Myanmar in Transition
Opportunities and Challenges

Myanmar in Transition
Opportunities and Challenges

August 2012

© 2012 Asian Development Bank All rights reserved. Published in 2012. Printed in the Philippines. ISBN 978-92-9092-812-6 (Print), 978-92-9092-813-3 (PDF) Publication Stock No. RPT124850-2 Cataloging-in-Publication Data Asian Development Bank Myanmar in transition: Opportunities and challenges. Mandaluyong City, Philippines: Asian Development Bank, 2012. 1. Economic development. 2. Myanmar. I. Asian Development Bank.

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Foreword

Myanmar emerges from decades of isolation with much hope and support from the global and regional communities. The country has high potential for rapid growth and development given its rich natural resources, abundant labor force, and strategic location between the region’s two economic giants—the People’s Republic of China and India. Many lessons can be drawn from the development experiences of Myanmar’s neighbors and can help guide its economic transition to achieve strong and inclusive growth while avoiding social instability and ensuring environmental sustainability. Greater regional cooperation can unlock the growth potential arising from increased trade and cross-border investment. Myanmar can strengthen its ties with the Association of Southeast Asian Nations (ASEAN) and utilize its unique geographic position as a bridge between South and Southeast Asia, which offer a range of new opportunities. Working in cooperation with other countries will provide a solid platform for Myanmar’s renaissance. Myanmar is set to chart a course that takes into account its strengths and weaknesses, while leveraging the available opportunities and avoiding the potential risks. Myanmar can also position itself •–”ƒ–‡‰‹…ƒŽŽ› ‹ –Š‡ ”ƒ’‹†Ž› …Šƒ‰‹‰ ‰Ž‘„ƒŽ ƒ† ”‡‰‹‘ƒŽ ‡˜‹”‘‡– –‘ „‡‡ ‹– ˆ”‘ ‹–• ƒ†˜ƒ–ƒ‰‡• This report was prepared to assess the country’s economic and social prospects as it embarks on a new era of reform and renewal. We hope that it broadens and deepens the understanding of the country and provides a foundation for effective development assistance. This report was prepared jointly by the Asian Development Bank’s Economics and Research Department and Southeast Asia Department. The Department of External Relations also provided invaluable support for its publication and dissemination.

Changyong Rhee Chief Economist Economics and Research Department

Ku o Senga Kunio Senga Kunio Se g Director General Southeast Asia Department

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Acknowledgments

The report was written by Cyn-Young Park, Muhammad Ehsan Khan, and Paul Vandenberg. Paulo Rodelio M. Halili and Emmanuel A. San Andres offered invaluable research support. The report also drew heavily on inputs provided by Maria Socorro Bautista, Martin Bodenstein, Douglas Brooks, Iris Claus, Jesus Felipe, Kaushal Joshi, Kee-Yung Nam, Hyun Hwa Son, Juzhong Zhuang, and Joseph Ernest Zveglich Jr. from the Economics and Research Department; and Kelly Bird, Richard Bolt, Rudolf Frauendorfer, Thatha Hla, Jong-Inn Kim, James Leather, James Nugent, Alfredo Perdiguero, Pavit Ramachandran, Christopher A. Spohr, Craig Steffensen, and Winfried F. Wicklein from the Southeast Asia Department. A team from the Department of External Relations extended expert support for publication and dissemination. Jill Gale de Villa provided excellent editing service and typesetting was done by Mike Cortes.

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Contents

Foreword Acknowledgments Abbreviations and Acronyms EXECUTIVE SUMMARY I. MYANMAR IN TRANSITION Macroeconomic Performance Poverty and Inequality Millennium Development Goals CHANGING EXTERNAL ENVIRONMENT Myanmar in the Asian Century ASEAN and Intraregional Trade and Investment Inclusion and Environmental Sustainability STRENGTHS, CONSTRAINTS, OPPORTUNITIES, AND RISKS Strengths Constraints Opportunities Risks IMPLICATIONS FOR MYANMAR’S ECONOMIC TRANSITION Managing Macroeconomic Stability Mobilizing Domestic Resources Building Development Foundations Improving the Investment Climate for Industry and Business Expediting Public Sector Reform Building Planning and Statistical Capacity

iii iv vi vii 1 1 6 8 10 10 11 13 15 15 19 28 30 35 35 36 39 40 41 41 43

II.

III.

IV.

REFERENCES

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Abbreviations and Acronyms

ADB ASEAN CBM DICA FDI FY GDP GMS IHLCS Lao PDR MDG MIWT MK MOE MOFR MOH MMR MNPED PRC TVET U5MR VAT

— — — — — — — — — — — — — — — — — — — — — —

Asian Development Bank Association of Southeast Asian Nations Central Bank of Myanmar Directorate of Investment and Company Administration foreign direct investment fiscal year gross domestic product Greater Mekong Subregion Integrated Household Living Conditions Survey Lao People’s Democratic Republic Millennium Development Goal Myanmar Inland Water Transport kyat Ministry of Education Ministry of Finance and Revenue Ministry of Health maternal mortality ratio Ministry of National Planning and Economic Development People’s Republic of China technical and vocational education and training under 5 mortality rate value-added tax

