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Myanmar: Staff Report for the 2015 Article IV Consultations—Debt Sustainability Analysis

Author(s):
International Monetary Fund. Asia and Pacific Dept
Published Date:
September 2015
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Myanmar is assessed to remain at low risk of debt distress.123Under the baseline scenario, public and publicly guaranteed (PPG) external debt burden indicators remain well below their indicative thresholds. Similarly, total public debt will also remain below the benchmark, even as it will rise over the long term. While Myanmar’s risk of debt distress is characterized as low, it requires close monitoring, in particular because there is potential for both domestic and external downside risks to materialize that may adversely affect the level of debt. On the domestic front these risks include fiscal slippages from the authorities’ current target of below 5 percent of GDP and lower growth. On the external side, shocks include further declines in gas prices and depreciation of the kyat. While these shocks do not lead to breaches of the indicative thresholds or benchmarks in the medium term,4keeping a low risk of debt distress will require prudent fiscal policy, sound public financial management and increasing use of concessional finance while limiting nonconcessional borrowing to viable and growth-enhancing projects.

Background

1. The external and public debt sustainability analyses are based on the standard LIC DSA framework. The DSA framework presents the projected path of Myanmar’s external and public sector debt burden indicators, and draws conclusions on the sustainability of debt.

2. The underlying macroeconomic assumptions remain broadly unchanged compared with the last DSA but updates have been made taking into account several changes in both the external and domestic environment since the last Article IV consultation. Main changes in the estimates and projections are below:

  • In 2014/15, the real GDP growth was 8.5 percent reflecting robust investment in productive sectors including manufacturing and services, particularly in telecommunications. It is expected that the average medium-term GDP growth rate will remain strong at 8.1 percent as production in the special export zones also picks up. Accordingly, growth has been revised slightly upward over the longer term, taking into account that many of these new investment projects could help raise long-term growth.56

  • Inflation in 2014/15 increased to over 7.5 percent (end of period) and is projected to be higher in the medium term compared to the last DSA mainly due to expected kyat depreciation and higher inflationary expectations. However, it will converge back to the almost the same long-term trend as in the previous DSA.

  • In 2014/15, the fiscal deficit was 2.9 percent of GDP, benefiting from considerable windfall gains from telecommunications and oil and gas licenses (which will be spread over a few years). In the medium term, the fiscal deficit is expected to increase to 4.5 percent of GDP due to structural increases in expenditure, including in the public sector wage bill. Revenues, however, have been revised downward both in the medium and long-term due to lower projected State-owned Economic Enterprises’ (SEEs) revenues. As a result, the fiscal deficit is projected to rise to 4.2 percent of GDP in the long-term.

  • The current account deficit widened in 2014/15, driven primarily by an increase in import demand. Given the downward revision in gas prices (expected to be 20 percent lower in 2015/16 compared with 2014/15), it is expected that the current account deficit will widen significantly in the medium-term compared to the last DSA.

Key Macroeconomic Assumptions Underlying the DSA for the Baseline Scenario (FY2015/16-35/36)
Current DSAPrevious DSA
Medium TermLong TermMedium TermLong Term
2015/16-2020/212021/22-2035/362014/15-2019/202020/21-2034/35
Real GDP Growth (in percent)8.16.88.16.6
Inflation (in percent)9.14.76.34.0
Overall fiscal balance (in percent of GDP)−4.5−4.2−4.6−3.8
Noninterest current account (in percent of GDP)−7.3−4.4−4.7−3.3
Revenue (nonfinancial public sector; in percent of GDP)21.323.82425
Source: IMF staff estimates
Source: IMF staff estimates

3. As in the previous DSA, this analysis incorporates the resolution of Myanmar’s arrears with its multilateral and bilateral creditors completed in 2013/14. In late-January 2013, the Paris Club reached an agreement with the Myanmar authorities on a debt treatment to be completed in early 2014. Paris Club members agreed to write off 50 percent of all arrears and reschedule the remaining arrears over 15 years with a 7-year grace period. The treatment was phased, with 25 percent of the write-off occurring immediately and 75 percent on the successful completion of a staff-monitored program with the IMF. Furthermore, Myanmar resolved its arrears to the World Bank and the Asian Development Bank in January 2013, with the help of bridge financing from Japan.

