Journal Issue
Share
Article

Myanmar

Author(s):
International Monetary Fund
Published Date:
December 1999
Share
  • ShareShare
Show Summary Details
Myanmar: Selected Economic Indicators, 1994/95–1998/99 1/
GDP (1998/99):US$14.2 billion 2/
Population (1998/99):47.3 million
GDP per capita (1998/99):US$300 2/
Quota:SDR 184.9 million
Sources: Data provided by the Myanmar authorities; IFS, and staff estimates.

Fiscal year (April–March).

Staff estimate at the market exchange rate and after adjustments to take into account unrecorded transactions.

Consolidated public sector, includes the Union Government and nonfinancial state enterprises.

Staff estimates for 1998/99.

Capital account-based measures of reserve adequacy are problematic. Data on short-term external debt are not available (although the amount of short-term debt appears to be small). Also, it is not meaningful to express reserves in terms of M2 (which includes foreign currency-denominated deposits valued at the official exchange rate).

Effective April 1999.

August 1999.

1994/951995/961996/971997/981998/99

Est.
(Percent change)
Growth
Real GDP7.56.96.45.75.0
Fixed Investment23.528.222.88.09.8
Prices (Yangon)
Consumer prices (period average)22.421.820.033.949.1
Consumer prices (end of period)26.412.526.645.133.7
(In percent of GDP)
Public sector operations 3/4/
Total revenue (including grants)7.16.76.88.07.3
Total expenditure13.012.913.413.111.8
Overall balance−6.1−6.2−6.6−5.1−4.5
Domestic bank financing5.78.34.44.03.6
(Percent change)
Money and credit
Broad money41.334.039.128.727.6
Domestic credit25.740.829.628.527.2
Public sector (net)24.636.718.920.421.2
Private sector31.360.172.650.940.3
Velocity of broad money3.12.92.83.03.3
Interest rates (percent, end of period) Central Bank rate11.012.515.015.012.0 6/
(In millions of U.S. dollars)
Balance of payments
Trade balance−497−935−1,064−1,280−1,346
Exports9178979291,0111,134
Imports−1,414−1,832−1,993−2,291−2,480
Current account balance (excl. grants)−86−415−500−710−603
Overall balance−117−18−329−198−132
Gross official reserves 5/
In millions of U.S. dollars426381288331395
In months of merchandise imports3.62.51.71.71.7
External debt
Total debt5,5655,4795,5035,6475,882
Debt-service obligations326300334343334
(In percent of exports of G & NFS)(32)(23)(24)(22)(19)
External debt arrears1,6001,4801,4551,6081,913
Terms of trade (percent change)483357−2
Exchange rates (end of period)
Official exchange rate (kyats per US$)5.55.96.26.46.3
Parallel market rate (kyats per US$)105125165243345 7/
Real effective exchange rate (1990=100)282.9305.8384.9580.2776.6
Sources: Data provided by the Myanmar authorities; IFS, and staff estimates.

Fiscal year (April–March).

Staff estimate at the market exchange rate and after adjustments to take into account unrecorded transactions.

Consolidated public sector, includes the Union Government and nonfinancial state enterprises.

Staff estimates for 1998/99.

Capital account-based measures of reserve adequacy are problematic. Data on short-term external debt are not available (although the amount of short-term debt appears to be small). Also, it is not meaningful to express reserves in terms of M2 (which includes foreign currency-denominated deposits valued at the official exchange rate).

Effective April 1999.

August 1999.

Sources: Data provided by the Myanmar authorities; IFS, and staff estimates.

Fiscal year (April–March).

Staff estimate at the market exchange rate and after adjustments to take into account unrecorded transactions.

Consolidated public sector, includes the Union Government and nonfinancial state enterprises.

Staff estimates for 1998/99.

Capital account-based measures of reserve adequacy are problematic. Data on short-term external debt are not available (although the amount of short-term debt appears to be small). Also, it is not meaningful to express reserves in terms of M2 (which includes foreign currency-denominated deposits valued at the official exchange rate).

Effective April 1999.

August 1999.

Myanmar: Selected Social Indicators
MyanmarEast Asia

and Pacific
Population 1998/99
Population (million)47.3
Population growth rate (percent)1.01.0
Urban population (percent) 1/26.633.0
Public Expenditure 1997/98
Health (percent of GDP)0.31.7
Education (percent of GDP)0.92.7
Social Indicators 1997
Poverty (headcount; in percent)22.928.5
Access to safe water (percent of population)6077
Fertility rate (births per woman)2.42.1
Population per physician (persons)5,0001,834
Immunization rate (percent under 12 months)
Measles8893
Diphtheria, pertussis, and tetanus9093
Child malnutrition (percent under 5 years)4320
Life expectancy at birth (years)6069
Mortality
Infant (per thousand live births)7937
Under 5 (per thousand live births)13147
Adult (15–59)
Male (per 1,000 population)263183
Female (per 1,000 population)217148
Source: World Bank (forthcoming) Myanmar: An Economic and Social Assessment, East Asia Region.

1997.

Source: World Bank (forthcoming) Myanmar: An Economic and Social Assessment, East Asia Region.

1997.

I. OVERVIEW

A. Background

1. The economic performance of Myanmar in the 1990s has fallen short of other countries in the region (Chart 1). GDP growth, although high, has been modest by regional standards. Inflation has remained in double digits, counter to the regional trend. There is a chronic shortage of foreign exchange: net international reserves have fallen sharply during the 1990s to 1½ months of import coverage; a third of external debt is in arrears; import and exchange controls are extensive; and aggregate supply is constrained by a shortage of imported inputs. The public sector continues to play the major role in financial intermediation. Physical capital has deteriorated. Poverty is widespread, and extends beyond low material living standards to a high rate of child malnutrition, poor health and low educational attainment.

Chart 1Myanmar and East Asia: Selected Economic and Social Indicators, 1985–98

Sources: IFS, World Economic Outlook database, and World Bank.

2. Nonetheless, Myanmar has considerable economic potential. It has large amounts of uncultivated land, extensive fresh water, abundant mineral resources, and an attractive natural environment. Myanmar is located in a region of dynamic growth and is flanked by the giant markets of India and China. It has historically had a tradition of a strong education system and civil service. Given the low base, growth rates could easily approach double digits.

3. That Myanmar has not yet fulfilled its potential can be attributed to the policy record. The current regime took control in 1988 after the failure of the isolationist and centrally planned “Burmese Way to Socialism.” Steps taken in the early 1990s to liberalize the economy and attract foreign investment yielded immediate gains in economic performance. However, liberalization efforts have since stalled, structural policies have continued to be interventionist, and large fiscal deficits have been passively monetized. Moreover, no concessional external financing has been received for over a decade, reflecting extensive international sanctions as a result of Myanmar’s human rights record, as well as concerns about narcotic trafficking and military spending.

B. Recent Developments

4. The Asian crisis has had an unexpectedly limited impact on Myanmar. Following the floating of the Thai baht in June 1997, the free market exchange rate depreciated rapidly, leading to a surge in inflation. Other effects of the crisis have included a slowing in growth of tourist arrivals and delayed receipt of gas export revenues (Box 1). By contrast, nongas exports and worker remittances have held up, as have FDI inflows from previous commitments. The limited impact of the crisis partly reflected the adoption of new administrative measures to reduce the demand for foreign exchange, including a tightening of import controls and revocation of the foreign exchange licenses of private banks.

Box 1.Myanmar: Impact of the Asian Crisis

The Asian crisis has adversely impacted Myanmar, but by less than had been expected:

  • The FEC exchange rate depreciated by 50 percent against the U.S. dollar during May 1997 to October 1998, reflecting the weakening of the Thai baht, but has since strengthened.

  • Higher import prices (as well as the drought) tripled the officially reported rate of CPI inflation to 67 percent in June 1998 (year-on-year); inflation stood at 29 percent in April 1999.

  • FDI, most of which is from the region, fell by one-third in 1998/99 from the previous year to US$288 million, although this decline also reflected the winding down of large energy and tourism projects begun earlier. New FDI commitments fell to almost zero during 1998/99.

  • Foreign exchange earnings from offshore gas fields have yet to be realized owing to lower energy demand in Thailand.

  • Gross international reserves dropped to the equivalent of less than one-month of import coverage during 1997, but have since doubled.

The government has implemented an array of ad hoc measures over the past two years in response to a shortage of foreign currency:

  • Border trade was required to be conducted in U.S. dollars (November 1997).

  • Imports of all goods not on two limited lists of priority goods were banned (March 1998).

  • Restrictions on private-sector commodity exports were imposed (March 1998).

  • Private bank foreign exchange licenses were revoked (March 1998).

  • Debt service to the World Bank was interrupted, putting Myanmar on a nonaccrual status (September 1998).

  • A 5 percent commercial tax was replaced by an extra income tax of 2 percent and an 8 percent commercial tax, payable in foreign exchange (December 1997 and January 1999, respectively).

  • Open general import licences for state enterprises were made available only on a case-by-case basis (1998/99).

  • The monthly limit on remittances against FECs for payments on invisible transactions and current transfers was reduced from $50,000 to $30,000 (1998/99). 1

1 Foreign Exchange Certificates (FECs) were introduced in 1993 to legalize certain foreign exchange transactions and reduce the coverage of the fixed official exchange rate. FECs are U.S. dollar denominated and are issued by the Central Bank of Myanmar against hard currencies. They can be exchanged for kyat at a market-determined rate or held as foreign currency-denominated bank deposits (with limited convertibility into foreign currency). In August 1999, the FEC rate was Kyat 345/U.S. dollar, whereas the official exchange rate was Kyat 6.3/U.S. dollar.

5. Growth slowed slightly during the crisis and policies remained expansionary. Real growth in 1998/99 was reported at 5 percent, with growth of the key agricultural sector falling to 2½ percent (Chart 2).1 Since mid-1998, the free market kyat has strengthened and inflation has fallen from a peak of 67 percent to 29 percent in April 1999. The public sector deficit has remained large, but declined to an estimated 4½ percent of GDP in 1998/99. State enterprises continued to incur large losses, and little progress was made with privatization. Interest rates were cut across the board in April 1999 to stimulate economic activity and real rates remained negative. Monetary growth edged down during 1998/99 partly as a result of the smaller fiscal deficit, but also in line with a trend toward disintermediation.

Chart 2Myanmar: Selected Economic Indicators 1994/95–1998/99

Source: Data provided by Myanmar Authorites; staff estimates and IFS.

6. The external position continued to be weak. Exports and receipts from tourism remained relatively buoyant despite the crisis, while import growth appears to have slowed considerably as a result of the foreign exchange measures. Nonetheless, the current account deficit in 1998/99 is estimated at $600 million, which is somewhat higher than its pre-crisis level. The current account deficit was financed by foreign direct investment and new borrowings from within Asia. Gross international reserves recovered slightly to almost two months of import cover, but arrears on external debt continued to accumulate.

II. Real Sector Developments

A. Overview

7. Real GDP growth fell slightly to 5 percent in 1998/99, the fourth consecutive year of declining growth (Tables 1 and 2). In recent years, growth has been increasingly constrained by structural impediments that partial reforms since the early 1990s have failed to eliminate. Although the private sector now accounts for over three quarters of GDP (Table 3), the economy continues to suffer from excessive government interference—the legacy of central planning—and widespread controls on economic activity. There have also been persistent macroeconomic imbalances. During the past two years, economic performance has been adversely affected by the impact of bad weather on agriculture and interruptions to power supply, as well as some contagion from the Asian crisis.

Table 1.Myanmar: Real Gross Domestic Product by Expenditure Category, 1994/95–1998/99
1994/951995/961996/971997/981998/99

Provisional
(In millions of kyats at constant 1985/86 prices)
Consumption47,95551,02752,18453,18254,192
Gross investment13,02916,74318,91320,88922,733
Fixed investment12,64016,20119,88721,48423,579
Public6,1248,0519,6279,7819,806
Private6,5168,15010,26011,70313,773
Changes in stocks389542−974−595−846
Gross domestic expenditure60,98467,77071,09774,07176,925
Net exports of goods and nonfactor services1,422−1,028−559861,850
Exports6,5285,0895,6086,7987,977
Imports5,1066,1175,6635,8126,127
GDP at constant prices62,40666,74271,04275,05778,775
(Percentage change)
Consumption−5.26.42.31.91.9
Gross investment24.428.513.010.48.8
Fixed investment23.528.222.88.09.8
Public39.231.519.61.60.3
Private11.725.125.914.117.7
Exports13.4−22.010.221.217.3
Imports−41.719.8−7.42.65.4
Gross domestic expenditure−0.111.14.94.23.9
GDP7.56.96.45.75.0
Source: Data provided by the Myanmar authorities.
Source: Data provided by the Myanmar authorities.
Table 2.Myanmar: Gross Domestic Product by Expenditure Category, 1994/95–1998/99
1994/951995/961996/971997/981998/99

Provisional
(In millions of kyats, at current prices)
Consumption416,312522,144697,904977,5581,395,393
Gross investment58,47186,12297,051139,963173,087
Fixed investment54,59682,582-118,313150,240184,214
Public25,78341,03557,27568,40270,763
Private28,81341,54761,03881,838113,451
Change in stocks3,8753,540−21,262−10,277−11,127
Net exports of goods and nonfactor services−2,009−4,664−4,955−7,967−8,480
Exports7,0927,1657,6966,2907,144
Imports9,10111,82912,65114,25715,624
GDP at market prices472,774603,602790,0001,109,5541,560,000
Net factor income from abroad−396−689−217−69−250
GNP at market prices472,379602,913789,7831,109,4851,559,750
(Percentage share in GDP)
Consumption88.186.588.388.189.4
Gross investment12.414.312.312.611.1
Fixed investment11.513.715.013.511.8
Public5.56.87.36.24.5
Private6.16.97.77.47.3
Exports1.51.21.00.60.5
Imports1.92.01.61.31.0
Source: Data provided by the Myanmar authorities.
Source: Data provided by the Myanmar authorities.
Table 3.Myanmar: Gross Domestic Product by Form of Ownership, 1998/99(In percent of sectoral output)
StateCooperativesPrivate
Productive sectors11.41.487.2
Agriculture0.21.997.9
Livestock and fishery0.31.198.6
Forestry46.20.653.2
Energy99.90.10.0
Mining10.810.888.2
Manufacturing and processing28.20.970.9
Power99.90.10.0
Construction45.80.254.0
Services54.42.643.0
Transportation29.81.069.2
Communication100.00.00.0
Financial institutions54.814.430.8
Social and administrative services88.80.510.7
Rentals and other services3.92.993.2
Trade21.32.476.3
Gross domestic product21.821.876.3
Source: Data provided by the Myanmar authorities.
Source: Data provided by the Myanmar authorities.

8. Official national income accounts need to be interpreted cautiously. Current price data on exports, imports, and the import content of investment and consumption are severely understated since all foreign exchange related transactions are valued at the official exchange rate, which in comparison to the market-determined FEC rate, is overvalued by at least a factor of fifty.2 In addition, the constant price data are distorted by the use of 1985/86 weights, which date back to the central planning era. Moreover, the national income accounts are likely to considerably understate economic activity due to the underreporting of informal market production and military-related activity, both of which appear to be substantial.

9. The officially reported 1998/99 GDP growth rate is broadly consistent with alternative data sources. Some indicators, such as cement production declining by more than 30 percent in 1998/99, suggest a more pronounced slowing of growth. However, a GDP growth rate of 5 percent is consistent with balance of payments data, which show imports to have risen quite strongly in 1998/99 despite the strengthening of controls.3 It is also consistent with reported data showing a 6½ percent growth in freight ton-miles in 1998/99 (the highest since 1994/95), and a 16 percent increase in the number of vehicles registered,

B. Aggregate Demand

10. Private investment grew strongly in 1998/99, while consumption growth remained unchanged. Private investment has steadily increased from about 6 percent of GDP in 1994/95 to over 7 percent in 1998/99, offsetting a commensurate decline in the level of public sector investment (Table 4). Rapid growth of private investment in 1998/99 corresponded to a significant increase in the imports of capital goods, such as transport equipment and electrical machinery. Public investment, by contrast, has been compressed to contain the fiscal deficit, recording little or zero growth in 1997/98 and 1998/99 compared to annual growth of 20–30 percent in the mid-1990s. Real exports are reported to have risen strongly in 1998/99, while real imports are reported to have grown by only 5½ percent.