Weights and Measures ha km MW t — — — — hectare kilometer megawatt ton

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Myanmar in Transition

Executive Summary

›ƒƒ” ‹• ‡‡”‰‹‰ ˆ”‘ ‹˜‡ †‡…ƒ†‡• ‘ˆ ‹•‘Žƒ–‹‘ „‘–Š ‡…‘‘‹…ƒŽŽ› ƒ† ’‘Ž‹–‹…ƒŽŽ› ‹–Š ‹–• ”‹…Š natural resources and strategic location, the country shows good potential for growth. Myanmar could become one of the next rising stars in Asia if it can successfully leverage its rich endowments— such as its natural resources, labor force, and geographic advantage—for economic development and growth. Myanmar is making brave new moves, as did many of the region’s high growth and transition economies decades earlier. It is opening up to trade, encouraging foreign investment, and deepening ‹–• ‹ƒ…‹ƒŽ •‡…–‘” ‘™‹‰ –Š‡ Š‹•–‘”› ‘ˆ ”ƒ’‹† ‰”‘™–Š ‹ –Š‡ ”‡‰‹‘ …ƒ Š‡Ž’ ‰—‹†‡ ›ƒƒ” ‹ making the critical decisions to achieve its medium- and long-term goals. Luckily, lessons of economic growth and development are abundant in Asia. The People’s Republic of China (PRC), Indonesia, Malaysia, Thailand, Viet Nam, and recently Cambodia grew by 6%–10% annually during their high-growth periods. Poverty was reduced by as much as half in a decade. Myanmar could grow at 7%–8% per year for a decade or more and raise its per capita income to $2,000–$3,000 by 2030. ˜‡”› …‘—–”› • †‡˜‡Ž‘’‡– ‡š’‡”‹‡…‡ ‹• —‹“—‡ •Šƒ’‡† „› ‹–• •’‡…‹ ‹… Š‹•–‘”› …—Ž–—”‡ †‘‡•–‹… conditions, and the prevailing international environment. Yet important lessons can also be drawn from the experiences of other successful countries. Three broad lessons are apparent from Asia’s rise. ‹”•– ‹ Žƒ–‹‘ —•– „‡ ‡’– Ž‘™ ƒ† •–ƒ„Ž‡ –Š”‘—‰Š ‡ˆˆ‡…–‹˜‡ ƒ…”‘‡…‘‘‹… ƒƒ‰‡‡– ‡…‘† Š‹‰Š †‘‡•–‹… •ƒ˜‹‰• Ž‡˜‡Ž• ƒ”‡ ‡‡†‡† –‘ ‹ƒ…‡ ‹˜‡•–‡– † –Š‹”† ƒ‰”‹…—Ž–—”‡ ‹• ‹’‘”–ƒ– but the economy needs to undergo a structural transformation to industry and services as a means to improve productivity, expand exports, and create employment. Along with these broad lessons, Asia’s ‰”‘™–Š Šƒ• ”‡“—‹”‡† ‹˜‡•–‡–• ‹ Š—ƒ …ƒ’‹–ƒŽ ƒ† ‡ˆ ‹…‹‡– ‹ˆ”ƒ•–”—…–—”‡ –Š‡ …”‡ƒ–‹‘ ‘ˆ •‘—† institutions and social stability, and the use of the market mechanism to allocate resources. Myanmar’s transition comes amid a seismic shift in the global economic landscape. The recent ‹ƒ…‹ƒŽ …”‹•‹• ‰ƒ˜‡ ™ƒ› –‘ ƒ ‡™ ‘”ƒŽ ™Š‡”‡ –Š‡ ‰Ž‘„ƒŽ ‡…‘‘‹… ™‡‹‰Š– ‹• •Š‹ˆ–‹‰ ˆ”‘ ‡•– to East and from North to South. This changing landscape has important implications for economic dynamics in Asia. With the emergence of Asia as a new global growth center, regional integration is now, more than ever, an important ingredient in an effective growth strategy. Myanmar and its ‡‹‰Š„‘”• ‡‡† ‘ Ž‘‰‡” ”‡Ž› ‘ –Šƒ– ƒ•’‡…– ‘ˆ ˆƒ…–‘”› •‹ƒ ‹ ™Š‹…Š ‰‘‘†• ™‡”‡ ’”‘†—…‡† ‹ –Š‡ ƒ•– ˆ‘” ‹ƒŽ …‘•—’–‹‘ ‹ –Š‡ ‡•– •‹ƒ ‹• •–”‡‰–Š‡‹‰ ‹–• ‘™ ‹–‡”ƒŽ †‡ƒ† ƒ† –Š‡”‡„› creating new opportunities for countries such as Myanmar, as well as contributing to a more balanced global economy.

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Executive Summary Myanmar In Transition: Opportunities and Challenges