4. Myanmar is also expected to gradually reduce its reliance on external nonconcessional financing over the medium term, as assumed in the previous DSA. With the resolution of its arrears and the re-engagement with traditional donors, Myanmar is expected to gradually regain access to concessional resources. In particular, after the resolution of arrears with its multilateral creditors (the World Bank and the Asian development Bank), Myanmar has begun to receive concessional financing from these two institutions. Myanmar’s current largest bilateral creditors are Japan and China. It is expected that as the Paris Club donors re-engage with Myanmar, and gradually identify suitable projects, the share of nonconcessional financing will decline over the medium term. The average new disbursements from the non-Paris Club members in the past few years were around 90 percent of total disbursements. We assume that this number will decrease by more than 50 percent in the medium-term, but it will gradually increase over the long-term as Myanmar becomes more developed and will be able to access financial markets.

Debt Sustainability Analysis

5. Recent developments have kept the stock of external debt at relatively low levels.

  • The resolution of the arrears in 2013/14 after the successful completion of the Staff Monitored Program had helped reduce the external debt stock (this was also incorporated in the last DSA);

  • Furthermore, the valuation effect of recent exchange rate changes has resulted in a reduction of the stock of external debt at end 2014/15.7

  • Finally, there has been only modest external borrowing in 2014/15.

6. Debt sustainability analysis shows that public and publically guaranteed external debt will remain well below the indicative thresholds throughout the project period. Several of the standard stress tests reflect downside risks currently faced by Myanmar. In particular, these include a reduction in the value of exports (in Myanmar this may be caused by a further drop in gas price), and a depreciation of the exchange rate. Although the standard stress tests indicate that no thresholds will be breached,8 there can be an increase in debt service (for example, a one-time depreciation increases the debt service to revenue ratio in Figure f in the Panel Chart 1a). It will, therefore, be important to exercise prudence in external borrowing in a volatile international environment where exchange rate changes can have a large impact–either positive or negative –on the debt burden. Furthermore, continued strong performance of the external sector is critical, including by maintaining high export growth in manufacturing and agriculture, in addition to gas, attracting FDI to fund investment projects and obtaining more concessional financing.

7. Total public sector debt will also remain below the indicative benchmark under the baseline scenario but is vulnerable to shocks. The present value of total public debt as a percentage of GDP remains below the indicative benchmark throughout the projection period but it continues to rise over the long-term. This trajectory reflects the significant development needs of Myanmar and the associated overall fiscal deficits assumed in the baseline scenario. This level of debt can give rise to vulnerabilities including a high debt service burden. Overall, the standard stress tests show that public debt sustainability is vulnerable to lower real GDP growth and fiscal slippages.9 Risks are somewhat mitigated as the authorities aim to use their borrowing to only finance economically viable projects in priority sectors. The authorities plan to keep the fiscal deficit below 5 percent of GDP in the medium term. Based on DSA simulations, however, staff advised the authorities to lower the deficit target to 4½ percent, which would help keep public debt below the indicative benchmark in the long run. The authorities’ 5 percent target could lead to a breach of the benchmark in the long run.

8. Myanmar will need to maintain fiscal discipline to ensure debt sustainability. Public finances are dependent on natural resource revenues. Tax revenues are very low and the tax base remains narrow, in part due to widespread exemptions. In addition, transfers to sub-national governments without devolving spending responsibilities will increase the overall public sector deficit. It is expected that in 2015/16, the balance of the aggregate SEEs will turn negative underscoring the need to implement reforms that increase SEEs efficiency. Furthermore, only prudent borrowing by the policy banks10 should be allowed as guarantees for the policy banks could pose risks to debt control and complicate fiscal management. It is imperative to improve the collection of statistics on these institutions.

9. Fiscal risks can be mitigated by taking several steps, some of which are already under consideration by the authorities. Higher revenue is needed to provide a solid foundation for financing development. To this end, introducing a value added tax (VAT) and reducing tax incentives are key steps. Fiscal decentralization and reforms of SEEs finances need to be carefully planned and implemented to safeguard fiscal sustainability. Proper use of windfall revenues—such as those from oil and gas exploration—can also help strong the fiscal position, especially in the context of a medium-term fiscal framework.