Table 4.Myanmar: Investment and Saving, 1994/95–1998/99
1994/951995/961996/971997/981998/99

Provisional
(In millions of kyats at current prices)
Gross capital formation58,47186,12297,051139,963173,087
Fixed investment54,59682,582118,313150,240184,214
Public25,78341,03557,27568,40270,763
Private28,81341,54761,03881,838113,451
Change in stocks3,8753,540−21,262−10,277−11,127
National saving57,96283,38394,317135,882169,676
Domestic saving56,46281,48491,732133,059166,683
Net factor income plus net unrequited transfers from abroad1,5001,8992,5852,8232,993
Foreign saving5092,7392,7344,0813,411
(Percentage share in GDP)
Gross capital formation12.414.312.312.611.1
Fixed investment11.513.715.013.511.8
Public5.56.87.36.24.5
Private6.16.97.77.47.3
National saving12.313.811.912.210.9
Domestic saving11.913.511.612.010.7
Foreign saving0.10.50.30.40.2
Source: Data provided by the Myanmar authorities.
Source: Data provided by the Myanmar authorities.

C. Sectoral Developments

Primary Producing Sectors

Agriculture

11. Agricultural growth continued to fall in 1998/99, reflecting the poor incentive structure, as well as unfavorable weather conditions (Tables 5 and 6). Agriculture is the most important sector in Myanmar, accounting for about 50 percent of GDP at current prices, and employing more than 60 percent of the labor force. Market-oriented reforms in the first half of the 1990s generated an initial burst of agricultural expansion. Thereafter, however, agricultural growth slowed markedly, with agriculture’s contribution to real GDP growth dropping from an average of 3 percent in 1992/93–1995/96 to 1 percent in 1996/97–1998/99.

Table 5.Myanmar: Real Gross Domestic Product by Sector, 1994/95–1998/99
1994/951995/961996/971997/981998/99

Provisional
(In millions of kyats at constant 1985/86 prices)
Commodity producing sectors37,90940,45643,05545,23546,967
Agriculture23,48324,76525,69826,48027,154
Livestock and fishery4,4354,5675,1095,4725,709
Forestry775740756772765
Energy141154150154148
Mining6117248141,0661,245
Manufacturing and processing5,7576,1926,4766,8037,259
Power620660745857819
Construction2,0872,6543,3073,6313,868
Services10,95611,97912,97214,06315,225
Transportation2,6722,8413,0123,1833,383
Communication6928631,0501,3171,510
Financial institutions7409981,2161,3921,614
Social and administrative services4,2114,4714,7215,0185,362
Rentals and other services2,6412,8062,9733,1533,356
Trade13,54114,30715,01515,75916,583
Gross domestic product62,40666,74271,04275,05778,775
(at constant prices)
(Percentage change)
Commodity producing sectors6.96.76.45.13.8
Agriculture6.75.53.83.02.5
Livestock and fishery6.03.011.97.14.3
Forestry−14.4−4.52.22.1−0.9
Energy9.2−2.62.4−3.6
Mining−6.718.512.431.016.8
Manufacturing and processing8.57.64.65.06.7
Power4.96.512.915.0−4.4
Construction15.727.224.69.86.5
Services10.09.38.38.48.3
Transportation11.26.36.05.76.3
Communication20.324.721.725.414.7
Financial institutions47.134.921.814.416.0
Social and administrative services6.86.25.66.36.8
Rentals and other services4.06.26.06.16.4
Trade7.15.74.95.05.2
Gross domestic product7.56.96.45.75.0
(at constant prices)
Source: Data provided by the Myanmar authorities.
Source: Data provided by the Myanmar authorities.
Table 6.Myanmar: Gross Domestic Product by Sector, 1994/95–1998/99
1994/951995/961996/971997/981998/99

Provisional
(In millions of kyats, at current prices)
Commodity producing sectors338,554421,922543,502771,996970,561
Agriculture260,801321,550405,506583,437730,983
Livestock and fishery32,36736,44051,06369,03788,361
Forestry4,4974,7956,7587,12210,368
Mining2,4162,9824,7615,5476,976
Manufacturing and processing29,51641,34753,34178,80198,107
Power1,2181,7512,0911,5582,038
Construction7,73913,05719,98226,49433,727
Services32,79241,79753,72778,406119,719
Transportation12,25917,05622,42840,84871,677
Communication1,2521,6622,0332,8796,449
Financial institutions7681,0411,3701,4751,549
Social and administrative services9,90610,70412,55813,29315,952
Rentals and other services8,60711,33415,33819,91124,092
Trade101,428139,883192,771257,613469,720
Gross domestic product
(at current prices)472,774603,602790,0001,109,5541,560,000
(Percentage share in GDP)
Commodity producing sectors71.669.968.869.662.2
Agriculture55.253.351.352.646.9
Livestock and fishery6.86.06.56.25.7
Forestry1.00.80.90.60.7
Mining0.50.50.60.50.4
Manufacturing and processing6.26.96.87.16.3
Power0.30.30.30.10.1
Construction1.62.22.52.42.2
Services6.96.96.87.17.7
Transportation2.62.82.83.74.6
Communication0.30.30.30.30.4
Financial institutions0.20.20.20.10.1
Social and administrative services2.11.81.61.21.0
Rentals and other services1.81.91.91.81.5
Trade21.523.224.423.230.1
Source: Data provided by the Myanmar authorities.
Source: Data provided by the Myanmar authorities.

12. Rice paddy production has been constrained by bad weather and shortages of fertilizer (Tables 7 and 8). While adverse weather conditions—severe flooding in 1997 and drought in 1998—has contributed to slowing production of paddy in the past two years, the decline has also reflected the limited availability of fertilizer due to the foreign exchange shortage, as well as the poor incentives to grow rice arising from the ban on private sector exports and from the land tax implicit in the procurement system (see Chapter III). The export ban has helped keep the domestic price at about half the international level, whereas the price of privately imported fertilizers has been fully liberalized. As a result, imported fertilizers are beyond the means of most farmers, and fertilizer usage is constrained by the limited amounts that can be produced or imported by the State Economic Enterprises (SEEs). Rice exports by SEEs dropped from about $200 million in 1994/95 to almost zero in 1997/98, before recovering slightly to about $40 million in 1998/99.

Table 7.Myanmar: Output and Yield of Major Crops, 1994/95–1998/99
1994/951995/961996/971997/981998/99
(In thousands of metric tons)
Output
Paddy18,19517,95317,67316,65117,848
Wheat8978879292
Maize284275286308303
Pulses1,1091,3371,3701,5971,678
Groundnuts500593559540502
Sesame304304344296186
Sunflower1171649290184
Cotton86165168164189
Jute3543393333
Sugarcane2,3753,3424,0425,1365,927
Myanma tobacco3541475746
Virginia tobacco1822232529
Rubber2726262726
(In kilograms per hectare of harvested area)
Yield
Paddy3,1682,9763,0643,0793,103
Wheat8328579671,045902
Maize1,7011,7081,7331,9131,804
Pulses655667709781702
Groundnuts1,0061,1511,1691,2111,082
Sesame269336339382276
Sunflower654759754783641
Cotton483509564667604
Jute946915907971892
Sugarcane (mt per ha)4551484847
Myanma tobacco1,2501,6401,6211,7271,643
Virginia tobacco6,0005,5005,7506,2505,800
Rubber519531565563520
Source: Data provided by the Myanmar authorities.
Source: Data provided by the Myanmar authorities.
Table 8.Myanmar: Harvested Acreage Under Major Crops, 1994/95–1998/99(In thousands of hectares)
1994/951995/961996/971997/981998/99
Paddy5,7436,0335,7685,4085,751
Wheat107919088102
Maize167161165161168
Pulses1,6932,0061,9322,0462,391
Groundnuts497515478446464
Sesame1,1329041,015774673
Sunflower179216122115287
Cotton178324298246313
Jute3747433437
Sugarcane536684106127
Myanma tobacco2825293328
Virginia tobacco34445
Rubber5249464850
Total9,86910,44110,0749,50910,396
Source: Data provided by the Myanmar authorities.
Source: Data provided by the Myanmar authorities.

13. By contrast, the production of crops other than rice has grown rapidly following the gradual reduction of domestic and international trade restrictions. The annual growth rate of production of pulses averaged 11 percent during 1994/95–1998/99. Pulses have become the largest foreign exchange earning crop, accounting for about 15 percent of total exports. Sunflower and sugar production also recorded strong growth in 1998/99. Although sesame output fell sharply in 1998/99 due to severe drought in upper Myanmar, the average annual growth rate of sesame yields has exceeded 10 percent during the 1990s. Nonetheless, ad hoc bans on some of these exports have continued to be introduced periodically.

Mining

14. Growth of value-added in the mining sector was 17 percent in 1998/99, a result of substantial domestic and foreign investment in private production. Production by SEEs under the Ministry of Mines, by contrast, has declined significantly over the past decade (Table 9), and reported export earnings of the sector have also dropped markedly. A main reason behind the decrease in SEE production is a lack of spare parts due to the foreign exchange shortage.

Table 9.Myanmar: Production of Selected Minerals by State Economic Enterprises (SEEs), 1994/95–1998/99(In metric tons unless otherwise stated)
1994/951995/961996/971997/981998/99
Tin concentrate565491230154113
Tungsten concentrate148144241843
Tin and tungsten concentrate4824283140
Tin, tungsten, and scheelite mixed concentrate1,3241,082779788298
Refined lead2,0681,5121,8861,9131,855
Zinc concentrate3,4751,6091,5991,3031,236
Copper ore (′000 long tons)1,2001,0841,024472
Refined silver (′000 ounces)16411265112117
Coal (′000 long tons)3135312931
Gold (troy ounces)11,8767,75712,47513,17912,269
Source: Data provided by the Myanmar authorities.
Source: Data provided by the Myanmar authorities.

Energy and Power

15. Energy sector production declined by 4 percent in 1998/99 (Table 10 –12). The Ministry of Energy controls Myanmar’s large natural gas and oil reserves. However, these reserves are underutilized: Myanmar imports a large share of its refined oil products, and gasoline is rationed. The decline in crude oil and natural gas production in 1998/99 is attributable to aging plant and other production bottlenecks.

16. The performance of the energy sector has been affected by production delays at new offshore gasfields. The Yadana gas field, run by a joint venture comprising Total of France, Unocal of the US, the Petroleum Authority of Thailand (PTT), and the Myanmar Oil and Gas Enterprise, was expected to sell PTT some 65 million cu. ft. per day in gas beginning in 1998, and eventually rising to over 500 million cu. ft. per day. However, these sales have been delayed by the recession in Thailand. The pipeline from the other large offshore gasfield, Yetagun, is scheduled to be completed by the end of 1999, in time for gas sales to PTT to begin in April 2000, although this may also be delayed.

17. Power sector production contracted by 4½ percent in 1998/99, after two years of double-digit growth. As with the energy sector, power production is also in state hands. Electricity shortages have adversely impacted the economy since 1998, reflecting the impact of drought (on hydroelectricity), shortages of imported fuel, and equipment failure. The authorities& response has been to limit consumption through load shedding, measures to reduce distribution losses (such as the installation of meters) and increases in household tariff rates (Table 15). These measures have served to limit the effect of the electricity shortages on production. In addition, private companies and individuals have supplemented official sources with their own generators.

Table 10.Myanmar: Supply of Primary Energy, 1994/95–1998/99 1/
1994/951995/961996/971997/981998/99
(In thousands of barrel of crude oil or equivalent)
Commercial primary energy13,42313,62213,90314,47113,894
Crude oil5,0404,2773,7873,5313,378
Natural gas 1/8,0849,0289,78910,61210,176
Hydroelectricity 2/299317327328340
(Percentage change)
Commercial primary energy13.41.52.14.1−4.0
Crude oil−3.7−15.1−11.5−6.8−4.3
Natural gas24.911.78.48.4−4.1
Hydroelectricity118.26.03.20.33.7
Source: Data provided by the Myanmar authorities.

Converted at 1 million cubic feet of natural gas =167.1 barrels of crude oil.

Converted at 1 million kwh = 80.6 barrels of oil.

Source: Data provided by the Myanmar authorities.

Converted at 1 million cubic feet of natural gas =167.1 barrels of crude oil.

Converted at 1 million kwh = 80.6 barrels of oil.

Table 11.Myanmar: Production, Trade, and Consumption of Oil and Natural Gas 1994/95–1998/99

(In thousands of barrels) 1/

1994/951995/961996/971997/981998/99
Total production
(in crude oil equivalent)13,12413,30513,57614,14313,554
Crude oil5,0404,2773,7873,5313,378
Natural gas
(in crude oil equivalent) 2/8,0849,0289,78910,61210,176
Utilization
Domestic consumption 3/12,29112,52812,85913,52712,968
Crude oil4,2073,5003,0702,9152,792
Natural gas (in crude oil equivalent) 2/8,0849,0289,78910,61210,176
Of which
Electricity generation5,0095,8836,6985,5726,885
Trade
Exports of oil products
(in crude oil equivalent)164270274274217
Sources: Data provided by the Myanmar authorities; and staff estimates.

One barrel = 42 U.S. gallons.

The conversion factor used is 1 million cu. ft. of natural gas =167.1 barrels of crude oil (1 million BTUs = 1,000 cu. ft. of natural gas).

Including changes in stock.

Sources: Data provided by the Myanmar authorities; and staff estimates.

One barrel = 42 U.S. gallons.

The conversion factor used is 1 million cu. ft. of natural gas =167.1 barrels of crude oil (1 million BTUs = 1,000 cu. ft. of natural gas).

Including changes in stock.

Table 12.Myanmar: Domestic Output of Petroleum Products, 1994/95–1998/99(In millions of gallons)
1994/951995/961996/971997/981998/99
Gasoline58.349.853.277.781.8
Diesel fuel106.183.391.5123.1119.1
Furnace oil24.020.824.525.725.1
Kerosene0.20.20.30.20.0
Aviation fuel14.513.914.415.714.1
Source: Data provided by the Myanmar authorities.
Source: Data provided by the Myanmar authorities.
Table 13.Myanmar: Use of Petroleum Products by Industries, 1994/95–1998/99(In thousands of barrels)
1994/951995/961996/971997/981998/99
Agriculture5767846739691,183
Livestock and fishery543935225497
Forestry242331241255324
Mining126311297288260
Manufacturing and processing484541524526473
Power345438360442553
Construction1064835621,3211,629
Transportation1,2431,1111,2101,025980
Other3,4043,6273,5914,0025,064
Total6,5807,6657,4939,05310,963
Source: Data provided by the Myanmar authorities.
Source: Data provided by the Myanmar authorities.
Table 14.Myanmar: Official Retail Prices of Major Petroleum Products, 1994–98(In kyats per liter; end of period)
19941995199619971998
Gasoline
Official5.55.55.539.639.6
Diesel fuel
Official4.44.44.435.235.2
Furnace oil
Official2.62.62.62.62.6
Kerosene
Official3.33.33.33.33.3
Memorandum items:
Import unit value 1/
Crude oil21.522.024.426.117.8
Diesel oil24.829.624.729.220.4
Imports (′000 barrels)
Crude oil2,4373,5522,8714,5015,050
Diesel oil8641,3771,6361,4983,594
Source: Data provided by the Myanmar authorities.

US$ per barrel, c.i.f. basis.

Source: Data provided by the Myanmar authorities.

US$ per barrel, c.i.f. basis.

Table 15.Myanmar: Generation and Consumption of Electricity, 1994/95–1998/99(In millions of kilowatt hours)
1994/951995/961996/971997/981998/99
Electricity
Electric generation 1/3,6323,7634,1304,8344,107
Hydroelectricity1,6591,5961,6221,700902
Steam796359215229
Gas1,8522,0612,4092,8662,922
Diesel4243405354
Total consumption2,2182,2622,4342,6762,668
Domestic9839721,0891,2061,119
Industrial863876876914949
Hospitals, offices, schools, etc302340393473511
Other7074768389
Departmental Use406398112104
Losses 2/1,4141,5011,6962,1581,439
Memorandum items:
Length of electric power

lines of MEPE (miles)
12,67312,83413,06613,18113,485
Electric generating

capacity (megawatts)
8379821,0331,0421,055
Of which: Hydroelectric299317327328340
Unit sales price (in kyat)0.91.31.31.41.5
Unit cost (in kyat)0.60.80.81.22.1
Ratio of losses to

generation (in percent)
38.939.941.144.635.0
Source: Data provided by the Myanmar authorities.

