Previous Quarterly Editions
Expropriation Risk: 76 76 77 77 ►Political Violence Risk:81 80 80 79 ►Terrorism Risk:55 55 55 55 ►Exchange Transfer and Trade Sanction Risk: 73 73 73 82 ▲Sovereign Default Risk:57 65 73 73 ►
TREND ▲
Protest intensity in 2022 and Q1 2023* 2022 Q1 2023Cost of living : Low LowAll protest: Low Low
Cost-of-living protest risk in 2023*Wage protest: MediumFood/fuel policy protests: High
*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 calculations, see the introductory essay.
We should treat official economic data from Myanmar with extreme caution, as the military government has a long track record of manipulating statistics or withholding them altogether. Nonetheless, it is clear Myanmar’s economy is still seeking to recover from the double hit experienced in the 2020-21 fiscal year of both a military coup and the onset of the COVID-19 pandemic when Myanmar’s economy contracted by around 18%, with the industrial sector witnessing an estimated 20.6% decline. The services sector saw an 18.4% decline, and the agricultural sector a contraction of 12.5%.
Somewhat ironically, the current economic sanctions imposed on Myanmar may have served partially to insulate its economy from the full effect of global inflationary forces. Nonetheless, inflation was believed to be around 16.5% year-on-year in 2022, and the World Bank envisages this figure dropping to 7% in this fiscal year. These figures will have been driven in part by a roughly 50% reduction in the value of the local currency against the U.S. dollar over the last two years.
Higher input prices, such as for fertilizer and fuel, for the important agricultural sector have had a negative impact on production, and therefore on rural incomes.
The potential for the imposition of austerity measures is hard to judge, as is the impact of any such measures enacted by the military junta, such as the recent hike in public transport fares since the coup of February 2021. Public spending in Myanmar has always been well below that needed to provide an adequate standard of essential services, as evidenced by the health service’s inability to respond at all well to COVID-19, and so the room to make further cuts is limited. Power outages remain a constant fact of life in Myanmar, not helped by an antiquated energy grid in parts.
However, the extent to which economic mismanagement could catalyse political instability is largely moot in the case of Myanmar, given both the strict imposition of martial law since the coup, and the military government is already deeply disliked by a majority of Myanmar’s citizens. Armed opposition and civilian protests towards the government are ongoing, and an opposition government in exile is already operating. The World Bank estimates around 30,000 people have died from conflict since early 2021, and around 1.5 million have been internally displaced.
However, inflation and consistently poor economic management by the military government adds to the misery of most Myanmar’s population, as incomes and livelihoods contract, and further exacerbates the general level of macro-economic uncertainty, volatility, and disruption being experienced.
TREND ►
Myanmar is currently in a state of civil war, and the expropriation risk is high. The previous transitional (2011-15) and civilian-led (2015-20) governments had made 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 coup of February 2021 when military showed its willingness to flout international standards of behaviour. Forced seizure of property and other business assets would probably not pose a dilemma for the junta.
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 including genocide of the ethnic Rohingya in Rakhine State, 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 judgements 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 largely immune from incurring shareholder, investor and/or home country government displeasure would wish to conduct business in or with Myanmar at present.
Law and order do not currently apply in Myanmar, where a low intensity civil war continues to rage on. Military and police members have acted lawlessly towards 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, there has been occasional violence towards companies believed to be Chinese owned, as some protestors believe Beijing has supported 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, particularly if new elections are not held until late 2023 at the earliest.
Countries erring against criticising 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 the 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 centre by Islamist militants remains possible, as does the potential for mob attacks by Buddhist nationalists on mosques and other assets associated with Muslims.
The military coup and resulting public protests, as well as a general level of lawlessness, 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. The military junta would allege that the opposition and various allied armed groups are acting as terrorists, while the opposition would argue the military rules by terror.
Myanmar’s kyat is not freely convertible outside the country. Even before the coup, the 2020 unanimous ruling of the 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 the international Financial Action Task Force placed Myanmar on its money-laundering watch list.
But Myanmar’s latest coup has triggered fresh economic sanctions against military connected individuals and companies, imposed by the U.S and several other countries. 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 non-compliant) in Myanmar’s currently toxic and intractable situation. In this context, various foreign governments continue to look for ways to increase targeted sanctions towards 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 dollar in early February 2021 to roughly 2,100 in August 2022. The World Bank estimates the kyat lost a further 25% of its value against the dollar between June and December 2022, taking it to level below 50% of its value from two years’ earlier.
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 the fiscal balance currently stands at around minus 6.7% of GDP. The level of public sector debt has risen from around 39% of GDP in 2020 to 62% in the current fiscal year.
The country has been particularly reliant on soft loans and other financial assistance provided by the international donor community since 2013, but much of that, particularly 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, has also not been forthcoming.
The country has run a persistent current account deficit since 2011. 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 USD6.4 billion in 2021, or about three months’ of import cover.
Myanmar is expected to register 3% GDP growth in the current fiscal year, similar to the rate of last year, and well above the minus 18% contraction in 2021.
Return to contents Next Chapter
