This paper reviews economic developments in Myanmar during 1990–95. The rapid economic growth of 1992/93–1994/95, which averaged more than 7 percent per year, has allowed the economy to recoup much of what it lost in 1988/89 and 1991/92. However, on a per capita basis, neither GDP nor agricultural output has yet recovered to the levels reached in the mid-1980s. The strong GDP growth achieved in 1994/95 essentially reflected continued good performance of the agricultural sector and a further rapid expansion of the financial sector.

Abstract

This paper reviews economic developments in Myanmar during 1990–95. The rapid economic growth of 1992/93–1994/95, which averaged more than 7 percent per year, has allowed the economy to recoup much of what it lost in 1988/89 and 1991/92. However, on a per capita basis, neither GDP nor agricultural output has yet recovered to the levels reached in the mid-1980s. The strong GDP growth achieved in 1994/95 essentially reflected continued good performance of the agricultural sector and a further rapid expansion of the financial sector.

I. Overview

Since 1989, the Myanma authorities have introduced a number of economic reforms to move away from the long established system of central planning and restructure the economic system along market lines. These reforms lifted restrictions on the agricultural sector, curtailed the scope of price controls, allowed the private sector to expand its role especially in foreign trade, and sought to attract foreign investment. The reforms have, however, been partial and have failed to engineer a decisive transformation of the economic system. In part, this is owing to a reluctance to adjust the exchange rate which has remained fixed since 1977. Some ad hoc exchange reforms have been implemented to move private sector transactions to a parallel exchange market, but virtually all public sector transactions remain at grossly overvalued official exchange rate. In addition to problems of the exchange system, a number of other structural problems need to be addressed including: continued price controls; a deteriorating government revenue base which has given rise to large budget deficits; an inefficient and centrally controlled state enterprise sector; an underdeveloped financial system; and numerous controls and regulations which inhibit growth of the private sector.

Notwithstanding the existence of major structural problems, real economic activity has expanded strongly over the past three years, with the agricultural sector leading the expansion. The recovery in agricultural production, which has primarily concentrated on rice production, has reflected improved price incentives following the liberalization of the sector. A large surge in rice production that was achieved in 1994/95 1/ has greatly benefitted Myanmar’s external position as rice exports have risen dramatically. At the same time, while foreign aid has remained minimal, external inflows from private remittances, services and direct investment have been buoyant. Although the overall balance of payments deficit has thus narrowed substantially, the level of gross foreign reserves has been maintained only through the accumulation of external debt service arrears.

The strengthening of growth and external performance has, however, not been accompanied by good financial policies. There has been a widening of the public sector deficit in 1994/95 reflecting a large expansion in government outlays, in particular, capital expenditures, as well as the continued failure of the tax system to generate revenues in line with income growth. The deficit has been financed by substantial recourse to domestic bank financing. Together with an expansion in credit to the private sector, the large public sector borrowing need has caused domestic liquidity to rise sharply. Consequently, consumer price inflation has accelerated, although the parallel market exchange rate has remained broadly stable.

II. Real Sector Developments

1. Economic structure

The Myanma economy is still underdeveloped with a weak infrastructure and a considerable untapped potential in various sectors, particularly in agriculture, mining, fisheries, and forestry. Agriculture (including livestock and fisheries) is by far the most important sector, accounting for 45 percent of real GDP (Table 1), and much of what little manufacturing exists, is agro-based. While in real terms the share of agriculture in GDP decreased by about two percentage points during the past five years, it increased sharply at current prices—from 57 percent in 1989/90 to 63 percent in 1994/95 (Table 2)—reflecting essentially the liberalization of agricultural prices since 1988/89 and the resulting marked improvement in the agricultural terms of trade.

Table 1.

Myanmar: Real Gross Domestic Product by Sector, 1989/90-1994/95

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Source: Data provided by the Myanma authorities.
Table 2.

Myanmar: Gross Domestic Product by Sector, 1989/90-1994/95

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Source: Data provided by the Myanma authorities.

Official national income accounts by expenditure (Tables 3, 4, and 5) need to be interpreted cautiously because (i) the valuation of all foreign exchange related transactions at the official exchange rate has caused the current price data to understate exports, imports, and the import content of investment and consumption, while (ii) the constant price data are distorted not only by a similar valuation bias but also by the use of a dated system of relative prices from the central planning era. Bearing in mind these data limitations, it appears that over the period 1992/93-1994/95 the share of consumption in total GDP rose somewhat, while the share of gross investment declined. Consumption absorbs an overwhelmingly large proportion of income—close to 90 percent. Within gross capital formation, the public sector’s share has risen at the expense of the private sector’s, reflecting the recent acceleration in the Government’s capital outlays. The bulk of capital formation is financed by national savings, the share of foreign savings being very low.

Table 3.

Myanmar: Expenditure on Gross Domestic Product at Constant 1985/86 Prices, 1989/90-1994/95

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

Residual item.

Table 4.

Myanmar: Expenditure on Gross Domestic Product at Current Prices, 1989/90-1994/95

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

Residual item.

Budget data.

Balance of payments data converted at official exchange rate.

Table 5.

Myanmar: Investment and Saving, 1989/90-1994/95

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

Budget data.

Balance of payments data converted at official exchange rate.

The private sector accounted for 76 percent of real GDP and virtually all of value added in agriculture, livestock and fisheries in 1994/95 (Table 6). However, other sectors such as mining, power, construction, communications, financial, social and other services continue to be dominated by the state. The private sector is, however, slowly gaining ground in these sectors as well. Much of this gain has come at the expense of the cooperative sector, which has become marginal, except in the financial sector where it has played an increasing role in the provision of agricultural credit.

Table 6.