Units generated by the Myanma Electric Power Enterprise (MEPE) only.

Includes losses in generation, transmission, and distribution.

Source: Data provided by the Myanmar authorities.

Units generated by the Myanma Electric Power Enterprise (MEPE) only.

Includes losses in generation, transmission, and distribution.

Secondary Sector

18. The manufacturing and processing sector, which is comprised mostly of agro-based industries, grew by about 7 percent in 1998/99. Nevertheless, this sector’s growth performance has deteriorated compared with the first half of the 1990s. As with other sectors, the decline in growth has largely reflected the shortage of raw materials and spare parts caused by limited foreign exchange availability. SEE capacity utilization ratios have remained low, particularly for heavy industries.

19. Construction growth also slowed markedly in 1998/99. Public investment on construction was reduced due to budget cuts, while private investment fell sharply in reaction to the disappointing performance of tourism, and the over building of hotels and tourist facilities in recent years (Box 2).

Tertiary Sector

20 The services and trade sectors have grown rapidly over the past few years.

Growth in service has remained above 8 percent, while growth in trade has been about 5 percent. Transportation is reported to have recorded growth of 6¼ percent in 1998/99, which was slightly higher than in 1997/98. The continued strong performance of this sector reflects the government’s encouragement of private sector participation; in recent years, several Build-Operate-Transfer contracts for developing toll-roads, aviation lines and port’s have been entered into with private companies. Starting from a very low base, the growth of the communication sector averaged above 20 percent between 1994/95 and 1997/98, but dropped to 15 percent in 1998/99. Rapid growth of the financial sector in 1998/99, is attributed to continued expansion by private banks (see Chapter IV).

Box 2.Myanmar: Favored Sectors

In response to the foreign exchange shortage, the Government of Myanmar has launched several attempts to promote growth in those sectors believed to have the largest potential for generating foreign exchange earnings. Generous fiscal incentives have been used to encourage private investment, in particular foreign direct investment, in these sectors. While the results of the current agricultural promotion are still to be seen, past government efforts to promote particular favored sectors have not always achieved success.

Tourism

Tourism was one of Myanmar’s fastest-growing sectors in the first half of the 1990s. The total number of foreign tourists rose steadily from less than 8,000 in 1991/92 to 120,000 in 1995/96, with recorded receipts from travel service exports increasing from $35 million to $189 million. The tourist/construction boom has been fueled by the government’s attempt to boost investment as part of its “Visit Myanmar Year 1996” campaign, with an announced goal of attracting 500,000 foreign visits. Actual tourist arrivals, however, have been far below the official target. Growth of the tourism sector has slowed down markedly in the last two years, leading to a large surplus of hotel facilities as well as widespread and substantial price cutting. This decline reflects an international boycott of tourism to Myanmar on account of human rights concerns, and has more recently been aggravated by the Asian crisis.

Energy

Foreign investment in the energy sector has been strongly encouraged in recent years with arrangements signed with several major companies (such as Total, Unocal, Texaco, Arco and PIT). While some of these investments, such as the Yadana and Yetagun natural gas projects, have been (or are soon to be) completed, many are still at the exploratory stage. The government hoped that the energy projects would alleviate the foreign exchange shortage as well as provide energy supply for domestic consumption. Recent developments, however, have fallen far short of this expectation. As a result of consumer boycotts, a number of foreign companies, including Texaco and Arco, have pulled out of Myanmar. In addition, the regional financial crisis has resulted in delayed revenue from the Yadana project.

Agriculture

In response to the stagnant growth of the key agriculture sector in the past few years, the government has recently granted special incentives to private entrepreneurs for large-scale reclamation projects of wetlands and waste land areas. Besides generous tax exemptions, official support includes provision of irrigation infrastructure, land clearing, technical assistance and other services. In an attempt to boost foreign exchange earnings, the government has also granted farmers cultivating 5,000 acres and above the right to export 50 percent of their production. While the environmental impact of these reclamation projects is uncertain, the generous fiscal incentives being offered raise doubts about whether they are economic.

Table: Real Growth of GDP and Selected Sectors: 1994/95–1998/99(In percent)
1994/951995/961996/971997/981998/99
GDP7.56.96.45.75.0
Tourism154.025.7109.25.44.0
Energy9.2−2.62.4−3.8
Agriculture6.75.53.83.02.5

Growth of tourist arrivals.

Growth of tourist arrivals.

D. Labor Market Developments

21. During 1994/951997/98, total employment rose on average by 2.2 percent per annum, slightly faster than the average population growth rate (Table 16). The bulk of the 1.1 million new jobs created during this period were in the private sector, notably in agriculture, manufacturing and trade. The sectoral distribution of employment has undergone little variation over this period, with the share of the primary sector (agriculture, livestock and fisheries, forestry, energy, and mining) constant at about two-thirds of employment. The share of the secondary sector (manufacturing and processing, construction, and power) has remained at about 10 percent or about half the size of the share of the tertiary sector. In recent years, the share of public sector employment in the total has been about 8 percent.

Table 16.Myanmar: Population and Employment, 1994/95–1997/98(In thousands unless otherwise specified)
1994/951995/961996/971997/98
Population 1/43,92244,74345,57046,400
Growth rate (in percent)1.91.91.81.8
Total employment17,23017,58717,96418,337
Growth rate (in percent)2.52.12.12.1
Agriculture11,11511,27211,38111,507
Livestock and fishery388388391397
Forestry186188188189
Mining105116132121
Manufacturing and processing1,4101,4811,5731,666
Construction327354378400
Power18192126
Transportation and communication431441470495
Social services548563577597
Administration739776835888
Trade1,6631,7151,7461,781
Other300274272270
Employment by sector17,23017,58717,96418,337
Public sector 2/1,3821,3781,3811,411
Private sector and cooperatives15,84816,20916,58316,948
Percentage share of total92929292
Memorandum item:
Labor force 3/18,29618,76619,24819,743
Urban4,0944,1994,3074,418
Rural14,20214,56714,94115,325
Source: Data provided by the Myanmar authorities.

Data for mid-fiscal year.

Including casual labor.

Estimates based on the Myanmar Labor Force Survey, 1990.

Source: Data provided by the Myanmar authorities.

Data for mid-fiscal year.

Including casual labor.

Estimates based on the Myanmar Labor Force Survey, 1990.

22. Real wages in the public sector have been eroded significantly by persistently high inflation. Assessing the extent of the decline is made difficult by the substantial benefits in-kind provided to public employees. The average monthly salary in the public sector has been about 1,000 kyats since 1994—equivalent to US$3 at the current market exchange rate. Consequently, real wages are only about one-third of the 1994 level. Private sector wages are considerably higher. Public sector employees, however, also receive non-wage benefits, including free transportation, subsidized housing, health and pension benefits, and other payments-in-kind such as rice. Rice subsidies to government workers are alone estimated to amount to Kyat 10 billion per annum, an amount which exceeds the Union Government’s annual public sector wage bill.

E. Prices

23. CPI inflation rose to a record high during 1998/99. The CPI rose by 49 percent in 1998/99 (annual average), compared with 34 percent in 1997/98 and 20 percent in 1996/97 (Table 17). During the past decade, inflation in Myanmar has never fallen below 16 percent, a result of the continued monetization of large public sector deficits. The acceleration of inflation during 1998 was driven by the sharp depreciation of the free market exchange rate—the kyat lost 50 percent of its value against the U.S. dollar between mid-1997 and mid-1998, and by a surge in food prices, which rose by 66 percent in June 1998 (year-over-year) owing to severe drought. However, inflation has since declined. By April 1999, twelvemonth CPI inflation had fallen below 30 percent, partly due to a more stable external environment, as well as to a better harvest in the second half of 1998.

Table 17.Myanmar: Yangon Consumer Price Index 1995/96–1998/99
199719981999
Weights1995/961996/971997/981998/99Mar.Jun.Sep.Dec.Mar.Jun.Sep.Dec.Mar.
(1986 = 100 annual average, end of month)
All items100.07368831,1821,7629601,0141,1851,2641,3931,6931,7861,8561,863.2
Food and beverages64.98571,0521,4052,1131,1491,2131,4091,5011,6572,0182,1342,2372,240.2
Tobacco2.33083557061,1134676266857368559581,0451,0961,139.8
Fuel and light8.87738531,0231,2869018941,0371,0781,1621,2761,3161,3021,300.2
Clothing7.14545347181,1655676146767919181,1941,1441,1691,191.5
House rent3.1396439591796463522578637678839773799803.4
Other13.84344736821,0605085327087417949941,1291,1331,150.1
(12-month percentage change)
All items21.820.033.949.126.625.434.131.745.167.050.746.833.7
Food and beverages23.822.833.650.329.527.133.029.644.266.451.449.035.2
Tobacco3.915.099.157.752.596.292.2104.883.253.052.648.933.3
Fuel and light15.310.320.025.717.510.923.021.429.042.726.820.811.8
Clothing14.217.534.562.213.418.027.744.361.994.669.347.829.7
House rent25.510.834.534.816.324.336.641.846.360.633.725.318.6
Other18.09.144.355.316.521.452.847.956.287.159.653.044.8
Source: Data provided by the Myanmar authorities.
Source: Data provided by the Myanmar authorities.

24. Official inflation data have limitations Reported inflation is based on a consumption basket established in 1986 for Yangon. Only official prices are used to construct the CPI index, although there are large differences between the official prices and parallel market prices for a number of goods, including rice. In addition, price disparities persist among different regions, possibly due to high transportation costs. Both price levels and inflation rates are believed to be lower in the rice and vegetable growing areas than in the cities. Efforts are being taken to construct a new CPI index using market prices, with wide regional coverage and new weights based on a 1997 household expenditure survey.

III. Fiscal Developments

A. Overview

25. The consolidated public sector deficit has declined in Myanmar over the past two years (Tables 18 and 19, and Chart 3). The public sector deficit in 1997/98 was 5 percent of GDP, a decrease of 1½ percentage points of GDP compared to 1995/96 and 1996/97. The deficit fell further to an estimated 4½ percent of GDP in 1998/99.4

Table 18.Myanmar: Summary Operations of the Nonfinancial Public Sector, 1995/96–1998/99(In billions of kyats)
1995/961996/971997/981998/991998/99
BudgetStaff Est.
Union Government
Receipts40.253.888.380.4113.9
Tax revenue20.928.945.935.152.2
Transfers from SEEs10.515.426.934.241.9
Other nontax revenue7.78.813.910.519.1
Foreign grants 1/1.10.61.60.60.6
Expenditures 2/64.876.697.972.1114.6
Current expenditures33.539.048.049.362.7
Wages/Salaries9.39.38.18.2
Goods and services8.59.914.319.0
Mantainance and repairs9.110.515.218.5
Contributions2.02.42.66.1
Interest payments4.26.17.89.011.0
Domestic3.45.87.68.610.6
External (due) 1/0.80.30.20.40.4
Other0.40.80.0−0.1
Capital expenditures 3/31.237.649.922.851.9
Current Balance6.614.840.331.151.2
Overall Balance−24.6−22.8−9.68.3−0.7
State Economic Enterprises
Receipts87.2114.6185.0283.8271.9
Expenditures100.1143.6232.4325.8341.3
Current91.0127.9214.5315.0321.8
Capital9.215.717.910.819.6
Current Balance−3.8−13.3−29.5−31.2−49.8
Overall Balance−12.9−29.0−47.4−42.0−69.4
Consolidated Accounts
Receipts40.253.888.380.4113.9
Tax20.928.945.935.152.2
Non-tax18.224.240.744.761.0
Grants 1/1.10.61.60.60.6
Expenditures77.7105.6145.3114.1184.0
Current37.352.477.480.6112.6
Capital40.453.267.933.671.4
Current Balance2.91.410.9−0.21.3
Overall Balance−37.5−51.8−57.0−33.7−70.1
Financing37.551.857.033.770.1
Foreign loans (net on accrual basis)−0.7−1.3−0.60.8
Foreign loans (gross)0.70.41.12.5
Amortization due−1.5−1.7−1.6−1.7
Change in external arrears 1/0.10.91.31.2
Interest−0.40.30.20.3
Principal0.50.71.10.9
Domestic financing38.253.157.669.3
Domestic bank financing49.534.844.756.0
Central Bank49.634.044.451.2
Commercial banks 4/−0.10.80.34.8
Other−11.218.312.913.3
Sources: Budget Department, Ministiy of Finance and Revenue; and staff estimates.

Valued at the official exchange rate.

Excludes off-budget expenditures

Includes net lending.

Includes purchase of Treasury Bonds by commercial banks.

Sources: Budget Department, Ministiy of Finance and Revenue; and staff estimates.

Valued at the official exchange rate.

Excludes off-budget expenditures

Includes net lending.

Includes purchase of Treasury Bonds by commercial banks.

Table 19.Myanmar: Summary Operations of the Nonfinancial Public Sector, 1995/96–1998/99(In percent of GDP)
1995/961996/971997/981998/991998/99
BudgetStaff Est.
Union Government
Receipts6.76.88.07.27.3
Tax revenue3.53.74.13.13.3
Transfers from SEEs1.71.92.43.12.7
Other nontax revenue1.31.11.30.91.2
Foreign grants 1/0.20.10.10.10.0
Expenditures 2/10.79.78.86.47.3
Current expenditures5.64.94.34.44.0
Wages/Salaries1.51.20.70.5
Goods and services1.41.31.31.2
Mantainance and repairs1.51.31.41.2
Contributions0.30.30.20.4
Interest payments:0.70.80.70.80.7
Domestic0.60.70.70.80.7
External (due) 1/0.10.00.00.00.0
Other0.10.10.00.0
Capital expenditures 3/5.24.84.52.03.3
Current Balance1.11.93.62.83.3
Overall Balance−4.1−2.9−0.90.70.0
State Economic Enterprises
Receipts14.514.516.725.317.4
Expenditures16.618.220.929.121.9
Current15.116.219.328.120.6
Capital1.52.01.61.01.3
Current Balance−0.6−1.7−2.7−2.8−3.2
Overall Balance−2.1−3.7−4.3−3.8−4.4
Consolidated Accounts
Receipts6.76.88.07.27.3
Tax3.53.74.13.13.3
Non-tax3.03.13.74.03.9
Grants 1/0.20.10.10.10.0
Expenditures12.913.413.110.211.8
Current6.26.67.07.27.2
Capital6.76.76.13.04.6
Current Balance0.50.21.00.00.1
Overall Balance−6.2−6.6−5.1−3.0−4.5
Financing6.26.65.13.04.5
Foreign loans (net accrual) 1/−0.1−0.20.00.1
Change in external arrears 1/0.00.10.10.1
Domestic financing6.36.65.14.4
Domestic bank financing8.34.44.03.6
Other−2.02.31.20.9
Memorandum items:
Union Government balance

exclusive of SEE transfers
−5.8−4.8−3.3−2.3−2.7
SEE balance exclusive of transfers−0.4−1.7−1.9−0.7−1.8
Sources: Budget Department, Ministry of Finance and Revenue; and staff estimates.

Valued at the official exchange rate.

Excludes off-budget expenditures.

Includes net lending.

Sources: Budget Department, Ministry of Finance and Revenue; and staff estimates.

Valued at the official exchange rate.

Excludes off-budget expenditures.

Includes net lending.

Chart 3Myanmar: Public Sector Developments, 1994/95–1998/99 1/

(In percent of GDP)

Source: Data provided by the Myanmar Authorities; and staff estimates. 1/ Figures for 1998/99 are staff estimates.