Greater regional cooperation can unlock the growth potential arising from increased trade and cross-border investment. Myanmar is strategically located between the region’s two economic giants, the PRC and India, which are home to over 2.5 billion people. With the PRC moving up the global value …Šƒ‹ ƒ† ‹–• ™‘”ˆ‘”…‡ †‡ƒ†‹‰ Š‹‰Š‡” ™ƒ‰‡• •‘‡ ƒ—ˆƒ…–—”‹‰ ‹”• ƒ”‡ •‡‡‹‰ –‘ ”‡Ž‘…ƒ–‡ to countries in Southeast Asia, including Myanmar. Strengthening its ties within the Association of Southeast Asian Nations (ASEAN) and utilizing its unique geographic position as a bridge between the PRC and India and between South and Southeast Asia would open Myanmar to a range of new opportunities. About 26% of ASEAN’s total trade takes ’Žƒ…‡ ƒ‘‰ ‡„‡” …‘—–”‹‡• Š‡ ‰”‘—’ • –”ƒ†‡ ™‹–Š –Š‡  Šƒ• ‰”‘™ •‹‰‹ ‹…ƒ–Ž› ˆ”‘ Ž‡•• than 4% in 2000 to more than 10% in 2011. During the same period, the share of ASEAN’s trade with industrialized economies has declined from 54% to 36%. The examples of Cambodia and Viet ƒ •Š‘™ –Šƒ– ›ƒƒ” …ƒ Ž‡˜‡”ƒ‰‡ ‹–• ƒˆ ‹Ž‹ƒ–‹‘ ™‹–Š •—„”‡‰‹‘ƒŽ ‰”‘—’• ƒ† ‡š’ƒ† ˆ”‘ –Š‡”‡ The time is ripe for Myanmar to strategically plan its economic transition to take advantage of the growing power of emerging market economies, particularly the rise of Asia, including the PRC, India, and ASEAN. Myanmar can exploit several strengths and opportunities to catalyze its transition to an open, market economy. A strong commitment to broad-ranging reforms, coupled with a rich endowment ‘ˆ ƒ–—”ƒŽ ƒ••‡–• ƒ„—†ƒ– Žƒ† ™ƒ–‡” ƒ† ‡‡”‰› ”‡•‘—”…‡• ƒ ›‘—–Šˆ—Ž Ž‘™ …‘•– Žƒ„‘” ˆ‘”…‡ ƒ† ‹–• •–”ƒ–‡‰‹… Ž‘…ƒ–‹‘ ’”‘˜‹†‡ ƒ •–”‘‰ ˆ‘—†ƒ–‹‘ ˆ‘” ‰”‘™–Š —‡ –‘ –Š‡ …‘—–”› • ”‹…Š ƒ‰”‹…—Ž–—”ƒŽ resources and favorable climate, agriculture has enormous potential for growth and poverty reduction. The government prioritizes agriculture and rural development as drivers of growth and broad-based development, as agriculture accounts for about 36% of gross domestic product, employs majority of the workforce, and provides 25%–30% of exports by value. Myanmar has good potential ˆ‘” †‹˜‡”•‹ˆ›‹‰ ‹–‘ ƒ ”ƒ‰‡ ‘ˆ ‘’”‹ƒ”› ƒ…–‹˜‹–‹‡• ‘–ƒ„Ž› –‘—”‹• ƒ† –‡Ž‡…‘—‹…ƒ–‹‘• ™Š‹…Š ƒ”‡ “—‹… ™‹• ƒ• ™‡ŽŽ ƒ• ƒ—ˆƒ…–—”‹‰ …‘•–”—…–‹‘ ƒ† „ƒ‹‰ However, Myanmar also faces multiple constraints and risks that may limit its progress. Key constraints include a weak macroeconomic management framework devoid of market mechanisms, ‹•—ˆ ‹…‹‡– ‹•…ƒŽ ”‡•‘—”…‡• ƒ† ‹‡ˆ ‹…‹‡– †‘‡•–‹… ˆ—† ‘„‹Ž‹œƒ–‹‘ Ž‹‹–‡† ƒ……‡•• –‘ ‹ƒ…‡ †‡ ‹…‹‡– ‹ˆ”ƒ•–”—…–—”‡ ‹ƒ†‡“—ƒ–‡ •‘…‹ƒŽ •‡”˜‹…‡• –Šƒ– Šƒ’‡” Š—ƒ …ƒ’‹–ƒŽ †‡˜‡Ž‘’‡– ƒ† Ž‹‹–‡† ‹†—•–”‹ƒŽ †‹˜‡”•‹ ‹…ƒ–‹‘ Š‡ ”‹•• ‹…Ž—†‡ ‡˜‹”‘‡–ƒŽ †‡‰”ƒ†ƒ–‹‘ ƒ”‹•‹‰ ˆ”‘ industrialization and climate change. The agriculture and natural resources sector is particularly vulnerable to the effects of climate change, notably the increasing frequency and severity of extreme weather events and other natural disasters. Clearly, growth has been the most effective tool for reducing poverty in Asia. But in recent decades, growth has become less equitable in fast growing countries, compared with the earlier experiences of Japan, the Republic of Korea, and other “miracle” economies. Recent evidence also points to mixed and uneven progress across countries and subregions in achieving the Millennium Development Goals (MDGs). Myanmar has made progress toward the MDGs, but one in four of its people remains poor and one in three children below the age of 5 is underweight. Vulnerability to malaria, tuberculosis, HIV/AIDS, and other diseases remains higher in Myanmar than in its peers within the region. Strong growth is imperative for the country to alleviate poverty and improve the standard of living. In turn, inclusiveness is crucial to maintaining good growth momentum because it strengthens social cohesion and contributes to human capital accumulation. With many ethnic groups, creating a harmonious society is a key challenge. Internal political and social tension can be destabilizing and may lead to ‘’‡ …‘ Ž‹…–

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Myanmar in Transition Executive Summary

The course of Myanmar’s future growth can be guided by three complementary development strategies: regional integration, inclusiveness, and environmental sustainability. Furthermore, given the myriad challenges the country faces and the limited resources at its disposal, the interventions …ƒ „‡ ’”‹‘”‹–‹œ‡† ƒ† ”‡ˆ‘”• •‡“—‡…‡† ˆ‘” –Š‡ ƒš‹— „‡‡ ‹–• Key development agendas include the following: % Provide macroeconomic stability. A stable macro environment provides a foundation for investment and long-term growth. Key elements of sound macroeconomic policy include low ƒ† •–ƒ„Ž‡ ‹ Žƒ–‹‘ ƒ •—•–ƒ‹ƒ„Ž‡ ‹•…ƒŽ ’‘•‹–‹‘ ƒ† ƒ Ž‡š‹„Ž‡ ƒ”‡– „ƒ•‡† ‡š…Šƒ‰‡ ”ƒ–‡ Mobilize resources for investment. Increased domestic and foreign savings are critical to meeting the enormous requirements of the private and public sectors. In addition, higher ‰‘˜‡”‡– ”‡˜‡—‡• ‡ ‰ –ƒšƒ–‹‘ ƒ† ‘”‡ ‡ˆ ‹…‹‡– ‹ƒ…‹ƒŽ ‹–‡”‡†‹ƒ–‹‘ ™‹ŽŽ ƒŽ•‘ Š‡Ž’ –‘ ’”‘˜‹†‡ •—•–ƒ‹ƒ„Ž‡ ‹ƒ…‹‰ ˆ‘” †‡˜‡Ž‘’‡– Improve infrastructure and human capital. The removal of structural impediments in the key areas of education, health, and infrastructure can provide a basis for human capital development and improve connectivity. Diversify into industry and services, while improving agriculture. Broadening the economic base beyond primary industries can raise productivity and value addition. Yet ƒ‰”‹…—Ž–—”‡ ‹•Š‡”‹‡• ƒ† ”‡•‘—”…‡ ‹†—•–”‹‡• ƒ”‡ ‘– –‘ „‡ ‡‰Ž‡…–‡† ƒ• –Š‡› …‘–ƒ‹ considerable potential for expansion. Reduce the state’s role in production. A further reduction in the government’s ownership and control of productive activities can help spur competition and increase investment by …”‡ƒ–‹‰ ƒ Ž‡˜‡Ž ’Žƒ›‹‰ ‹‡Ž† Strengthen government institutions. Economic transformation can be supported by effective government institutions, although building institutions and their capacity may take time. Attention might focus on nurturing administrative and regulatory systems; managing resources; and, most importantly, enhancing the capabilities of government personnel throughout the system.

%

%

%

%

%

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Myanmar in Transition

I.

