Myanmar : Requests for Disbursement Under the Rapid Credit Facility and Purchase Under the Rapid Financing Instrument—Debt Sustainability Analysis
Author:
International Monetary Fund. Asia and Pacific Dept
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Publication Date:
02 Jul 2020
eISBN:
9781513548937
Language:
English
Keywords:
ISCR; CR; financing; IMF emergency financing; Myanmar economy; CBM financing; financing needs; IMF's article; COVID-19; Monetary base; Credit; Global; dynamics equation; sustainability framework; debt outlook; creating flow; debt stock; Fiscal stance; Contingent liabilities; Stress testing
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Requests for Disbursement Under the Rapid Credit Facility and Purchase Under the Rapid Financing Instrument-Press Release; Staff Report; and Statement by the Executive Director for Myanmar

Abstract

Requests for Disbursement Under the Rapid Credit Facility and Purchase Under the Rapid Financing Instrument-Press Release; Staff Report; and Statement by the Executive Director for Myanmar

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Myanmar’s risk of external and overall debt distress continues to be assessed as low. External debt indicators are projected to continue on a downward trend; however, rapidly evolving circumstances have raised the projected FY 2019/20 deficit and public debt levels, and made prominent several vulnerabilities (see text table). The IMF’s RCF/RFI financing arrangement and the Debt Service Suspension Initiative (DSSI), supported by the G-20 and the Paris Club, will enable a quick increase in priority spending in response to the effects of the pandemic. The DSA shows that, under the baseline, which reflects the COVID-19 shock, all external public and publicly guaranteed (PPG) debt indicators remain below their policy relevant thresholds and benchmarks. A slowdown in exports and the aftermath from a natural disaster are shocks that worsen the debt outlook the most.4

Under the baseline, the magnitude of a shock from contingent liability through the financial sector is assumed to be the default 5 percent of GDP. A more prolonged global outbreak could result in more adverse economic outcomes that interact with banking sector fragilities. This could potentially result in the realization of contingent liabilities arising from recapitalization needs. An adverse scenario, which considers the macroeconomic impact from such an assumption, reflects the impact of this downside risk. Here, the PV of public debt-to-GDP ratio deteriorates significantly. It also raises the PV of public debt-to-GDP ratio under the most extreme shock, and breach its benchmark (55 percent) in the medium term suggesting a possible worsening of the risk rating from low to moderate (see figure).

It is imperative that the authorities address the immediate gross financing needs arising from the impact of the COVID-19 crisis, without resorting to potentially more destabilizing central bank financing given Myanmar’s experience. At the same time, there may be limited potential to borrowing from domestic banks given vulnerabilities and the risks of crowding out needed credit. Thus, external financing on concessional terms, and the DSSI, will be key to support the policy stimulus while containing risks to price and external stability.5 Over time, to avoid an excessive recourse to central bank financing, the authorities should embark on a medium-term revenue strategy underpinned by a revenue target and comprehensive tax policy reforms building on recent administrative reforms. The authorities should remain vigilant of the potential impact from the fragilities in the banking system and put in place a framework for better monitoring and managing fiscal risks including from PPPs. Strengthening debt management capacity remains priority.

Key Macroeconomic Assumptions, FY2020–24

(Average)

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Source: IMF staff estimates.

PV of PPG Debt-to-GDP Ratio

(Adverse Scenario)

Citation: IMF Staff Country Reports 2020, 215; 10.5089/9781513548937.002.A002

Figure 1.
Figure 1.

Myanmar: Indicators of Public and Publicly Guaranteed External Debt Under Alternatives Scenarios, 2020–2030 1/ 2/

Citation: IMF Staff Country Reports 2020, 215; 10.5089/9781513548937.002.A002

Sources: Country authorities; and staff estimates and projections.1/ The most extreme stress test is the test that yields the highest ratio in or before 2030. The stress test with a one-off breach is also presented (if any), while the one-off breach is deemed away for mechanical signals. When a stress test with a one-off breach happens to be the most exterme shock even after disregarding the one-off breach, only that stress test (with a one-off breach) would be presented.2/ The magnitude of shocks used for the commodity price shock stress test are based on the commodity prices outlook prepared by the IMF research department.
Figure 2.
Figure 2.

Myanmar: Indicators of Public Debt Under Alternative Scenarios, 2020–2030 1/

Citation: IMF Staff Country Reports 2020, 215; 10.5089/9781513548937.002.A002

Sources: Country authorities; and staff estimates and projections.1/ The most extreme stress test is the test that yields the highest ratio in or before 2030. The stress test with a one-off breach is also presented (it any), while the one-off breach is deemed away for mechanical signals. When a stress test with a one-off breach happens to be the most exterme shock even after disregarding the one-off breach, only that stress test (with a one-off breach) would be presented.
Figure 3.
Figure 3.

Myanmar: Drivers of Debt Dynamics—Baseline Scenario

Citation: IMF Staff Country Reports 2020, 215; 10.5089/9781513548937.002.A002

1/ Difference between anticipated and actual contributions on debt ratios.2/ Distribution across LICs for which LIC DSAs were produced.3/ Given the relatively low private external debt for average low-income countries, a ppt change in PPG external debt should be largely explained by the drivers of the external debt dynamics equation.
Figure 4.
Figure 4.

