Myanmar in Transition-Opportunities & Challenge

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  • 1. Myanmar in TransitionOpportunities and Challenges
  • 2. Myanmar in TransitionOpportunities and Challenges August 2012
  • 3. © 2012 Asian Development BankAll rights reserved. Published in 2012.Printed in the Philippines.ISBN 978-92-9092-812-6 (Print), 978-92-9092-813-3 (PDF)Publication Stock No. RPT124850-2Cataloging-in-Publication DataAsian Development Bank Myanmar in transition: Opportunities and challenges.Mandaluyong City, Philippines: Asian Development Bank, 2012.1. Economic development. 2. Myanmar. I. Asian Development Bank.The views expressed in this publication are those of the authors and do not necessarily reflect the viewsand policies of the Asian Development Bank (ADB) or its Board of Governors or the governments theyrepresent.ADB does not guarantee the accuracy of the data included in this publication and accepts noresponsibility for any consequence of their use.By making any designation of or reference to a particular territory or geographic area, or by using theterm “country” in this document, ADB does not intend to make any judgments as to the legal or otherstatus of any territory or area.ADB encourages printing or copying information exclusively for personal and noncommercial use withproper acknowledgment of ADB. Users are restricted from reselling, redistributing, or creating derivativeworks for commercial purposes without the express, written consent of ADB.In this report, “$” refers to US dollars unless otherwise specified.Asian Development Bank6 ADB Avenue, Mandaluyong City1550 Metro Manila, PhilippinesTel +63 2 632 4444Fax +63 2 636 2444www.adb.orgFor orders, please contact:Department of External RelationsFax +63 2 636 2648adbpub@adb.org
  • 4. ForewordMyanmar emerges from decades of isolation with much hope and support from the global andregional communities. The country has high potential for rapid growth and development given its richnatural resources, abundant labor force, and strategic location between the region’s two economicgiants—the People’s Republic of China and India. Many lessons can be drawn from the developmentexperiences of Myanmar’s neighbors and can help guide its economic transition to achieve strong andinclusive growth while avoiding social instability and ensuring environmental sustainability. Greater regional cooperation can unlock the growth potential arising from increased trade andcross-border investment. Myanmar can strengthen its ties with the Association of Southeast AsianNations (ASEAN) and utilize its unique geographic position as a bridge between South and SoutheastAsia, which offer a range of new opportunities. Working in cooperation with other countries willprovide a solid platform for Myanmar’s renaissance. Myanmar is set to chart a course that takes into account its strengths and weaknesses, whileleveraging the available opportunities and avoiding the potential risks. Myanmar can also position itself•–”ƒ–‡‰‹…ƒŽŽ› ‹ –Š‡ ”ƒ’‹†Ž› …Šƒ‰‹‰ ‰Ž‘„ƒŽ ƒ† ”‡‰‹‘ƒŽ ‡˜‹”‘‡– –‘ „‡‡ϐ‹– ˆ”‘ ‹–• ƒ†˜ƒ–ƒ‰‡•ǤThis report was