Effect of COVID-19 on the Myanmar’s Economy and Future Prospects
Myanmar, with a population of about 53 million (5th in ASEAN) and GDP per capita of USD 1,300, is one of the more vulnerable economies among ASEAN Member States (AMS). However, with a high average growth rate of 6% for the last 10 years, the country has been on the course of transformation from a frontier market to an emerging market.
With the inauguration of Aung San Suu Kyi’s new government in 2016, new business opportunities were expected to grow. However, after 4 years, greater economic cooperation and exchanges between Myanmar and Korea remains to be explored. While bilateral trade volume has continuously increased for the last 3 years (USD 1.03 billion in 2017, 1.07 billion in 2018 and 1.22 billion in 2019) between Myanmar and Korea, the absolute amount is much less compared to those with other ASEAN countries and Korea. In terms of foreign direct investment (FDI), Korea’s FDI in Myanmar reached its peak in 2013 with USD 513 million, but in 2019, the amount remained at USD 279 million.
However, it is anticipated that cooperation between the two countries will grow in the coming years, particularly in the infrastructure sector. Korea is currently supporting the construction of the Yangon-Dala Bridge (4.3km) and the Korea-Myanmar Industrial Complex (KMIC) in Yangon through the Economic Development Cooperation Fund (EDCF).
Against this backdrop, this week’s ASEAN Issue will explore the current economic situation of Myanmar, focusing on the economic impact of COVID-19 as well as the country’s measures in response to the pandemic.
■ Myanmar’s economy, despite the odds may still record positive growth
After the first case of COVID-19 in Myanmar was confirmed on 23 March, the Myanmar government immediately took measures prohibiting public gatherings of more than five people, suspending international flights, social distancing by region and placing a mandatory 28-day quarantine for international arrivals (21 days in the state facility followed by 7 days of self-quarantine at home). In addition, the Ministry of Foreign Affairs recently extended entry restrictions for travelers to until late June, and Yangon international airport also extended the restrictions on international arrivals.
As a result of such measures, Myanmar has, so far, 293 confirmed cases (as of 26 June), which is relatively low compared to other ASEAN countries. Schools in Myanmar will re-open in July, starting with high schools on 21 July followed by middle and primary schools. However, on the economic front, Myanmar, like other countries, does not appear to be immune from the impacts of COVID-19.
Already, international financial institutions have readjusted their projections for Myanmar’s economy this year. The Asian Development Bank (ADB) published the ASEAN Development Outlook 2020 in April, which projected a revised growth forecast from the previous 6.8% to 4.2%. The International Monetary Fund (IMF) lowered its growth projections for Myanmar from 6.4% to 1.8%. Also in April, the World Bank predicted that Myanmar’s GDP growth would slow to 2~3% and then further lowered this number to 1.5% in June based on the disruptions in trade, manufacturing and tourism sectors.
But, the World bank was hopeful that Myanmar’s growth rate would recover back to 6% in the fiscal year of 2020/2021. This is a relatively promising outlook in comparison with the forecasts for other countries in the region which have been sentenced with negative growth projections.
■ Negative effects to take real impact from Q3
Despite the World Bank’s hopeful prospects, many businesses in Myanmar have already been hit hard by the effects of COVID-19. According to a survey conducted by the Asia Foundation in May, only 24% among 750 Myanmar businesses were working as usual while 29% had to close their businesses. 92% of them experienced a fall in sales, and among them, 74% experienced decrease in sales by more than 50%.
The European Chamber of Commerce in Myanmar (EuroCham Myanmar) also conducted a survey in March vis-a-vis European businesses in the country. More than 60% of the respondents expected a revenue decrease of 30-50% on average.
On 1 June, London-based global information provider (HIS Markit) released the Myanmar Manufacturing Purchasing Managers’ Index™ (PMI™). The PMI indicators include new order, output, employment, suppliers’ delivery times and stocks of purchases. Any figure greater than 50.0 indicates overall improvement of the sector. The figure fell from 45.3 in March to 29 in April, and then rose slightly to 38.9 in May. However, the PMI still remains well below 50.0, suggesting an overall deterioration in manufacturing conditions in Myanmar.