Staff Assessment

10. Myanmar is assessed to be at low risk of debt distress, but prudent macroeconomic policies and sound debt management will be required to keep debt sustainable. Under the baseline scenario, all indicators for the external debt are below their indicative thresholds and standard stress tests show that shocks will not cause breaches although shocks such as a one-time depreciation can cause debt service (expressed as a ratio of revenue) to increase. Under the baseline scenario, the total public debt also remains below the benchmark although it rises throughout the projection period and is vulnerable to fiscal slippages and low real GDP growth. Preventing total public debt vulnerability from increasing will require prudent fiscal policy, improvements in revenue performance and public financial management, limiting contingent liabilities by improving the performance of SEEs as well as prudent borrowing by policy banks, and increasing use of concessional finance.

11. The authorities broadly agreed with these conclusions and with the thrust of the analysis. They concurred with staff on the need to be cautious on nonconcessional borrowing and reconfirmed their intention to use nonconcessional external borrowing only to finance economically viable projects in priority sectors, at levels consistent with low risk of debt distress. In order to limit the use of nonconcessional financing, the authorities reiterated their aim to keep the fiscal deficit below 5 percent of GDP over the medium term.

Figure 1a.Myanmar Indicators of Public and Publicly Guaranteed External Debt under Alternatives Scenarios, 2015/16–2035/36 1/

Sources: Country authorities; and staff estimates and projections.

1/ The most extreme stress test is the test that yields the highest ratio on or before 2025. In figure b. it corresponds to a Combination shock; in c. to a Combination shock; in d. to a Combination shock; in e. to a Exports shock and in figure f. to a One-time depreciation shock

Figure 1b.Myanmar: Indicators of Public Debt Under Alternative Scenarios, 2015/16–2035/36 1/

Sources: Country authorities; and staff estimates and projections.

1/ The most extreme stress test is the test that yields the highest ratio on or before 2025. In all three figures above, the most extreme shock is the growth shock.

2/ Revenues are defined inclusive of grants.

Table 1a.Myanmar: External Debt Sustainability Framework, Baseline Scenario, 2012/13–2035/36 1/(In percent of GDP, unless otherwise indicated)
ActualHistorical6/

Average
Standard6/

Deviation
Projections
2012/132013/142014/152015/162016/172017/182018/192019/202020/212015/16-

