July 02, 2017

Breaking News

IMF warns of downside risks despite strong economic growth

A bird’s eye view of downtown Yangon. An IMF team says Myanmar’s economy faces some downside risks, though its economic growth is expected to remain strong at 8.5 percent in this fiscal year.   Photo:  Ye Myint
A bird’s eye view of downtown Yangon. An IMF team says Myanmar’s economy faces some downside risks, though its economic growth is expected to remain strong at 8.5 percent in this fiscal year. Photo: Ye Myint

Yangon, 1 July — An International Monetary Fund team on Wednesday cautioned Myanmar about the downside risks stemming from its rapid credit growth, expansionary budget and widening trade deficit, despite predicting strong economic growth of 8.5 percent in the current fiscal year.
The warning came on the final day of the Washington-based IMF team’s two-week visit to Myanmar.
Mission chief Mr. Yongzheng Yang told the media in Yangon that these potential risks could affect the economy given weak capacity and thin policy buffers. He emphasized the importance of carefully managing the rapid liberalization of the financial sector despite its overall benefits.
He warned of risks to the country’s fiscal and external positions that could be weakened by persistent dollar strength and low natural gas prices.
With strong demand and credit growth caused by the increased fiscal deficit and continued monetization of the deficit, inflation may rise further this fiscal year, while the external current account deficit is expected to widen further due to the continuous release of pent-up demand, the mission chief added.
“Myanmar needs a tightening of monetary and fiscal policies to restrain inflationary pressure and anchor exchange rate expectations.”
Mr. Yang called on the Central Bank of Myanmar to scale up deposit auctions to mop up excess liquidity and implement a prompt transition to the newly calibrated reserve requirement for banks.
Revenue mobilization and expenditure re-prioritization could help reduce the fiscal deficit for FY 2015-2016, he said.
Emphasizing the stability of exchange rate expectations, he stressed the need for the central bank to sell foreign currencies to importers at competitively determined market rates to decrease the risk of excessive drains on international reserves.
In conclusion, the IMF’s Myanmar mission chief said building the institutional capacity for macroeconomic management is crucial to addressing Myanmar’s huge development challenges.
According to his statement, the current account deficit widened further to about 6 percent of gross domestic product in the previous fiscal year due to strong import growth.
With lower-than-expected foreign direct investment inflows, the foreign reserves held by the CBM are equivalent to
less than three months of imports. The Myanmar kyat has depreciated notably although in real effective terms it remained largely unchanged, the statement said.
During its visit to Myanmar, the IMF team met Vice-President U Nyan Tun, CBM Deputy Governors U Sett Aung, Daw Khin Saw Oo and U Soe Min, Deputy Minister for Finance Dr Maung Maung Thein and other senior officials. They also held discussions with parliamentarians and private sector representatives. GNLM

Comments

Related posts

Translate »