Previous Quarterly Editions
Expropriation Risk: 65 65 70 73 ▲ Political Violence Risk: 59 59 74 74 ► Terrorism Risk: 49 49 55 55 ► Exchange Transfer and Trade Sanction Risk: 55 64 64 73 ▲ Sovereign Default Risk: 47 57 57 57 ►
TREND ▲
Risk in Myanmar has remained elevated since February 2021, when the military enacted a coup. The military has subsequently encountered significant domestic opposition and international condemnation. It has also struggled, and failed, to contain a major COVID-19 surge nationally in recent months.
Martial law remains in effect. The civil disobedience movement (CDM) continues, with almost 1,000 civilians now killed in post-coup violence, as the military seeks to stamp its authority. A shadow opposition government has been formed, and there have been reports of small-scale attacks in various parts of the country, including Yangon.
As of late August, there had been almost 400,000 confirmed COVID-19 cases and over 15,000 deaths. Vaccination levels are below 4% of the total adult population. The country is short of vaccines, medicine and oxygen supplies, and the public health sector is unable to cope with the cases surge. The United Nations and others have called for humanitarian assistance to commence.
The reference rate for the local currency, the kyat, has been steadily depreciating post-coup, from 1,330 to the US dollar in February to 1,650 at present, and around 1,800 on the black market. Inflation is also increasing, as the supply of essential products and services is affected by the coup’s economic fallout and COVID-19-related movement restrictions.
The underlying economy is poor, with the most recent purchasing manager’s index (for July) at 33.5; the eleventh consecutive monthly decline. A combination of post-coup uncertainty and COVID-19’s impact has seen company closures and rising unemployment. The World Bank’s gross domestic product (GDP) forecast for financial year 2021 is a minus 18% contraction.
The banking sector -- already fragile pre-coup -- is potentially close to collapse. Liquidity is constrained, and it can be safely assumed that non-performing loan levels, that were already high, have further increased. Depositors continue to find it difficult to withdraw funds. With confidence in the formal banking sector so low, informal service providers have stepped in, alleviating some of the chronic demand for cash.
While predictions of a civil war and/or failed state have yet to materialise, they are possible if Myanmar’s economy continues deteriorating and if some degree of political normalcy remains elusive. In early August, military leader Min Aung Hlaing announced he had assumed the role of prime minister, and that elections will not occur before August 2023; significantly later than originally pledged.
The previous civilian-led government had made incremental steps towards improving the business environment, notably in banking and finance. The anticipation of a slow, steady move towards positive reforms has gone since the coup, 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 number of high-profile foreign investors have already announced that they will divest their Myanmar assets.
TREND ►
Law and order do not currently pertain in Myanmar, with some military and police acting lawlessly towards targeted 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 -- some protestors believe Beijing has been supportive of the military’s actions.
Popular protests about the coup have occurred in towns and cities nationally and do not appear to be abating, despite the steadily growing loss of life, whether from the CDM and protests themselves, or COVID-19’s surge. 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 considerable time, particularly if new elections will not be until at least 2023.
Countries that have erred against criticising the coup include China, Russia, Vietnam and Thailand (itself under military rule). While most civilian protestors have not sought to arm themselves, there is growing speculation that alliances may be 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.
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 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 CDM 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 of the country. Even pre-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/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 and others. 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; the domestic banking sector is under considerable strain. Individuals in Myanmar have very limited access to their funds in banks. Worries about a systemic banking crisis have some foundation.
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 at present, but Myanmar’s external debt levels are modest, at less than 20% of GDP. The country’s fiscal deficit is increasing, with the World Bank estimating that 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, have now been halted indefinitely.
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 not be forthcoming. Myanmar has foreign exchange reserves of around USD6.5bn, or about two to three months of import cover, and 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.
Return to contents Next Chapter