Meanwhile, some experts warn that the damage so far caused by COVID-19 has not yet fully unfolded, and that the situation could become more serious. During a special meeting hosted by State Counsellor Aung San Suu Kyi on 16 June, the State Counsellor stressed that all ministries should be ready to take immediate actions to respond to upcoming challenges in the third and fourth quarter.
(Garment industry - the hardest hit)
The Garment industry is one of the prominent manufacturing industries in Myanmar. As of June 2020, the number of textile companies registered in the Myanmar Garment Manufacturers Association is about 600, and the number of workforce in the sector is estimated to be around 700,000. Myanmar’s exports of garment products amounted to about USD 4.6 billion in fiscal year of 2018/2019, accounting for more than 20% of Myanmar’s total exports. More than 50% of the products are exported to Europe while 90% of raw materials are supplied from China. Many enterprises in this sector are owned by Chinese or Korean businesses.
As of 29 April, 175 factories out of 600 stopped all operations due to delay in raw material imports and cancellation of orders, leaving 60,000 industrial workers unemployed, according to the Ministry of Labor Immigration and Population of Myanmar. In fact, from 1 October 2019 to 31 May 2020, Myanmar’s apparel exports amounted to only USD 2.7 billion which was a year-on-year decrease of USD 24 million. This was largely due to the cancellation of orders from European Union (EU) and the United States, the two largest importers, and the situation is expected worsen if demand continue to fall.
To mitigate this situation, on 8 April, the EU created an emergency fund of EUR 5 million to support Myanmar’s workers at risk in the garment sector. The fund would provide three different forms of support: 1) 80% of the total fund is distributed as monthly cash transfers ( MMK 75,000) for up to three months to 30,000-80,000 workers laid off, 2) 10% of the fund provides MMK 125,000 for 3,000-8,000 workers who have been unfairly laid off, 3) 10% of the fund supports factory owners who agreed to retain workers and to provide in-kind supports like free accommodation and meals.
(Myanmar’s strategic roadmap for tourism recovery)
Since Myanmar opened its doors to the world in 2011, the tourism industry has played a significant role in Myanmar’s economy. 4.36 million tourists visited Myanmar in 2019 (one-third of them Chinese) which was a 23% year-on-year increase. According to the Myanmar Tourism Master Plan 2013-2020, Myanmar aims to attract 7.48 million foreign visitors and collecting USD 1.18 billion in tourism revenue by 2020.
However, with the suspension of international flights (from 30 March until 30 June), tourism-related industries such as hotels and restaurants are suffering. Around 400,000 foreigners visited Myanmar in January 2020, but this number plummeted to less than 100 in April. The Myanmar Tourism Entrepreneurs Association expressed its concern that more than half of the workforce in the hotel and tourism sector will likely lose their jobs. U Naung Naung Han, chair of the Myanmar Tourism Entrepreneurs Association, said that 50-70% of hotel tourism workers were laid off or suffered salary cuts since the outbreak of the pandemic. Currently, the number of workforce in the tourism industry is around 1.2 to 1.5 million, of which 800,000 are directly affected by COVID-19.
In an effort to overcome this hardship, the Myanmar Ministry of Hotel and Tourism announced the Strategic Roadmap for Tourism Recovery on 12 June and provided guidelines for implementation of the plan.