2020/21

Average
2025/262035/362021/22-

2035/36

Average
External debt (nominal) 1/25.318.014.415.816.316.617.017.417.820.025.5
of which: public and publicly guaranteed (PPG)25.318.014.415.816.316.617.017.417.820.025.5
Change in external debt−1.5−7.3−3.61.40.40.40.40.40.40.50.3
Identified net debt-creating flows−0.70.1−1.02.30.6−0.5−0.7−1.1−1.3−2.7−1.9
Non-interest current account deficit4.04.85.70.54.78.67.97.47.26.76.44.64.14.4
Deficit in balance of goods and services3.94.86.710.19.78.89.08.68.46.46.0
Exports20.822.624.223.525.026.326.227.027.232.444.2
Imports24.727.430.933.634.735.135.235.735.638.850.2
Net current transfers (negative = inflow)−1.0−1.6−2.6−1.10.6−2.8−2.9−2.9−3.0−2.9−2.9−2.6−2.4−2.6
of which: official−0.1−0.4−0.5−0.5−0.5−0.5−0.6−0.6−0.6−0.5−0.5
Other current account flows (negative = net inflow)1.11.61.71.31.21.51.11.00.90.80.6
Net FDI (negative = inflow)−5.0−4.6−5.2−3.61.2−5.5−6.5−6.9−7.0−6.9−6.8−6.3−5.0−5.7
Endogenous debt dynamics 2/0.4−0.1−1.5−0.8−0.9−0.9−0.9−0.9−0.9−1.0−1.0
Contribution from nominal interest rate0.20.40.40.40.40.30.30.30.30.30.3
Contribution from real GDP growth−2.0−2.1−1.4−1.2−1.2−1.2−1.2−1.2−1.2−1.3−1.3
Contrbutionfrompriceandexchangeratechanges2.21.6−0.5
Residual (3-4) 3/−0.8−7.4−2.6−0.9−0.20.81.11.41.73.22.2
of which: exceptional financing−10.9−8.50.00.00.00.00.00.00.00.00.0
PV of external debt 4/11.011.911.811.811.811.912.012.916.9
In percent of exports45.450.547.344.845.244.144.039.938.1
PV of PPG external debt11.011.911.811.811.811.912.012.916.9
In percent of exports45.450.547.344.845.244.144.039.938.1
In percent of government revenues42.558.459.058.256.755.755.156.968.4
Debt service-to-exports ratio (in percent)2.23.32.94.14.03.43.23.13.12.52.4
PPG debt service-to-exports ratio (in percent)2.23.32.94.14.03.43.23.13.12.52.4
PPG debt service-to-revenue ratio (in percent)2.03.32.74.75.04.44.04.03.93.54.2
Total gross financing need (Billions of U.S. dollars)−0.20.70.82.71.81.10.90.70.5−1.40.7
Non-interest current account deficit that stabilizes debt ratio5.512.19.37.17.57.06.76.36.04.13.8
Key macroeconomic assumptions
Real GDP growth (in percent)7.38.48.58.33.58.58.48.38.07.77.78.17.25.76.8
GDP deflator in US dollar terms (change in percent)−7.5−6.02.79.915.8−4.00.02.42.52.42.30.92.32.32.3
Effective interest rate (percent) 5/0.61.62.21.90.92.62.52.32.12.01.92.21.51.41.5
Growth of exports of G&S (US dollar terms, in percent)4.910.819.417.611.51.115.216.910.113.610.811.312.611.712.9
Growth of imports of G&S (US dollar terms, in percent)17.413.025.624.520.613.411.812.311.111.59.911.712.211.411.8
Grant element of new public sector borrowing (in percent)37.639.141.041.742.043.040.841.040.240.9
Government revenues (excluding grants, in percent of GDP)23.323.125.920.320.120.320.921.421.722.724.723.3
Aid flows (in Billions of US dollars) 7/0.30.30.60.71.11.41.71.92.22.96.6
of which: Grants0.00.20.30.30.40.40.50.60.60.92.0
of which: Concessional loans0.30.20.20.40.71.01.21.31.62.14.5
Grant-equivalent financing (in percent of GDP) 8/1.21.51.51.61.61.71.61.71.7
Grant-equivalent financing (in percent of external financing) 8/51.148.850.753.153.654.250.249.050.1
Memorandum items:
Nominal GDP (Billions of US dollars)55.656.763.165.871.379.087.596.4106.2170.9400.4
Nominal dollar GDP growth−0.72.011.44.28.410.910.710.210.29.19.78.29.3
PV of PPG external debt (in Billions of US dollars)6.77.38.19.110.111.212.521.767.1
(PVt-PVt-1)/GDPt-1 (in percent)0.81.31.31.31.31.31.21.61.61.6
Gross workers’ remittances (Billions of US dollars)0.50.71.31.51.71.92.12.32.43.67.7
PV of PPG external debt (in percent of GDP + remittances)10.811.611.511.511.611.611.712.616.5
PV of PPG external debt (in percent of exports + remittances)41.846.043.141.041.440.640.637.536.5
Debt service of PPG external debt (in percent of exports + remittances)2.73.73.73.12.92.92.92.32.3
Sources: Country authorities; and staff estimates and projections.

Includes both public and private sector external debt.

Derived as [r - g - p(1 + g)]/(1 + g + p+gp) times previous period debt ratio, with r = nominal interest rate; g = real GDP growth rate, and ρ = growth rate of GDP deflator in U.S. dollar terms.

Includes exceptional financing (i.e., changes in arrears and debt relief); changes in gross foreign assets; and valuation adjustments. For projections also includes contribution from price and exchange rate changes.

Assumes that PV of private sector debt is equivalent to its face value.

