Economic Development & Outlook Discussions

Executive Summary – Q1 2019 (Tuesday, March 5th, 2019)

In 2019 as we change from a monthly Discussion format to a Quarterly format we also recognize the need to bring together a wider section of stakeholders and as such we continue to adhere to our Chatham House rules format however with the disclaimer that we need to acknowledge our Distinguished Guests and Speakers by mention of their names and titles with their expressed permission in our invitations and in Executive Summaries.

We are therefore extremely grateful to Hans Anand Beck, Lead Economist for Myanmar at the World Bank, for his Keynote Address at the launch of the annual Myanmar Economic Outlook – 2019 and to Kyawt Kay Khaing, Deputy CEO of United Amara Bank Limited, for leading the discussion titled, Myanmar Banking Outlook– 2019 at our first Quarterly Economic Development & Outlook discussion for 2019.

A brief Summary of all the subject matters discussed:

Myanmar Economic Outlook

A key salient feature of the Economic Outlook address was the importance placed on analyzing Myanmar’s long term growth scenarios and the policies to achieve good development outcomes, while learning from Myanmar’s past experience and that of its peers.

To assess Myanmar’s economic potential and the growth path it may follow, analysis of what accounted for recent economic growth since 2011 is important. Data available suggest that that alongside regular population growth, there has been rapid acceleration since 2011 in capital investment to include sectors such as infrastructure, building and machinery accounts, albeit from a very low base.

The innovation and technology with which people and physical capital are mixed together in production has contributed much less to GDP growth and the contribution has been steadily declining.

This recognition offers significant potential for the private sector to contribute with investment and innovation, if supported with a level playing field and basic public services, the ingredients to a steady uptick in GDP growth would seem plausible. Alignment of government economic policies to permit such capital flows would be needed to support these long term growth aspirations akin to those achieved in the past by Myanmar’s East Asian peers.

Ongoing analysis at the World Bank seek to determine the policies in the financial sector, private sector promotion, public sector investment and service provision, and institutions that may best help Myanmar’s long term economic growth aspirations be realized.

The Economic Outlook address also observed that while Myanmar’s real GDP growth rate measured 6.2 percent during the last year as compared to the previous year of 6.8 percent.  Inflation was measured at 8.8 percent in the last year, compared with 5.4 percent the previous year with the depreciation of the local currency against the US dollar noted as one of the main drivers for price inflation. It was also observed that the effects of the Rakhine crisis on the economy was starting to be felt, notably through the  tourism sector and anecdotally though the FDI channel, thereby still posing a further downside economic risk.

Discussions during the Economic Outlook centered around the opportunities and risks that the economy will face in the upcoming year. Some cautious optimism was attributed to some of the policy reform measures that were recently made such as opening of retail and wholesale sectors, services sector liberalization, loosening restrictions on foreign bank lending and continued implementation of the Companies Act. It was also observed that the slow progress on anyreconciliation measures by government towards the Rakhine crisis continues to place a very high hurdle rate for western capital flows into the country, notwithstanding the potential for European led sanction (such as possible repeal of the Generalized Scheme of Preferences by the European Union) which adds to the current negative sentiment on the potential for further downward pressure on economic growth.

Myanmar Banking Outlook – 2019

The Myanmar Banking Outlook was a multi-stakeholder discussion led by our Banking Committee Co-Chair that largely focused on the market interpretation and sentiment of the recent directives announced by the Central Bank of Myanmar. A brief presentation laid the overview for the discussion that ensued. Salient features of the presentation included the highlights pertinent to Central Bank of Myanmar directives over the last 18 months these included key points and implications on Grace period of Overdrafts, Single Customer Exposure, Extension of services for Foreign Banks, Lending Rates, Housing Loans, Subordinated Debt and Foreign Investment.

Discussions around a recently announced measure that banks have been permitted to extend loans without the need for collateral at a maximum lending rate of 16 percent was welcomed as a positive step towards interest rate liberalization, however the general assessment of the discussion amongst stakeholders was that the rate was still too low to adequately price the risk of uncollateralized lending in Myanmar.

Another market-oriented reform that discussed was the introduction of market-based reference rates for foreign currency exchange of the Kyat.  A daily reference rate calculated on the weighted average rate of interbank and bank customer deals during the day is now published on the Central Bank website.  Discussion centered around whether this was adequately reflecting market pricing and how perhaps the current process may perhaps be more skewed towards engaging in exchange rate targeting rather than a true reflection of market pricing. In addition, there was discussion on the process by which Central Bank Directives that went out for public comment last year. Stakeholders acknowledged this as a positive first step, however there was continued deep concern about the timeline for implementation. Stakeholders present unanimously noted that following management “Fit and Proper” tests and curbing “Related Parties” lending as prescribed in the directives were not feasible at this time as it would take years to improve the best practices at all the Myanmar Banks in these areas.

Additional Update

Liberalization of Insurance Market for Foreign Entities

The Insurance Committee Co-Chair of the Myanmar Economic Forum noted that the Ministry of Planning and Finance has accepted proposals from foreign insurers to conduct business in Myanmar. According to the update, foreign insurance companies are allowed to wholly own and operate life-insurance business, however joint ventures with local operators are required for non-life insurance business.  An announcement of short-listed international preferred applicants that will eventually obtain licenses for is expected in April of this year.

The Discussions thereafter adjourned, with future quarterly discussion dates tentatively agreed for the 1st week of June, September & December 2019.