-(First: Survival Phase): Provide low-interest loans worth MMK 37 billion to approximately 1,000 businesses in the hotel and tourism sector during April~June; tax reduction; license fee reduction; deferral of rental fee; and online training for tourism staffs
-(Second: Reopen Phase): Apply Standard Operating Procedure (SOP) to ensure the health and safety of travelers and staffs; reopen local travel attractions including pagodas, museums and parks in June-August
-(Third: Relaunch Phase): i) Promote overseas travel by easing travel restrictions, ii) develop a new marketing strategy for a long-term plan to revive the tourism industry, and iii) create “regional tourism boom” through bilateral agreements with Thailand, Cambodia, Laos and Vietnam as well as “Asia tourism boom” through tourism cooperation with Korea, Japan and China during the period of August 2020-January 2021.
■ Myanmar’s COVID-19 stimulus package
To minimize the economic impact of COVID-19, the Myanmar government has been mobilizing policies and resources to the maximum extent possible.. The Central Bank of Myanmar (CBM) initially cut its interest rate by 0.5% point on 12 March. Additional 1% point cut was announced on 1 April, and again another 1.5% point reduction on 27 April, totaling a 3% interest rate cut within a two-months time. The Myanmar Ministry of Hotel and Tourism also announced a waiver of license fees for tourism related business including hotels and travel agencies from 1 April 2020 to 31 March 2021 to support related industries. The Directorate of Investment and Company Administration Myanmar (DICA Myanmar) cut the application fee for the investment permits by 50% on 20 April.
Additionally, the Myanmar government launched the COVID-19 Economic Relief Plan (CERP) on 27 April 2020 to better combat the pandemic. The stimulus package, worth USD 2 billion, includes 7 goals, 10 strategies, 36 action plans and 76 actions. Some of them have already been put into action while others are expected to be implemented by the end of 2020.
7 goals are as follows.
Goal 1: Improve Macroeconomic Environment through Monetary Stimulus
Goal 2: Ease the impact on the Private Sector through Improvements to Investment, Trade & Banking Sectors
Goal 3: Ease the Impact on Laborers & Workers
Goal 4: Ease the Impact on Households
Goal 5: Promote Innovative Products & Platforms
Goal 6: Strengthen Healthcare Systems
Goal 7: Increase Access to COVID-19 Response Financing (Including Contingency Funds)
1. Improve macroeconomic environment through monetary stimulus: promotion of monetary supply
1-1. Lower bank’s deposit and lending rate ceilings by 3% and adjust the base interest rate to align with market conditions
1-2. Lower Minimum Reserve Requirement for banks
1-3. Conduct credit auctions for more liquidity into the banking and financial sector
1-4. Allow increased Central Bank’s financing of the fiscal deficit
2. Ease the impact on the private sector through improvements in Investment, trade & banking sectors
(Minimize damage to private companies)
2-1. Low-Cost Funding
-Provide MMK 100 billion to improve working capital of affected small and medium-sized enterprises (MSMEs) in the garment and hotel/tourism sectors at 1% interest rate per annum
-Ensure access by microfinance institutions (MFIs) to low-cost funding
-Increase fund size to MMK 200-500 billion depending on market response
-Expedite merger between Myanmar Economic Bank (MEB) and Myanmar Agricultural Development Bank (MADB) to facilitate expansion of existing pilot commercial lending programs to economically affected townships
2-2. Expansion of Credit Guarantee
-Government credit guarantee scheme of up to 50% for any new loans made by banks to Myanmar enterprises, whose turnover is less than MMK 1 billion
-Expand government guarantees to affected firms in selected high-growth sectors of economy
2-3. Deferment or waiver of tax/fees
-Defer corporate income tax and commercial tax up to 30 September 2020
-Defer Social Security Board (SSB) contribution for three months
-Waiver of 2% withholding tax on exports, annual fees charged by the Ministry of Hotels and Tourism (MOHT), specific goods tax, custom duties and commercial tax related to the medical supplies and products related to the prevention of COVID-19, and toll fees for cargo trucks on major roads/bridges
2-4. Exempt lease fees charged to affected firms for 3-6 months
2-5. Tax credits