Myanmar in Transition

Myanmar is gradually embracing wideranging reforms. The recent currency reform is one of many initiatives in this direction. The government is deepening and broadening –Š‡ ”‡ˆ‘”• –‘ ‹’”‘˜‡ ‘‡–ƒ”› ƒ† ‹•…ƒŽ management while facilitating trade and foreign direct investment (FDI) and removing structural impediments to growth by establishing physical and social infrastructure, building legal and institutional frameworks, and developing „ƒ‹‰ ƒ† ‹ƒ…‹ƒŽ •‡…–‘”• ƒ„Ž‡ ’”‡•‡–• an overview of Myanmar’s economic, social, and environmental features. Understanding these features and careful analysis of the key †‡˜‡Ž‘’‡– ‹••—‡• ‹• –Š‡ ‹”•– •–‡’ –‘™ƒ”† designing and implementing economic and policy reforms to foster the country’s growth and development.

per year, reducing their poverty by as much as 50% in one decade (Table 2). If Myanmar’s development follows this pattern, the country could grow at 7%–8% every year for an extended period. At such growth rates, its GDP per capita would reach $2,000–$3,000 by 20301—more than 3 times the current level—propelling Myanmar safely into the ranks of the middleincome countries. Myanmar reported impressive GDP growth rates, averaging 10.2% during 1992–2010 and 12.2% during 2000–2010 (Figure 1). However, –Š‡•‡ ‘ˆ ‹…‹ƒŽ ‰”‘™–Š ‹‰—”‡• Šƒ˜‡ „‡‡ †‡‡‡† overstated and rather unreliable given the country’s poor statistical capacity and use of outdated methodologies (Myint 2009). The International Monetary Fund (IMF) Article IV Mission of January 2012 estimated GDP growth to be substantially lower, averaging 4.6% during 2002–2010 and picking up to exceed 5.0% in 2009–2010 (IMF 2012). Various production indicators—presumably correlated with GDP growth—also suggest that Myanmar’s economic ‰”‘™–Š ƒ› Šƒ˜‡ „‡‡ ™‡ƒ‡” –Šƒ ‘ˆ ‹…‹ƒŽ government estimates. For example, electricity sales (in kilowatt hours) to households and commercial premises grew on average by 4.5% per annum during 2002–2009 and cement sales by 1.8% per annum during 2004–2009 (CSO 2010).
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Macroeconomic Performance
The near-term outlook for Myanmar’s economy is relatively upbeat on the back of strong export earnings from resource commodities and a pick—’ ‹  Ž‘™• Š‡ •‹ƒ ‡˜‡Ž‘’‡– ƒ (ADB) forecasts that Myanmar’s gross domestic product (GDP) is likely to grow by about 6.0% in 2012 and 6.3% in 2013 (ADB 2012b).  Žƒ–‹‘ Šƒ• „‡‡ „”‘—‰Š– †‘™ –‘ ƒ •‹‰Ž‡ †‹‰‹– ƒ† ‹•…ƒŽ †‡ ‹…‹–• ƒ”‡ „‡‹‰ ‡’– ƒ– 6% of GDP. With hard-earned macroeconomic stability, Myanmar’s growth performance may well exceed expectations in the foreseeable horizon. During their high-growth periods, Myanmar’s regional peers grew at 6%–10%

ADB staff estimates. The estimates assume that population grows at 1.3% per year, which is the average for 2009-2011. Verbiest and Naing (2011) estimate that Myanmar’s per capita GDP could reach $2,814–$3,361 by 2030, using a scenario of growth at 7.5%-9.5% per year with 0.83% population growth.

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Myanmar In Transition: Opportunities and Challenges

Table 1. Myanmar’s Basic Statistics
Category Economic GDP ($ billion, current) GDP per capita ($, current) b Yeara 2007 20.2 351.0 5.5 8.0 21.8 12.9 … … 32.9 20.9 (3.8) 4.6 0.6 4.6 37.5 2000 50.1 2.0 420.0 79.0 59.9 89.9 100.0 34.3 32.1 62.6 67.3 2000 4,276.0 0.1 34.9 28.0 [1990] [1990] [1999] [2005] [2005] [2005] [2005] [1990] [1990] 2008 31.4 537.3 3.6 3.4 3.0 4.2 … … 22.5 23.4 (2.4) 1.6 (2.2) 5.1 25.8 2009 35.2 595.7 5.1 4.7 5.0 5.8 … … 8.2 34.2 (4.8) 2.0 (1.3) 4.3 24.4 2010b 45.4 759.1 5.3 4.4 6.3 6.1 … … 7.3 36.8 (5.7) 0.8 (0.9) 3.1 24.8 2011 60.6 1.3 2011] 240.0 50.0 62.1 92.0 116.0 32.0 25.6 69.4 79.0 2010 12,776.0 0.3 31.8 33.9 [2008] [2008] [2008] [2010] [2009] [2009] [2009] [2010] [2010] [2010] [2010] 2011b 51.9 856.8 5.5 4.4 6.5 6.3 … … 4.2 33.3 (5.5) (0.5) (2.7) 3.9 22.8

GDP growth (%, in constant prices) ‰”‹…—Ž–—”‡ Ž‹˜‡•–‘… ‹•Š‡”› ƒ† ˆ‘”‡•–”› Industry Services Gross domestic investment (% of GDP) Gross domestic saving (% of GDP) Consumer price index (annual % change) Liquidity (M2) (annual % change) ˜‡”ƒŽŽ ‹•…ƒŽ •—”’Ž—• †‡ ‹…‹– ‘ˆ  Merchandise trade balance (% of GDP) Current account balance (% of GDP) External debt service (% of exports of goods and services) External debt (% of GDP) Poverty and Social Population (million) Population growth (annual % change) Maternal mortality ratio (per 100,000 live births) Infant mortality rate (below 1 year/per 1,000 live births) Life expectancy at birth (years) Adult literacy (%) Primary school gross enrollment (%) Child malnutrition (% below 5 years old) Population below poverty line (%) Population with access to safe water (%) Population with access to sanitation (%) Environment Carbon dioxide emissions (thousand metric tons) Carbon dioxide emissions per capita (metric tons) Forest area (million hectares) Urban population (% of total population)

