Myanmar loses out on forex losses as domestic debt rises
EXTERNAL debt over the last year has risen as a result of the higher dollar exchange rate, according to the Public Accounts Joint Committee report which was submitted to Pyidaungsu Hluttaw by secretary U Khin Maung Than last month.
Myanmar’s total outstanding external debt as at March 31 had soared to US$10.2 billion, which is $819 million more than if the exchange rate had remained unchanged, U Khin Maung Than said.
“This is because the loans were given to Myanmar when the exchange rate was K900 per dollar. However, the exchange rate has since risen by 66 percent to K1500 per dollar,” said U Than Soe who is a Pyithu Hluttaw representative and member of the Joint Public Accounts Committee.
Myanmar currently owes money to 21 countries. The funds are deployed within 16 ministries, of which the Ministry of Electricity and Energy accounts for more than 30pc followed by the Ministry of Planning and Finance at around 24pc. Along with the Ministry of Transport and Communication and Ministry of Industry the four ministries are the largest borrowers of external debt, said U Khin Maung Than.
As the government has not undertaken proper investments that make good returns, the respective ministries need to consider a policy on sustainably repaying the country’s external debt as the burden of higher dollar exchange rates gets larger, said U Maung Maung Lay, vice chair of the Union of Myanmar Federation Chambers of Commerce and Industry.
Domestic debt Myanmar’s external debt is rising at a time when the government has been making efforts to better manage domestic debt.
As at March 31, domestic debt amounted to K20.7 trillion, resulting in a budget deficit that is approaching 5 percent of GDP, a benchmark the government is trying not to breach.
Interest accumulated on that level of debt also passed K1 billion last year, which is more than double the interest payments made in 2011, according to the Public Accounts Joint Committee report.
To fix the budget deficit and repay local debt, the government borrows funds from the Central Bank of Myamar (CBM). For example, the government will borrow around K640 billion from the CBM to finance the fiscal deficit for the six-month interim period between April 1 and September 30, the Ministry of Planning and Finance said in May.
The loan represents around 20 percent of the government’s total permitted local borrowings from the CBM.
In two years’ time though, the government has committed to eliminating its reliance on CBM borrowing to finance the fiscal deficit and is now gradually borrowing less from the Central Bank, said U Khin Maung Than.
“Last year, we implemented a debt strategy to gradually reduce the volume of funds provided by the CBM and so far it has been successful,” he said.
To reduce finance the rise in public spending, the government is now working on deepening the domestic bond market. Currently, the CBM issues Treasury bonds at interest rates of 9.18pc for 2-year bonds and 9.69pc for 3-year bonds. It also issues short term Treasury bills at interest rates of 8.16pc for 3-month bills, 8.53pc for 6-month bills and 8.63pc for 12-month bills.
“The Treasury Bills sold to CBM in 2015-2016 only had 4pc interest rate but since 2016-2017, the interest rate was raised to align with the minimum bank deposit rate of 8pc. Also, as the old loans taken from CBM and the ones in the previous years were not repaid, the interest is becoming higher with each year,” said U Khin Maung Than.
For now, local banks buy up more than 99pc of the bonds issued by the Myanmar government, while foreign banks take up less than 1pc. To further expand, Myanmar bonds must be made available to foreign institutional investors like pension funds and insurance companies.
Currently, debts from government treasury bonds are around K4 billion, accounting for 20pc of total domestic debt. Debts from government treasury bills are K2.4billion, accounting for 11pc, according to U Maung Maung Win, deputy minister for Ministry of Planning and Finance.
“According to the 2016 Medium Term Debt Management Strategy, the government has been gradually limiting loans so as not to exceed 30pc of GDP in foreign debt and 40pc in local debt. As of March 31, foreign debt stood at 15pc of GDP while local debt stood at 38pc of GDP, which is under control,” said U Khin Maung Than.
External debt over the last year has risen as a result of the higher dollar exchange rate.