- Provide 10% non-refundable tax credits for incremental investment on capital equipment
-Deduct equal to 125% of wages paid
-Permit for a one-time increase in depreciation equal to 125% of depreciation for the current year
2-6. Allow restructuring and rescheduling of existing loans to MSMEs within 3 years
2-7. Support farmers, small agri-processors and seed farmers for planting and income retention
-Cash or lending support to smallholder farmers
-Productivity improvement and sales advisory supports
(Deregulation in the Banking sector)
2-1. Increase in flexibility on capital requirement, large exposure and non-performing loans (NPLs) up to 3 years
2-2. Mitigate damage to banks’ unrecoverable loans
-Establish an asset management company, allowing banks to manage potential unrecoverable loans (5-7years) and thereby provide banks with some breathing space and time for credit growth
2-1. Expedite investment permit process
-Approve large-scale private investment involving global companies that are currently being delayed through fast track process
2-2. Promote strategic PPP projects for entry into the Project Bank
-Solicit renewable energy projects and strategic infrastructure projects
2-3. call for investment through simplified procedures
-Manufacture COVID-19 and/or medical-related products using currently vacant state-owned factories
2-4. adjust joint investment priorities
-Prioritize investments with high-performing projects, visible result projects, and readjustment of underperforming projects
(International Trade Promotion)
2-1. Create MMK 100 billion to promote trade finance
2-2. Facilitate of import procedures
-Facilitate import process of products for COVID-19 prevention and treatment
-Waive import permit and FDA requirements, as long as the products are FDA approved in the exporting country
2-3. Simplify export application and permit process as long as health, safety and security are not compromised
3. Ease the impact on laborers & workers
3-1. Extend labor benefits
-Extend health benefits for unemployed Social Security Board (SSB) Members from 6 months- 1 year from the date of unemployment
-Provide medicine support for unemployed non SSB members from 6 months- 1 year from the date of unemployment
3-2. Implement labor-intensive community infrastructure project
-Labor-intensive community infrastructure projects for unemployed and returning migrant workers
4. Ease the impact on households
4-1. Exempt electricity tariff for households up to 150 units per month
4-2. Cash or in-kind support
-Provide food transfer to vulnerable households and at-risk populations
-Provide emergency food through community-based food banks
-Expand cash benefits for pension beneficiaries, mothers and children for 2-3 months as well as review to reduce the age limit for social pension
-Cash transfers to most affected households through mobile financial service transfers
5. Promote innovative products and platforms
5-1. Promote the use of mobile financial payments
-Promote the use of mobile payment services including KBZ Pay, CB Pay, Wave Money, M Pitesan, OK Dollar, etc.
-Accept the use of electronic money through bank transfers, mobile payments or card payments when e-commerce and social-commerce sales
5-2. Promote the use of E-commerce and social Media platforms
-Encourage retail businesses to use e-commerce and social media platforms
-Encourage cooperation between e-commerce platforms and delivery/logistics service companies
-Develop a national e-commerce platform
-Organize a “Challenge Grant” competition among Myanmar’s ICT/e-commerce community for innovative ideas to deal with COVID-19
6. Strengthen the medical system
6-1. Extend and improve quarantine facilities
-Convert government buildings to quarantine facilities
-Reinforce medical staff and volunteers in quarantine centers
-Arrange regular disinfection of quarantine facilities
-Provide appropriate staff and equipment at quarantine facilities
6-2. Import medical-related products and equipment for COVID-19 prevention and treatment of COVID-19
6-3. Improve preventive action
-Install hand-washing facilities in easily accessible places
-Disinfect through the mobile disinfection team
-Establish a mobile team to distribute masks and preventive information flyers
-Establish a mobile team to conduct mass diagnosis testing
-Improve waste/waste-water management system
6-4. Improve human resource capacity in health sector
-Recruit and enhance capacity of doctors, nurses and medical staff, etc.
