The International Monetary Fund welcomed Myanmar's "bold move" to liberalize its foreign exchange rules in a report published on Friday and warned that the poor Asian country would need to tighten monetary policy and reduce credit expansion. The Fund cautioned that without further reforms, which could lower growth in the short term, Myanmar risked a run on its foreign exchange reserves, which cover just three months of imports, and a burgeoning fiscal deficit.
The Fund said that while the official deficit was estimated at 3 percent of gross domestic product, its real number was closer to 5.5 percent of GDP once one-off receipts from telecommunications and gas companies are excluded. The Fund forecast the Myanmar economy would grow 8.5 percent this year.
"The projected increase in the fiscal deficit in the 2015/16 budget - amounting to almost 2 percent of GDP - will provide an expansionary stimulus and contribute to strong credit growth and a rising current account deficit," the Fund said. That would result in the Central Bank of Myanmar likely needing to finance part of that shortfall, something the Fund said needed to be reined in. It forecast that inflation would rise to 13 percent and the current account deficit would also rise to around 9 percent of GDP, causing the central bank's reserves to fall further to 2-1/2 months' worth of imports.
While it welcomed reforms in the currency market that have seen the kyat exchange rate move closer to that of the parallel market, the Fund said more reforms were needed. "The current downward pressure on the kyat is largely a result of macroeconomic policy inconsistency. Monetary and fiscal policies are too loose to anchor the exchange rate expectations, although external shocks have also played a role. Under the current macroeconomic policy settings, resisting depreciation pressure could lead to a quick rundown of reserves," it said. The Fund report said that the kyat had depreciated about 20 percent against the dollar since September 2014.
Comments
Comments are closed.