Myan­mar loses out on forex losses as do­mes­tic debt rises

The Myanmar Times - - Business - CHAN MYA HTWE chan­[email protected]­times.com

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.

Photo: EPA

Ex­ter­nal debt over the last year has risen as a re­sult of the higher dol­lar ex­change rate.

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