Current-year interest payments divided by previous period debt stock.

Historical averages and standard deviations are generally derived over the past 10 years, subject to data availability.

Defined as grants, concessional loans, and debt relief.

Grant-equivalent financing includes grants provided directly to the government and through new borrowing (difference between the face value and the PV of new debt).

Sources: Country authorities; and staff estimates and projections.

Includes both public and private sector external debt.

Derived as [r - g - p(1 + g)]/(1 + g + p+gp) times previous period debt ratio, with r = nominal interest rate; g = real GDP growth rate, and ρ = growth rate of GDP deflator in U.S. dollar terms.

Includes exceptional financing (i.e., changes in arrears and debt relief); changes in gross foreign assets; and valuation adjustments. For projections also includes contribution from price and exchange rate changes.

Assumes that PV of private sector debt is equivalent to its face value.

Current-year interest payments divided by previous period debt stock.

Historical averages and standard deviations are generally derived over the past 10 years, subject to data availability.

Defined as grants, concessional loans, and debt relief.

Grant-equivalent financing includes grants provided directly to the government and through new borrowing (difference between the face value and the PV of new debt).

Table 1b.Myanmar: Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2015/16–2035/36(In percent)
Projections
2015/162016/172017/182018/192019/202020/212025/262035/36
PV of debt-to GDP ratio
Baseline1212121212121317
A. Alternative Scenarios
A1. Key variables at their historical averages in 2015-2035 1/128642111
A2. New public sector loans on less favorable terms in 2015-2035 21212131314141825
B. Bound Tests
B1. Real GDP growth at historical average minus one standard deviation in 2016-20171212121212131418
B2. Export value growth at historical average minus one standard deviation in 2016-2017 3/1213151515151517
B3. US dollar GDP deflator at historical average minus one standard deviation in 2016-20171212131313141519
B4. Net non-debt creating flows at historical average minus one standard deviation in 2016-2017 4/1215191919181718
B5. Combination of B1-B4 using one-half standard deviation shocks1215202019191818
B6. One-time 30 percent nominal depreciation relative to the baseline in 2016 5/1216161717171824
PV of debt-to-exports ratio
Baseline5047454544444038
A. Alternative Scenarios
A1. Key variables at their historical averages in 2015-2035 1/503221148422
A2. New public sector loans on less favorable terms in 2015-2035 25048485151535458
B. Bound Tests
B1. Real GDP growth at historical average minus one standard deviation in 2016-20175046444443433938
B2. Export value growth at historical average minus one standard deviation in 2016-2017 3/5055696966655547
B3. US dollar GDP deflator at historical average minus one standard deviation in 2016-20175046444443433938
B4. Net non-debt creating flows at historical average minus one standard deviation in 2016-2017 4/5061737269675341
B5. Combination of B1-B4 using one-half standard deviation shocks5063818076745944
B6. One-time 30 percent nominal depreciation relative to the baseline in 2016 5/5046444443433938
PV of debt-to-revenue ratio
Baseline5859585756555768
A. Alternative Scenarios
A1. Key variables at their historical averages in 2015-2035 1/5840281811544
A2. New public sector loans on less favorable terms in 2015-2035 258606364656678103
B. Bound Tests
B1. Real GDP growth at historical average minus one standard deviation in 2016-20175859615958586073
B2. Export value growth at historical average minus one standard deviation in 2016-2017 3/5863757270686670
B3. US dollar GDP deflator at historical average minus one standard deviation in 2016-20175860656463626579
B4. Net non-debt creating flows at historical average minus one standard deviation in 2016-2017 4/5876959187847673
B5. Combination of B1-B4 using one-half standard deviation shocks58761009591887975
B6. One-time 30 percent nominal depreciation relative to the baseline in 2016 5/5881817978778097
Debt service-to-exports ratio
Baseline44333322
A. Alternative Scenarios
A1. Key variables at their historical averages in 2015-2035 1/44322210
A2. New public sector loans on less favorable terms in 2015–2035 244333434
B. Bound Tests
B1. Real GDP growth at historical average minus one standard deviation in 2016–201744333322
B2. Export value growth at historical average minus one standard deviation in 2016–2017 3/44444443
B3. US dollar GDP deflator at historical average minus one standard deviation in 2016–201744333322
B4. Net non-debt creating flows at historical average minus one standard deviation in 2016–2017 4/44444443
B5. Combination of B1-B4 using one-half standard deviation shocks44444443
B6. One-time 30 percent nominal depreciation relative to the baseline in 2016 5/44333322
Debt service-to-revenue ratio
Baseline55444444
A. Alternative Scenarios
A1. Key variables at their historical averages in 2015–2035 1/55332210
A2. New public sector loans on less favorable terms in 2015–2035 255444457
B. Bound Tests
B1. Real GDP growth at historical average minus one standard deviation in 2016–201755544445
B2. Export value growth at historical average minus one standard deviation in 2016-2017 3/55444445
B3. US dollar GDP deflator at historical average minus one standard deviation in 2016–201755555445
B4. Net non-debt creating flows at historical average minus one standard deviation in 2016–2017 4/55555455
B5. Combination of B1-B4 using one-halfstnardevationshocks55555565
B6. One-time 30 percent nominal depreciation relative to the baseline in 2016 5/57666656
Memorandum item:
Grant element assumed on residual financing (i.e., financing required above baseline) 6/040404040404040
Sources: Country authorities; and staff estimates and projections.

