and an overvalued kyat have brought exports down while import levels remained steady, resulting in a trade deficit by March of 2023.
The fiscal deficit rose to 5.4 percent of GDP in the year ending in April 2023 and was projected to rise further as a result of moderate declines in revenue and increased expenditures, most of which went to energy sector firms and other junta-controlled enterprises. At the same time, spending on education and healthcare fell below three percent of GDP.
Inflation has stabilised at near 14 percent and is projected to slow further. However, food prices remain too high for many families to afford after a substantial nationwide decline in household incomes.
In May, a survey of farming families found that 48 percent were worried about not having enough to eat, an increase from 26 percent at the same time last year.
A steep decline in wages outside the agricultural sector has also affected every state and region in the country, most severely Yangon, Tanintharyi Region, and Karenni State.
The report highlighted various “coping mechanisms” to which Myanmar households had to resort in the face of rising prices and falling incomes, including some families choosing to migrate internally or abroad in search of ways to ease their hardship.
“The poorest are being hit hard by consecutive shocks. Worryingly, progress against malnutrition seems to have halted or reversed,” said Mariam Sherman, the World Bank Country Director for Myanmar, Cambodia, and the Lao PDR.
“More than half of households have been forced to sell assets, increase borrowing, or limit their spending, including on health and education. Such coping strategies will not only damage welfare in the short term, but also affect longer-term earning capacity,” she added.
The report—which describes the range of challenges for microfinance institutions (MFIs) created by macroeconomic conditions and junta restrictions on foreign currency conversion—was released only a day after Pact Global Microfinance Fund (PGMF) announced its exit from Myanmar.
PGMF began doing business in Myanmar in 1997 and is the oldest continuously operating MFI in the country. In announcing their decision to leave, PGMF’s executives cited pressure from the junta to transfer assets and profits to the military in exchange for continuing their operations in the country.
“This was impossible to comply with for many reasons, including that it could be in breach of U.S. sanctions law,” said Ellen Varney, the chair of PGMF’s board, in a public statement.
The United States government imposed new sanctions on two large, military-controlled banks on June 21, significantly undermining the junta’s means of converting Myanmar kyat to US dollars currency.
The market exchange rate for the US dollar is currently over 3,000 kyat but the military council has pegged it at 2,100 kyat since 2022. The long-term effects of the sanctions on Myanmar’s businesses and broader economy remain to be seen.
