Myanmar's GDP growth is expected to slow down to 7.8 percent in fiscal year 2014-2015 ending March 31, from 8.3 percent in 2013-14 fiscal year

Myanmar’s GDP growth is expected to slow down to 7.8 percent in fiscal year 2014-15 ending March 31, from 8.3 percent in 2013-14FY, due to sluggish growth in the agricultural sector, the International Monetary Fund (IMF) said.

The DC-based lender said growth outlook of the Myanmar economy remains favourable over the medium-term, but downside risks for the near-term have increased.

“Fiscal risks stem from spending pressures, including a potential large increase in public sector wages, which will raise inflation expectations,” Yongzheng Yang, who led an IMF team for a visit to Myanmar recently, said.

Inflation is expected to pick up to around 6 percent year on year (y/y) in 2014-15FY from 5.8 percent in 2013/14, IMF said. The external current account deficit could widen further, and shortfalls in foreign direct investments and other capital inflows could result in slower reserve accumulation, it added.

The trade deficit increased to 5.5 percent of GDP in December 2014 as imports grew by 25 percent y/y for the period April-December 2014 while exports growth remained flat. Against this background, the Central Bank of Myanmar’s (CBM) net international reserves fell to $4.5 billion at end-December.

“Prioritising spending and increasing tax revenues will be imperative to contain the 2015-16FY budget within the authorities’ target of 5 percent-of-GDP deficit. The large proposed increase in public sector wage bill could crowd out the much needed increases in health, education and infrastructure that are essential for increasing Myanmar’s growth potential,” Yang said.

However, IMF Resident Representative in Myanmar Yu Ching Wong said that a growth rate of 7-8 percent is still high by regional and global standard.

“The growth outlook of the economy remains favourable over the medium term. The authorities have made good progress on their macroeconomic reform priorities,” she told Myanmar Business Today by email.

“Going forward, maintaining fiscal sustainability, protecting price and external stability, and minimising financial sector risks will be key to maintaining sustainable and inclusive growth,” she added.

To mitigate risks, IMF said the government will need to increase its efforts to broaden the tax base, improve tax compliance and minimise exemptions.

IMF said the CBM should employ measures that would prevent excessive capital flows and implement rules on foreign exchange lending that avoid excessive risk-taking. The issuance of new domestic licences for policy banks should be carefully controlled to minimise risks, it added.

Credit: Kyaw Min
Source: http://www.mmbiztoday.com/articles/imf-predicts-slower-growth-sees-risks-spending-pressure

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