Matt Davies who led an International Monetary Fund (IMF) team to undertake a staff report for the 2014 Article IV Consultation with Myanmar met for an interview with The Global New Light of Myanmar on Thursday. The IMF mission chief for Myanmar elaborated on Myanmar’s macroeconomic situation and outlook, the main challenges Myanmar faces while striving to achieve economic success, debt distress risk and the impact of foreign bank entry on the financial sector and small and medium businesses in the country. The IMF issued a press release on the statement by its Executive Board on the 2014 Article IV Consultation with Myanmar on Monday.
GNLM: What criteria are used in talking about Myanmar’s macroeconomic situation and outlook that growth is accelerating, with average growth projected around 8.25 per cent in the next few years and inflation should remain broadly stable?
Davies, IMF’s Mission Chief for Myanmar: Growth has strengthened recently as construction and services, including through telecommunications and tourism, expand rapidly. The manufacturing sector is also picking up, as domestic and foreign investment increase. We expect this trend to continue and be further assisted by rising gas production. Inflation will continue to be pressured by rising demand, but with the Central Bank of Myanmar beginning to exercise more active monetary policy, including through less inflationary financing of the budget deficit, we expect price increases to remain moderate for the foreseeable future.
GNLM: What are the biggest challenges for medium and long-term prospects in Myanmar? Do you think there are capacity constraints and slow institutional reform? In what areas are policy frameworks needed to be built and realized?
Davies: The main risks to this bright outlook come from the thin cushions that are available to the authorities to absorb shocks. This reflects low levels of international reserves, relatively elevated public debt and policy frameworks that are still under development. In particular, the newly independent central bank is still fine-tuning its monetary policy tools and upgrading its regulatory framework. In addition, taxation policies remain fragmented, leading to low revenue collections. Making progress in these areas will be important in helping the government manage the challenges that Myanmar’s economic success will bring, in particular from rising foreign inflows and greater foreign participation in the financial sector.
GNLM: You said Myanmar is now at a low risk of debt distress, why?
Davies: The IMF and World Bank make an annual assessment of the risk of debt distress for all low-income countries. This assessment looks at the current level of debt and how it may evolve under a number of different scenarios. When we do this we find that Myanmar’s overseas debt is quite manageable and is unlikely to reach worrying levels even if economic outturns are not as good as we currently project. That’s why we say that there is a low risk of debt getting out of control. When we look at total public debt—including the money owed within Myanmar—this is also projected to remain below risky levels. But shocks could drive it above them. It is therefore important that the government pays careful attention to ensuring borrowing is kept under control and external concessional borrowing is prioritized.
GNLM: What will be the impact of foreign banks entry on Myanmar financial sector, local small and medium-sized businesses hoping to get low-interest loans from them in particular?
Davies: The entry of foreign banks will spur significant changes in the Myanmar financial sector. They will improve access to the international financial system, strengthen the ability of the banking sector to lend to large investment projects and help introduce modern banking practices. However, in the initial stages, the impact on domestic SMEs is likely to be limited as the foreign banks will be constrained to only dealing with foreign firms and domestic banks.
However, there are risks involved in foreign bank entry. In order to manage these risks, it is important that, as planned by the Central Bank of Myanmar, a modernized regulatory structure for the whole banking sector is put in place before the foreign banks begin their operations.
GNLM: What are the next steps of the IMF to continue technical assistance to Myanmar as IMF directors agreed given Myanmar’s vast transformational needs and limited capacity?
Davies: The IMF has been steadily intensifying its support to Myanmar, which is now the largest recipient of IMF’s technical assistance in the world. The main focus areas are helping build a modern central bank and an effective revenue collection system, and we are also active in budget management and statistics. We provide this capacity building support in a number of ways, including through experts who live in Myanmar and those based in our Bangkok-based technical assistance office for Myanmar. Our support is aimed to be tailored to the particular needs of Myanmar and we work closely with other development partners.
Myanmar is making great strides towards building the institutions needed to manage a modern, open economy. There is a long way to go before the transformation is complete, and we at the IMF are looking forward to continuing our close partnership with the authorities in this exciting endeavor.
GNLM: What is your message to Myanmar and its people?
Davies: Myanmar faces a bright future which can, with the right decisions, mean a better life for everybody in the country. I wish you all the very best of luck! I feel honored to have had the opportunity to work in such a beautiful country with such friendly, dedicated people.
Matt Davies, IMF mission chief for Myanmar, is deputy division chief of the Asia Pacific Department of the International Monetary Fund. He made several visits to Myanmar for the implementation of the staff-monitoring program and Article IV Consultations with authorities in Myanmar.