DESPITE GREATER downside risks including religious strife in Rakhine State and a hike in commodity prices, it is a perfect time for Myanmar to start its second wave of reforms, according to the International Monetary Fund.
Shanaka Jay Peiris, IMF’s Myanmar mission chief, said at a recent press conference that the country should open up the economy to more sectors in order to attract additional foreign investment. He recommended further liberalisation in restricted sectors including insurance and aviation.
“It is time to initiate the second wave of reforms to sustain the momentum,” he said. “It is important to have cohesive plans and effective strategies in place to anchor policy making.”
Peiris’s list of needed reforms include agriculture, the banking system and gradual interest rate liberalisation, infrastructure, trade, natural resource management and the legal framework, including further opening up the economy to foreign ventures.
“A well-sequenced second wave of reforms and greater public investment efficiency would help the economy further integrate with global value chains and foster inclusion,” he said.
He recommended encouraging public-private partnerships, as there is a very strong potential for PPP in Myanmar.
He said stakeholders must push for investing more in infrastructure. Higher infrastructure investment and implementation of more strategic reforms could brighten the outlook, he added.
Peiris stressed the importance of synergy among government ministries. He urged developing sectoral plans, medium-term growth strategies and stronger fiscal policies to support the wider national plan.
He encouraged doing structural reforms through better regulations to address fiscal risks. Myanmar’s banking sector needs to adjust to new prudential regulations after a period of rapid credit growth, he suggested.
The mission chief urged restructuring state economic enterprises and state-owned banks, which have become an increasing burden on the government expenditure.
“From the efficiency perspective, financial management is vital. We do not want electricity losses and subsidies,” he said, adding that electricity tariffs must be rationalised to reduce the government subsidies.
He also stressed the need to strengthen tax reforms, as both commercial and income taxes are very low in Myanmar.
“Now they [the government] focus on tax administration. We think it is time for income tax reforms to ensure you have progressive taxation,” he said.
He said revenue mobilisation should build on the good progress achieved in tax administration, followed by the next phase of modernising tax laws. IMF has been providing technical assistance in this regard, he said.
Peiris said the economy is recovering because macroeconomic imbalances are stabilising. He expects Myanmar’s growth to rebound to 6.7 per cent this year, and 7 per cent next year.
“Our baseline focus for the medium term is very strong. The second half of this year will be stronger than the first half,” he said.
Peiris said the government saw a challenging year with lower-than-expected growth of 5.9 per cent in 2016-17 fiscal year, due to weak agriculture production and exports as well as temporary suspension of some construction projects in Yangon.
He said the economic slowdown last year was a bit structural, and expectations seem to be very high. He believes higher potential for exports and recovery in the agriculture sector would drive Myanmar’s growth in the medium term.
Myanmar’s growth also depends on public investment in infrastructure and higher spending in crucial areas. The nation tried to focus on “stabilisation” last year, and should emphasise “growth” this year, he said.
He said ongoing religious conflicts in Northern Rakhine State could affect development finance and investor sentiment, although the direct economic impact appears to have been largely localised.
Yet, he lauded the government’s plan to invest more in the region for reconstruction and resettlement of affected communities.