Previous Quarterly Editions
Expropriation Risk: 77 77 77 77 ►Political Violence Risk:80 79 79 79 ►Terrorism Risk:55 55 55 58 ►Exchange Transfer and Trade Sanction Risk: 73 82 82 82 ►Sovereign Default Risk:73 73 73 74 ►
TREND ►
Protest intensity to date* 2022 2023 Low Low Unrest risk in 2024**Cost of living: HighAnti-austerity: Medium
*Note: Protest intensity is calculated based on ACLED. **Risk levels are calculated by WTW. Where data are missing no risk level will be displayed. For details of 'anti-austerity' calculations, see the essays in the introduction; for details of 'cost-of-living' calculations, see the previous edition of the Index.
Myanmar’s debt profile is relatively good, if only due to the fact that it has had very limited access to the international financial markets in recent decades and has faced a series of economic sanctions since the military coup of February 2021. The public debt-to-GDP ratio is just below 40%, and the external debt-to-GDP ratio is a mere 22%, resulting in debt service obligations that are equivalent to just 10% of government revenues. Consequently, the risk of debt distress is deemed to be low.
However, the perceived risk of default is high for private and public sector creditors, which essentially reflects the degree to which the military government is distrusted to honor its debt obligations, as opposed to its ability to meet its obligations. None of the major credit ratings agencies cover Myanmar.
Inflation has been steadily rising in Myanmar since late 2021, with no sign as yet of abating; in August 2023 it was at 19.6% year on year. Myanmar is expected to register 2.6% GDP growth in the current fiscal year, according to the International Monetary Fund (IMF), similar to the growth rate of 2022 and well above the minus 18% contraction in 2021. The Asian Development Bank broadly concurs, anticipating 2.8% GDP growth in 2023 and 3.2% in 2024.
However, a range of factors mean considerable downside risks pertain to any economic forecast, spanning international sanctions and trade restrictions, currency depreciation, logistical and infrastructure inadequacies, and — most important — political tensions and domestic conflict.
The above notwithstanding, the forward-looking purchasing manager’s index has stayed consistently above the pivotal 50 mark throughout 2023 and stood at 53 in August 2023 — the seventh consecutive month of expansion for the industrial sector; however, it is the agricultural sector on which the majority of Myanmar’s 54 million rely for their livelihoods, and the rising cost of inputs, such as fertilizer, have helped drive up food inflation.
India’s restrictions on the export of some kinds of rice, announced in July 2023, will not have helped matters in this regard, although it may have a net positive impact for Myanmar’s foreign exchange earnings, as the country is the world’s fifth-largest rice exporter, shipping around 2 million metric tons a year.
Myanmar is currently in a state of civil war, and the expropriation risk is high. The previous transitional (2011 to 2015) and civilian-led (2015 to 2020) governments had made steps toward improving the business environment, particularly in banking and finance. But the anticipation of a slow-but-steady move toward positive reforms has evaporated completely since the coup of February 2021. Since then, the military has displayed a ready willingness to flout international standards of behavior; the forced seizure of property and other business assets would probably not pose a dilemma for the ruling junta, which acts with impunity.
With numerous foreign governments instituting economic sanctions against individuals and companies connected to Myanmar’s military, and pursuing legal proceedings for the military’s atrocities, the potential for business assets to be expropriated in reprisal has risen significantly. Myanmar’s rule of law and ability to enforce legal decisions was already weak, but the ability for free and fair legal judgments to be made and upheld is now virtually nil.
Sensing little prospect of an improvement in the political situation, and increasingly concerned about the reputational risks of remaining, a significant number of high-profile foreign investors have sought to divest their Myanmar assets.
Only a foreign company that was largely immune from incurring shareholder, investor and home country government displeasure would wish to conduct business in or with Myanmar at present, as the reputational risks of doing so are considerable.