… = not available, ( ) = negative, [ ] = latest year for which data are available, ADB = Asian Development Bank, ADF = Asian Development Fund, GDP = gross domestic product, M2 = broad money, OCR = ordinary capital resources. a Fiscal Year (or FY starts 1 April and ends 31 March, such that FY 2010 starts 1 April 2010 and ends 31 March 2011). b Estimates. Sources: ADB 2012a; ADB 2012b; ADB 2012c; ADB 2011a; IMF 2012; MNPED, MOH, and UNICEF 2011; ESCAP, ADB, and UNDP 2012

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Myanmar in Transition

Table 2. Economic Growth and Poverty Reduction
Poverty headcount ratios (at $1.25/day) Earliest 48.6 (1994) 63.8 (1992) 62.8 (1984) 55.7 (1992) 3.2 (1984) 32.1 (2005)a 21.9 (1981) 63.7 (1993) 40.1 (2002) 44.0 (2002) Mid 37.7 (2004) 28.4 (2002) Latest 22.8 (2008) 13.1 (2008) 54.3 (1990) 33.9 (2008) 1.9 (1989) 25.6 (2010)a 11.6 (1990) 16.9 (2008)

Country Cambodia PRC Indonesia Lao PDR Malaysia Myanmar Thailand Viet Nam

Period 1994 – 2010 1991 – 2010 1976 – 1990 1994 – 2010 1976 – 1990 2000 – 2010 1976 – 1990 1994 – 2010

Average annual economic growth rate 7.8% 10.4% 6.6% 6.8% 7.2% 12.2% (Government est.) 4.7% (IMF est.) 8.0% 7.4%

PRC = People’s Republic of China, Lao PDR = Lao People’s Democratic Republic. a Figures for Myanmar are from IHLCS 2011 and based on its national poverty line. Sources: ADB-SDBS 2012; IMF-IFS 2012; WB-WDI 2012

Figure 1. Myanmar’s Real GDP Growth Rates (1950–2010, %)
20 15 10 5 0 -5 -10 -20 1950 1960 1970 1980 1990 1955 1965 1975 1985 1995 2000 2005 2010

GDP = gross domestic product. Sources: 1950-1987 from Myint 2011; 1988-2012 from ADB-SDBS 2012

Indeed, economic activity in Myanmar did not pick up strongly during the 1980s and 1990s. In the 1960s, Myanmar was one of Asia’s leading economies. Its per capita income in 1960 was about $670—more than three times that of Indonesia, more than twice that of Thailand, and slightly lower than that of the Philippines (Booth 2003). However, the IMF estimates that in 2010, Myanmar had Southeast Asia’s lowest

per capita GDP in purchasing power parity despite relatively good growth during 2000– 2010 (Figure 2). Key factors inhibiting Myanmar’s growth rate in the last decades are low investment, limited integration with global markets, dominance of state-owned enterprises in key productive sectors of the economy, and frequent

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Myanmar In Transition: Opportunities and Challenges

episodes of macroeconomic instability. In particular, sluggish economic performance may be attributed to the low levels of investment in the economy. During 2000–2010, Myanmar’s gross domestic investment averaged 14.2%, the lowest among ASEAN countries (Table 3).  Žƒ–‹‘ •–‘‘† ƒ– ˆ‘” ƒ† ‹• expected to rise to 6.2% in 2012 as the effect of the recent moderation in food prices fades (ADB 2012a, 2012b). These single-digit rates,

Š‘™‡˜‡” Š‹†‡ –Š‡ ˆƒ…– –Šƒ– –Š‡ ‹ Žƒ–‹‘ ”ƒ–‡ ™ƒ• historically high and variable. The price level in Myanmar nearly quadrupled from 2001 to ™‹–Š ƒ ƒ˜‡”ƒ‰‡ ƒ—ƒŽ ‹ Žƒ–‹‘ ”ƒ–‡ of 25.3%. By comparison, Viet Nam reported ƒ ƒ˜‡”ƒ‰‡ ƒ—ƒŽ ‹ Žƒ–‹‘ ”ƒ–‡ ‘ˆ and Cambodia had 4.0% in the same period ‹‰—”‡ Š‹Ž‡ ›ƒƒ” • ‘ˆ ‹…‹ƒŽ ‹‰—”‡• may not be fully reliable, it is clear that the country has experienced periods of exceedingly Š‹‰Š ‹ Žƒ–‹‘ Š‡ ‘‡–‹œƒ–‹‘ „› –Š‡

Figure 2. Per Capita GDP of Selected ASEAN Countries ($, PPP)
15,000

10,000

5,000

0 Malaysia Thailand Indonesia Philippines 2000 Viet Nam 2010 Lao PDR Cambodia Myanmar

ASEAN = Association of Southeast Asian Nations, GDP = gross domestic product, Lao PDR = Lao People’s Democratic Republic, PPP = purchasing power parity. Source: Economy Watch 2012

Table 3. Gross Domestic Investment of Selected ASEAN Countries, 2000-2010 (% of GDP)
2000 Cambodia Indonesia Lao PDR Malaysia Myanmar Philippines Singapore Thailand Viet Nam 16.9 22.2 13.9 26.9 12.4 18.4 33.2 22.8 29.6 2001 18.5 22.5 14.1 24.4 11.6 22.1 26.8 24.1 31.2 2002 18.1 21.4 17.5 24.8 10.1 24.5 23.8 23.8 33.2 2003 20.1 25.6 16.7 22.8 11.0 23.0 16.1 25.0 35.4 2004 16.2 24.1 22.7 23.0 12.0 21.6 21.7 26.8 35.5 2005 18.5 25.1 23.5 20.0 13.2 21.6 20.0 31.4 35.6 2006 22.5 25.4 25.6 20.5 13.7 18.0 21.0 28.3 36.8 2007 21.2 24.9 32.5 21.6 14.8 17.3 21.1 26.4 43.1 2008 18.6 27.8 30.0 19.3 15.6 19.3 30.2 29.1 39.7 2009 21.4 31.0 30.7 14.4 18.9 16.6 26.4 21.2 38.1 2010 17.6 32.5 26.1 21.4 22.7 20.5 23.8 25.9 38.9 Ave. 19.1 25.7 23.0 21.7 14.2 20.3 24.0 25.9 36.1

ASEAN = Association of Southeast Asian Nations, GDP = gross domestic product, Lao PDR = Lao People’s Democratic Republic. Sources: ADB-SDBS 2012; Lao PDR data from WB-WDI 2012.

