‘Spiralling internal conflict adverse to Myanmar’s economy’

KUCHING: RAM Ratings expects Myanmar’s economic growth to be adversely affected by the continued escalation in its internal conflict.

While the discord has been a feature of Myanmar’s postindependence history, and a key rating constraint, RAM said the flare-up seen in August 2017 underscores the country’s difficult operating environment.

It also brings to the forefront Myanmar’s lack of institutional capabilities and the divergence of scarce fiscal resources from the country’s development priorities, while undermining the credibility of the current administration.

“The internal conflict – the world’s longest-running since 1948 – has mounted in recent months amid developments in the Rakhine state, which is home to 3 million people and is largely focused on agricultural activities.

“Due to a lack of administrative resolve and limited foreign intervention to achieve a peaceful resolution, we expect current events -- which had seen nearly 400 people killed and 38,000 people displaced in August 2017 -- to be protracted,” it said in the statement.

Consequently, RAM said Myanmar’s institutional capacity and fiscal resources are anticipated to remain stretched.

This was reflected in the country’s persistently poor Ease of Doing Business index ranking – Myanmar was ranked 171st out of 190 countries in 2017 – and its significant defence budget.

“Notably, Myanmar committed 26.4 per cent of its budget to defence spending in fiscal 2015 – far higher than its regional peers’ – which is significant in view of the country’s low level of development,” it added.

“The escalation of the conflict had damaged the credibility o f Myanmar’s fl e d g l i n g administration – the first civilianelected government in more than two decades – given that the government’s economic policy introduced in July 2016 was centred on national reconciliation.

“As a result, it is likely that future policy intentions or measures will not be sufficient to anchor investor expectation and would hinder investment growth in the country.”

Moreover, RAM observed that the government’s lack of commitment to a peaceful resolution has increased concerns over a revival of more restrictive international sanctions.

“Previous sanctions on Myanmar (which were relaxed in 2011) had posed a significant constraint on investment inflows into the country and resulted in stagnating development.

“As Myanmar’s military controls significant proportions of the economy through its shareholdings in State Economic Enterprises, the imposition of new sanctions would adversely affect growth.

“As Myanmar’s conflict remains a key rating constraint, the country carries respective gB2(pi)/stable/ gNP( pi) and seaB1( pi)/ stable/ NP(pi) ratings on RAM’s global and Asean scales.”