26. The decline in the public sector deficit since 1995/96 is primarily attributable to lower Union Government capital expenditure. The Union Government’s deficit, exclusive of transfers from State Economic Enterprises (SEEs),5 has fallen by 3 percentage points of GDP since 1995/96. By contrast, the public sector deficit declined by only 1¾ percentage points of GDP over this period, with the remainder of the reduction in the Union Government deficit serving to offset a worsening fiscal balance of the SEE sector. The public sector’s current balance has remained broadly unchanged since 1995/96 and the decrease in the public sector deficit is attributable to lower capital expenditures.

27. Capital expenditures were cut particularly sharply in 1998/99, due in part to the completion of large projects in 1997/98. However, the authorities also took steps to reduce “unproductive” expenditures and a sizeable part of their efforts were directed at public investment projects. The decrease in capital expenditures in 1998/99 more than compensated for a decline in tax revenue of almost 1 percentage point of GDP, thus allowing the public sector deficit to fall by an estimated ½ percentage point of GDP. Tax receipts fell primarily as a result of a 40 percent drop in customs duties collected.

28. The public sector deficit has continued to be primarily financed by the Central Bank of Myanmar (CBM). Bank credit provided financing to the public sector of 3½ percent of GDP in 1998/99 (out of an estimated deficit of 4½ percent of GDP). Ninety percent of the bank financing took the form of CBM credit. In recent years, treasury bonds held outside the CBM have become a small but significant alternative source of financing. In 1998/99, the net issue of 3-year and 5-year treasury bonds amounted to Kyat 25 billion (1½ percent of GDP), most of which was taken up by private enterprises (Table 28).6

Table 20.Myanmar: Union Government Revenues, 1995/96–1998/99
1995/961996/971997/981998/991998/99
BudgetStaff Est.
(In billions of kyats)
Total revenue and grants40.253.888.380.4113.9
Tax revenue20.928.945.935.152.2
Taxes on Income7.69.215.312.320.9
Income Tax4.26.211.116.6
Profit tax3.33.04.24.3
Commercial tax7.19.518.113.922.7
Taxes on property use0.81.01.61.41.7
Land tax0.10.10.10.10.1
Extraction of forestry products0.30.40.70.70.7
Fisheries Tax0.40.40.70.60.9
Customs Duties4.57.88.65.55.2
Excise Duties0.10.10.20.10.2
Other0.91.42.31.91.5
Import license fee0.20.20.20.20.2
Motor vehicle tax0.10.20.80.40.7
Stamp duties0.50.91.31.30.6
Nontax revenue18.224.240.744.761.0
Transfers from SEEs10.515.426.934.241.9
Other7.78.813.910.519.1
Registration fees0.00.10.10.10.1
School fees0.30.40.20.91.0
Mechanized Agricultural Department receipts0.72.21.01.93.1
Union Government capital receipts0.90.80.80.80.8
Other Union Government receipts3.92.97.83.29.8
Representative Bodies receipts0.10.10.10.10.0
Public Debt Account receipts0.20.20.10.10.1
State Lottery1.52.23.73.54.2
Foreign grants1/1.10.61.60.60.6
(In percent of GDP)
Total revenue and grants6.76.88.07.27.3
Tax revenue3.53.74.13.13.3
Taxes on Income1.31.21.41.11.3
Income Tax0.70.81.00.01.1
Profit tax0.60.40.40.00.3
Commercial tax1.21.21.61.21.5
Taxes on property use0.10.10.10.10.1
Customs Duties 2/0.81.00.80.40.3
Other 1/0.10.20.20.00.1
Nontax revenue3.03.13.74.03.9
Transfers from SEEs1.71.92.43.12.7
Other1.31.11.30.91.2
Foreign grants1/0.20.10.10.10.0
Sources: Budget Department, Ministry of Finance and Revenue; and staff estimates.

Valued at the official exchange rate.

Including excise duties.

Sources: Budget Department, Ministry of Finance and Revenue; and staff estimates.

Valued at the official exchange rate.

Including excise duties.

Table 21.Myanmar: Union Government Expenditure by Functional Classification, 1995/96–1998/99 1/(In billions of kyats)
1995/961996/971997/981998/991998/99
BudgetStaff Est.
Total expenditure2/64.876.697.972.1114.6
Current expenditure33.539.048.049.362.7
General Services3.23.35.14.14.9
SPDC etc.0.70.60.90.91.0
Home2.22.42.72.83.5
Information0.20.20.20.30.3
Foreign Affairs0.10.11.20.20.2
Defense10.713.114.716.217.8
Economic Services5.87.210.010.112.7
Agriculture and Forestry3.04.35.05.76.6
Industry0.10.00.00.10.1
Mines0.10.10.10.10.1
Transport and Communications0.20.20.30.30.3
Public Works and Housing1.71.93.83.14.6
Trade0.00.00.10.10.1
Co-operatives0.20.30.30.30.3
Planning and Finance0.60.40.60.50.6
Social Services7.77.88.99.210.3
Education4.54.95.35.76.4
Health1.01.11.61.31.6
Pensions and Gratuities1.91.61.71.82.0
Labour0.00.00.00.10.1
Social Welfare0.20.20.30.20.3
Total interest payments4.26.17.89.011.0
Other current expenditure 3/1.91.51.50.86.1
Capital expenditure31.237.649.922.851.9
Representative Bodies0.50.30.60.30.8
General Services1.11.51.40.81.3
Defense13.111.315.58.318.2
Economic Services12.915.324.59.624.5
Agriculture and Forestry6.77.08.23.96.9
Industry0.00.00.00.00.0
Mines0.00.00.00.00.0
Transport and Communications1.51.42.22.25.1
Public Works and Housing4.56.613.93.212.3
Planning and Finance0.20.20.20.20.2
Social Services3.37.46.63.34.6
Education2.05.44.72.33.2
Health1.32.01.91.01.3
Other 4/0.31.91.30.42.4
Sources: Budget Department, Ministry of Finance and Revenue; and staff estimates.

On a cash basis, except for interest payments.

Excludes off-budget expenditures.

Includes contributions to international organizations, Reserve Fund, and unallocated expenditure.

Includes net lending.

Sources: Budget Department, Ministry of Finance and Revenue; and staff estimates.

On a cash basis, except for interest payments.

Excludes off-budget expenditures.

Includes contributions to international organizations, Reserve Fund, and unallocated expenditure.

Includes net lending.

Table 22.Myanmar: Union Government Expenditure by Functional Classification, 1995/96–1998/99 1/(In percent of GDP)
1995/961996/971997/981998/991998/99
BudgetStaff Est.
Total expenditure 2/10.79.78.86.47.3
Current expenditure5.64.94.34.44.0
General Services0.50.40.50.40.3
SPDC etc.0.10.10.10.10.1
Home0.40.30.20.20.2
Information0.00.00.00.00.0
Foreign Affairs0.00.00.10.00.0
Defense1.81.71.31.41.4
Economic Services1.00.90.90.90.8
Agriculture and Forestry0.50.50.50.50.4
Public Works and Housing0.30.20.30.30.3
Other0.20.10.10.00.0
Social Services1.31.00.80.80.7
Education0.70.60.50.50.4
Health0.20.10.10.10.1
Pensions and Gratuities0.30.20.20.20.1
Labour0.00.00.00.00.0
Social Welfare0.00.00.00.00.0
Total interest payments0.70.80.70.80.7
Other current expenditure 3/0.30.20.10.10.4
Capital expenditure5.24.84.52.03.3
Representative Bodies0.10.00.10.00.1
General Services0.20.20.10.10.1
Defense2.21.41.40.71.2
Economic Services2.11.92.20.91.6
Agriculture and Forestry1.10.90.70.40.4
Public Works and Housing0.70.81.30.30.8
Other0.30.20.20.20.3
Social Services0.60.90.60.30.3
Education0.30.70.40.20.2
Health0.20.30.20.10.1
Other 4/0.10.20.10.00.2
Sources: Budget Department, Ministry of Finance and Revenue; and staff estimates.

On a cash basis, except for interest payments.

Excludes off-budget expenditures.

Includes contributions to international organizations, Reserve Fund, and unallocated expenditure.

Includes net lending.

Sources: Budget Department, Ministry of Finance and Revenue; and staff estimates.

On a cash basis, except for interest payments.

Excludes off-budget expenditures.

Includes contributions to international organizations, Reserve Fund, and unallocated expenditure.

Includes net lending.

Table 23.Myanmar: Sectoral Breakdown of SEEs’ Financial Position, 1995/96–1998/99 1/
1995/961996/971997/981998/99

Est.
(In millions of kyats)
Agriculture and forestry−3,868−5,418−16,422−16,476
Current balance−3,207−4,520−14,500−10,468
Capital expenditure6618981,9226,008
Fisheries and pearls−158−122−152−28
Current balance−119−1−1005
Capital expenditure391215233
Industrial1,7755645,118−2,572
Current balance2,1641,6136,202−1,083
Capital expenditure3891,0491,0841,489
Minerals−342−1,909−2,237−2,376
Current balance−185−1,223−1,914−1,724
Capital expenditure157686323652
Construction−402−161−395−999
Current balance38144−295−851
Capital expenditure440305100148
Power−1,002−1,985−3,784−4,201
Current balance343516366−1,158
Capital expenditure1,3452,5014,1503,043
Transport−3,817−8,808−7,501−7,899
Current balance96881,694−422
Capital expenditure4,7858,8169,1957,477
Trade council−5,778−13,065−26,383−36,929
Current balance−4,999−12,319−25,745−36,600
Capital expenditure779746638329
Other6221,8544,1792,061
Current balance1,2362,4164,7382,456
Capital expenditure614562559395
Total SEEs
Current balance−3,761−13,366−29,554−49,845
Capital expenditure 2/9,20915,68418,02319,574
Overall balance−12,970−29,050−47,577−69,419
(In percent of GDP)
Total SEEs
Current balance−0.6−1.7−2.7−3.2
Capital expenditure 2/1.52.01.61.3
Overall balance−2.1−3.7−4.3−4.4
Sources: Budget Department, Ministry of Finance and Revenue; and staff estimates.

Current surplus is recorded on a cash basis before payments of interest but after contributions to the Union Government.

Gross capital expenditure excluding capital revenue.

Sources: Budget Department, Ministry of Finance and Revenue; and staff estimates.

Current surplus is recorded on a cash basis before payments of interest but after contributions to the Union Government.

Gross capital expenditure excluding capital revenue.

Table 24.Myanmar: Monetary Survey, 1995–99 1/
19951996199719981999
March
(In millions of Kyats, end-of-period)
Net foreign assets−9,048−10,354−10,835−9,263−7,959
Domestic credit163,170229,738297,660382,412486,254
Claims on public sector (net)134,695184,156219,002263,681319,691
Claims on private sector28,47545,58278,658118,731166,563
Of which: by private banks4,63014,35533,25555,97796,790
Other items (net)−197−13,229−19−4,007−7,450
Broad money (at official exchange rate)153,882206,133286,806369,151470,896
Narrow money116,081146,736198,416259,148307,567
Of which : Currency outside banks106,291131,730175,528223,249259,894
Of which : FECs outside banks62103205258252
Quasi-money37,80159,39788,390110,003163,329
Of which : FC-denominated deposits516546523916933
Reserve money110,167160,452207,375249,337300,778
Of which : Currency in circulation108,388136,430183,782236,854277,886
Broad money (at market exchange rate) 2/164,193219,357305,285412,391530,208
Of which : FECs outside banks and FC deposits10,88913,87419,20844,41460,497
(Annual percentage change)
Domestic credit25.740.829.628.527.2
Claims on public sector (net)24.632.116.915.615.2
Claims on private sector31.360.172.650.940.3
Of which : by private banks182.9210.1131.768.372.9
Broad Money (at official exchange rate)41.334.039.128.727.6
Narrow Money40.326.435.230.618.7
Quasi-money44.457.148.824.548.5
Of which : FC deposits10.05.8−4.275.11.9
Reserve money31.745.629.220.220.6
Of which : Currency in circulation41.225.934.728.917.3
Broad money (at market exchange rate) 2/39.833.639.235.128.6
(Contribution to annual growth of broad money, in percent)
Domestic credit30.743.333.029.628.1
Claims on public sector (net)24.424.416.915.616.9
Claims on private sector6.211.116.014.013.0
Memorandum items(In percent)
Broad money multiplier1.401.281.381.481.57
Velocity3.12.92.83.03.3
Currency/broad money69.163.961.260.555.2
FECs+FC deposits/broad money 2/6.66.36.310.811.4
FC deposits/total deposits 2/17.213.711.119.318.5
Credit to private sector/domestic credit17.519.826.431.034.3
Credit by private banks/domestic credit2.96.411.715.421.6
Private bank deposits/total deposits13.025.637,645.956.O
Sources: Central Bank of Myanmar and staff estimates.

FEC denotes Foreign Exchange Certificates and FC denotes foreign currency denominated deposits.

FECs and FC deposits valued at FEC market exchange rate.

Sources: Central Bank of Myanmar and staff estimates.

FEC denotes Foreign Exchange Certificates and FC denotes foreign currency denominated deposits.

FECs and FC deposits valued at FEC market exchange rate.

Table 25.Myanmar: Monetary Authorities’ Accounts, 1995–99
19951996199719981999
March
(In millions of Kyats, end-of-period)
Foreign assets (net) 1/5,7274,3193,8863,6404,927
Domestic credit (net)131,042181,280229,003270,837324,003
Claims on central government (net)124,979174,548208,547252,942304,152
Claims on deposit money banks6,0636,73220,45617,89519,85.1
Other items (net)1,8331,8041,1721,443−359
Of which : Capital accounts1,0881,0821,6812,8824,876
Reserve money110,167160,452207,375249,337300,778
Of which : Currency issued108,388136,430183,782236,854277,886
Of which : FECs issued 2/67170401694952
Other (nonreserve) liabilities to deposit money banks26,38225,14524,53924,43825,703
Foreign liabilities1,9851,7942,1472,1602,093
Memorandum items:(In millions of U.S. dollars)
FECs issued, in millions of Kyats 3/67170401694952
FECs in banks567196436700
FECs in circulation62103205258252
FECs issued, in millions of US dollars, at official rate 3/112763109150
FECs in banks1113169110
FECs in circulation1016324140
Sources: Central Bank of Myanmar and staff estimates

Comprises accounts of the Central Bank of Myanmar and the short-term foreign assets of the Myanma Foreign Trade Bank, with a contra-entry included in Other (nonreserve) liabilities to deposit money banks.

FEC denotes Foreign Exchange Certificates.

Based on the banks’ balance sheets.

Sources: Central Bank of Myanmar and staff estimates

Comprises accounts of the Central Bank of Myanmar and the short-term foreign assets of the Myanma Foreign Trade Bank, with a contra-entry included in Other (nonreserve) liabilities to deposit money banks.

FEC denotes Foreign Exchange Certificates.

Based on the banks’ balance sheets.

