Previous Quarterly Editions
Expropriation Risk: 57 56 55 55 Political Violence Risk: 54 55 56 58 Terrorism Risk: 48 49 49 49 Exchange Transfer and Trade Sanction Risk: 63 66 68 68 Sovereign Default Risk: 42 44 46 47
TREND ▲ OUTLOOK ▲
By mid-July 2020, Myanmar had only reported 330 cases of COVID-19 and just six deaths. While it is accepted that the poor quality of the health care system means that official statistics will under-estimate the true figures, decades of economic isolation that only began to loosen in 2013 have meant that Myanmar’s exposure to the virus and to its economic impact is not as great as some other Southeast Asian countries. However, it is feeling the effects of a sharp decline in tourism revenues and in remittances from the diaspora of three million people living and working overseas. The garment sector has seen a significant drop in orders. This, along with lower prices for its gas exports and a drop in already modest FDI inflows, means that Myanmar’s external position is deteriorating just as COVID-19-related spending is rising. As a result, the fiscal deficit is growing fast. In late June 2020, the IMF announced it would disburse 355 million USD in emergency financial assistance to help fund Myanmar’s ‘Overcoming as one’ COVID-19 economic relief plan. The Fund expects a contraction this year of around 2%, compared with growth above 6% last year. Even prior to COVID-19, there was some concern about the strength of the country’s immature banking sector and the potential for a systemic crisis at some point. That worry has grown with the economic impact of COVID-19 as firms and individuals alike struggle to meet their debt commitments. The government has confirmed that national and regional elections, scheduled for November 2020, will go ahead. Also, the National League for Democracy (NLD) has confirmed that State Counsellor Daw Aung San Suu Kyi (ASSK) will stand for parliament. The consensus view is that the NLD will again win the elections, although with a reduced majority. The domestic popularity of ASSK remains extremely firm among the majority ‘Bamar’ population, in stark contrast to her greatly diminished reputation on the international stage as a result of the military’s treatment of the ethnic Rohingya in Rakhine state on the Bay of Bengal. Where there have been governance scandals over the last five years of NLD-led government, such as the recent sentencing of a regional chief minister to 30 years in prison for corruption, these have tended to stick to the NLD, and not to ASSK herself. If anything, they have actually served to increase her stature as the country’s self-appointed matriarch, even though there has been little progress on her priority issues of the peace process, constitutional reform, and sustainable economic growth. But the November 2020 elections may show that previously guarded support for ASSK and the NLD, in areas where sizable ethnic minorities are in the majority, has been erased by the government’s increasingly Burman nationalist stance. Following the unanimous decision by the International Court of Justice in The Hague to condemn the Myanmar government for its genocidal treatment of the Rohingya, the reputational risks for international companies of doing business in Myanmar have undoubtedly risen. They will rise faster if the government does little to help the more than one million Rohingya refugees now in Bangladesh as COVID-19 moves through the refugee camps. The reputational risk also increased in February 2020 when the Paris-based Financial Action Task Force announced that it was putting Myanmar on its money-laundering watch list, as it had displayed inadequate progress in addressing the issue.
TREND ► OUTLOOK ►
The government launched its Myanmar Investment Promotion Plan (MIPP) last year with the aim of attracting 200 billion USD in investment over the next 20 years. Even prior to COVID-19, this ambitious target was hampered by the weak institutional capacity of the judiciary to rule fairly on contractual disputes, and the distortionary effects of a business environment in which enterprises owned by the military enjoy clear privileges. The NLD has been taking incremental steps towards liberalising the economy, but the pace of reform has been slower than many outside the country had anticipated. In this context, the enforcement of intangible asset and intellectual property ownership is weak, and the expropriation of physical assets remains a risk.
TREND ▲ OUTLOOK ►
The Arakan Army, which claims to represent Rakhine's ethnic majority in demanding greater autonomy for the region, continues to clash with military forces in the northwest of Rakhine state and southern Chin state. Renewed attacks on security forces are also focusing attention on northern Shan, where conflict continues over the control of narcotics production and smuggling. As national and regional elections due in November 2020 get closer, the risk of political violence will undoubtedly increase.
TREND ► OUTLOOK ▲
The manufacture of the synthetic drug methamphetamine appears to be increasing in northern Myanmar as a crackdown in China forces drug syndicates to relocate their labs, raising the possibility of more narcotics-related violence. Tensions between the Buddhist and Muslim communities in Myanmar are occasionally stoked by extremists 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 extremists on mosques, particularly as this is an election year.
The unanimous ruling of the International Court of Justice in The Hague against the Myanmar government in January 2020 means that the risk of economic sanctions and/or the loss of trade privileges remains a distinct possibility in the medium term. Should any of the legal cases pending against Myanmar result in formal indictments, EU countries in particular will then likely be under pressure to consider terminating Myanmar’s trade privileges under its ‘Everything but Arms’ scheme, and may even create a resumption of sanctions. In April 2020, the EU renewed its embargo on arms and equipment destined for Myanmar’s police or military. The decision by the Financial Action Task Force earlier this year, to put Myanmar on its money-laundering watch list, will make it more difficult for the government to borrow.
Myanmar’s current account deficit is widening as the global impact of COVID-19 impacts exports more than imports. The country’s foreign exchange reserves are estimated to be around 6.5 billion USD, and total external debt is relatively modest at about 25% of GDP. The extreme economic circumstances triggered by COVID-19 will mean that multilateral agencies such as the Asian Development Bank, World Bank and IMF will be willing to extend emergency credits to the country, on suitably soft terms, despite the developing community’s increasing unease with the country’s political direction. But the global impact of COVID-19 will make it harder for the government to promote greater use of market-based financing for its public debt, at least in the near term.
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