4

Myanmar in Transition

Figure 3. Inflation Rates, 1998–2011 (consumer prices)
60.0 50.0 40.0 30.0 20.0 10.0 0.0 -10.0 2001 2002 2003 2004 PRC 2005 2006 2007 2008 Lao PDR 2009 2010 Viet Nam 2011

Cambodia
ƒ‘   ƒ‘ ‡‘’Ž‡ • ‡‘…”ƒ–‹… ‡’—„Ž‹…  ‘—”…‡• ƒ „

Myanmar

‡‘’Ž‡ • ‡’—„Ž‹… ‘ˆ Š‹ƒ

Central Bank of Myanmar (CBM) of government †‡„– Šƒ• …‘–”‹„—–‡† –‘ –Š‹• Š‹‰Š ‹ Žƒ–‹‘ Central bank weakness also exacerbates the •‹–—ƒ–‹‘  –Š‡ ƒ„•‡…‡ ‘ˆ ‹–‡”„ƒ ƒ”‡–• the CBM’s function has been largely limited –‘ ‹ƒ…‹‰ –Š‡ ‰‘˜‡”‡– „—†‰‡– †‡ ‹…‹–• –‡”‡•– ”ƒ–‡• ƒ”‡ ƒŽ•‘ •‡– ƒ†‹‹•–”ƒ–‹˜‡Ž› Š‡ CBM does not have an independent monetary ’‘Ž‹…› ”‡ Ž‡…–‹‰ ‹–• …—””‡– •–ƒ–—• ƒ• ƒ department within the Ministry of Finance and ‡˜‡—‡   ‡™ …‡–”ƒŽ „ƒ Žƒ™ ™ƒ• drafted in 2012 which would authorize CBM’s ‘’‡”ƒ–‹‘ƒŽ ƒ—–‘‘› Š‡  ‹• Žƒ—…Š‹‰ a major reorganization that will modernize its ‘’‡”ƒ–‹‘• ‹‡ ƒ„‘†‹ƒ –Š‡ ƒ‘ ‡‘’Ž‡ • ‡‘…”ƒ–‹… ‡’—„Ž‹… ƒ‘   ƒ† ‹‡– ƒ ›ƒƒ” • ‹ƒ…‹ƒŽ •‡…–‘” ‹• ƒ– ƒ ƒ•…‡– •–ƒ‰‡ ‘ˆ †‡˜‡Ž‘’‡– Š‡‡ƒ•—”‡†„› ‹ƒ…‹ƒŽƒ••‡–• –‘  –Š‡ …‘—–”› • ‹ƒ…‹ƒŽ •‡…–‘” ‹• ƒ‘‰ †‡˜‡Ž‘’‹‰ •‹ƒ • •ƒŽŽ‡•– ƒ‹‰ ƒ‹Ž› …‘’”‹•‹‰ •–ƒ–‡ ‘™‡† „ƒ• †‘‹ƒ–‡• –Š‡ ‹ƒ…‹ƒŽ •‡…–‘” ƒ† ƒ……‘—–• ˆ‘” ‘•– ‘ˆ ‹–• ƒ••‡–• Š‡Ž† ‘—–•‹†‡ –Š‡  –ƒ–‡ …‘–”‘Ž• ‘ „ƒ• ƒ”‡ ’‡”˜ƒ•‹˜‡ ™Š‹Ž‡ ›ƒƒ” • ‹ƒ…‹ƒŽ sector is suppressed by limited depth and a ƒ””‘™ ˆ‘…—• ‘ˆ ‹ƒ…‹ƒŽ ‹–‡”‡†‹ƒ–‹‘ Š‡  ‹š‡• †‡’‘•‹– ƒ† Ž‡†‹‰ ”ƒ–‡• –‘ ƒ‹–ƒ‹

ƒ •–ƒ„Ž‡ ‹–‡”‡•– ”ƒ–‡ ƒ”‰‹ ƒ– Š‡ government issues treasury bonds to domestic „ƒ• –‘ ’ƒ”–Ž› ‹ƒ…‡ –Š‡ ‹•…ƒŽ †‡ ‹…‹– „—– –Š‡”‡ ‹• ‘ …‘”’‘”ƒ–‡ „‘† ƒ”‡– ›ƒƒ” • Š‹‰Š ’—„Ž‹… †‡„– Ž‡˜‡Ž ‡•–‹ƒ–‡† ƒ– ‘ˆ  ‹ ‹• ƒ …‘…‡”  ‹•…ƒŽ †‡ ‹…‹–• Šƒ˜‡ „‡‡ ’‡”•‹•–‡–Ž› Š‹‰Š ƒ‹Ž› †—‡ –‘ ’‘‘” ”‡˜‡—‡ ’‡”ˆ‘”ƒ…‡ Š‡ …‘—–”› • –ƒš ”‡˜‡—‡• ƒ• ƒ ’‡”…‡–ƒ‰‡ ‘ˆ  ˆ‡ŽŽ •–‡ƒ†‹Ž› †—”‹‰ „‡ˆ‘”‡ ’‹…‹‰ —’ ƒ „‹– ‹ –Š‡ ‹† • ‹‰—”‡ Š‡ ƒ˜‡”ƒ‰‡ –ƒš –‘  ”ƒ–‹‘ †—”‹‰ •–ƒ†• ƒ– ƒ‘‰ –Š‡ Ž‘™‡•– ‹ •‹ƒ …‘—–”‹‡• ‡˜‡ ƒ• –Š‡ ”‡˜‡—‡• ˆ”‘ ƒ–—”ƒŽ ‰ƒ• ‡š’‘”–• Šƒ˜‡ „‡‡ ”‹•‹‰ Š‹• ‹• †—‡ –‘ –Š‡ —†‡”‡•–‹ƒ–‹‘ ‘ˆ ”‡˜‡—‡• ƒ• foreign currency denominated revenues and expenditures were converted to kyat at the ‘ˆ ‹…‹ƒŽ ”ƒ–‡ ƒ– ƒ„‘—–   ’‡”  †‘ŽŽƒ”2 ˆ‘” ‹•…ƒŽ ’—”’‘•‡• ”ƒ–Š‡” –Šƒ using the foreign ‡š…Šƒ‰‡ …‡”–‹ ‹…ƒ–‡ ƒ”‡– ‡š…Šƒ‰‡ ”ƒ–‡ ™Š‹…Š ‹• —…Š Š‹‰Š‡” ƒ† ‘”‡ ”‡ƒŽ‹•–‹… ‘™‡˜‡” ‡˜‡ ™Š‡ –Š‡•‡ ”‡˜‡—‡ ‹‰—”‡• ƒ”‡ ƒ†Œ—•–‡† —†‡” –Š‡ ‡™ —‹ ‹‡† ƒ”‡– ‡š…Šƒ‰‡ ”ƒ–‡ ƒ– ƒ„‘—–  ’‡”  †‘ŽŽƒ” ‹ ‹•…ƒŽ ›‡ƒ”
2