Table 26.Myanmar: Bank Deposits and Loans, 1995–98
1995199619971998
March
(In millions of Kyats)
Deposits and savings certificates47,68975,111110,042145,789
Demand and Time deposits11,21518,02025,06741,144
Savings deposits31,81851,64777,69496,265
Savings certificates4,6565,4447,2818,380
Loans (incl SEE)28,53846,872
SEE7748
Loans28,46146,82477,066114,629
Cooperatives5,7745,9445,8175,502
Working capital5,7305,9165,7975,481
Term loans44282021
Private sector22,68740,88071,249109,127
Agriculture1,5503,4543,9183,504
Other21,13737,42667,331105,623
Of which : Extended by private banks4,26213,40031,27351,310
(Annual percentage change)
Deposits and savings certificates43.757.546.532.5
Demand and Time deposits43.360.739.164.1
Savings deposits47.662.350.423.9
Savings certificates22.016.933.715.1
Loans29.464.564.648.7
SEE352.9−37.7
Cooperatives−6.32.9−2.1−5.4
Working capital−6.13.2−2.0−5.5
Term loans−24.1−36.4−28.65.0
Private sector43.380.274.353.2
Agriculture7.8122.813.4−10.6
Other46.877.179.956.9
Of which : Extended by private banks167.9214.4133.464.1
(Share of total deposits, in percent)
Deposits and savings certificates100.0100.0100.0100.0
Demand and Time deposits23.524.022.828.2
Savings deposits66.768.870.666.0
Savings certificates9.87.26.65.7
(Share of total loans, in percent)
Loans100.0100.0100.0100.0
Cooperatives20.312.77.54.8
Working capital20.112.67.54.8
Term loans0.20.10.00.0
Private sector79.787.392.595.2
Agriculture5.47.45.13.1
Other74.379.987.492.1
Of which : Extended by private banks15.028.640.644.8
Source: Central Bank of Myanmar.
Source: Central Bank of Myanmar.
Table 27.Myanmar: Selected Interest Rates, 1995–99
19951996199719981999
March
Average inflation22.421.820.033.950.0
Central bank rediscount rate11.012.515.0 1/15.012.0 7/
Treasury bills and bonds
Three-month treasury bills4.04.04.04.04.0 7/
Three-year treasury bonds10.010.013.5 1/13.510.5 7/
Five-year treasury bonds10.510.514.0 1/14.011.0 7/
Deposit rates
Call deposits3.03.06.06.05.0 8/
Fixed-term deposits
Three months8.59.512.0 1/12.010.0 7/
Six months9.010.012.5 1/12.510.5 7/
Nine months9.510.513.0 1/13.011.0 7/
Savings bank accounts
Basic rate10.010.012.0 1/12.010.0 7/
Savings certificates
Twelve-year maturity12.012.015.0 1/15.012.0 7/
Lending rates
Cooperatives
Working capital loans 2/16.516.516.516.515.0 7/
Term loans15.015.015.015.014.5 7/
Private sector
Agriculture
To village banks 3/13.013.013.013.013.0
To farmers 4/18.018.018.018.017.0 7/
House repair and other loans 5/15.015.015.015.015.0
Small personal loans36.036.036.036.036.0
Trade 6/
Working capital loans11516.518.0 1/18.015.0 7/
Term loans14.514.516.5 1/16.514.5 7/
Source: Central Bank of Myanmar

Effective from April 1,1996.

Overdrafts are charged an additional 0.5 percent.

Lending rate of the Myanmar Agricultural Development Bank.

Relending rate of village banks.

For government employees, the rate is generally reduced to 5 percent. Moreover, a special program of interest-free housing loans for civil servants was in place during 1990–93.

For financing of domestic and foreign trade of joint ventures and private entrepreneurs.

Effective from April 1,1999.

Effective from June 1,1999.

Source: Central Bank of Myanmar

Effective from April 1,1996.

Overdrafts are charged an additional 0.5 percent.

Lending rate of the Myanmar Agricultural Development Bank.

Relending rate of village banks.

For government employees, the rate is generally reduced to 5 percent. Moreover, a special program of interest-free housing loans for civil servants was in place during 1990–93.

For financing of domestic and foreign trade of joint ventures and private entrepreneurs.

Effective from April 1,1999.

Effective from June 1,1999.

Table 28.Myanmar: Government Treasury Bonds 1993/94–1998/99(In millions of Kyats)
3-year bonds5-year bonds
SalesRedemptionsOutstandingSalesRedemptionsOutstanding
1993/9436.00.036.06.80.06.8
1994/9547.00.083.07.30.014.1
1995/96824.70.0907.748.70.062.8
1996/971,898.536.02,770.1492.10.0554.9
1997/982,423.147.45,145.81,787.30.02,342.1
1998/9910,477.0823.914,798.915,175.66.817,510.9
Source: Central Bank of Myanmar
Source: Central Bank of Myanmar

Box 3.The Budget Process

The budget process in Myanmar is a legacy of the former system of central planning. It can be illustrated with reference to the 1998/99 fiscal year (April 1998–March 1999).

Consideration of the 1998/99 fiscal position develops in three stages:

End-1997. The 1998/99 budgets for the Union Government and the state enterprises are finalized and approved.

End-1998. Revised estimates for 1998/99 are published that include substantial additional (primarily capital) expenditures undertaken during the fiscal year and ratified by a Supplementary Budget (published in March 1999).

End-1999. The actual outturn for 1998/99 is published.

In between these events, no revisions are made to revenue or expenditure projections. The chart shows that current expenditure tends to be close to the original estimate, but that typically capital expenditure is 100–150 percent larger than the budgeted provision. This divergence is not solely a result of unintended inflation (which may explain the divergence between budgeted and actual revenue). Instead, it appears to reflect the practice of excluding from the original budget new projects that are not certain to go ahead or for which final loan agreements have not been signed.

Myanmar: Ratio of Actual to Budget

As a consequence, the budget provides only a partial picture of the authorities& fiscal intentions:

  • the original budget seems to imply a large drop in capital expenditure (as it does again for the 1999/2000 budget), and

  • the budget tends to significantly understate the likely deficit.

    To illustrate, the original budget estimates for 1998/99 imply a public sector deficit of Kyat 34 billion or 3 percent of GDP (Tables 18 and 19). However, the budget provision for Union Government capital expenditure in 1998/99 of Kyat 23 billion was subsequently raised to Kyat 52 billion through the Supplementary Budget—-an increase of 1.9 percent of GDP—-implying a large corresponding increase in the deficit that could have been anticipated when the budget was first formulated. In the event, the 1998/99 public sector deficit is estimated to have been 4½ percent of GDP.

B. The Union Government

Revenue

29. Tax revenue in Myanmar is extremely low (Table 20). After declining through the first half of the 1990s, tax revenue appears to have leveled off in recent years at about 3½ percent of GDP. By contrast, the average ratio of tax revenue to GDP is 15 percent for SAF/ESAF countries.7 The low level of tax revenue in Myanmar can be explained in terms of both a narrow tax base and an apparently poor culture of compliance.

30. Widespread granting of exemptions has eroded the tax base. Beneficiaries of exemptions include both foreign and domestic investors. The base of the commercial tax, a tax on transactions that resembles a value-added tax because of its crediting provisions, was widened in 1999. From April 1, five additional services—tourism, motor vehicle maintenance, insurance, health clubs and hairdressing, and printing—became subject to commercial tax at rates of 5–10 percent. At the same time, generous tax exemptions were offered to investors in large-scale agricultural projects.

31. Tax compliance appears to be poor. Direct evidence is not available, but tax inspectors receive very low wages and international experience is that poorly paid tax inspectors are susceptible to bribes. In addition, the system of valuing imports for the purposes of levying customs duties is opaque and appears somewhat arbitrary. In some cases, imports are valued at an exchange rate of Kyat 100/US$, which is less than a third of the market rate; in other cases, customs officials attempt to estimate the domestic market value of the good. Such practices allow considerable discretion to customs officials and may contribute to the exceptionally low buoyancy of customs duties.

32. Implicit taxes are also levied in Myanmar. Although formal tax collections are relatively low, the state appears to levy taxes in nonstandard ways. An example of such is provided by the procurement system in agriculture, whereby farmers are required to sell a fixed number of baskets of rice per acre to a state enterprise, Myanmar Agricultural Procurement Trading (MAPT), at a below market price.8 The staff calculate the implicit tax yield from this practice to have amounted to 2–3 percent of GDP in 1998/99, which is only a little below the yield of the regular tax system. However, even after taking account of the yield of this implicit land tax, revenue would still be low by international standards.

33. Tax revenues declined by 0.8 percentage points of GDP in 1998/99 The major cause was a sudden drop in customs duties collections from Kyat 8.5 billion in 1997/98 to Kyat 5.1 billion in 1998/99, This occurred despite the market exchange rate depreciating by 33 percent in 1998/99 (annual average) and the U.S. dollar value of imports increasing by an estimated 8 percent. Possible explanations include continued large tax exemptions granted to both foreign and domestic investors, lags in adjusting valuation methods to exchange rate depreciation, and greater evasion in the wake of the requirement that all border trade be conducted in U.S. dollars.

34. Other tax revenues have been eroded by inflation. Revenue collections by the Internal Revenue Department (IRD) have been depressed by the effects of high inflation.9 For example, current income tax collections are based on the previous year’s earnings and hence reflect a lower price level. However, in recent years efforts have been made to revise departmental licenses and fees upward in line with inflation. In addition, nontax revenues were boosted in 1998/99 by the sale of surplus vehicles by the Ministry of Agriculture.

Expenditure

35. The Union Government’s wage bill has been broadly unchanged at about Kyat 89 billion over the past four fiscal years despite the price level almost tripling during this period. This appears to reflect severe wage compression rather than any reduction in the number of civil servants. However, as noted in Chapter II above, interpretation of developments in civil service wages in Myanmar is complicated by the practice of providing a substantial part of remuneration in the form of in-kind benefits (such as rice, housing, and transport). As a result, some part of the cost of civil servant remuneration shows up as losses of the SEEs, particularly of the MAPT (see paragraph 37).

36. Government expenditure on social services fell to 1 percent of GDP in 1998/99. Social spending relative to GDP has declined to half the level of 1995/96 (Table 22) and one quarter of the level of 1989/90, with inevitable costs in terms of poverty and human development. The drop in social spending in the early 1990s reflected a shift in the composition of expenditure away from social services and particularly toward defense. The more recent decline is associated with a general reduction in expenditure across all functional classifications. Indeed, defense expenditure has also fallen by about a half relative to GDP since 1995/96. However, the lack of any information about off-budget expenditures qualifies any conclusions drawn from Table 22, particularly about trends in defense expenditure.

C. State Economic Enterprises

37. SEEs lack autonomy and are making increasing losses. 10 Prices charged by SEEs are set by the government and have not kept pace with inflation. This has tended to increase aggregate SEE losses (Table 23), although costs have also been held down by the apparent absence of nominal wage increases, In 1998/99, the largest loss was made by the Trade Council (Kyat 36 billion or 2.3 percent of GDP). This is related to the subsidized selling of agricultural products by MAPT with important beneficiaries including government employees.

38. The use of the official exchange rate in SEE accounts serves to obscure the true financial health of individual enterprises. Exporting enterprises (such as those in the mining sector) tend to appear unprofitable as a result of their export proceeds being converted into kyat at the official rate; this implies that they currently receive only 2 percent of the amount they would receive at the market rate. By contrast, industrial enterprises that produce for the domestic market typically appear profitable because they can import inputs at the official exchange rate.11 Financial enterprises are also largely profitable, implying that the fixed spread between the controlled deposit and lending rates is adequate to cover their costs.

39. The pace of privatization has been slow. Privatization, which was initiated in 1995, can take the form of outright sale, leasing, joint ventures, or “contracting out.” The slow pace of privatization is explained by the shortfall of capital available to local investors, and by a lack of interest by foreign investors. During 1998/99, a large steel mill was leased for five years to a locally owned company, and bids have been submitted for sixty eight candidates for privatization (mostly cinemas) announced in January 1999. In addition, most of the trade sector SEEs and government-owned hotels have been liquidated or leased out, respectively.

IV. Monetary and Banking Sector Developments

A. Overview

40. Monetary policy is passive in Myanmar. The Central Bank of Myanmar (CBM) automatically provides financing to the public sector and this has led to high and inflationary growth of reserve money (at rates of 20–30 percent annually). Broad money and credit developments have also been dominated by the government’s borrowing needs. The public sector’s share of domestic credit has declined in recent years, but remains at some two-thirds of the total (Tables 2425 and Chart 4). Interest rates are set by the authorities at levels that are highly negative in real terms.

Chart 4Myanmar: Monetary Developments, 1994/95–1998/99

(In percent)

Source: Data provided by the Myanmar authorities; and staff estimates.

41. The banking sector remains underdeveloped, but the role of private banks has increased significantly. Velocity is relatively high and has been increasing recently. Currency in circulation is equal to more than half of broad money, and cash transactions predominate. Bank lending is short-term and highly collateralized. Although the banking system is still dominated by the four state-owned banks, private banks have been expanding rapidly.

B. Institutional Framework and Developments

42. The banking system is governed by three laws enacted in July 1990: (i) the Central Bank Law defines the responsibilities and the authority of the CBM; (ii) the Financial Institutions Law defines the activities of banking institutions and is the legal basis for the establishment of private banks; and (iii) the Myanma Agricultural and Rural Development Law defines the activities of the state-owned Myanma Agricultural Development Bank (MADB), named the Myanma Agricultural and Rural Development Bank up until 1998.

43. The banking system comprises the CBM, state-owned banks, and private banks. The CBM, which is under the Ministry of Finance and Revenue (MOFR), finances the bulk of the public sector deficit through overdraft facilities on State Fund Accounts, and through the purchases of three-month Treasury bills.12 The State Fund Accounts are administered by the Myanma Economic Bank (MEB). The MEB also distributes currency on behalf of the central bank through its network of over 300 branches. The other state-owned commercial banks are the Myanma Investment and Commercial Bank (MICB), the Myanma Foreign Trade Bank (MFTB), and the MADB.13

44. Private banks were established in the early 1990s. Since commencing operation in June 1992, private banks have expanded in number from four at end-1992 to 20 in March 1999. The number of private bank branches doubled to 105 during 1998/99 alone; by contrast, the state banks operate a network of over 550 branches. Some of the private banks are partly owned by the government. Foreign banks have thus far been permitted to open representative offices only, and no licenses have been issued for joint ventures. Since March 1998, only the state banks have been permitted to conduct foreign exchange business.

45. Private banks account for a growing share of the banking sector. The growth of private banks has primarily been at the expense of the MEB (whose deposit share has fallen from 86 percent in March 1994 to 40 percent in March 1999). In March 1999, private banks held 56 percent of deposits and extended 22 percent of domestic credit.14 By contrast, the four state banks extended 16 percent of domestic credit (compared to 63 percent of credit provided by the CBM).

46. The volume of transactions in the interbank money market is low. Most transactions consist of fixed deposits placed at an annual rate of 12 percent. The CBM discount facility is another, albeit little used, source of funds. Borrowing through that facility is based on Treasury bonds at up to 90 percent of face value. The discount facility is used on occasion to meet shortfalls in the required reserves or unusually large withdrawals. Commercial paper markets are absent.

47. The nonbank financial sector is relatively small. Nonbank financial institutions include the Myanma Insurance Company, the Myanma Securities Exchange Center (a joint venture between the MEB and Daiwa of Japan), foreign exchange bureaus, and representative offices of foreign banks that do not conduct banking operations in Myanmar. The number of representative offices of foreign banks fell from 43 to 36 during 1998/99, following the revocation of private banks’ foreign exchange trading licenses. With regard to capital market development, the Securities and Exchange Law, work on which began in February 1995, is in preparation for submission by the MOFR to the Cabinet of Ministers.

48. Informal financial markets appear to play a significant role in financial intermediation. Lending is reported to take place in informal credit markets at positive real interest rates (3–5 percent per month). Pawnshops, for example, provide loans at 35–40 percent per annum against suitable collateral. Informal credit markets seem to be most active in rural areas where access to bank credit is limited by the absence of bank branches and a lack of requisite collateral on the part of the borrowers. In response to the constraints facing rural borrowers, the authorities have taken steps to increase lending to the agricultural sector through the MADB.

49. The CBM attaches considerable importance to prudential regulations (Box 4). The importance attached to prudential oversight has increased since the Asian crisis. A comprehensive system of reporting is in place for verifying bank’s compliance with reserve, minimum liquidity, capital adequacy, and loan provisioning requirements. Private banks are reported to be in full compliance with the prudential regulations. The capital-adequacy and the reserve requirement on deposits do not appear to be enforced for the four state commercial banks to the same degree, since these banks are viewed as carrying out special social functions and the state stands behind them in meeting their liabilities.

Box 4.Prudential Regulations for the Banking Sector

The elements of the prudential and supervisory regulations and oversight are:

  • A reserve requirement of 5 percent and 10 percent on time and demand deposits, respectively, including foreign currency-denominated deposits. At least 75 percent of reserves must be held as a non-remunerated deposit at the central bank and the rest in cash. Holdings of Treasury bonds can be counted against the reserve requirement.

  • A liquidity ratio of 20 percent is required so that banks can meet demands for liquidity in a cash-dominated economy. At least twenty percent of eligible liabilities (checks and bills payable, net due to domestic banks, net due to banks abroad, demand and time deposits) must be held as liquid assets, such as excess reserves (either vault cash or on deposit at the CBM), Treasury bonds, gold, and current accounts at other banks. Prior to April 1999, interbank fixed deposits could also be used to satisfy liquidity requirements.

