Central Bank of Myanmar (CBM) loans Ks 640 billion to the government to finance the fiscal deficit for the six- month interim period between 1 April and 30 September

The government will borrow around K640 billion from the Central Bank of Myanmar (CBM) to finance the fiscal deficit for the six-month interim period between April 1 and September 30, U Maung Maung Win, deputy minister at the Ministry of Planning and Finance, said in Parliament this week. 

The loan represents around 20 percent of the government’s total permitted local borrowings from the CBM, which is in line with the Union Budget Law. 

The government is permitted to borrow K4.2 trillion, of which K3.2 trillion must be from local sources, according to the law. The aim this year is to meet up to 80pc of the government’s debt requirements with Treasury bonds and the remaining 20pc with money from the CBM.

In two years’ time, it has committed to eliminating its reliance on CBM borrowing to finance the fiscal deficit, now around 3.5pc of GDP on the back of higher spending on infrastructure and social services such as education and healthcare, according to the Asian Development Bank (ADB). 

Based on the ADB’s estimates, the deficit is estimated to rise to 4pc of GDP this fiscal year, which will commence on October 1.

“The Union Government will continue taking efforts to reduce its level of borrowing from the CBM,” U Maung Maung Win said.

To finance the rise in public spending, deepening the Myanmar bond market will be necessary. Currently, the CBM issues Treasury bonds at interest rates of 9.18pc for 2-year bonds and 9.69pc for 3-year bonds. It also issues short term Treasury bills at interest rates of 8.16pc for 3-month bills, 8.53pc for 6-month bills and 8.63pc for 12-month bills.

For now, local banks buy up more than 99pc of the bonds issued by the Myanmar government, while foreign banks take up less than 1pc.

To further expand, Myanmar bonds must be made available to foreign institutional investors like pension funds and insurance companies. 

During a Parliament session in March, MPs discussed raising yields to make Myanmar bonds more attractive to investors. They also said maturity terms for the bonds should be extended over the longer term to reduce borrowing risks for the government.

(The Myanmar Times: https://www.mmtimes.com/news/central-bank-loans-k640-billion-govt-finance-deficit.html )

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