Š‡ ›ƒ– ™ƒ• ‘ˆ ‹…‹ƒŽŽ› ’‡‰‰‡† –‘ •’‡…‹ƒŽ †”ƒ™‹‰ ”‹‰Š–•   ƒ–    ƒ† –Š‡”‡ˆ‘”‡ ˜ƒ”‹‡† „‡–™‡‡  ƒ†  ’‡”  †‘ŽŽƒ” „‡–™‡‡ ƒ†

5

Myanmar In Transition: Opportunities and Challenges

Figure 4. Myanmar’s Tax Revenue as % of GDP (1990–2010)
7.0 5.0 5.0 % of GDP 4.0 3.0 2.0 1.0 0.0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

GDP = gross domestic product. Sources: ADB-SDBS 2012; data for 2001-2005 from WB-WDI 2012

(FY) 2012/13,3 they remain far short of the amount required to support the government’s priority development spending initiatives over the medium term. Consequently, the government borrows from the CBM and commercial banks –‘ ‹ƒ…‡ ‹–• †‡ ‹…‹– ‹‰—”‡ „‘—– ‘ˆ –Š‡ ‹•…ƒŽ †‡ ‹…‹– ‹  ™ƒ• ‹ƒ…‡† through bonds; the rest was monetized by the CBM (IMF 2012). This in turn effectively crowds out private sector investments because the country’s supply of loanable funds is limited. Improving revenues is essential for funding development: public expenditures on education and health care have been especially low.4 Myanmar is the only developing Asian country with a defense budget that is greater than the education and health budgets combined. The government has substantially increased spending on the social sectors, but education and health spending may still account for less than 2.0% of GDP based on its FY2012/13 budget.

International reserves climbed to an estimated $6.1 billion in FY2010/11 (equivalent to about 9 months of imports) boosted by ƒ–—”ƒŽ ‰ƒ• ‡š’‘”–• ƒ†  ‹ Ž‘™• ƒ„Ž‡ ‹…‡ ›ƒƒ” ƒ†‘’–‡† ‹–• š’‘”– ‹”•– ’‘Ž‹…› ‹ ‡š’‘”–• Šƒ˜‡ ‡š’ƒ†‡† •‹‰‹ ‹…ƒ–Ž› However, imports are rising faster, due to increased imports of capital goods, industrial machinery, and consumer durables. Both trade ƒ† …—””‡– ƒ……‘—– †‡ ‹…‹–• ƒ”‡ ‡š’‡…–‡† –‘ widen in FY2012/13 from the previous year. Myanmar announced an overhaul of its complex exchange rate system in March 2012 as a part of broad reforms to modernize its economy. Myanmar’s multiple exchange rate ”‡‰‹‡ ‹…Ž—†‡† ‘ˆ ‹…‹ƒŽ •‡‹ ‘ˆ ‹…‹ƒŽ ƒ† —‘ˆ ‹…‹ƒŽ ”ƒ–‡• Š‡ ‘ˆ ‹…‹ƒŽ ‰‘˜‡”‡– ”ƒ–‡ ™Š‹…Š ™ƒ• ‹š‡† ƒ– ƒ„‘—–   ’‡”  dollar, was widely ignored, as the running rate on the black market averaged about MK800 per  †‘ŽŽƒ” Š‡ ‡™ ƒƒ‰‡† Ž‘ƒ–‹‰ ‡š…Šƒ‰‡ rate regime, which came to effect in April 2012, has a single, market-determined rate.

3

4

IMF (2012) estimated that the impact of adopting a market-based exchange rate on the consolidated public sector budget would be 1.2% of GDP in FY2012/13, driven mainly by an increase in the net transfers from state economic enterprises. More details on public expenditure on education and Š‡ƒŽ–Š …ƒ”‡ …ƒ „‡ ˆ‘—† ‹ –Š‡ ‘•–”ƒ‹–• ’‘”–‹‘ of Section III.

Poverty and Inequality
Myanmar has made some progress in poverty reduction, although there is further room for

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Myanmar in Transition

Figure 5. Lending to Government and Private Sector, 2000–2010 (MK billion)
7000 6000 5000 4000 3000 2000 1000 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Central Bank Lending to Government Commercial Banks Lending to Private Sector
MK = kyat. Source: IMF-IFS 2012

Commercial Banks Lending to Government

Table 4. Balance of Payments
Fiscal Year ($ million, unless otherwise indicated) 2007/08 Trade Balance Exports Imports Current Account Balance (excl Grants) Overall Balance
”‘•• ˆ ‹…‹ƒŽ ‡•‡”˜‡• $ million Months of total imports a ••—‡• ƒƒ‰‡† Ž‘ƒ–‹‰ ‡š…Šƒ‰‡ ”ƒ–‡• Source: IMF 2012

2008/09 303 7,241 (6,938) (920) 112 3,629 6.3

2009/10 72 7,139 (7,067) (947) 619 4,638 7.9

2010/11 (Est.) 799 8,980 (8,181) (365) 808 6,070 8.9

2011/12 (Proj.) (238) 9,889 (10,127) (1,385) 1,729 7,903 9.4

2012/13 Proja (1,779) 10,491 (12,270) (2,379) 1,842 9,889 9.7

924 6,446 (5,522) 89 799 3,054 6.6

improvement. The latest Integrated Household Living Conditions Survey (IHLCS) indicates that one in every four Myanmar citizens is considered poor (MNPED et al. 2011). This share is fairly comparable to rates in some of its Asian peers, for example, Cambodia at 27% and the Lao PDR at 32%, and is well above the People’s Republic of China (PRC) at less than 5% and Viet Nam at 13%.5
5

Caution is required when comparing poverty incidence ‹‰—”‡• Š‡ ‡–Š‘†‘Ž‘‰› —•‡† ˆ‘” ›ƒƒ” †‹ˆˆ‡”• from that used for the other countries. Figures for the other countries are based on the threshold of $1.25 per day.