  • A general provision of 2 percent of outstanding loans, and loan loss provisions (applicable to the shortfall in the value of the loan security) of 50 percent and 100 percent of the stock of doubtful and bad loans, respectively.

  • A lending limit to a single client of 20 percent of bank’s capital and reserves.

  • A 10 percent risk-weighted capital-adequacy ratio.

  • A penalty of 0.2 percent per day is levied on the shortfall in the prescribed reserves.

  • An annual on-sight inspection by the CBM.

  • The following reports must to be submitted to the CBM: required reserve (weekly); liquidity ratio (weekly); assets and liabilities statement (monthly); income and expenditure statement (monthly); capital adequacy ratio (monthly); general ledger (monthly); nonperforming loans (quarterly); distribution of loans and advances by sector and security, effective September 1998 (quarterly); provisions for bad and doubtful debts (annually); and profit and loss (annually).

C. Monetary Developments

50. Money growth in Myanmar has remained high, although in recent years velocity has begun to increase. Financing of the government continues to account for the major part of monetary growth. Nonetheless, credit to the private sector has increased to about one third of domestic credit, largely reflecting the growth of private banks. Credit expansion is constrained by the negative level of real interest rates, stringent collateral practices, and a weak banking infrastructure. Velocity has increased during the last two years, as interest rates have turned even more negative in real terms. Dollarization, as gauged by the share of foreign-currency denominated bank deposits in broad money (valued at the market exchange rate), has approximately doubled over the past two years, in line with rapid exchange rate depreciation and rising domestic inflation.

51. During 1998/99, money growth was broadly unchanged while the share of private sector credit continued to grow. Reserve money expansion was below that of broad money, with the increase in the money multiplier reflecting a drop in the currency to deposit ratio. The latter may be related to the success of the private banks in attracting deposits. The narrowing fiscal deficit diminished the contribution of public sector credit growth to monetary growth, and allowed the share of credit to the private sector in domestic credit to increase from 31 percent to 34 percent during 1998/99.

52. Interest rates were lowered across the board in April 1999 to stimulate bank lending and boost growth (Table 27). The CBM cut its discount rate by 3 percentage points to 12 percent leading to reductions in commercial bank rates and the rates on medium-term government securities, all of which are explicitly linked to the discount rate. Thus, the maximum lending rate was reduced from 21 to 17 percent, and the basic savings rate was lowered from 12 to 10 percent.15 The rates on 3 and 5-year government securities were reduced from 13½ and 14 percent to 10½ and 11 percent, respectively.

53. The CBM has continued to issue FECs to tourists and local investors. New FEC issuance totaled 44.3 million (US$44.3 million) during 1998/99, bringing the outstanding stock to 166 7 million, of which 24.7 million FECs were in circulation. These data on FECs differ slightly from that reported in the banks’ balance sheets (see Table 25).

54. Treasury bonds sales accelerated in 1998/99 (Table 28). The increase in sales reflects strong private sector demand, spurred by the private banks’ required reserve and liquidity management considerations. Private enterprises have also become large buyers of government paper.

D. Banking Sector Developments

55. Private banks continued to expand during 1998/99. Private banks began offering interest-bearing call deposits in 1997, and by March 1999, had captured over 70 percent of demand deposits and over 50 percent of time and savings deposits. The rapid rate of increase of lending by private banks has reflected strong growth in loans to manufacturing, tourism and construction, as well as the initially low base. The increasing prominence of private banks in the banking sector reflects their relatively broader range of products and higher efficiency of services. However, expansion of the private banking sector is constrained by the outdated communications infrastructure, and processing and clearance systems, as well as by a shortage of qualified staff. Decision-making and planning by private banks is also made difficult by the lack of published data on the financial sector.

56. Foreign currency-denominated deposits, including FEC deposits, have grown by about 80 percent in dollar terms since 1996/97. These deposits are included in bank balance sheets at the official exchange rate which understates their share in total deposits. When measured at the market exchange rate they account for about one-fifth of total deposits.

57. The banking sector is generally profitable. Large private banks are reported to earn an annual return on equity in the range of 20–25 percent. Of the state-owned banks, only the MEB has been unprofitable.

58. The proportion of nonperforming loans may be rising. Nonperforming loans are defined as loans on which repayment of principal or interest is more than 6 months overdue; the categories of nonperforming loans are as follows: (i) substandard (payment is 6 to 12 months overdue); (ii) doubtful (payment is 12 to 24 overdue); and (iii) bad (payment is overdue more than 24 months). Overall, individual banks’ nonperforming loans at end-December 1998 were in the range of 1–18 percent of total loans, compared to the range of 2–12 percent as of end-February 1998.16 While these data are not conclusive, some private banks may have recently experienced an increase in nonperforming loans as a result of the growth slowdown and depressed real estate sector.

V. External Sector Developments

A. Overall Developments

59. The external position of Myanmar has deteriorated in recent years, after having initially improved in the 1990s (Table 29 and Chart 5). Greater private sector participation in foreign trade and the opening of the economy to foreign investors during the early 1990s led to rapid expansion of exports, private transfers, and FDI. However, these reforms also led to a surge in demand for imports that worsened the trade balance, while official capital inflows were not forthcoming. These factors, and a slowdown and, even reversal, of reforms, led to a renewed deterioration of the external position.

Table 29.Myanmar: Balance of Payments, 1994/95–1998/99(In millions of U.S. dollars)
1994/951995/961996/971997/981998/99

Staff est.
Trade balance−497−935−1,064−1,280−1,346
Exports, mainly f.o.b.9178979291,0111,134
Imports, mainly c.i.f1,4141,8321,9932,2912,480
Services (net)8960107106228
Receipts295402485554611
Payments−205−342−378−449−382
Of which : Interest due−75−70−64−73−73
Private transfers (net)322460457465515
Current account balance (excluding grants)−86−415−500−710−603
Official grants10713210925999
Nonmonetary capital movements−10211102318325
Long-term capital (net)−145−110−211−9939
Disbursements10112059171300
Repayments due−246−230−270−270−261
Foreign direct investment138324316419288
Other capital (net)−3−3−3−2−3
Errors and omissions (net)−12953−39−6647
Overall balance−117−18−329−198−132
Financing11718329198132
Net International Reserves (- increase)−8719193−43−64
Gross reserves (- increase)−874593−44−64
Short-term liabilities0−259900
Net increase in arrears204−1136242196
Memorandum items:
Current account balance (percent of

merchandise exports)
−9−46−54−70−53
Gross reserves (end of period)426381288331395
In months of merchandise imports3.62.51.71.71.7
Net Reserves, end-period401381188232296
Total debt5,5655,4795,5035,6475,882
External debt to exports of goods & services4.64.33.93.63.4
Arrears outstanding 1/1,6001,4801,4551,6081,913
Source: Central Bank of Myanmar

Includes valuation adjustments.

Source: Central Bank of Myanmar

Includes valuation adjustments.

Chart 5Myanmar: External Indicators, 1994/95–1998/99

(In millions of US dollars)

Source: Data provided by the Myanmar authorities, and staff estimates.

60. While the balance of payments impact of the Asian crisis was less than expected, the external outlook continues to be difficult. During 1998/99, exports, remittances and transfers were relatively robust; the kyat stabilized; and there was some rebuilding of reserves. However, as argued in Chapter I, the limited impact of the crisis in part reflected new import and exchange controls. Moreover, reserves remain low, a third of external debt is in arrears, and as a result of new commitments drying up in 1998/99, FDI is expected to fall in the short term.

B. Current Account and Official Grants

Merchandise Trade

61. Export growth was robust during 1998/99 compared to other countries in the region (Table 30). This relatively favorable trade performance in the face of the Asian crisis seemed to reflect success in tapping regional export markets less prone to the crisis (e.g., India, China and Bangladesh). In particular, Myanmar was able to draw on underutilized land and labor to meet strong demand for agricultural export products from these countries. The ability to access new markets served to offset the impact of slowing world demand and world commodity price deflation on Myanmar’s exports (which are largely primary commodities).

Table 30.Myanmar: Merchandise Exports, 1994/95–1998/99(Value in millions of U.S. dollars; volume in thousand metric tons unless otherwise noted)
1994/951995/961996/971997/981998/99
Total exports, mainly f.o.b.917.4896.9928.51010.81134.0
Rice and rice products197.978.221.36.139.5
Unit value190.1220.9228.8215.5321.1
Volume1,041.0354.093.128.3123.0
Teak161.8160.6144.6112.1135.8
Unit value1,078.71,369.11,042.5812.3822.5
Volume (000 cubic tons)150.0117.3138.7138.0165.1
Base metals and ores10.312.55.64.82.5
Unit value189.3365.5341.5184.6390.6
Volume54.434.216.426.06.4
Pulses and beans135.7241.5215.2225.5181.6
Unit value319.4396.2361.8293.3292.1
Volume424.9609.6594.8768.9621.6
Fish and fish products35.628.337.246.651.3
Unit value495.8820.31,134.11,176.81,122.5
Volume71.834.532.839.645.7
Hardwood18.325.922.124.933.6
Unit value219.4310.9169.0161.8142.8
Volume (000 cubic tons)83.483.3130.8153.9235.3
Rubber20.832.028.921.516.1
Unit value870.31,311.51,137.8990.8542.1
Volume (000 cubic tons)23.924.425.421.729.7
Animal feedstuffs3.54.62.00.40.1
Unit value96.271.7127.454.8111.1
Volume36.464.215.77.30.9
Other333.5313.3451.6568.9673.5
Of which : Border trade75.435.185.7227.1300.7
Source: Central Statistical Organization.
Source: Central Statistical Organization.

62. The authorities have continued to promote exports. Export development policies are now centered on large-scale development of agriculture (see Box 2). Previous efforts had been directed at the energy sector, and in particular, the Yetagun and Yadana projects, but revenues from oil and gas exports have been delayed by a drop-off in energy demand from Thailand in the wake of the crisis. Revenues from these projects are expected to commence within 1999.

63. Import growth is estimated to have slowed during 1998/99 reflecting the various foreign exchange measures (Table 31). Imports have risen rapidly since 1994/95, mainly as a result of the private sector’s response to liberalization and high foreign direct investment. However, the staff estimate that import growth slowed to about 8 percent in 1998/99 in the wake of the shortage of foreign exchange and the intensification of controls.

Table 31.Myanmar: Imports by Major Categories, 1994/95–1998/99 1/
1994/951995/961996/971997/981998/99
(In millions of U.S. dollars)
Imports (mainly c.i.f.,

customs basis)
1,414.21,832.01,992.82,291.22,480.0 2/
Capital goods494.6648.1797.6991.91,389.6
Construction materials80.1189.8236.1281.1
Machinery186.7141.9251.9407.6
Transportation212.3289.2284.4247.9
Other15.527.225.255.3
Intermediate goods314.7422.7515.3538.4317.0
Raw materials262.6358.4447.5456.3
Tools and spare parts51.563.766.881.7
Fuels0.60.61.00.4
Consumer goods604.9761.2679.9760.9773.4 2/
Food201.8285.3128.2243.2
Durable goods57.7130.8125.999.0
Textiles52.952.275.9119.2
Medicines2.93.625.529.9
Other289.6289.3324.4269.6
(Percentage share in total imports)
Memorandum items:
Capital goods35.035.440.043.356.0
Intermediate goods22.323.125.923.512.8
Consumer goods42.841.634.133.231.2
Sources: Central Statistical Organization, and staff estimates.

At official exchange rate.

Staff estimate.

Sources: Central Statistical Organization, and staff estimates.

At official exchange rate.

Staff estimate.

64. The composition of imports has shifted toward capital goods and away from the public sector. There was a sharp increase in imports of capital goods during 1998/99, financed by new borrowing from India, China, and suppliers credit from Japan. The surge in capital goods imports may also be linked to the generous tax incentives and tariff exemptions being offered to potential investors. Imports rose from crisis countries (Malaysia, Thailand, Indonesia), perhaps reflecting lower prices (Table 33). The public sector’s share of imports fell to a quarter of total imports in 1997/98 (Table 35), but rose back to one-third in 1998/99, probably due to increased government control over the limited pool of foreign exchange.

Table 32.Myanmar: Trade Indices, 1993/94–1997/98
1993/941994/951995/961996/971997/98
(1985/86 =100)
Exports
Value118.6161.5154.2141.3142.5
Unit value68.991.3107.9101.591.5
Volume172.2176.9142.8139.3155.7
Imports
Value165.0162.7214.5245.2278.4
Unit value 1/145.9163.2168.4208.0230.1
Volume113.199.7127.4117.9121.0
Terms of trade47.255.964.148.839.8
(Changes in percent)
Exports
Value11.336.2−4.5−8.40.8
Unit value−6.632.518.2−5.9−9.9
Volume19.22.7−19.3−2.511.8
Imports
Value46.3−1.431.814.313.5
Unit value 1/4.111.93.223.510.6
Volume40.5−11.827.8−7.52.6
Terms of trade−10.418.414.7−23.9−18.4
Source: Central Statististical Organization.

On the basis of export unit value indices of trading partners.

Source: Central Statististical Organization.

On the basis of export unit value indices of trading partners.

Table 33.Myanmar: Direction of Trade, 1994/95–1998/99(As percent of total exports and imports)
1994/951995/961996/971997/981998/99
ExportsImportsExportsImportsExportsImportsExportsImportsExportsImports
Industrial countries12.331.013.235.317.434.314.623.115.218.8
European Community1.84.33.06.65.14.06.43.64.32.5
Of which:
Germany0.41.60.73.00.81.11.01.10.60.5
United Kingdom0.50.50.80.51.10.41.50.61.20.6
Japan4.923.65.124.36.920.93.815.34.112.7
United States5.01.24.33.54.77.73.52.33.21.3
Other0.61.90.80.90.71.70.91.93.62.3
Asia (except Japan)71.263.778.864.173.465.278.976.167.881.2
China5.112.23.913.96.19.510.69.411.210.2
Hong Kong SAR5.03.07.11.67.52.75.82.64.33.3
Indonesia15.63.95.93.42.62.71.94.82.07.5
India12.93.720.63.416.95.122.64.59.82.5
Korea0.74.71.43.90.93.70.85.51.85.2
Malaysia1.99.42.96.05.65.92.67.04.97.1
Singapore16.414.619.617.718.423.713.231.19.430.6
Thailand10.010.010.612.89.910.111.99.86.312.7
Other3.62.26.81.45.51.89.51.418.12.0
Africa and Middle East5.71.71.00.11.50.31.00.61.50.0
Other10.83.67.00.57.70.25.50.215.50.0
Memorandum item:
Asia (including Japan)76.187.383.988.480.386.182.791.471.993.9
Source: Central Statistical Organization.
Source: Central Statistical Organization.
Table 34.Myanmar: Border Trade Flows, 1994/95–1998/99 1/(In millions of U.S. dollars)
1994/951995/961996/971997/981998/99
Total flows
Exports75.435.185.7227.1300.7
Imports240.0239.0249.3232.8250.3
China
Exports44.526.051.092.695.8
Imports111.2152.2127.2122.4122.9
Thailand
Exports29.72.414.257.034.9
Imports115.267.0101.389.3123.3
India
Exports0.81.52.911.01.8
Imports11.617.512.618.73.8
Bangladesh
Exports0.45.217.666.5168.2
Imports2.02.38.22.40.3
Source: Central Statistical Organization.

At official exchange rate.

Source: Central Statistical Organization.

At official exchange rate.

Table 35.Myanmar: Exports and Imports by Sector, 1994/95–1998/99(In percent of total)
1994/951995/961996/971997/981998/99
Imports100100100100100
Private sector6466777167
Cooperative sector11100
Public sector3533222933
Exports100100100100100
Private sector5053657469
Cooperative sector22220
Public sector4845332431
Source : Central Statistical Organization.
Source : Central Statistical Organization.

Services and Private Transfers

65. The services account balance improved in 1998/99 (Table 36). Tourism receipts rose by 27 percent, reflecting an easing of requirements for entry permits, new tourism promotions, and package tours from Europe. In addition, receipts from signature bonuses and lease payments on new foreign investments (which are included in other receipts) almost tripled in 1998/99 over the previous year. Payments also increased mainly due to higher foreign investor profit repatriation.

