Political reforms and economic liberalization along with rising domestic consumption and tourism will drive moderate growth through 2013. But Myanmar continues to face various economic challenges.
Myanmar’s GDP is expected to continue growing at a steady pace, and international sanctions against the country have eased following recent economic and political reforms. The economy is estimated to expand 6–6.5 percent in the fiscal years 2012–13 and 2013–14. A potential rise in foreign investments and spending by locals and tourists are Myanmar’s primary drivers of growth. The resumption of international lending will also help the economy develop in the long term. However, the country’s infrastructure and transparency challenges may adversely affect investment decisions. In addition, a likely slowdown in exports coupled with high rates of inflation could limit growth.
Myanmar’s steps toward democracy and economic reforms have resulted in the lifting of several sanctions, and they may contribute to increased foreign investments. For instance, while investments in dollar terms declined from $4.6 billion in FY11 to $800 million in the first nine months of FY12, the number of projects surged from 13 to 62. The latest investments encompass agriculture, fisheries, mining, oil and gas, manufacturing, and hotels and tourism, in contrast to previous years’ predominant focus on multibillion dollar oil and gas or power projects. Moreover, the government is taking several measures to improve the investment climate in Myanmar. Regulations are being changed to allow foreign banks to form joint ventures with local lenders, hold up to 80 percent stake, and potentially apply for wholly owned subsidiaries and full branches at a later stage. The telecommunications sector is also opening up; the government is inviting foreign investors to bid for two of the country’s four national licenses in January. The oil and gas rich country will also allow full foreign control of 25 offshore blocks; the bidding is scheduled for April. In March, the country also agreed to sign the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (New York Convention) to encourage investment. However, limitations in transport, electricity, telecommunication, and capital market infrastructure may hinder progress in Myanmar. Corruption, significant skill gaps in the workforce, and ongoing interethnic and interreligious conflicts may also hamper investment in the country.
As a market of 60 million consumers opens up, companies from sectors ranging from food and beverage to automotive and electronics are boosting their presence in Myanmar and likely driving growth. A 57 percent rise in tourism during the first nine months of FY12 is also a significant boost to the economy, and an if the country relaxes its visa requirements, the tourism industry could enjoy additional improvement. An international hotel chain entered Myanmar in March to capitalize on the trend. However, continuing infrastructure issues could limit the growth in tourism, especially outside the commercial capital, Yangon. In addition, steep price increases can hinder consumer spending. Inflation is projected at 6.4 percent in FY2012 and 6.6 percent in FY2013 because the prices of food, fuel, electricity, and housing are rising.
The economy is estimated to expand 6–6.5 percent in the fiscal years 2012–13 and 2013–14. A potential rise in foreign investments and spending by locals and tourists are Myanmar’s primary drivers of growth.
While foreign investment, tourism, and domestic consumption appear positive for Myanmar, exports could become a challenge. The country’s major exports include natural gas, agricultural products, timber and timber products, garments, and fish and other marine products. Although the easing of sanctions will likely boost exports going forward, a slowdown in global demand can limit trade. Exports for April–December 2012 are 4 percent lower compared to the same period in 2011; natural gas sales stagnated, and agricultural products fell by double digits. There are, however, a few pockets of growth in areas such as fish, timber, and garments. In order to enhance the country’s export competitiveness, the government is looking to stabilize exchange rates for the local currency to approximately 848 kyat per US dollar.