Income disparities are geographically linked. The IHLCS report shows that 84% of poverty is found in rural areas and disparities are pronounced across states. The central state of Chin, near the southern borders of Bangladesh and northeastern states of India, has a poverty incidence of 73%. This is in stark contrast to the 11% poverty incidence in Kayah, an eastern state near Northern Thailand, which has the lowest poverty incidence of Myanmar’s states. Other well-off states, with poverty incidences below 18%, are Bago, Kayin, Mon, Sagaing, and Yangon. High poverty rates occur

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Myanmar In Transition: Opportunities and Challenges

in the coastal states of Ayeyarwady, Rakhine, and Tanintharyl and the landlocked states of Shan and Kachin bordering the PRC. About onethird of these states’ populations are poor. Wide variations in access to basic services such as housing, water, and sanitation also exist across Myanmar’s states and rural and urban areas. From 2005–2010, overall access to safe drinking water increased modestly, from 63% to 69%. This is in line with rates of Asian nations with similar income levels, such as 64% in Cambodia and 67% in the Lao PDR. The poor …‘–‹—‡ –‘ „‡‡ ‹– Ž‡•• ˆ”‘ ƒ……‡•• –Šƒ –Š‡ ”‹…Š ƒ† —”„ƒ ƒ”‡ƒ• „‡‡ ‹– ‘”‡ –Šƒ ”—”ƒŽ areas—81% of the urban population had access to safe drinking water in 2010, versus only 65% of rural dwellers (MNPED et al. 2011). Access to sanitation and electricity also vary along economic and geographical lines. About 77% of rural and 84% of urban residents have access to sanitation. Access to sanitation is particularly low (54%) in Rakhine state. The gaps in access to electricity between income groups and across states are large. About 34% of rural residents have access to electricity versus 89% of urban residents (MNPED et al. 2011). However, according to the government sources, ‡Ž‡…–”‹ ‹…ƒ–‹‘ ”ƒ–‹‘• ƒ”‡ —…Š Ž‘™‡” 6 In 2011, ƒ‰‘ ‹–› Šƒ† –Š‡ Š‹‰Š‡•– ‡Ž‡…–”‹ ‹…ƒ–‹‘ ”ƒ–‹‘ (67%), followed by Nay Pyi Taw (54%), Kayar (37%), and Mandalay (31%).

mortality rate (U5MR), the maternal mortality ratio (MMR), and sanitation (Table 5). The food poverty incidence decreased from 47% in 1990 to less than 5% in 2010. The U5MR fell from 112/1,000 live births in 1990 to 66/1,000 in 2010, and the MMR fell from 420/100,000 live births in 1990 to 240/100,000 in 2008. The share of the population using improved sanitation facilities increased from 49% in 1995 to 79% in 2010. In addition to these improvements, Myanmar might enhance its efforts in order to reach the projected targets by 2015—the U5MR has been reduced by 45%, against the 67% reduction targeted by 2015, and the MMR has been reduced by 43%, toward the 75% targeted by 2015. Myanmar’s progress toward attaining its MDGs lags behind that of its ASEAN neighbors especially Malaysia and Thailand. Myanmar has ’ƒ”–‹…—Žƒ” †‹ˆ ‹…—Ž–› ‹’”‘˜‹‰ ‹–• ’‡”ˆ‘”ƒ…‡ in the health-related MDG targets aside from the U5MR and the MMR. The HIV prevalence remains high, with 0.6% of the population aged 15–49 infected in 2009. The malaria incidence is much higher than in regional neighbors, and the tuberculosis incidence (388/100,000 population) and prevalence (597/100,000 population) remain higher than regional peers in 2009.7 In some areas, Myanmar’s performance matches that of its ASEAN neighbors. For example, the literacy of 15–24 year olds in Myanmar in 2010 is high at 95.8%, which is …‘’ƒ”ƒ„Ž‡ –‘ –Š‡ ‹‰—”‡ ’‘•–‡† „› ‹‡– Nam in 2009. The ratio of girls to boys in primary school is 0.93 in 2009, similar to the ratios in the other ASEAN countries. The ratio of girls to boys in secondary school is also relatively high, at 0.96, compared with the ratios in the other ASEAN countries, and is even higher than in Indonesia (0.81) and Viet Nam (0.92).
7

Millennium Development Goals
Myanmar has made some progress toward achieving its Millennium Development Goals (MDGs), but there is room for further improvement to reach the targets for 2015. Myanmar has made notable progress in areas such as the food poverty incidence, the under-5
6

The discrepancies may rise from the fact that the ‰‘˜‡”‡– ‹‰—”‡• ƒ› ‘– ‹…Ž—†‡ ‡Ž‡…–”‹…‹–› –Šƒ– ‹• made available through private power generators and other off-grid sources.

…‹†‡…‡ ”‡ˆ‡”• –‘ –Š‡ —„‡” ‘ˆ ‡™ …ƒ•‡• ‹ –Š‡ reference year and indicates the risk of contracting ƒ †‹•‡ƒ•‡ ’”‡˜ƒŽ‡…‡ ”‡ˆ‡”• –‘ –Š‡ —„‡” ‘ˆ existing cases, both old and new, and indicates how widespread the disease is.

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Myanmar in Transition

Table 5. Selected MDG Performance Indicators
Myanmar Indicator Indonesia Malaysia Thailand Viet Nam Earliest Latest Earliest Latest Earliest Latest Earliest Latest Earliest Latest Year Year Year Year Year Year Year Year Year Year 1.6 (1992) no data