Table 36.Myanmar: Services Account, 1994/95–1998/99(In millions of U.S. dollars)
1994/951995/961996/971997/981998/99
Receipts294.5401.8484.8554.3610.6
Nonfactor services286.1383.8478.5546.5598.5
Transportation and

insurance
3.35.67.59.110.9
Travel143.7188.9209.1176.5224.9
Government services13.712.110.614.415.2
Other125.4177.2251.3346.5347.5
Factor services
Investment income8.418.06.37.812.1
Payments205.3341.5377.6448.7382.4
Nonfactor services130.3271.5314.0375.7309.2
Transportation and

insurance
21.035.132.523.930.9
Travel13.719.431.738.528.8
Government services11.814.610.715.915.9
Other83.8202.4239.1297.4233.6
Factor services due75.070.063.673.073.2
Of which: Actual payment75.5140.426.018.819.7
Net receipts89.260.3107.2105.6228.2
Private transfers, net321.6460.2457.2464.8514.6
Source: Central Bank of Myanmar.
Source: Central Bank of Myanmar.

66. Private transfers, which largely consists of remittances from overseas workers and the in-kind transfer of goods, rose further in 1998/99. Such transfers are now equivalent to nearly half of merchandise exports. Their growth may be related to import restrictions and the exchange rate depreciation, which by reducing the availability of imported foreign goods increased the incentive for in-kind transfers.

Official Grants

67. The sharp decline in grants during 1998/99 reflects the amortization schedule for debt due to Japan (Table 37). Official grants have increased during the 1990s, mostly because of Japan’s OECF debt relief program, under which Myanmar’s debt service is converted into grants. Myanmar has also received small grants from UN agencies, and recently, China.

Table 37.Myanmar: Use of Official Grants, 1994/95–1998/99(In millions of U.S. dollars)
1994/951995/961996/971997/981998/99
Total official grants 1/107.3132.3108.7258.899.0
By type
For current

expenditure 2/
86.1116.0101.8254.095.6
For capital

expenditure
21.216.36.94.83.4
Source: Data provided by the Myanmar authorities.

As shown in the balance of payments table.

Reflects debt relief grants from Japan.

Source: Data provided by the Myanmar authorities.

As shown in the balance of payments table.

Reflects debt relief grants from Japan.

C. Capital and Financial Account

68. FDI inflows fell to $290 million in 1998/99, a return to trend after the completion of large energy and tourism projects (Tables 3840). Spending on the Yetagun gas project, the largest foreign financed venture under construction, has wound down. During 1998/99, the shares of FDI accounted for by the mining, transport and real estate sectors increased. FDI approvals dwindled to almost zero in 1998/99, as a result of the Asian crisis, suggesting that FDI will slow in the period ahead.

Table 38.Myanmar: Approved and Actual Foreign Direct Investment Inflows, 1994/95–1998/99(In millions of U.S. dollars)
1994/951995/961996/971997/981998/99
Approved 1/Actual 2/Approved 1/Actual 2/Approved 1/Actual 2/Approved 1/Actual 2/Approved 1/Actual 2/
Solely foreign-owned
venture246.147.6453.7210.71374.6159.5518.7166.232.4169.2
Joint venture65.030.8181.3106.61,031.8107.5316.3253.522.0109.0
Other1,040.056.833.20.3407.81.7177.91.70.00.0
Total1,351.9135.2668.2317.62,814.2268.71,012.9421.454.4278.2
Source: Data provided by the Myanmar authorities.

Projects approved by the Myanmar Investment Commission under the provisions of the 1988 Foreign Investment Law; those permits that have been withdrawn or cancelled are adjusted. Exclusive of drawback items.

Investment actually disbursed on projects approved under the Foreign Investment Law. Foreign direct investment on projects not approved under the Law is excluded from this Table but included in the authorities’ balance of payment accounts.

Source: Data provided by the Myanmar authorities.

Projects approved by the Myanmar Investment Commission under the provisions of the 1988 Foreign Investment Law; those permits that have been withdrawn or cancelled are adjusted. Exclusive of drawback items.

Investment actually disbursed on projects approved under the Foreign Investment Law. Foreign direct investment on projects not approved under the Law is excluded from this Table but included in the authorities’ balance of payment accounts.

Table 39.Myanmar: Foreign Direct Investment by Industry, 1994/95–1998/99(In millions of U.S. dollars)
1994/951995/961996/971997/981998/99
Approved 1/Actual 2/Approved 1/Actual 2/Approved 1/Actual 2/Approved 1/Actual 2/Approved 1/Actual 2/
Agriculture0.00.00.00.06.00.05.70.00.00.0
Manufacturing76.313.821.330.6923.525.3319.240.943.210.7
Oil and gas1039.547.414.8189.2695.653.7172.111.30.067.6
Mining0.59.5155.810.9178.37.33.352.64.976.0
Fishery-148.26.713.12.717.50.95.84.54.80.0
Hotels and tourism86.156.679.270.5114.9141.4274.9111.41.646.2
Transport1.31.0118.96.347.918.0106.348.30.036.9
Real estate0.00.0251.57.3623.515.6122.222.10.040.4
Industrial estate0.00.012.00.0181.16.50.0128.90.00.0
Other0.00.01.70.025.90.03.41.40.00.4
Total1351.9135.2668.2317.62814.2268.71012.9421.454.4278.2
Source: Data provided by the Myanmar authorities.

Projects approved by the Myanmar Investment Commission under the provisions of the 1988 Foreign Investment Law; those permits that have been withdrawn or cancelled are adjusted. Exclusive of drawback items.

Investment actually disbursed on projects approved under the Foreign Investment Law. Foreign direct investment on projects not approved under the Law is excluded from this Table but included in the authorities’ balance of payment accounts.

Source: Data provided by the Myanmar authorities.

Projects approved by the Myanmar Investment Commission under the provisions of the 1988 Foreign Investment Law; those permits that have been withdrawn or cancelled are adjusted. Exclusive of drawback items.

Investment actually disbursed on projects approved under the Foreign Investment Law. Foreign direct investment on projects not approved under the Law is excluded from this Table but included in the authorities’ balance of payment accounts.

Table 40.Myanmar: Foreign Direct Investment by Country, 1994/95–1998/99(In millions of U.S. dollars)
1994/951995/961996/971997/981998/99
Approved 1/Actual 2/Approved 1/Actual 2/Approved 1/Actual 2/Approved 1/Actual 2/Approved 1/Actual 2/
Australia1.00.01.82.810.10.042.00.00.00.0
Austria0.00.00.00.01.00.00.00.10.00.0
Bangladesh0.00.10.00.00.00.00.00.00.00.0
Canada0.00.03.00.87.50.25.30.00.00.0
China4.40.10.23.123.12.20.50.42.70.0
Denmark0.00.013.40.00.00.00.00.00.00.0
France455.025.00.086.95.415.30.09.80.046.4
Germany0.00.00.00.015.02.90.00.70.00.0
Hong Kong SAR6.16.50.05.70.07.356.94.48.08.5
India0.00.00.00.00.00.00.00.04.50.0
Indonesia0.00.00.00.0210.90.025.40.21.10.0
Israel0.00.00.00.00.00.02.41.10.00.0
Japan0.00.518.70.472.16.626.911.68.99.8
Republic of Korea0.21.80.01.49.00.429.73.50.27.0
Macau0.00.00.00.00.00.00.00.00.00.0
Malaysia15.81.2157.75.7235.15.5124.82.90.020.2
The Netherlands3.00.30.02.0154.80.20.00.21.00.0
Panama0.00.00.00.00.00.030.50.4−1.40.4
The Philippines6.73.00.03.20.00.0140.00.00.00.0
Singapore55.142.0288.055.5611.3132.0270.6307.514.287.9
Sri Lanka1.00.00.00.00.00.50.00.00.00.0
Thailand199.818.010.232.4605.738.5210.426.410.80.6
United Kingdom599.820.3160.387.6512.254.147.551.84.496.4
United States4.016.414.830.2341.03.00.00.40.01.0
Total1,351.9135.2668.2317.62,814.2268.71,012.9421.454.4278.2
Source: Data provided by Myanmar authorities.

Projects approved by the Myanmar Investment Commission under the provision of the 1988 Foreign Investment Law; those permits that have been withdrawn or cancelled are adjusted. Exclusive of drawback items.

Investment actually disbursed on projects approved under the Foreign Investment Law. Foreign direct investment on projects not approved under the law is excluded from this table but included in the authorities’ balance of payments accounts.

Source: Data provided by Myanmar authorities.

Projects approved by the Myanmar Investment Commission under the provision of the 1988 Foreign Investment Law; those permits that have been withdrawn or cancelled are adjusted. Exclusive of drawback items.

Investment actually disbursed on projects approved under the Foreign Investment Law. Foreign direct investment on projects not approved under the law is excluded from this table but included in the authorities’ balance of payments accounts.

69. There were substantial new borrowing from Asian countries during 1998/99. Disbursements for 1998/99 are estimated at US$300 million, which cover half of the current account deficit. The bulk of the disbursements were related to new projects, including airport construction financed by Japanese and Thai companies; new shipping capacity financed by Chinese creditors; agricultural projects financed by Japanese creditors; and, telecommunications projects financed by Singaporean, Japanese and German companies.

70. Actual debt payments increased slightly, but remained below trend. In recent years about $300 million in repayments have been due on an annual basis, about half of which has actually been paid. In 1998/99, actual debt payments dropped to $117 million reflecting the tight foreign exchange situation.

71. The debt profile has been shifting from long-term concessional debt to shortterm commercial debt and suppliers’ credit. Myanmar’s medium- and long-term debt (almost all of which is public sector debt) totaled US$5.9 billion at end-March 1999, US$460 million of which are interest arrears (Tables 41 and 42).

72. The arrears strategy is also shifting. Previously, the order of priority for debt servicing was: first, multilateral; then commercial; and finally bilateral. However, in light of the reduced involvement of the multilateral institutions, commercial debt has become the priority, with bilateral, and multilateral following behind. Reflecting this shift, Myanmar is now in arrears to the World Bank and the AsDB. Most arrears to private creditors are to cofinancers of bilateral debt provided by France and Germany. Japan (which holds nearly half of total external debt) and Germany accounted for most of the increase in arrears to bilateral creditors during 1998/99.

D. International Reserves

73. Gross international reserves increased in 1998/99 to almost two months of import cover (Table 43). During 1997, gross reserve coverage had slipped below 1.5 months and coverage of net reserves fell to about one month. Reserves were rebuilt in 1998 after the implementation of new restrictions. Gross reserves consist of overseas deposits held by the CBM and by the large state-owned banks. The net international reserve position is obtained by netting out a $100 million short-term debt obligation of the CBM to Bank Negara of Malaysia that was incurred in February 1997 for balance-of payments support.

Table 41.Myanmar: External Medium- and Long-Term Public Debt, and Debt Service Payments, 1994/95–1998/99 1/(In millions of U.S. dollars)
1994/951995/961996/971997/981998/99
Total debt outstanding
(end of period)5,5655,4795,5035,6475,882
Concessional loans4,8214,8714,3043,9204,037
Bilateral3,6513,6943,1762,8532,973
Ofwhich:
Japan2,8392,8132,3772,1552,239
Germany522568514452469
Multilateral1,1691,1781,12810671064
Of which:
IDA755797765719720
AsDB466356343321319
Suppliers’ credit211138421360455
Commercial banks134144318406450
Short-term 2/346326461960941
Debt service payments (cash basis) 3/117301191104135
Amortization4216116480116
Interest payment75140272419
Debt service payments (due) 3/321300341312327
Amortization246230272252261
Interest payments7570695967
Total debt outstanding/exports of
goods and nonfactor services4.64.33.93.63.4
Sources: Data provided by the Myanmar authorities, and staff estimates.

Data on debt service payments may differ from those implied by commitments and arrears data in the balance of payments.

Includes interest arrears and some principal arrears.

Medium- and long-term debt, including Trust Fund loans and excluding arrears on principal repayments.

Sources: Data provided by the Myanmar authorities, and staff estimates.

Data on debt service payments may differ from those implied by commitments and arrears data in the balance of payments.

Includes interest arrears and some principal arrears.

Medium- and long-term debt, including Trust Fund loans and excluding arrears on principal repayments.

Table 42.Myanmar: External Arrears, 1994/95–1998/99 1/(In millions of U.S. dollars)
1994/951995/961996/971997/981998/99
Stocks 2/
Total1,599.51,479.61,454.71,607.81,912.8
Principal1,253.81,153.31,109.31,225.91,454.0
Interest345.7326.3345.4381.9458.8
Bilateral 2/1,198.31,046.81,123.01,139.41,374.6
Principal965.1831.4871.7883.11,064.5
Interest233.2215.3251.4256.3310.1
Private creditors 2/401.2432.8331.5454.7490.2
Principal288.8321.8237.6332.7356.9
Interest112.5111.093.9122.0133.3
Sources: Data provided by the Myanmar authorities; and staff estimates.

End of period. Includes valuation adjustments.

Stock figures and flow figures derived from the balance of payments may not be consistent, owing mainly to lags in recording payments and valuation adjustments.

Sources: Data provided by the Myanmar authorities; and staff estimates.

End of period. Includes valuation adjustments.

Stock figures and flow figures derived from the balance of payments may not be consistent, owing mainly to lags in recording payments and valuation adjustments.

Table 43.Myanmar: International Reserves, 1994/95–1998/99(In millions of U.S. dollars)
1994/951995/961996/971997/981998/99
Net international reserves400.5381.1188.4231.7295.7
Assets425.9381.1287.8331.3395.1
Gold98.291.480.569.964.6
SDRs0.10.30.10.10.7
IMF position0.00.00.00.00.0
Foreign exchange327.6289.4207.2261.3329.8
Liabilities25.40.099.499.699.4
Memorandum items:(In months of merchandise imports)
Gross reserves3.62.51.71.71.9
Net reserves3.42.51.11.21.4
Source: Central Bank of Myanmar.
Source: Central Bank of Myanmar.

VI. Exchange and Trade System

A. Overview

74. The exchange and trade system of Myanmar is characterized by numerous restrictions, some of which were introduced in response to the Asian crisis. Imports are subject to licensing and must be from one of two priority lists, while private sector exports are restricted and subject to extra taxes. Measures recently implemented to ease the foreign exchange constraint have included a tightening of import controls, the revocation of the foreign exchange licenses of private banks, and the requirement that border trade be conducted in U.S. dollars.

B. Exchange System

75. Myanmar maintains a dual exchange rate arrangement. Officially, the kyat has been pegged to the SDR at a fixed rate of K 8.5 per SDR since 1977, or at about K 6 per U.S. dollar. However, most trade is conducted at a market-determined exchange rate. All private sector current and capital account transactions occur at the market exchange rate, leaving public sector exports and imports and government debt servicing as the only transactions (about one third of the total) that are conducted at the official exchange rate.

76. The dual exchange rate system imposes important economic costs. In particular, the ability of SEEs to import at a fraction of the price paid by the private sector gives rise to high degrees of effective protection (Box 5), which distorts resource allocation and discourages private sector development. The dual system also encourages rent-seeking activities and greatly distorts economic statistics; for example, the use of the official exchange rate to value external transactions in the national income accounts downwardly biases the measured importance of the trade sector and FDI.

Box 5.Myanmar: Protection Arising from the Official Exchange Rate

The current official exchange rate is K 6.3/US$ whereas the market-determined FEC rate is about K 345/US$. At present, only government and State Economic Enterprise (SEE) transactions, or perhaps 30 percent of total transactions, occur at the official rate. Although the official rate does not apply to private sector transactions, it does serve to distort resource allocation.

The ability of SEEs to import at 1/50 of the price that would be paid by the private sector gives rise to high degrees of effective protection. This is illustrated by calculating the effective rate of protection on domestic value added by state enterprises as a result of the trade system.1 The table reports effective rates of protection under various assumptions about tariff levels, value added, and use of imported intermediate inputs.