Variables include real GDP growth, growth of GDP deflator (in U.S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows.

Assumes that the interest rate on new borrowing is by 2 percentage points higher than in the baseline., while grace and maturity periods are the same as in the baseline.

Exports values are assumed to remain permanently at the lower level, but the current account as a share of GDP is assumed to return to its baseline level after the shock (implicitly assuming an offsetting adjustment in import levels).

Includes official and private transfers and FDI.

Depreciation is defined as percentage decline in dollar/local currency rate, such that it never exceeds 100 percent.

Applies to all stress scenarios except for A2 (less favorable financing) in which the terms on all new financing are as specified in footnote 2.

Sources: Country authorities; and staff estimates and projections.

Variables include real GDP growth, growth of GDP deflator (in U.S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows.

Assumes that the interest rate on new borrowing is by 2 percentage points higher than in the baseline., while grace and maturity periods are the same as in the baseline.

Exports values are assumed to remain permanently at the lower level, but the current account as a share of GDP is assumed to return to its baseline level after the shock (implicitly assuming an offsetting adjustment in import levels).

Includes official and private transfers and FDI.

Depreciation is defined as percentage decline in dollar/local currency rate, such that it never exceeds 100 percent.

Applies to all stress scenarios except for A2 (less favorable financing) in which the terms on all new financing are as specified in footnote 2.

Table 1c.Myanmar: Public Sector Debt Sustainability Framework, Baseline Scenario, 2012/13–2035/36(In percent of GDP, unless otherwise indicated)
ActualAverage5/Standard5/

Deviation
EstimateProjections
2012/132013/142014/152015/162016/172017/182018/192019/202020/212015/16-

