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Euromoney Country Risk

Military grip on Myanmar is a reminder of the extreme risks

The glowing appeal of this frontier market is overshadowed by an array of problems, notably stemming from the junta’s resistance to democratic reform.

Aung San Suu Kyi-600

Aung San Suu Kyi, general secretary of the National League for Democracy

Myanmar’s risks increased further during Q2 2015. A falling score, to just 24.7 out of 100, has pushed the high-risk sovereign further down ECR’s global rankings to 152nd out of 186 countries worldwide.

Political challenges are persisting after a recent parliamentary vote failed to overturn the military veto and thus in effect denied the constitutional change required to establish a true democracy.

This will ensure there is only a nominal election victory for Aung San Suu Kyi’s National League for Democracy, if, as expected, it gains the most constituency seats to oust the military-backed Union Solidarity and Development Party (USDP) when the country goes to the polls later this year. An October or November date is expected.

All six of the political risk indicators in Euromoney’s survey of Myanmar score less than four points out of 10; the government stability score is falling with the elections due.


Long-term potential

Capital has been pouring in to Myanmar since 2011 when the country embarked on a liberalization drive.

The $4 billion-worth of investment projects recorded for fiscal year 2013/14 (to end-March) is likely to have been easily exceeded in FY2014/15. Final figures are not available, but point to some $6 billion to $7 billion, underpinned by transport projects and the opening up of the telecoms sector last year.

Recently, German engineering firm ThyssenKrupp announced it is returning to Yangon, citing the country’s spectacular growth prospects. IMF predictions show GDP rising by more than 8% in real terms both this year and next.

However, the enormous interest in Myanmar comes with a severe warning attached.

Euromoney’s survey experts have remained consistently cautious over the country’s investor prospects, with the sovereign remaining firmly in the lowest of the five survey categories synonymous with the highest risk of repayment problems.

Max Schieler, who is senior country risk specialist with RobecoSAM, remains sanguine over a long-term perspective, but has lowered his score in the survey to reflect mounting tensions surrounding the elections.

This will slow the pace of reforms and affect the complex negotiations required to establish inter-communal peace between Buddhists and Muslims, notably in Rakhine State, where tensions and conflict erupt.

“The cancellation and rescheduling of arrears by the Paris Club improves public debt sustainability, but the government is likely to increase spending ahead of the elections and pursue an expansive economic policy,” he says.

“This will maintain strong GDP growth, but could also increase the twin [fiscal and current-account] deficits.”

It should not be forgotten, moreover, the economy is still largely driven by the heroin trade and marred by corruption.

Indicators for bank and currency stability have been downgraded this year, the latter pressured by a current-account deficit of some 7% of GDP – according to IMF estimates – contributing to the risk of inflation and foreign debt servicing.

Import cover, which had been rising, is at risk from the government utilizing reserves to stabilize the kyat versus the dollar. The authorities are struggling moreover to contain a fiscal deficit amounting to some 5% of GDP, which is made harder without reforms to improve revenue, when set against rising demands on the public purse for higher wages and other expenditure.

Structural indicators, meanwhile, score just two points or fewer in Euromoney’s risk survey, highlighting the real problems involved in a country with a challenging terrain, internal conflict and regulatory obfuscations.

Making it easier to trade across borders is only one of the challenging areas of bureaucracy still requiring ameliorating and presently contributing to the country’s low ranking of 177th (from 189 economies) in the World Bank’s Doing Business guide

This article was originally published by ECR. To find out more, register for a free trial at Euromoney Country Risk.

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