prepared to assess the country’s economic and social prospects as it embarks ona new era of reform and renewal. We hope that it broadens and deepens the understanding of thecountry and provides a foundation for effective development assistance. This report was prepared jointly by the Asian Development Bank’s Economics and ResearchDepartment and Southeast Asia Department. The Department of External Relations also providedinvaluable support for its publication and dissemination. Changyong Rhee Ku o Senga Kunio Senga Kunio Se g Chief Economist Director General Economics and Research Department Southeast Asia Department iii
  • 5. AcknowledgmentsThe report was written by Cyn-Young Park, Muhammad Ehsan Khan, and Paul Vandenberg. PauloRodelio M. Halili and Emmanuel A. San Andres offered invaluable research support. The report alsodrew heavily on inputs provided by Maria Socorro Bautista, Martin Bodenstein, Douglas Brooks,Iris Claus, Jesus Felipe, Kaushal Joshi, Kee-Yung Nam, Hyun Hwa Son, Juzhong Zhuang, and JosephErnest Zveglich Jr. from the Economics and Research Department; and Kelly Bird, Richard Bolt, RudolfFrauendorfer, Thatha Hla, Jong-Inn Kim, James Leather, James Nugent, Alfredo Perdiguero, PavitRamachandran, Christopher A. Spohr, Craig Steffensen, and Winfried F. Wicklein from the SoutheastAsia Department. A team from the Department of External Relations extended expert support forpublication and dissemination. Jill Gale de Villa provided excellent editing service and typesettingwas done by Mike Cortes.iv
  • 6. ContentsForeword iiiAcknowledgments ivAbbreviations and Acronyms viEXECUTIVE SUMMARY viiI. MYANMAR IN TRANSITION 1 Macroeconomic Performance 1 Poverty and Inequality 6 Millennium Development Goals 8II. CHANGING EXTERNAL ENVIRONMENT 10 Myanmar in the Asian Century 10 ASEAN and Intraregional Trade and Investment 11 Inclusion and Environmental Sustainability 13III. STRENGTHS, CONSTRAINTS, OPPORTUNITIES, AND RISKS 15 Strengths 15 Constraints 19 Opportunities 28 Risks 30IV. IMPLICATIONS FOR MYANMAR’S ECONOMIC TRANSITION 35 Managing Macroeconomic Stability 35 Mobilizing Domestic Resources 36 Building Development Foundations 39 Improving the Investment Climate for Industry and Business 40 Expediting Public Sector Reform 41 Building Planning and Statistical Capacity 41REFERENCES 43 v
  • 7. Abbreviations and AcronymsADB — Asian Development BankASEAN — Association of Southeast Asian NationsCBM — Central Bank of MyanmarDICA — Directorate of Investment and Company AdministrationFDI — foreign direct investmentFY — fiscal yearGDP — gross domestic productGMS — Greater Mekong SubregionIHLCS — Integrated Household Living Conditions SurveyLao PDR — Lao People’s Democratic RepublicMDG — Millennium Development GoalMIWT — Myanmar Inland Water TransportMK — kyatMOE — Ministry of EducationMOFR — Ministry of Finance and RevenueMOH — Ministry of HealthMMR — maternal mortality ratioMNPED — Ministry of National Planning and Economic DevelopmentPRC — People’s Republic of ChinaTVET — technical and vocational education and trainingU5MR — under 5 mortality rateVAT — value-added taxWeights and Measuresha — hectarekm — kilometerMW — megawattt — tonvi