2020/21

Average
025/262035/362021/22-

2035/36

Average
Public sector debt 1/43.134.831.633.433.433.634.134.735.138.043.7
of which: foreign-currency denominated25.318.014.415.816.316.617.017.417.820.025.5
Change in public sector debt−6.2−8.3−3.21.80.00.20.40.60.50.60.4
Identified debt-creating flows1.1−1.6−0.61.8−0.10.20.40.60.40.50.6
Primary deficit0.40.21.31.81.23.33.13.12.92.92.83.02.82.42.6
Revenue and grants23.423.326.420.820.620.821.522.022.323.225.2
of which: grants0.10.30.50.50.50.50.60.60.60.50.5
Primary (noninterest) expenditure23.823.627.724.123.723.824.424.925.125.927.5
Automatic debt dynamics0.6−1.8−1.8−1.5−3.3−2.9−2.5−2.3−2.3−2.2−1.7
Contribution from interest rate/growth differential−3.5−3.4−2.4−2.9−3.0−2.7−2.4−2.2−2.2−2.1−1.6
of which: contribution from average real interest rate−0.1−0.10.4−0.4−0.4−0.10.10.20.20.40.7
of which: contribution from real GDP growth−3.4−3.3−2.7−2.5−2.6−2.6−2.5−2.4−2.5−2.5−2.3
Contribution from real exchange rate depreciation4.11.60.51.4−0.2−0.2−0.2−0.1−0.1
Other identified debt-creating flows0.00.00.00.00.00.00.00.00.00.00.0
Privatization receipts (negative)0.00.00.00.00.00.00.00.00.00.00.0
Recognition of implicit or contingent liabilities0.00.00.00.00.00.00.00.00.00.00.0
Debt relief (HIPC and other)0.00.00.00.00.00.00.00.00.00.00.0
Other (specify, e.g. bank recapitalization)0.00.00.00.00.00.00.00.00.00.00.0
Residual, including asset changes−7.3−6.7−2.60.10.10.00.00.00.00.0−0.2
Other Sustainability Indicators
PV of public sector debt28.229.428.928.828.929.229.330.935.1
of which: foreign-currency denominated11.011.911.811.811.811.912.012.916.9
of which: external11.011.911.811.811.811.912.012.916.9
PV of contingent liabilities (not included in public sector debt)
Gross financing need 2/3.12.53.55.75.85.85.96.16.05.96.1
PV of public sector debt-to-revenue and grants ratio (in percent)106.9141.5140.7138.6134.2132.8131.4133.3139.4
PV of public sector debt-to-revenue ratio (in percent)108.9145.0144.2142.1138.1136.6135.0136.3142.2
of which: external 3/42.558.459.058.256.755.755.156.968.4
Debt service-to-revenue and grants ratio (in percent) 4/10.38.38.110.912.612.913.414.214.113.414.6
Debt service-to-revenue ratio (in percent) 4/10.38.48.211.213.013.213.714.514.513.714.9
Primary deficit that stabilizes the debt-to-GDP ratio6.78.54.51.53.22.82.52.32.32.21.9
Key macroeconomic and fiscal assumptions
Real GDP growth (in percent)7.38.48.58.33.58.58.48.38.07.77.78.17.25.76.8
Average nominal interest rate on forex debt (in percent)0.61.62.21.90.92.72.52.32.12.01.92.31.51.41.5
Average real interest rate on domestic debt (in percent)2.41.52.7−4.27.4−3.6−3.2−0.90.41.21.5−0.82.84.83.5
Real exchange rate depreciation (in percent, + indicates depreciation)17.17.13.1−4.714.110.3
Inflation rate (GDP deflator, in percent)2.85.75.910.88.012.211.89.27.77.06.69.15.43.54.7
Growth of real primary spending (deflated by GDP deflator, in percent)75.37.427.211.124.1−5.46.68.910.79.58.66.57.86.27.4
Grant element of new external borrowing (in percent)37.639.141.041.742.043.040.841.040.2
Sources: Country authorities; and staff estimates and projections.

[Indicate coverage of public sector, e.g., general government or nonfinancial public sector. Also whether net or gross debt is used.]

Gross financing need is defined as the primary deficit plus debt service plus the stock of short-term debt at the end of the last period.

Revenues excluding grants.

Debt service is defined as the sum of interest and amortization of medium and long-term debt.

Historical averages and standard deviations are generally derived over the past 10 years, subject to data availability.

Sources: Country authorities; and staff estimates and projections.

[Indicate coverage of public sector, e.g., general government or nonfinancial public sector. Also whether net or gross debt is used.]

Gross financing need is defined as the primary deficit plus debt service plus the stock of short-term debt at the end of the last period.

Revenues excluding grants.

Debt service is defined as the sum of interest and amortization of medium and long-term debt.

Historical averages and standard deviations are generally derived over the past 10 years, subject to data availability.

