Myanmar Set for Economic Takeoff With Right Policies

Myanmar faces historic opportunity to jump-start economic development

Appropriate reforms could significantly accelerate growth, lift living standards

Top priority is to establish macroeconomic stability beginning with exchange rate reform

The IMF report acknowledges the progress that has already been made in economic reforms over recent months, including steps to reform the exchange rate. It says that with appropriate policies, including a stable macroeconomic framework, the previously isolated country could fulfill its considerable potential, and deliver inclusive and sustainable growth.

“Myanmar could see strong growth if it pursues the necessary reforms to take advantage of its rich natural resources, young labor force, and proximity to some of the world’s most dynamic economies, including China and India,” said Meral Karasulu, IMF mission chief for Myanmar.

Against the background of political and economic changes in the country, growth in Myanmar is picking up modestly. In the last year, GDP growth is estimated to have increased to 5.3 percent, and is expected to rise to 5½ percent in FY 2011/12, and 6 percent the following year.

Prioritizing reforms of the exchange rate regime

Myanmar has a complex exchange rate system with many restrictions that give rise to multiple exchange rates. This system increases transactions costs, discourages foreign direct investment and trade, encourages informal activity, and has put appreciation pressure on Myanmar’s currency.

Last month, the authorities took the first step toward exchange rate reform by adopting a managed floating regime.

With the help of the IMF, Myanmar plans to complete the process of exchange rate unification, including removing all exchange restrictions and eliminating multiple currency practices before their target date of end-2013 when the Southeast Asian Games are due to be held in the country.

Paced reforms

Myanmar’s reform needs are wide-ranging and significant, and the IMF suggests the reform agenda will need to be appropriately paced.

“Drastic, over-reaching reforms in many policy areas may not be realistic, given the capacity constraints and the need to coordinate across various institutions,” said Karasulu.

The IMF economists believe that any rapid reforms on a large scale could make any potential mistakes very costly. Although planned reforms will take time to implement, prioritization is essential to deliver tangible benefits to the majority of the...