Law and order do not currently pertain in Myanmar, where the low intensity civil war continues to rage on. Military and police members have acted lawlessly toward targeted and random individuals and their property, supported by informal militias under their control. While most of the violence has been between civilian protestors and the police and military, occasional violence has been directed toward companies that are believed to be Chinese-owned, as some protestors believe Beijing has aided and abetted the military’s actions.
Popular protests in towns and cities nationally continue (despite the loss of life), whether from the civil disobedience movement, protests and the violent responses, or sporadic guerrilla attacks by armed groups on military installations. The formation of a shadow government in opposition (the National Unity Government) and the establishment of armed militias suggests a heightened risk of political violence will persist for some time.
Countries that have erred against criticizing the military coup include China, Russia, Vietnam and Thailand. While most civilian protestors have not sought to arm themselves, alliances are being struck with some of the ethnic minority armies that populate Myanmar’s border regions. There have also been reports of some individual defections from within elements of the military, police and security forces.
Tensions between the Buddhist and Muslim communities are occasionally stoked by extremist elements on both sides. A terrorist attack in a major urban center by Islamist militants remains possible, as does the potential for mob attacks by Buddhist nationalists on mosques and other assets associated with Muslims and on human life.
Terrorist elements could see the military coup and resulting public protests, as well as a general level of lawlessness, as a window of opportunity to instigate violence in support of their objectives. With the military and security apparatus fully stretched in managing the civil disobedience movement nationally, this may weaken its ability to thwart armed attacks in some of the country’s more troubled border regions. The military junta would allege that the opposition and various allied armed groups are acting as terrorists, while the opposition would argue that the military rules illegitimately by terror.
Prior to the coup, the unanimous ruling of the International Court of Justice against the Myanmar government’s treatment of the Rohingya (January 2020) meant that economic sanctions and the loss of trade privileges were distinct possibilities for Myanmar in the medium term. In 2020, the European Union renewed its embargo on arms and equipment destined for Myanmar’s police or military, and the international Financial Action Task Force placed Myanmar on its money-laundering watch list.
But Myanmar’s February 2021 coup has triggered fresh economic sanctions against individuals and companies connected with the military imposed by several countries, including the United States. The heightened state of concern around Myanmar will make it perilous for those seeking to remit funds, invest in or trade with entities in Myanmar, for fear of being caught up (and noncompliant) in Myanmar’s currently toxic and intractable situation. In this context, various foreign governments continue to look for means by which targeted sanctions can be increased toward any domestic or foreign firms conducting business with the military government.
Myanmar’s kyat has seen a considerable reduction in its value since the coup, from around 1,330 to the U.S. dollar in early February 2021 to roughly 2,100 in August 2022, where it has since broadly remained, largely as a result of the central bank’s management of the fixed exchange rate. Unofficial trading in the kyat on the black market tends to deviate from this official exchange rate, valuing the local currency much lower. Myanmar’s kyat is not freely convertible outside the country, and there are considerable risks entailed in converting any local currency earnings into other currencies, as well as in remitting funds.
Myanmar’s foreign borrowing is limited, and the country had yet to tap international financial markets for sovereign or other debt instruments before the coup. The country has no credit ratings coverage. Myanmar’s fiscal deficit is increasing, with the World Bank estimating that the fiscal balance currently stands at around minus 6.7% of GDP.
The country had been particularly reliant on soft loans and other financial assistance provided by the international donor community since 2013, but much of that, especially from development finance institutions and funding directed at supporting government institutions, has now been halted due to the coup. Support provided by the IMF and World Bank, under the Rapid Credit Facility to assist less-developed countries affected by COVID-19, was not forthcoming.
The country has run a persistent current account deficit since 2011. The Asian Development Bank estimates this was minus 4% of GDP in 2022. With numerous export-oriented foreign investors suspending activities or withdrawing altogether, this has put Myanmar’s trade balance under increasing strain. It is thought that Myanmar had foreign exchange reserves around US$6.4 billion in 2021 — or about three months of import cover. However, the IMF has not conducted an “Article IV” consultation in Myanmar since 2019 (published in March 2020), and official statistics provided by the government are highly unreliable and opaque.
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