Last updated: April 2015
Myanmar is going through important political transformation in its development path - from isolation and fragmentation to openness and integration; and from pervasive state control, exclusion and individual disengagement to inclusion, participation and empowerment. This dual shift is happening against a backdrop of broader political reforms that started in 2011 when a new administration took office. These transitions have the potential to create opportunity and shared prosperity for the people of Myanmar and for the country to resume its place as one of the most dynamic economies in Asia.
As the largest country in mainland Southeast Asia, Myanmar has one of the lowest population densities in the region, with fertile lands, significant untapped agricultural potential, and a rich endowment of natural resources. Its geographic location at the intersection of China and India, two of the world’s most dynamic economies, makes it well positioned to resume its traditional role as a regional trading hub and a key supplier of minerals, natural gas, and agricultural produce.
Since 2011, the government has embarked on an ambitious economic, political and governance reform program. It has begun a series of reforms to remove economic distortions, such as floating the currency, new fiscal regulations to rationalize personal income tax and reduce consumption tax, liberalizing the telecommunications sector, reforms aimed at developing the private sector and stimulating direct foreign investments, a review of the financial sector, promotion of access to finance, and creating an environment conducive to job creation.
Myanmar continues to grow at a strong pace on the back of reforms that are gradually opening up the space for investment. The economy is estimated to grow at 8.5% in real terms in 2014/15. This is driven largely by the ongoing construction-related boom, continued rebound in manufacturing output, and the resulting expansion in the service sector. The rapid pace of change however is stretching Myanmar’s supply side capacity, which, together with currency depreciation, is contributing to inflationary pressure. Although prices stabilized in the first half of 2014, inflation rose by 2.2% in November (6.1 percent y-o-y).
Poverty in Myanmar is disproportionately concentrated in rural areas, relying on agricultural and casual employment for their living. There are also a substantial number of households living near the poverty line who are considered to be vulnerable to poverty; the welfare of these households is likely to be sensitive to economy-wide shocks. Since the majority of the poor are engaged in subsistence agriculture, the consumption patterns of these households may be shielded from recent inflationary pressures but the urban poor are likely to be highly affected by recent bouts of food price inflation.
Although growth is expected to remain relatively strong over the medium-term on the back of continued structural reforms, downside risks have also increased. If government spending growth continues along current trends, Myanmar may face fiscal sustainability challenges. This risk is heightened by recent international commodity price developments. Although the effects of these have not yet transmitted through to Myanmar, a sustained downturn in gas prices would adversely impact government revenues, export earnings, and economic growth.
Among ASEAN countries, Myanmar has the lowest life expectancy and the second-highest rate of infant and child mortality. Less than one-third of the population has access to the electricity grid, road density remains low, at 219.8 kilometers per 1,000 square kilometers of land area, and ICT connections are still underdeveloped, with mobile phone and internet penetration rates at 20% and 10% in 2010, respectively. Growth has accelerated since the transition, buoyed by improved macroeconomic management, increased gas production and exports, and stronger performance in non-gas sectors as the economy opened up.