  • 8. Myanmar in TransitionExecutive Summary›ƒƒ” ‹• ‡‡”‰‹‰ ˆ”‘ ϐ‹˜‡ †‡…ƒ†‡• ‘ˆ ‹•‘Žƒ–‹‘Ȅ„‘–Š ‡…‘‘‹…ƒŽŽ› ƒ† ’‘Ž‹–‹…ƒŽŽ›Ǥ ‹–Š ‹–• ”‹…Šnatural resources and strategic location, the country shows good potential for growth. Myanmarcould become one of the next rising stars in Asia if it can successfully leverage its rich endowments—such as its natural resources, labor force, and geographic advantage—for economic developmentand growth. Myanmar is making brave new moves, as did many of the region’s high growth and transitioneconomies decades earlier. It is opening up to trade, encouraging foreign investment, and deepening‹–• ϐ‹ƒ…‹ƒŽ •‡…–‘”Ǥ ‘™‹‰ –Š‡ Š‹•–‘”› ‘ˆ ”ƒ’‹† ‰”‘™–Š ‹ –Š‡ ”‡‰‹‘ …ƒ Š‡Ž’ ‰—‹†‡ ›ƒƒ” ‹making the critical decisions to achieve its medium- and long-term goals. Luckily, lessons of economic growth and development are abundant in Asia. The People’s Republicof China (PRC), Indonesia, Malaysia, Thailand, Viet Nam, and recently Cambodia grew by 6%–10%annually during their high-growth periods. Poverty was reduced by as much as half in a decade.Myanmar could grow at 7%–8% per year for a decade or more and raise its per capita income to$2,000–$3,000 by 2030. ˜‡”› …‘—–”›ǯ• †‡˜‡Ž‘’‡– ‡š’‡”‹‡…‡ ‹• —‹“—‡ǡ •Šƒ’‡† „› ‹–• •’‡…‹ϐ‹… Š‹•–‘”›ǡ …—Ž–—”‡ǡ †‘‡•–‹…conditions, and the prevailing international environment. Yet important lessons can also be drawnfrom the experiences of other successful countries. Three broad lessons are apparent from Asia’s rise. ‹”•–ǡ ‹ϐŽƒ–‹‘ —•– „‡ ‡’– Ž‘™ ƒ† •–ƒ„Ž‡ –Š”‘—‰Š ‡ˆˆ‡…–‹˜‡ ƒ…”‘‡…‘‘‹… ƒƒ‰‡‡–Ǥ ‡…‘†ǡŠ‹‰Š †‘‡•–‹… •ƒ˜‹‰• Ž‡˜‡Ž• ƒ”‡ ‡‡†‡† –‘ ϐ‹ƒ…‡ ‹˜‡•–‡–Ǥ † –Š‹”†ǡ ƒ‰”‹…—Ž–—”‡ ‹• ‹’‘”–ƒ–but the economy needs to undergo a structural transformation to industry and services as a means toimprove productivity, expand exports, and create employment. Along with these broad lessons, Asia’s‰”‘™–Š Šƒ• ”‡“—‹”‡† ‹˜‡•–‡–• ‹ Š—ƒ …ƒ’‹–ƒŽ ƒ† ‡ˆϐ‹…‹‡– ‹ˆ”ƒ•–”—…–—”‡ǡ –Š‡ …”‡ƒ–‹‘ ‘ˆ •‘—†institutions and social stability, and the use of the market mechanism to allocate resources. Myanmar’s transition comes amid a seismic shift in the global economic landscape. The recentϐ‹ƒ…‹ƒŽ …”‹•‹• ‰ƒ˜‡ ™ƒ› –‘ ƒ Dz‡™ ‘”ƒŽdz ™Š‡”‡ –Š‡ ‰Ž‘„ƒŽ ‡…‘‘‹… ™‡‹‰Š– ‹• •Š‹ˆ–‹‰ ˆ”‘ ‡•–to East and from North to South. This changing landscape has important implications for economicdynamics in Asia. With the emergence of Asia as a new global growth center, regional integrationis now, more than ever, an important ingredient in an effective growth strategy. Myanmar and its‡‹‰Š„‘”• ‡‡† ‘ Ž‘‰‡” ”‡Ž› ‘ –Šƒ– ƒ•’‡…– ‘ˆ Dzˆƒ…–‘”› •‹ƒdz ‹ ™Š‹…Š ‰‘‘†• ™‡”‡ ’”‘†—…‡† ‹ –Š‡ ƒ•– ˆ‘” ϐ‹ƒŽ …‘•—’–‹‘ ‹ –Š‡ ‡•–Ǥ •‹ƒ ‹• •–”‡‰–Š‡‹‰ ‹–• ‘™ ‹–‡”ƒŽ †‡ƒ† ƒ† –Š‡”‡„›creating new opportunities for countries such as Myanmar, as well as contributing to a more balancedglobal economy. vii