Myanmar: Gross Domestic Product by Form of Ownership, 1994/95 1/

(In percent of sectoral output)

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Source: Data provided by the Myanma authorities.

Provisional data.

2. Production

The rapid economic growth of 1992/93-1994/95, which averaged over 7 percent per year, has allowed the economy to recoup much of what it lost in 1988/89 and 1991/92. However, on a per capita basis, neither GDP nor agricultural output have yet recovered to the levels reached in the mid-1980s. The strong GDP growth achieved in 1994/95 essentially reflected continued good performance of the agricultural sector and a further rapid expansion of the financial sector. Growth in mining, manufacturing, and construction, however, slowed considerably. Moreover, forestry output declined sharply in 1994/95, following a government-imposed ban on log exports.

a. Agriculture

Agriculture is the backbone of the economy, accounting for more than half of GDP at current prices and employing almost two thirds of the labor force, Paddy is by far the dominant crop, and is planted on about half of the cultivated area of about 12,000 hectares. Next in importance are pulses—which have become a key export crop for the private sector—and sesame; these account for 15 and 10 percent, respectively, of the area sown. When viewed against Myanmar’s agricultural potential—with rich soils, an abundance of water, and substantial reserves of arable land—past efforts to promote agriculture have met with limited success. Constrained by the persistent shortages of critical inputs such as fertilizer, pesticides, and fuel, yields of most major crops have stagnated, with the notable exception of pulses and oilseeds (Table 7). Thus, over the period 1989/90-1994/95, while agricultural value added rose by 24 percent, both sown and harvested area expanded somewhat faster (Tables 8 and 9).

Table 7.

Myanmar: Output and Yield of Major Crops, 1989/90-1994/95

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Source: Data provided by the Myanma authorities.
Table 8.

Myanmar: Sown Area for Major Crops, 1989/90-1994/95

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Source: Data provided by the Myanma authorities.
Table 9.

Myanmar: Harvested Acreage Under Major Crops, 1989/90-1994/95

(In thousands of hectares)

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Source: Data provided by the Myanma authorities.

The bulk of the recent strong growth in agricultural production was concentrated in paddy and pulses. After the already large increases of the previous two years, paddy production rose to a record 19 million tons in 1994/95, permitting the volume of official rice exports to rise to a level that had not been reached since the early 1980s (Table 10). During the past three years, paddy production has benefitted from the doubling of the irrigated area (to 1 million hectares)—which has allowed widespread double and triple cropping—and a significantly increased allocation of fertilizer (Table 11). The main impetus to the revival of the paddy sector, however, came from price liberalization and the termination of forced procurement. Although the Government and, on a smaller scale, the cooperatives continue to procure a sizeable share of the paddy crop at below market prices (Tables 12 and 13), this primarily occurs under a complicated advance purchase scheme that links crop procurement to the distribution of inputs at below market prices, free irrigation services, and credit with delivery contracts. Given the sharp increases in free market prices (Table 14), paddy farming has again become highly attractive. Although production of pulses does not enjoy a similar preferential treatment in the supply of inputs, it also is highly attractive, since pulses are one of the few readily marketable crops that the private sector is permitted to export. With both state agencies and the private sector competing for the exportable surplus, the prices of pulses have greatly improved, causing production to rise at an even faster pace than paddy.

Table 10.

Myanmar: Production and Utilization of Rice, 1989/90-1994/95 1/

(In thousands of metric tons)

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Source: Data provided by the Myanma authorities.

Including rice procured as land and water tax.

Calculated as residual; a positive figure represents an increase.

Table 11.

Myanmar: Supply and Use of Chemical Fertilizers, 1989/90-1994/95

(In thousands of metric tons)

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Source: Data provided by the Myanma authorities.

High-yielding variety crops.

Data from 1992/93 cover all varieties of paddy.

Calculated as residual.

Table 12.

Myanmar: Government Procurement of Major Crops, 1989/90-1994/95 1/

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

Procurement by the Myanma Agricultural Produce Trading Enterprise (MAPTE).

Table 13.

Myanmar: Cooperative Societies’ Procurement of Major Crops, 1989/90-1994/95

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Source: Data provided by the Myanma authorities.
Table 14.

Myanmar: Purchase Prices of Major Agricultural Products, 1989/90-1994/95

(Kyats per metric ton)

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Source: Data provided by the Myanma authorities.

b. Livestock and fisheries

Performance of the livestock and fisheries sectors has been modest in the past several years. While meat and livestock production has continued to be hampered by the slow growth of domestic feedstuff output, the more important fisheries sector has continued to suffer from severe capacity constraints and inadequate supplies of fuel for refrigeration plants. The authorities’ program to lease out most of the state-owned vessels and processing facilities to private sector operators was completed in 1994/95, but has done little to improve the situation so far. A major investment effort is needed to develop the sector’s potential, but after the earlier unsatisfactory experience with foreign fishing companies, the authorities have focussed increasingly on the formation of joint ventures. New fishing rights are granted to foreign investors only if they are prepared to invest in onshore processing facilities or in aquaculture.

c. Forestry

The forestry sector, traditionally a major source of foreign exchange earnings, stagnated throughout the 1970s and most of the 1980s. Towards the end of the decade, forestry output experienced a short-lived boom as the Government opened the sector to foreign companies while Thailand introduced a general ban on logging. However, environmental concerns over the resulting indiscriminate logging activity, much of which was illegal, led the authorities to gradually scale down forest extraction by not renewing expiring concessions. This policy, combined with the chronic neglect of the sector and the resulting dilapidation of domestic extraction and processing facilities, accounts for the continued decline in forestry production (Table 16).

Table 15.

Myanmar: Prices and Cost of Fertilizers, 1989/90-1994/95

(In kyats per metric ton)

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Source: Data provided by the Myanma authorities.

Valued at official exchange rate.