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Growth Outlook Positive but Inflation A Worry: IMF

The International Monetary Fund (IMF) last week said Myanmar’s economic outlook is “favourable” but rising inflation and slim international reserve pose a challenge to the Southeast Asian nation which initiated sweeping economic reforms in the last couple of years.

Myanmar’s real GDP growth in 2012/13 fiscal year (year ending in March) reached 7.3 percent, led by services, and is expected to rise further to 7.5 percent in FY2013/14 and 7.75 percent in 2014/15, the Paris-based lender said following the completion of its second and final review of the Staff-Monitored Program (SMP) with Myanmar. SMP is an informal and flexible instrument for dialogue between the fund staff and a member country on its economic policies.

IMF said growth of credit to the private sector is projected to moderate from current high levels but remain rapid at around 30 percent. It expects the fiscal deficit in FY2013/14 to be broadly in line with the budget target of 5 percent of GDP, but fall to 4.5 percent in FY2014/15, as a result of one-off revenues from telecommunications licences, which were awarded earlier this year.

Myanmar current recent economic reforms include adopting a floating exchange rate and removing exchange restrictions; establishing an autonomous central bank; and significantly increasing spending on health and education.

However, inflation is expected to exceed 6 percent by end FY2013/14 and remain elevated in FY2014/15.

IMF said risks to the outlook arise largely from limited macroeconomic management capacity and thin international reserve cushions.

“Inflation remains elevated and there are pressures from rapid money and credit growth, kyat depreciation and possible electricity price hikes. International reserves are still low and vulnerable to shocks,” the lender said in a statement.

IMF projected the external current account deficit to widen further to about 5 percent of GDP in this period. As a result, the Central Bank of Myanmar (CBM)’s accumulation of international reserves during FY2013/14 has been slower than projected, but is hoped pick up in FY2014/15 as foreign direct investment and other inflows outweigh the current account deficit.

IMF praised Myanmar on achieving some quantitative and structural benchmarks including building the CBM’s reserves, maintaining an appropriate fiscal deficit, liberalising the foreign exchange market, and building monetary and fiscal policy tools and institutions.

Capacity constraints moderated achievements in some areas but progress continues to be made, IMF said.

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