  • 9. Executive Summary Myanmar In Transition: Opportunities and Challenges Greater regional cooperation can unlock the growth potential arising from increased trade and cross-border investment. Myanmar is strategically located between the region’s two economic giants, the PRC and India, which are home to over 2.5 billion people. With the PRC moving up the global value …Šƒ‹ ƒ† ‹–• ™‘”ˆ‘”…‡ †‡ƒ†‹‰ Š‹‰Š‡” ™ƒ‰‡•ǡ •‘‡ ƒ—ˆƒ…–—”‹‰ ϐ‹”• ƒ”‡ •‡‡‹‰ –‘ ”‡Ž‘…ƒ–‡ to countries in Southeast Asia, including Myanmar. Strengthening its ties within the Association of Southeast Asian Nations (ASEAN) and utilizing its unique geographic position as a bridge between the PRC and India and between South and Southeast Asia would open Myanmar to a range of new opportunities. About 26% of ASEAN’s total trade takes ’Žƒ…‡ ƒ‘‰ ‡„‡” …‘—–”‹‡•Ǥ Š‡ ‰”‘—’ǯ• –”ƒ†‡ ™‹–Š –Š‡  Šƒ• ‰”‘™ •‹‰‹ϐ‹…ƒ–Ž›Ȅˆ”‘ Ž‡•• than 4% in 2000 to more than 10% in 2011. During the same period, the share of ASEAN’s trade with industrialized economies has declined from 54% to 36%. The examples of Cambodia and Viet ƒ •Š‘™ –Šƒ– ›ƒƒ” …ƒ Ž‡˜‡”ƒ‰‡ ‹–• ƒˆϐ‹Ž‹ƒ–‹‘ ™‹–Š •—„”‡‰‹‘ƒŽ ‰”‘—’• ƒ† ‡š’ƒ† ˆ”‘ –Š‡”‡Ǥ The time is ripe for Myanmar to strategically plan its economic transition to take advantage of the growing power of emerging market economies, particularly the rise of Asia, including the PRC, India, and ASEAN. Myanmar can exploit several strengths and opportunities to catalyze its transition to an open, market economy. A strong commitment to broad-ranging reforms, coupled with a rich endowment ‘ˆ ƒ–—”ƒŽ ƒ••‡–•Ȅƒ„—†ƒ– Žƒ†ǡ ™ƒ–‡”ǡ ƒ† ‡‡”‰› ”‡•‘—”…‡•Ǣ ƒ ›‘—–Šˆ—Žǡ Ž‘™Ǧ…‘•– Žƒ„‘” ˆ‘”…‡Ǣ ƒ† ‹–• •–”ƒ–‡‰‹… Ž‘…ƒ–‹‘Ȅ’”‘˜‹†‡ ƒ •–”‘‰ ˆ‘—†ƒ–‹‘ ˆ‘” ‰”‘™–ŠǤ —‡ –‘ –Š‡ …‘—–”›ǯ• ”‹…Š ƒ‰”‹…—Ž–—”ƒŽ resources and favorable climate, agriculture has enormous potential for growth and poverty reduction. The government prioritizes agriculture and rural development as drivers of growth and broad-based development, as agriculture accounts for about 36% of gross domestic product, employs majority of the workforce, and provides 25%–30% of exports by value. Myanmar has good potential ˆ‘” †‹˜‡”•‹ˆ›‹‰ ‹–‘ ƒ ”ƒ‰‡ ‘ˆ ‘’”‹ƒ”› ƒ…–‹˜‹–‹‡•ǡ ‘–ƒ„Ž› –‘—”‹• ƒ† –‡Ž‡…‘—‹…ƒ–‹‘•Ȅ ™Š‹…Š ƒ”‡ “—‹… ™‹•Ȅƒ• ™‡ŽŽ ƒ• ƒ—ˆƒ…–—”‹‰ǡ …‘•–”—…–‹‘ǡ ƒ† „ƒ‹‰Ǥ However, Myanmar also faces multiple constraints and risks that may limit its progress. Key constraints include a weak macroeconomic management framework devoid of market mechanisms, ‹•—ˆϐ‹…‹‡– ϐ‹•…ƒŽ ”‡•‘—”…‡• ƒ† ‹‡ˆϐ‹…‹‡– †‘‡•–‹… ˆ—† ‘„‹Ž‹œƒ–‹‘ǡ Ž‹‹–‡† ƒ……‡•• –‘ ϐ‹ƒ…‡ǡ †‡ϐ‹…‹‡– ‹ˆ”ƒ•–”—…–—”‡ǡ ‹ƒ†‡“—ƒ–‡ •‘…‹ƒŽ •‡”˜‹…‡• –Šƒ– Šƒ’‡” Š—ƒ …ƒ’‹–ƒŽ †‡˜‡Ž‘’‡–ǡ ƒ† Ž‹‹–‡† ‹†—•–”‹ƒŽ †‹˜‡”•‹ϐ‹…ƒ–‹‘Ǥ Š‡ ”‹•• ‹…Ž—†‡ ‡˜‹”‘‡–ƒŽ †‡‰”ƒ†ƒ–‹‘ ƒ”‹•‹‰ ˆ”‘ industrialization and climate change. The agriculture and natural resources sector is particularly vulnerable to the effects of climate change, notably the increasing frequency and severity of extreme weather events and other natural disasters. Clearly, growth has been the most effective tool for reducing poverty in Asia. But in recent decades, growth has become less equitable in fast growing countries, compared with the earlier experiences of Japan, the Republic of Korea, and other “miracle” economies. Recent evidence also points to mixed and uneven progress across countries and subregions in achieving the Millennium Development Goals (MDGs). Myanmar has made progress toward the MDGs, but one in