Burma's outlook 'poor' as inflation soars
Sunday, 9 December 2007
Amy Kazmin from Bangkok
CHRONICALLY high inflation in military-ruled Burma has soared to 35 per cent a year, the highest in Asia, while its economy is slowing because of the poor investment climate and business confidence, the International Monetary Fund has said in a new report.
In its annual evaluation of Burma's energy-rich economy, the IMF called the Burmese economy's medium-term outlook "poor", forecasting slackening growth of 5.5 per cent this year, and 4.0 per cent next year.
While Burma's military rulers claim robust growth of 12.7 per cent last year, the IMF report called such an expansion "implausible", estimating 7.0 per cent growth, driven by rising natural gas exports and government construction projects such as the new capital city.
"While the economy is growing modestly, per capita gross domestic product [of about $250] and other indicators of social well-being are significantly below those of other low-income countries in the region, and poverty is widespread," the IMF said in the assessment, a copy of which was obtained by the Financial Times.
The IMF team visited Burma in late August, just weeks before mass protests triggered by a sharp rise in the government-set price of subsidised fuel. The report, completed last month, is not public as the regime has not approved its release by the IMF.
The United Nations says most Burmese are struggling to survive, and that worsening hardship and rising prices were at the root of the recent protests. In its report, the IMF called for targeted subsidies to address "deteriorating social-economic conditions".
The IMF said Burma could rein in inflation, and boost growth to 10 per cent a year, if it undertook reforms such as cutting unproductive state spending, unifying a complicated "multiple exchange rate" system, and liberalising agriculture to give farmers more freedom to grow and sell their crops.
But prospects for such policy changes seem unlikely, given the apparent reluctance of Senior General Than Shwe, the powerful junta chief, to undertake any economic reforms after the response to the abrupt slashing of fuel subsidies.
The military regime, once chronically short of hard currency, is relatively flush. Its foreign exchange reserves have doubled to $2bn (euro1.4bn, £988m), the equivalent of eight months of imports, due to gas sales, and tax revenues have risen due to reforms of the revenue collection system.
But the regime's spending has risen too, due to the cost of building a new capital and a salary rise for civil servants. The fiscal deficit is up to 4.0 per cent of GDP, the highest in Asia, with the printing of money to cover that fuelling inflation. Agriculture, which accounts for 40 per cent of GDP, remains constrained by the regime's restrictions on the transport and sale of rice, and other market interventions that the IMF say "reduces farmers' production incentives".
Burma's economy is also vulnerable to shocks, such as a poor harvest, political turmoil, a banking crisis or falling gas prices, which the IMF says could "cause severe economic disruption."
The economy is also distorted by an overvalued official exchange rate 5.5 Burmese kyat to the dollar, a 24,000 per cent premium over the market rate of 1,300 kyat to the dollar.
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FT Syndication Service
CHRONICALLY high inflation in military-ruled Burma has soared to 35 per cent a year, the highest in Asia, while its economy is slowing because of the poor investment climate and business confidence, the International Monetary Fund has said in a new report.
In its annual evaluation of Burma's energy-rich economy, the IMF called the Burmese economy's medium-term outlook "poor", forecasting slackening growth of 5.5 per cent this year, and 4.0 per cent next year.
While Burma's military rulers claim robust growth of 12.7 per cent last year, the IMF report called such an expansion "implausible", estimating 7.0 per cent growth, driven by rising natural gas exports and government construction projects such as the new capital city.
"While the economy is growing modestly, per capita gross domestic product [of about $250] and other indicators of social well-being are significantly below those of other low-income countries in the region, and poverty is widespread," the IMF said in the assessment, a copy of which was obtained by the Financial Times.
The IMF team visited Burma in late August, just weeks before mass protests triggered by a sharp rise in the government-set price of subsidised fuel. The report, completed last month, is not public as the regime has not approved its release by the IMF.
The United Nations says most Burmese are struggling to survive, and that worsening hardship and rising prices were at the root of the recent protests. In its report, the IMF called for targeted subsidies to address "deteriorating social-economic conditions".
The IMF said Burma could rein in inflation, and boost growth to 10 per cent a year, if it undertook reforms such as cutting unproductive state spending, unifying a complicated "multiple exchange rate" system, and liberalising agriculture to give farmers more freedom to grow and sell their crops.
But prospects for such policy changes seem unlikely, given the apparent reluctance of Senior General Than Shwe, the powerful junta chief, to undertake any economic reforms after the response to the abrupt slashing of fuel subsidies.
The military regime, once chronically short of hard currency, is relatively flush. Its foreign exchange reserves have doubled to $2bn (euro1.4bn, £988m), the equivalent of eight months of imports, due to gas sales, and tax revenues have risen due to reforms of the revenue collection system.
But the regime's spending has risen too, due to the cost of building a new capital and a salary rise for civil servants. The fiscal deficit is up to 4.0 per cent of GDP, the highest in Asia, with the printing of money to cover that fuelling inflation. Agriculture, which accounts for 40 per cent of GDP, remains constrained by the regime's restrictions on the transport and sale of rice, and other market interventions that the IMF say "reduces farmers' production incentives".
Burma's economy is also vulnerable to shocks, such as a poor harvest, political turmoil, a banking crisis or falling gas prices, which the IMF says could "cause severe economic disruption."
The economy is also distorted by an overvalued official exchange rate 5.5 Burmese kyat to the dollar, a 24,000 per cent premium over the market rate of 1,300 kyat to the dollar.
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FT Syndication Service