Myanmar’s Growing, but Has a Long Way to Go

By Patrick Barta

UPDATED AT 7 P.M.

YANGON–Myanmar may be poised for years of explosive growth. If so, it has a long way to go before it comes close to catching up with its neighbors.

That tough reality is one of the themes that emerges in the latest Myanmar report by the Asian Development Bank, released Monday, which provides one of the most comprehensive pictures of the Myanmar economy in years.

The report, “Myanmar in Transition: Opportunities and Challenges,” predicts that Myanmar’s economy will grow by about 6.0% in 2012 and 6.3% in 2013 on the back of commodity exports and a pick-up in foreign investment – about as much as other fast-growing regional economies such as Indonesia. It also suggests that Myanmar could grow at 7%-8% per year for a decade or more, replicating the success of other Asian economies, if the government continues to push more reforms after giving residents more freedoms and floating the country’s currency over the past year.

But the depths to which Myanmar’s economy sunk during its years of military rule from 1962 to 2011 mean it could take years if not decades for it to start catching up to many of its regional peers.

Consider some of these factoids from the ADB report.

• Only about 26% of Myanmar’s population had access to electricity in 2011, versus 100% in Malaysia and roughly 90% or more in the Philippines and Vietnam.
• Only 1.26 people out of every 100 in Myanmar have fixed telephone lines, versus roughly 16 in Indonesia, while only 0.03 out of 100 have broadband Internet subscriptions, compared to about eight in Malaysia.
• Roughly 30% of Myanmar doesn’t have access to safe water.

The list goes on. Myanmar has 40 kilometers of roads for every 1,000 square kilometers; Vietnam has 480. Myanmar has 18 vehicles per 1,000 people, while Thailand has 370.

Myanmar’s economy in some ways has changed little since the 1960s or otherwise fallen behind as Malaysia, Thailand, Indonesia and Vietnam zoomed ahead. Agriculture accounted for 35% of Myanmar’s gross domestic product in 1965; in 2010, it was 36%. Its per capita income in 1960 was about $670, more than three times that of Indonesia and more than twice that of Thailand. By 2010 it had the lowest GDP per capita in Southeast Asia, at about $1,300 on a purchasing power parity basis.

There are some areas where Myanmar has made notable progress, the ADB said. Its infant and maternal mortality rates have dropped considerably since 1990, though they remain high,  and adult literacy is now well above 90%. Rice yields have increased steadily despite a lack of irrigation and other infrastructure. Overall growth in recent years has helped boost Myanmar’s foreign currency reserves to help buttress the country against economic shocks, and policy makers have helped bring inflation to manageable levels.

But the ADB noted that many experts believe Myanmar’s official economic data may have exaggerated the growth that occurred in recent years. Myanmar reported an average of 12% annual growth from 2000 to 2010, but such figures “have been deemed overstated and rather unreliable” given the country’s poor statistical capacity, the ADB said. It cited International Monetary Fund figures that estimate growth averaged just 4.6% from 2002 to 2010.

Other data that tend to correlate with GDP growth was also far weaker than official GDP figures would suggest. Cement sales, for instance, only grew 1.8% per year from 2004 to 2009.

Ko Ko Hlaing, an adviser to Myanmar President Thein Sein, said in an emailed response to questions that it “may be true” that GDP figures from 2002 to 2010 were not reliable because the country’s currency had many values at the time, complicating calculations, and some regional authorities may have exaggerated growth to please superiors. He said it’s possible the actual rate of growth was somewhere between the IMF estimates and Myanmar’s calculations, “but one can never find the exact point.”

Part of Myanmar’s problem, no doubt, is that it has been subject to tough Western sanctions that prevented Western firms from buying Myanmar products or investing there, though economists believe policy mistakes and over-reliance on inefficient state enterprises also played a major role in the weak economy. Many experts believe one of the reasons Myanmar’s government is finally changing after years of military rule is that its leaders are disappointed in the country’s poor performance compared with other Asian countries, and want to do something about it.

Either way, Myanmar remains heavily dependent on just a few industries, with more than two-thirds of its exports coming from three products – natural gas, logs and legumes, the ADB said.

The country also faces major risks going forward, despite all the recent excitement over reforms there. As Western governments lift sanctions and more investors charge in, the country could run into an assortment of challenges that commonly bedevil frontier economies, including inflation, exchange-rate instability, hot money flows, and credit bubbles. Those risks are particularly acute in Myanmar due to its relatively under-developed regulatory environment and immature financial sector, with poor tax collection, an under-developed bond market, and widening fiscal deficits.

The good news, ADB said, is that Myanmar is taking some important steps to address some of its problems. After years of miserly spending on health and education – it has been the only developing Asian country that spends more on defense than education and health combined – it is boosting health care and schools spending significantly, to 7.5% of government expenditure in fiscal year 2012-13, from 5.4% a year earlier. The budget for education is more than doubling in nominal terms in fiscal year 2012-13.

Having the ADB back in Myanmar may also help. The ADB, along with the World Bank, recently opened an office in Myanmar after suspending lending to the country years ago after Myanmar became an international pariah because of allegations of human-rights violations. The changing environment in Myanmar means multilateral institutions can work there again, though ADB officials stress Myanmar still needs to make good on $504 million of arrears to the bank before more money can flow.

An important question is whether Myanmar’s government will institute the kinds of financial-sector and other reforms needed to ensure it can continue to afford its spending, including boosting its tax haul and ensuring the country’s central bank has enough independence to properly manage the economy. Growth may indeed take off in Asia’s newest frontier market, but it’ll take a while to see whether its leaders have the skill to manage it.

And here’s one other final, sobering statistic: If Myanmar’s economy does manage to grow 7%-8% per year for a long stretch, it might still only hit GDP per capita of $2,000–$3,000 by 2030. To many economists, this is good news, since it would put Myanmar safely into the ranks of middle-income countries, ADB said. But it’s still a far cry from its peers. Malaysia’s GDP per capita in 2010 on a purchasing power parity basis was nearly $15,000.