-Provide protective equipment for healthcare workers
6-5. Upgrade Health facility
-Upgrade hospital and healthcare centers
-Ensure stable electricity supply for medical facilities handling COVID-19 patients
-Secure refrigerated warehouse facilities for vaccines and special drugs
7. Increase funding for COVID-19
(Increase budget allocation and reserve fund for COVID-19)
7-1. Reduce 10% of budget allocated to each Ministry in 2019/2020 fiscal year
7-2. Improve budget flexibility and responsiveness to increase reserves, improve flexibility in budget regulations, and modernize the budget reallocation regulations
7-3. Expand securing foreign grant aid in response for COVID-19
■ Prospects and implications for Myanmar’s economy
The Myanmar government recorded a budget deficit of MMK 2.9 trillion in the previous fiscal year (1 October 2018-30 September 2019). This year’s budget of MMK 6.5 trillion Kyat was drafted envisaging some deficit, but now with little prospects for meaningful growth this year, the deficit size is expected to increase by yet another MMK 2-3 trillion . While there is increased demand for government spending to stimulate the economy, the sources for revenue continue to dwindle due to tax cuts, reduced foreign investment, reduced exports, and reduced remittances from overseas workers. In the case of overseas employment, a total of 99,058 people returned from neighboring countries, including 62,647 from Thailand, 36,280 from China and 131 from Laos, and in addition, 4,105 from Korea, Germany, Belgium and Japan during the period between 22 March-10 June. This has resulted in a significant decrease in the amount of overseas remittances
Accordingly, the Myanmar government has received financial assistance from international organizations. U Thaung Tun, Minister of the Ministry of Investment and Foreign Economic Relations, said that Myanmar received contingency fund of USD 1.25 billion from international organizations such as IMF (USD 700 million), JICA (USD 270 million), World Bank (USD 250 million), and ADB (USD 30 million). With additional funding, the total amount of financial assistance is expected to be around USD 2 billion.
However, even with additional funding, it is unclear whether Myanmar’s economy will successfully rebound with this stimulus package. Reasons for such concern stems from the fact that even before the outbreak of the COVID-19, the Myanmar economy had been showing signs of downturn due to the stagnation of the international economy. According to the Myanmar Investment Committee, foreign investments of USD 4.52 billion were approved in fiscal year of 2018/2019, while the actual inflow of investments from 28 overseas countries amounted only to USD 2.76 billion.
In addition to the stimulus package, the Myanmar government is also considering the rapid resumption of large-scale infrastructure projects, currently suspended because of COVID-19, to stimulate the domestic economy. Specifically, Myanmar has partnered with Singapore’s Infrastructure Asia that would help identify suitable foreign investors as well as evaluate feasibility for infrastructure projects listed in the Myanmar’s Project Bank. Myanmar government also plans to determine the feasibility and environmental sustainability of projects under China’s Belt and Road Initiative by listing them in the Project Bank.
Under China’s BRI, Myanmar and China have already launched a large number of major cooperation projects, including the Yangon industrial new city (worth USD 1.5 billion, 20,000 acres), Kyaukpyu Special Economic Zone (a deep-sea port and an accompanying industrial park nearby, worth USD 1.3 billion), and China-Myanmar Border Economic Cooperation Zone. In addition, the Muse-Mandalay-Kyaukphyu railway line under the China-Myanmar Economic Corridor (CMEC) project will also be constructed.
A number of additional infrastructure projects are also in progress, including Yangon Express highway project worth USD 900 million (27.5km in lenght, 8m-19.5m in height, 4 lanes/postponement of international bidding to the end of June), Dawei Special Economic Zone at the Thailand-Myanmar border, Korea-Myanmar Friendship Bridge (Yang-Dala Bridge), Dala new city project, and infrastructure projects with funds supported through the Japanese government loan (worth USD 1.1 billion).
With such sizable stimulus packages and strict lockdown measures, it is hoped that Myanmar’s efforts will have meaningful impact in minimizing the damages caused by the COVID-19 and contribute to bringing next year of GDP growth back to the 6% level as optimistically predicted by the World Bank.
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