Table 1d.Myanmar: Sensitivity Analysis for Key Indicators of Public Debt 2015/16-2035/36
Projections
2015/162016/172017/182018/19 2019/202020/212025/262035/36
PV of Debt-to-GDP Ratio
Baseline2929292929293135
A. Alternative scenarios
A1. Real GDP growth and primary balance are at historical averages2928272626262524
A2. Primary balance is unchanged from 20152929292930303340
A3. Permanently lower GDP growth 1/2929293031323859
B. Bound tests
B1. Real GDP growth is at historical average minus one standard deviations in 2016-20172930323334354050
B2. Primary balance is at historical average minus one standard deviations in 2016-20172929292929293135
B3. Combination of B1-B2 using one half standard deviation shocks2929292930313542
B4. One-time 30 percent real depreciation in 20162934333232323134
B5. 10 percent of GDP increase in other debt-creating flows in 20162936353434343437
PV of Debt-to-Revenue Ratio 2/
Baseline141141139134133131133139
A. Alternative scenarios
A1. Real GDP growth and primary balance are at historical averages14113613012311911510696
A2. Primary balance is unchanged from 2015141141140136136136142160
A3. Permanently lower GDP growth 1/141142142140141143165235
B. Bound tests
B1. Real GDP growth is at historical average minus one standard deviations in 2016-2017141148156155157158174200
B2. Primary balance is at historical average minus one standard deviations in 2016-2017141140138134132131133139
B3. Combination of B1-B2 using one half standard deviation shocks141140138137138139150168
B4. One-time 30 percent real depreciation in 2016141164158150145141136135
B5. 10 percent of GDP increase in other debt-creating flows in 2016141176170160156152148146
Debt Service-to-Revenue Ratio 2/
Baseline1113131314141315
A. Alternative scenarios
A1. Real GDP growth and primary balance are at historical averages1113131212121110
A2. Primary balance is unchanged from 20151113131414151417
A3. Permanently lower GDP growth 1/1113131415151724
B. Bound tests
B1. Real GDP growth is at historical average minus one standard deviations in 2016-20171113141517171821
B2. Primary balance is at historical average minus one standard deviations in 2016-20171113131314141315
B3. Combination of B1-B2 using one half standard deviation shocks1113131314151517
B4. One-time 30 percent real depreciation in 20161114151617171618
B5. 10 percent of GDP increase in other debt-creating flows in 20161113152516171415
Sources: Country authorities; and staff estimates and projections.

Assumes that real GDP growth is at baseline minus one standard deviation divided by the square root of the length of the projection period.

Revenues are defined inclusive of grants.

Sources: Country authorities; and staff estimates and projections.

Assumes that real GDP growth is at baseline minus one standard deviation divided by the square root of the length of the projection period.

Revenues are defined inclusive of grants.

External public and publicly guaranteed (PPG) debt and public domestic debt dynamics are assessed using the LIC DSA framework, which recognizes that better policies and institutions allow countries to manage higher levels of debt, and thus the threshold levels are policy-dependent. The quality of a country’s policies and institutions are normally measured by the World Bank’s Country Policy and Institutional Assessment (CPIA). The most conservative thresholds are applied for the purposes of this DSA based on the average CPIA index of the last two years which indicate a weak rating.

The DSA was jointly prepared by the IMF and the World Bank.

This risk rating is unchanged from the previous DSA which had incorporated the resolution of the external arrears with the Paris Club, the World Bank and the Asian Development Bank.

These are standard shock scenarios in the DSA template.

The staff of the World Bank and the IMF, while strong supporters of the overall reform effort, reserve some caution given the newness of the reform program. In addition, there are possible downside risks stemming from the international environment.

The long-term growth projections were also underpinned by growth diagnostics conducted by IMF staff in 2014/15 DSA which based projections on age-specific population growth and sectoral level productivity based on the experience of similar countries. The final results were based on consultation with the World Bank.

The kyat (reference rate) appreciated against a basket of currencies in which Myanmar’s external debt is denominated.

The typical historical scenario is not shown in this analysis. In the case of Myanmar, the historical scenario would imply an unlikely return to pre-reform policies: low noninterest current account deficits (consistent with binding international sanctions) and sustained real exchange rate pressures.

In the present value of total public debt to GDP ratio, the most extreme shock is the growth shock which causes a breach in the indicative benchmark in 2023/34 while fixing the primary balance causes a breach in 2033/34.

Policy banks in Myanmar are financial institutions in which the government has an ownership stake and which carry. out functions that are associated with policies of the government.

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