Economic Outlook Discussions
Executive Summary – Q1 2020 (Tuesday, March 3rd, 2020)
The subject of the Discussion was: “State of Myanmar’s Economy 2020 – Opportunities and Challenges”
In recognition of the challenges associated with the outbreak of the Wuhan CoronaVirus outbreak in Mainland China, now officially designated COVID-19 by the World Health Organization (WHO) ) this Discussion exclusively focused on the Economic impacts of these events on Myanmar’s economy and potential economic response considerations with a Power Point discussion titled: “The Impact of Coronavirus on Myanmar’s Economy”
We are extremely grateful to Dr. Zaw Oo, Executive Director of the Centre for Economic and Social Development for valuable insights and perspectives.
A brief overview of the subject matters discussed by our Distinguished Guest and all our stakeholders.
Is the Coronavirus in Myanmar?
Although Myanmar has not officially detected any CoronaVirus carriers to date, the Government of Myanmar has been vigilant and transparent about what it knows via the dissemination of information on a specially dedicated website at: http://mohs.gov.mm/Main/content/publication/2019-ncov
However early indications are that regional effect of the CoronaVirus has already wreaked havoc on the Myanmar economy and could lead to full-blown economic crisis if not contained soon.
Impact of Coronavirus on Myanmar’s economy
Immediate effects and the cumulative damages from external shocks are ongoing are immediately impacting the following sectors of economy:
The tourism sector has suffered from a stampede of cancellations first beginning from China. Now, most tourists from all other countries have decided to stay at home. The income from tourism is quite substantial, US$1.7 billion or 2.5 percent of GDP in 2018. Back then, Myanmar was the fastest-growing destination in the world, and even the negative international coverage of the Rakhine crisis did not deter the 40 percent year-on-year increase in tourist arrivals, until the current CoronaVirus outbreak.
The garment industry has experienced serious disruptions in supply chains originating from China, from which approximately 90pc of inputs are dependent. It was reported that last week, 13 garment factories, including three being built, closed their operations, laying off more than 5,000 workers who will not easily find alternative jobs. The whole industry, which employs over half-million workers, potentially faces a same attrition if input ingredients are not re-instated, the other financial and demand side condition challenges notwithstanding.
Myanmar rural population of 70 percent are also at risk of an economic calamity as a result of Chinese restrictions to border trade. Over 90 percent of Myanmar’s top export commodities such as maize, watermelons and bananas are dependent on the Chinese market. Perishable agriculture exports, which make up 40 percent out of US $6 billion worth of exports to China, have come to a near halt.
Farmer already struggling from the collapse of rice exports to China after the country tightened border control against illegal rice trade have now been hit hard from winter crops as the recent outbreak has wiped out demand from within China. Reeling with dual income shocks on the agricultural sector and rising prices of consumer goods and production costs, stakeholders are now turning to the government for leadership.
Direct impact vs. Future economic losses in near term (coming soon)
Social impacts and industrial relations
Last week, the Union of Myanmar Chambers of Commerce and Industry issued a 10-point statement calling for economic assistance from the government. Demands include a range of previous requests from low interest rates, loan deference and tax cuts on new proposals such as government-backed. Trade unions have also followed with their own statements to include unemployment compensation and unpaid leave policies
Foreign Direct Investments
Based on previous experience, Myanmar has shown resilience in dealing with economic shocks such as during the aftermath of natural disasters and economic sanctions. Under each crisis, the economy recovered quickly.
Myanmar’s economy when confronting previous economic challenges, had China as its main benefactor, which continued to invest in Myanmar since early 1990s. China is reportedly the largest investor in Myanmar, officially committing US$20 billion of investments (as of Sept. 2018), followed by Singapore, Thailand and Hong Kong.
With Chinese investments now in lock-down mode due to COVID-19, most BRI- related capital flows will be likely to delayed at best, thus depriving Myanmar of a reliable source of external funds.
Indirect impact: Potential opportunity costs (for mitigation)
A potential halt in export revenues and foreign capital inflows can tip the economy into a full-blown economic crisis on three fronts
The first crisis is exchange rate volatility. Since the beginning of the current fiscal year in October 2019, the Myanmar Kyat has risen in value against the dollar. The outbreak of the CoronaVirus has led to a dramatic appreciation of the local currency, which has risen 10 percent against the dollar in two months.
This reflects less demand for dollars as the economy slows down. The unexpected rally around the Kyat could trigger a collapse in the export sectors, further undermining the drop in manufacturing and agriculture exports.
Second, the banking sector will also come under pressure. According to the World Bank, the net profits of private banks went negative for the first time in a decade as their ability to lend at a profit is severely limited by high interest rates required by the Central Bank of Myanmar. The high borrowing costs had already hurt domestic industries and stopped private credit flows even before the current CoronaVirus outbreak crisis.
A prolonged crisis over a quarter or two could result in many firms going bust. Any further delay to the recapitalization of private banks would exacerbate the bank system fragility.
Finally, the current regional outbreak of the CoronaVirus can deflate significant portions of economic growth as the combination of demand and supply disruptions ripple across the economy.
Economic Policy Responses (comparison)
ASEAN policy responses in comparison to Myanmar were also discussed, with particular emphasis on Thailand, Indonesia, Singapore and Vietnam.
A big if – be prepared for the worst
The Myanmar economy has yet to experience disruptions to the workforce as the current regional effects of the CoronaVirus outbreak has not resulted in a public emergency response. At this point, international financial institutions expect a slight 0.2 percentage point cut in the GDP growth rate. However, that maybe too optimistic. Economic impacts can change quite dramatically if COVID-19 is detected in Myanmar and causes severe disruptions and panic reactions. In 2015, severe floods and landslides led to a 1 percentage point drop in growth.
Economic policy makers should therefore anticipate the worst-case scenario and prepare timely responses.
Myanmar does have a step-by-step guideline under the National Plan of Action on Health Security, which was updated in 2018. The country also has experience recovering from severe shocks such as Cyclone Nargis in 2008 and floods and landslides in 2015. Back then, the apex authority rested under the National Natural Disaster Management Committee was activated to oversee response and recovery plans.
Discussions specifically to the CoronaVirus outbreak centered around a) the status of Migrant workers and their families relying on remittances being economically effected by CoronaVirus and b) on how to issue sectoral policies by the government, mainly for affected areas such as textile industry as majority of Myanmar government sectoral policy are in still very far from implementation and adoption.
Additional macro-economic concerns centered around how to reduce the dependency on China by Myanmar government and Small to Medium sized Enterprises.
Conclusions and Recommendation
It was recommended that shifting the focus away from emergency health measures to a holistic approach in building a coalition for strategic preparedness can mitigate further disruptions under the prevailing circumstances.
These actions if enabled would help Myanmar to effectively deal with pending negative economic impacts to the economy. Additionally, it was recommended that engaging with civic organizations participation would be essential to ensure timely and effective citizen response.
The Discussions thereafter adjourned with the Editor’s mention on COVID-19:
“Out of an abundance of caution, we will minimize all our public facing engagements and proceed only on a case-by-case basis. Our immediate emphasis will be to help support global health policy dialogues and channel these to the appropriate government officials, health policy experts and administrators. We thank you for your understanding.”
Future Quarterly Discussions will resume only after Public Health considerations and in consultations with Myanmar and other public health officials.