An IMF delegation visited Burma between 4-17 June as part of the annual Article IV consultation process, which is intended to assess member states’ financial health and provide guidance on correcting economic problems.
In a statement, the IMF’s chief of mission in Burma, Matt Davies, said that the real GDP is expected to rise to 8.5 percent in fiscal year 2014-2015, a slight improvement over the previous fiscal year and a full two percent higher than in 2012-2013. Burma’s economy has been among the fastest-growing in the world since political and economic reforms got underway in 2011, fuelled largely by extractive industries.
Burma needs to increase tax revenues in order to service existing debts and finance government spending, the statement said. Davis claimed that fiscal risks are on the rise, despite a relatively stable fiscal deficit from the previous year. So far, the shortfall has been masked “in part due to large one-off revenues from telecom licences.”
He also warned that oversight of financial institutions needed to improve significantly, especially as foreign banks will be allowed to commence operations in the near future.
International interest in Burma’s emerging economy will pose challenges for its archaic financial system, which is in dire need of modernisation after decades of economic stagnation and isolation. Davis said that “demand-side pressures on inflation and large capital inflows will strain the [country's] still-infant macroeconomic management tools.”
The IMF’s mission in Burma has provided the government with technical assistance to draft a number of new pieces of legislation, including a revamped law governing financial institutions, a new securities and exchange law, and a central banking law passed last year.
Until the government introduces a number of associated guidelines, however, governance of the Central Bank of Myanmar (CBM) will continue to fall under Burma’s outgoing central banking law, which dates to 1990. Once the new law – intended to enshrine the bank’s independence – is fully implemented, it is hoped that the bank will, over time, be able to set interest rates in response to prevailing macroeconomic conditions, which it is currently unable to do.
“Completing the CBM’s transition to an autonomous institution… will underpin continued macroeconomic stability,” the statement read. “This transition requires continued growth in CBM’s international reserves, while maintaining a flexible exchange rate regime.”