Expropriation Risk: 70 70 73 76 ▲ Political Violence Risk: 74 74 74 81 ▲ Terrorism Risk: 49 55 55 55 ► Exchange Transfer and Trade Sanction Risk: 64 73 73 73 ► Sovereign Default Risk: 57 57 57 57 ►
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Government's commitment on climate policy Weakest 1 2 3 4 5 Strongest
Myanmar’s greenhouse gas emissions are relatively modest: the country is estimated to be the world’s 90th largest emitter of carbon, or just 0.05% of the global total. However, Myanmar will be significantly affected by climate change, particularly via rising sea levels and what that means for the low-lying Irrawaddy Delta, where much of the country’s agricultural produce originates. The 2008 Cyclone Nargis exemplifies the risk of extreme weather events to
Myanmar. The cyclone was the worst such disaster in Myanmar’s history, with around 140,000 dead, and from which a civil society movement opposed to the previous military regime, that was slow to respond to the emergency and turned away overseas offers of assistance, partly evolved.
Yet the prospects of climate change bringing about a repeat of the post-Nargis civil society movement is unlikely, as that already exists within the civil disobedience movement active since the February 2021 military coup. As Myanmar gradually sinks into what looks likely to be a civil war between the military government and various armed groups, as well as a shadow government in exile, any meaningful progress on climate change seems unlikely, with adaptation and mitigation issues likely to be given a low priority in the government’s spending plans.
The prospect of the stresses posed by climate change driving any significant political change in Myanmar is remote, particularly since the coup. With the pressure being placed on civil society by the military, and the absence of an active international development community to exert pressure for greater action by the government on climate change, there is little to drive the climate change response forward. Limited funds also constrain the government, which would have previously looked to the development community to help underwrite a climate change action plan. But most donors have scaled back their involvement in Myanmar since the coup, and fewer still are willing to have direct dealings with agencies of a government that is seen as illegitimate.
The expropriation risk is relatively high. The previous civilian-led government had made incremental steps towards improving the business environment, particularly in banking and finance, but the anticipation of a slow, steady move towards positive reforms has evaporated since the February coup. This has been the case particularly as many large corporate entities remain under military ownership or are closely affiliated. Over the last six months, the military leadership has displayed a ready willingness to flout international standards of behaviour with impunity, and so the forced seizure of assets would be unlikely to pose a dilemma for them.
With a host of foreign governments instituting new economic sanctions against key individuals and companies connected to Myanmar’s military, the potential for business assets to be expropriated in retaliation has risen significantly. Myanmar’s rule of law and ability to enforce legal decisions was already weak, but with most of the judiciary now either pursuing civil disobedience or, conversely, obeying military orders, the ability for free and fair legal judgements to be made and upheld is virtually nil. A growing number of high-profile foreign investors have announced they will divest their Myanmar assets.
Law and order do not currently pertain in Myanmar, with members of both the military and police acting lawlessly towards targeted and random individuals and their property. While most of the violence has been between civilian protestors and members of the police and military, there has been occasional violence directed towards companies that are believed to be Chinese, with some protestors believing Beijing has been supportive of the military’s actions.
Popular anti-coup protests in towns and cities nationally have not abated, despite the growing loss of life, whether from the civil disobedience movement, protests and the violent responses meted out, or COVID-19. The formation of a shadow government in opposition, and the establishment of armed militias, suggests that a heightened level of political violence risk will persist in Myanmar for some time, particularly if new elections will not be held until 2023, at the earliest.
Countries that have erred against criticising the military coup include China, Russia, Vietnam and Thailand (itself under military rule). 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 defections from within elements of the military, police and security forces.
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Tensions between the Buddhist and Muslim communities in Myanmar are occasionally stoked by extremist elements on both sides. A terrorist attack in a major urban centre by Islamist militants remains a possibility, as does the potential for mob attacks by Buddhist nationalists on mosques.
The military coup and resulting public protests could be seen as a window of opportunity by terrorist elements 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 their ability to thwart armed attacks in some of the country’s more troubled border regions.
Myanmar’s kyat is not freely convertible outside the country. Even pre-coup the unanimous ruling of the January 2020 International Court of Justice against the Myanmar government’s treatment of the Rohingya meant economic sanctions and/or the loss of trade privileges was a distinct possibility 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 its Financial Action Task Force placed Myanmar on its money-laundering watch list.
But the coup has triggered fresh economic sanctions against military connected individuals and companies, 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 inadvertently being non-compliant in a rapidly moving situation.
In addition, many staff working in Myanmar’s banking sector have withdrawn their labour, leaving the domestic banking sector under considerable strain. Individuals in Myanmar have very limited access to their funds in banks. Worries about a systemic banking crisis are not without foundation. Myanmar’s kyat has seen a significant reduction in its value since the coup, from around 1,330 in early February 2021 to 1,960 in October 2021, although it has since retraced to around 1,780 in 2022.
Myanmar’s foreign borrowing is limited, and the country has yet to tap the international financial markets for sovereign or other debt instruments. The country has no credit ratings coverage, but Myanmar’s external debt levels are believed to be modest, at less than 20% of gross domestic product (GDP). The country’s fiscal deficit is increasing, with the World Bank estimating the fiscal balance will deteriorate to minus 8.5% of GDP in 2021 and take the level of public sector debt from around 40% of GDP to 55%.
The country has been particularly reliant on soft loans and other financial assistance provided by the international donor community since around 2013, when political reforms were enacted. But much of that assistance particularly from development finance institutions and funding directed at government agencies has now been halted indefinitely due to the coup. Support provided by the International Monetary Fund and World Bank, under the Rapid Credit Facility to assist less-developed countries affected by COVID-19, will also not be forthcoming.
It is thought Myanmar has foreign exchange reserves of around USD6.5 billion, or about two to three months of import cover, and the country runs a persistent current account deficit. With foreign investors halting activities or withdrawing altogether, this will put the country’s trade balance under increasing strain.
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