Myanmar: Illustration of Effective Rates of Protection Arising from the Official Exchange Rate(In percent)
Proportion of enterprise’s final selling price
Value-addedDomestic inputsImportedEffective rate of
1−αd−αmd)Inputs (αm)protection (e)
Case 1 : Zero Uniform Tariff
High value-added SEE60.0− 40.00.00.0
60.020.020.032.7
60.00.040.065.3
Low value-added SEE20.080.00.00.0
20.040.040.0196.0
20.00.080.0392.0
Case 2:10 percent Uniform Tariff
High value-added SEE60.040.00.010.0
60.020.020.045.9
60.00.040.081.9
Low value-added SEE20.080.00.010.0
20.040.040.0225.6
20.00.080.0441.2

The table illustrates that the protection imparted by the official rate to an SEE is greater the lower its domestic value added and the higher the proportion of imported intermediate inputs it uses. There is considerable protection even when tariffs are zero. In cases where value added is low and all intermediate inputs are imported, the effective protection enjoyed by an SEE can be forty or fifty times as high as the nominal tariff rate.

1 The effective rate of protection is defined as:e=vvvwhere v is recorded value added per unit of a good and v* is what value added would be under free trade (Vousden, 1990). For an SEE in Myanmar, this expression can be written as:e=p(1+t)(1αdαmD)vvwhere v* = p(l- αd- αm), p is the (tariff exclusive) price of the product, αdand αm are spending on domestically produced and imported intermediate inputs, respectively (expressed as a proportion of the price of the product), t is the assumed uniform tariff rate (common to imports of both inputs and outputs); and D is the ratio of the official exchange rate per dollar to the market exchange rate per dollar. Note that a unified exchange rate (D = 1) would imply e = t in this example, or that the effective rate equals the statutory tariff rate.Reference: Vousden, N., “The Economics of Trade Protection,” Cambridge University Press, 1990.

77. The main market-determined exchange rate is for Foreign Exchange Certificates (FECs), which are dollar-denominated local currency notes. FECs have been issued by the CBM since 1993 against 6 major convertible currencies (including traveler’s checks) at a rate of 1FEC=1US$. FECs are primarily issued through the requirement that each tourist upon arrival convert at least $300 into FECs, with only amounts above the $300 minimum reconvertible into foreign exchange upon departure. FECs can also be obtained from commercial banks as a withdrawal against foreign currency bank deposits (including from previously deposited FECs). FECs can be: (i) exchanged for kyats through licensed FEC exchange centers or off site; (ii) used to buy goods or make payments, including domestic salaries; or, (iii) deposited in banks. FECs are not freely convertible into foreign exchange and there are limits on the extent to which FECs on deposit can be remitted outside Myanmar. The rate at which FECs are exchanged for kyat is market determined and the introduction of FECs in 1993 represented a de facto devaluation.17

78. Foreign currency is allocated to government agencies and SEEs by the Ministry of Finance and Revenue (MOFR) through the foreign exchange budget. The process is initiated by each government agency/SEE submitting its plan for sources and uses of foreign exchange for the upcoming fiscal year to the Budget Department of the MOFR. The Budget Department then draws up provisional foreign exchange allocations based on past experience, overall foreign exchange receipts, and policy goals. Next, the allocation is sent for review to the Minister of Finance and Revenue. Finally, the allocation is approved by cabinet. To actually access its foreign exchange allocation, each agency/SEE must submit a request to the MOFR.

79. Exchange restrictions have been tightened since 1997. Foreign exchange licenses of all private banks were suspended and all foreign exchange accounts were transferred to either the Myanmar Foreign Trade Bank or the Myanmar Investment and Commercial Bank in March 1998. In addition, the limit on remittances against FECs for payments on invisible transactions and current transfers was reduced from $50,000 to $30,000 a month.

C. Trade System

80. External trade of the public and private sectors is highly segmented, and private sector trading is subject to extensive restrictions. Trade policy is under the aegis of the Ministry of Commerce, which, in turn, is supervised by the Trade Council. The latter was established in 1997 and is chaired by the Deputy Chairman of the State Peace and Development Council. At the beginning of each fiscal year, the Trade Council reviews and approves the general trade policy framework and meets regularly to review current trade issues and approve new policies. The Directorate of Trade, a unit of the Ministry of Commerce, implements trade policies and regulation, including the issuance of export and import licenses and permits for all local and foreign private enterprises, and certificates of GSP and “Country of Origin.”

Tariff policy

81. Myanmar has 14 tariff bands with rates ranging from 0 to 40 percent. About two-thirds of the 5,472 rated items have rates between 0 and 5 percent. The average tariff rate is around 6 percent. Some one-third of imports are exempt from tariffs. Three bodies can grant tariff exemptions: (i) the Customs Department can grant exemptions for specific import items; (ii) the Myanmar Investment Commission has authority to grant exemptions on a case-by-case basis; and, (iii) the MOFR also has authority to grant exemptions on a case-by-case basis. The 1996 Harmonized System for tariff and statistical nomenclature has been applied since January 1, 1996. Myanmar is receiving technical assistance from the World Customs Organization for implementation of the 2002 Harmonized System.

82. Import tariff reduction plans were formally enacted on January 1,1998. The plans are in accordance with Fast Track and Normal Track committed under ASEAN for the AFTA-Common Effective Preferential Tariff (CEPT) scheme. Under Myanmar’s CEPT scheme, imports are classified in four categories: inclusion, temporary exclusion, sensitive, and general exception. The inclusion list (about 43 percent of import items) consists of commodities that will follow the CEPT scheme on a fast track (0–5 percent tariff rate within 5–8 years) and a normal track (0–5 percent tariff rate within 10 years). Products in the temporary exclusion list (about 55 percent) will be phased into the inclusion list during 2001–2005 in five equal annual installments.

Nontariff policies

83. Imports are subject to extensive nontariff restrictions. Imports of all goods not on two lists (A and B) of priority goods were banned in March 1998. Private importers are required to import 80 percent of their imports from List A (essential goods) and 20 percent from List B (less essential goods). The number of goods on list B was widened in the first half of 1999. The approval of imports under both Lists A and B also became concurrent (whereas licenses had previously been issued first for List A goods, and only thereafter for List B goods).

84. Import licenses are required. Only exporters and others who can document legitimate earnings of foreign exchange are eligible to apply for import licenses. The practice-of automatic issuance of open general import licenses to selected SEEs, and joint-ventures that need to import frequently under the Foreign Investment Law, was replaced during 1998/99 by approval by the Ministry of Commerce on a case-by-case basis.

85. Exports are also subject to restrictions. Private sector exporting of 30 key goods (including rice, rubber, and gems) was prohibited in March 1998; for border trade, there is an additional restriction on the private sector export of teak. Private entrepreneurs who carry out reclamation of wetlands are allowed to export 50 percent of their output (rice and other restricted products except edible oil seeds); the limit is 55 percent for rubber plantations. Exporters were required to pay in foreign exchange an 8 percent commercial tax beginning January 1999 as well as an extra 2 percent in income tax; these taxes replaced a 5 percent commercial tax.

86. Border trade, which now accounts for one-quarter of exports, is subject to a separate set of policies. Border trade generally refers to trade in goods with neighboring countries that is transported by road. Most border trade is in commodities, and all is transacted by the private sector. Prior to 1988, border trade referred to the illegal smuggling of goods with border countries. In 1988, the government recognized border trade, introduced border trade recording posts, and began to tax these goods. In November 1997, following the depreciation of the kyat, border trade was required to be conducted in U.S. dollars.

VII. Poverty and Social Issues18

A. Overview

87. Myanmar’s record in poverty reduction is poor compared to most other East Asian economies. The national incidence of poverty is estimated at 23 percent using the comprehensive 1997 Household Income and Expenditure Survey (HIES).19 While comparable evidence about changes over time is unavailable, the high rate of inflation and slowdown in growth in key sectors of the economy (see Chapter II above) suggest that the poverty rate has likely not improved since 1997. In addition, low levels of public spending on social services (see Chapter III above) have resulted in under provision of basic infrastructure necessary to reduce poverty.

88. Human development indicators are also generally poor. While health indicators in most areas have improved over the past decade, malnutrition rates are high among pre-school aged children and death rates for infants and children exceed those of other countries at Myanmar’s estimated level of GDP per capita.20 Levels of educational attainment are low because public education expenditure is very low and heavy school fees and supplemental costs prevent many families from enrolling their children in primary school.

B. Poverty Profile

89. Poverty varies sharply across regions. Regional poverty rates range from an estimated high of 42 percent in Chin State to 8 percent in Tanintharyi Division, and there are also substantial rural-urban differences within many of these administrative regions. A group at particular risk in Myanmar are people displaced from their home region by natural disasters, economic development projects, and armed conflict. In addition, poverty rates are higher for non-ethnic Burmans, the majority of whom live in the seven border states, which are predominately rural, sparsely populated, and located in highland areas.

90. Urban and rural poverty rates are approximately the same, whereas elsewhere in East Asia, poverty is concentrated in rural areas. The relatively high incidence of urban poverty reflects the higher cost of food, a more skewed distribution of income, and the lack of access to subsistence farming. The urban poor tend to be concentrated in peri-urban locations lacking proximity to jobs and good services. Recently, employment and income have been adversely effected by the downturns in the tourism and construction sectors, and by high rates of inflation.

91. However, in absolute terms most of the poor (71 percent) live in rural areas. A substantial share of the rural poor either have no land or plots that are too small to be viable. Rural poverty can therefore be traced to low prices for the output of small farmers, as well as to the limited availability of off-farm work.21

92. Poverty incidence is directly related to agricultural performance. The rate of real agricultural growth was rapid in the early 1990s, but has since declined, reflecting poor crop yields on smallholder plots. Average fertilizer use per crop is very low by Southeast Asian standards, as are adoption rates of improved technologies on smallholder plots. Credit to farmers is rationed and farmers are unable to use land as collateral for loans due to land tenure rules. About 20 percent of sown area is irrigated; however, the maintenance of irrigation infrastructure is generally substandard, especially for poor farmers. In addition, large implicit land taxes on rice production (as discussed in Chapter III) reduce incentives to increase output. Current irrigation investments are concentrated in a few large-scale corporate farms and therefore will provide limited benefits to smallholders.

93. Low levels of public spending have resulted in the under-provision of the basic infrastructure needed to improve living standards. Access to piped drinking water in urban areas is 17 percent, and only 2 percent in rural areas. On the other hand, the percentage of the population with access to safe water is estimated at 66 percent. Access to safe sanitation is 39 percent in rural areas, and much higher, 65 percent, in urban areas. Telephone density in Myanmar is among the lowest in the world at 5 lines per 1,000 inhabitants.

C. Human Development

94. Health indicators are generally poor and improvements are constrained by household poverty and low levels of public spending. The major public health concerns are malnutrition, malaria, tuberculosis, HIV/AIDS, dengue fever, leprosy, and intestinal parasites. According to the latest UN estimates, almost half a million people in Myanmar have HIV/AIDS, with an adult infection rate of almost 2 percent.

95. Child malnutrition is high. For example, the share of under five-year olds who were moderately malnourished in 1997 was 39 percent. There is significant variation in the extent of malnutrition across the country; Yangon generally comes out significantly worse than average, reflecting the shortfall of opportunities for home production of food.

96. Infant mortality rates and vaccination coverage have improved. Infant mortality decreased by 16 percent between 1990 and 1997 to 79 deaths per 1,000 live births, though child mortality increased slightly over the same period to 131 in 1997. Since 1990, immunization coverage rates for measles and polio have each increased by over ten percent to around 80 percent.

97. However, utilization of public health facilities has fallen to very low levels due to the poor quality of service and the high charges levied for their use. There is an extensive private health system—there are twice as many private as public doctors in Myanmar— although usage by the poor is constrained by price and distance barriers. Among mothers of children under 5 with severe signs of acute respiratory infection, only around 50 percent go to either private or public health care providers. Myanmar has high maternal mortality rates, which are linked to poor quality of care, abortion-related complications (due to low access to contraception and unsafe abortion practices), and the high cost of care (for transport and medicines), which prevent women from seeking treatment in hospitals.

98. Primary education enrollment rates are low. Official estimates indicate that almost one in four school-age children never enrolls in primary school, and of those who begin primary school, only 34 complete the five-year cycle. The rural net enrollment rate is 78 percent, significantly lower than the urban enrollment rate of 87 percent. An estimated 22 percent of primary aged children complete fourth grade in rural areas, compared to 37 percent in urban areas. Repetition and drop out rates are also high. The average time taken to complete five years of primary school in 1994/95 was 9½ years.

99. The low rate of primary school enrollment reflects the level of public education expenditure, which is low even by developing country standards. Union Government expenditure on education declined from the equivalent of 0.7 percent of GDP in 1994/95 to an estimated 0.4 percent of GDP in 1998/99 (Table 22). Evidence of these cuts is provided by very low teacher salaries and poor educational infrastructure.

100. Onerous school fees and supplemental costs prevent many families from enrolling their children in primary school. Although primary school attendance is nominally free in Myanmar, parents incur significant expenses in sending their children to school, including expenditures on textbooks, uniforms, exercise books, stationery, a mandatory yearly contribution to the Parent Teacher Association fund, and ad hoc contributions in cash and in kind for school improvements. These expenses create obstacles to school enrollment among the poor. Survey evidence shows that among families with children aged 5–12 years, 29 percent of families defined as poor had children who had never been to school, compared with 19 percent for non-poor families.

The fiscal year is April-March.

FECs are defined in Box 1.

The staff estimates the U.S. dollar value of imports to have increased by 8 percent in 1998/99; the authorities& estimate is somewhat higher.

This is the staff’s estimate; the official estimate for the 1998/99 fiscal outturn will be published at the end of 1999 (see Box 3).

These transfers are contributions that profit-making SEEs are required to make to the Union Government. See memorandum item in Table 19.

Foreign financing appears to be negligible in the fiscal accounts because of the use of the official exchange rate.

See George T. Abed, et al, Fiscal Reforms in Low-Income Countries: Experience Under IMF-Supported Programs, IMF Occasional Paper No. 160, March 1998.

See World Bank; “Myanmar: An Economic and Social Assessment,” 1999.

The IRD is responsible for collecting 5 different types of tax: income tax, profit tax, commercial tax, stamp duties and proceeds from the state lottery. Customs duties are collected separately, as are nine other types of tax collected by the various ministries.

There are 54 nonfinancial SEEs, accounting for about one fifth of GDP and 2 percent of total employment.

Such enterprises include Myanma Textile Industries, Myanma Foodstuff Industries, Myanma Pharmaceutical Industries, Myanma Paper and Chemical Industries, Myanma Agricultural Machinery Industries and Myanma Automobile and Diesel Engine Industries.

Three-month Treasury bills carry an annual interest rate of 4 percent and are automatically rolled over. CBM lending to government is limited by law to 20 percent of government receipts from the prior year (although in practice this is interpreted to include receipts of SEEs).

The MADB operates 220 branches but also provides lending funds to a large network of village banks that act as MADB agents in channeling loans to the village residents.

Bank loan-to-deposit ratios are low in Myanmar in part because banks have to hold 20 percent of liabilities as liquid assets.

The maximum rate on deposits was set at 12 percent, equal to the CBM discount rate. Prior to April 1999, the maximum deposit ana lending rates were set, respectively, at 3 percent below and 6 percent above the CBM discount rate.

As of end-1998, 6 percent of MEB’s loans, 1 percent of MADB’s loans and 6 percent of loans at the major private banks were classified as nonperforming.

In addition, U.S. cash dollars are at times traded for kyat (cash transactions are technically illegal) at a premium up to 15 percent above the FEC rate.

This chapter was drafted by World Bank staff and is based on Myanmar: An Economic and Social Assessment, World Bank, 1999.

The 1997 HIES covered 25,000 households in 45 townships in all states and divisions, and was designed to be representative of the country’s rural and urban areas.

Using the official exchange rate and the official estimate of GDP considerably overestimates the U.S. dollar value of Myanmar’s per capita GDP. After adjusting for the use of the official rate, and making an allowance for the sizable amount of unrecorded activity that occurs in Myanmar, the staff estimate of per capita GDP is about $300 in 1998/99.

The incidence of poverty among rural households headed by women is approximately 31 percent, well above the average poverty rate in rural areas of 23 percent.

Other Resources Citing This Publication