Myanmar: Realism Tools

Citation: IMF Staff Country Reports 2020, 215; 10.5089/9781513548937.002.A002

Table 1.

Myanmar: External Debt Sustainability Framework, Baseline Scenario, 2017–40

(In percent of GDP, unless otherwise indicated)

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Sources: Country authorities; and staff estimates and projections. 1/ Includes both public and private sector external debt. 2/ Derived as(r – g – ρ(1 +g) + εα (1+r)]/(1+g+ρ+gρ) times previous period debt ratio, with r = nominal interest rate; g = real GDP growth rate, ρ = growth rate of GDP deflator in U.S. dollar terms, ε = nominal appreciation of the local Currency, and α = share of local currency- denominated external debt in total external debt 3/ 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. 4/ Current-year interest payments divided by previous period debt stock. 5/ Defined as grants, concessional loans, and debt relief. 6/ Grant-equivalent financing includes giants provided directly to the government and through new borrowing (difference between the face value and the PV of new debt). 7/ Assumes that PV of private sector debt is equivalent to its face value. 8/ Historical averages are generally derived over the past 10 years, subject to data availability, whereas projections averages are over the first year of projection and the next 10 years. Sources: Country authorities; and staff estimates and projections.
Table 2.

Myanmar: Public Sector Debt Sustainability Framework, Baseline Scenario, 2017–40

(In percent of GDP, unless otherwise indicated)

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1/ Coverage of debt: The central, state, and local governments plus social security, central bank, government-guaranteed debt, Definition of external debt is Residency-based. 2/ The underlying PV of external debt-to-GDP ratio under the public DSA differs from the external DSA with the size of differences depending on exchange rates projections. 3/ Debt service is defined as the sum of interest and amortization of medium and long-term, and short-term debt. 4/ 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 and other debt creating/reducing flows. 5/ Defined as a primary deficit minus a change in the public debt-to-GDP ratio ((-): a primary surplus), which would stabilizes the debt ratio only in the year in question. 6/ Historical averages are generally derived over the past 10 years, subject to data availability, whereas projections averages are over the first year of projection and the next 10 years.
Table 3.

Myanmar: Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2020–30

(In percent)

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Sources: Country authorities; and staff estimates and projections.

A bold value indicates a breach of the threshold.

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

Includes official and private transfers and FDI.

Table 4.

Myanmar: Sensitivity Analysis for Key Indicators of Public Debt 2020–30

(In percent)

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Sources: Country authorities; and staff estimates and projections.

A bold value indicates a breach of the benchmark.

Variables include real GDP growth, GDP deflator and primary deficit in percent of GDP.

Includes official and private transfers and FDI.

1

This joint World Bank/IMF DSA has been prepared in the context of the 2020 request for emergency financing from the IMF (RCF/RFI). The macro framework underlying this DSA is the same as that included in the staff report of the 2020 RCF/RFI request which reflects recent global developments. The current macroeconomic framework reflects currently available information. However, updates with respect to economic impact and policy response to the COVID-19 crisis are rapidly evolving and risks are tilted to the downside. Public debt covers the consolidated public sector debt, central bank debt borrowed on behalf of the government, government-guaranteed debt and social security funds. SOE debt is on lent and is therefore included in the coverage of public external debt.

2

The LIC DSF determines the debt sustainability thresholds by calculating a composite indicator (CI). Based on the CI score (2.72), for Myanmar, the final debt carrying capacity classification for this DSA is medium. This is based on the October 2019 WEO and CPIA 2018.

3

Myanmar’s fiscal year is on October-September basis. All tables and figures are on a fiscal year basis. In the DSA standard tables, for example, 2019 refers to FY2018/19 and ends in September 2019.

4

Public/Private investment rate charts are not available in the current DSA from data limitations. Technical assistance from the IMF and various partners continue is ongoing to strengthen macroeconomic data.

5

Based on data provided on mission, the DSSI is estimated to suspend US$322 million and US$67 million in external debt service in FY2019/20 and FY2020/21 respectively. It would contribute 19 percent of the financing gap in FY2019/20. The savings from suspended debt service in FY2019/20 and FY2020/21 under the DSSI and the related debt service considering this suspension have been incorporated into the macro framework and the DSA.

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Cover IMF Staff Country Reports
Myanmar: Requests for Disbursement Under the Rapid Credit Facility and Purchase Under the Rapid Financing Instrument-Press Release; Staff Report; and Statement by the Executive Director for Myanmar
Author:
International Monetary Fund. Asia and Pacific Dept
Volume/Issue:
Volume 2020: Issue 215
Publisher:
International Monetary Fund
ISBN:
9781513548937
ISSN:
1934-7685
Pages:
49
DOI:
https://doi.org/10.5089/9781513548937.002

PV of PPG Debt-to-GDP Ratio

(Adverse Scenario)
Figure 1.

Myanmar: Indicators of Public and Publicly Guaranteed External Debt Under Alternatives Scenarios, 2020–2030 1/ 2/
Figure 2.

Myanmar: Indicators of Public Debt Under Alternative Scenarios, 2020–2030 1/
Figure 3.

Myanmar: Drivers of Debt Dynamics—Baseline Scenario
Figure 4.

Myanmar: Realism Tools