four of its people remains poor and one in three children below the age of 5 is underweight. Vulnerability to malaria, tuberculosis, HIV/AIDS, and other diseases remains higher in Myanmar than in its peers within the region. Strong growth is imperative for the country to alleviate poverty and improve the standard of living. In turn, inclusiveness is crucial to maintaining good growth momentum because it strengthens social cohesion and contributes to human capital accumulation. With many ethnic groups, creating a harmonious society is a key challenge. Internal political and social tension can be destabilizing and may lead to ‘’‡ …‘ϐŽ‹…–Ǥviii
  • 10. Myanmar in Transition Executive Summary The course of Myanmar’s future growth can be guided by three complementary developmentstrategies: regional integration, inclusiveness, and environmental sustainability. Furthermore, giventhe myriad challenges the country faces and the limited resources at its disposal, the interventions…ƒ „‡ ’”‹‘”‹–‹œ‡† ƒ† ”‡ˆ‘”• •‡“—‡…‡† ˆ‘” –Š‡ ƒš‹— „‡‡ϐ‹–•Ǥ Key development agendas include the following: % Provide macroeconomic stability. A stable macro environment provides a foundation for investment and long-term growth. Key elements of sound macroeconomic policy include low ƒ† •–ƒ„Ž‡ ‹ϐŽƒ–‹‘Ǣ ƒ •—•–ƒ‹ƒ„Ž‡ ϐ‹•…ƒŽ ’‘•‹–‹‘Ǣ ƒ† ƒ ϐŽ‡š‹„Ž‡ǡ ƒ”‡–Ǧ„ƒ•‡† ‡š…Šƒ‰‡ ”ƒ–‡Ǥ % Mobilize resources for investment. Increased domestic and foreign savings are critical to meeting the enormous requirements of the private and public sectors. In addition, higher ‰‘˜‡”‡– ”‡˜‡—‡• ȋ‡Ǥ‰Ǥǡ –ƒšƒ–‹‘Ȍ ƒ† ‘”‡ ‡ˆϐ‹…‹‡– ϐ‹ƒ…‹ƒŽ ‹–‡”‡†‹ƒ–‹‘ ™‹ŽŽ ƒŽ•‘ Š‡Ž’ –‘ ’”‘˜‹†‡ •—•–ƒ‹ƒ„Ž‡ ϐ‹ƒ…‹‰ ˆ‘” †‡˜‡Ž‘’‡–Ǥ % Improve infrastructure and human capital. The removal of structural impediments in the key areas of education, health, and infrastructure can provide a basis for human capital development and improve connectivity. % Diversify into industry and services, while improving agriculture. Broadening the economic base beyond primary industries can raise productivity and value addition. Yet ƒ‰”‹…—Ž–—”‡ǡ ϐ‹•Š‡”‹‡•ǡ ƒ† ”‡•‘—”…‡ ‹†—•–”‹‡• ƒ”‡ ‘– –‘ „‡ ‡‰Ž‡…–‡† ƒ• –Š‡› …‘–ƒ‹ considerable potential for expansion. % Reduce the state’s role in production. A further reduction in the government’s ownership and control of productive activities can help spur competition and increase investment by …”‡ƒ–‹‰ ƒ Ž‡˜‡Ž ’Žƒ›‹‰ ϐ‹‡Ž†Ǥ % Strengthen government institutions. Economic transformation can be supported by effective government institutions, although building institutions and their capacity may take time. Attention might focus on nurturing administrative and regulatory systems; managing resources; and, most importantly, enhancing the capabilities of government personnel throughout the system. ix
  • 11. Myanmar in TransitionI. Myanmar in TransitionMyanmar is gradually embracing wide- per year, reducing their poverty by as muchranging reforms. The recent currency reform as 50% in one decade (Table 2). If Myanmar’sis one of many initiatives in this direction. The development follows this pattern, the countrygovernment is deepening and broadening could grow at 7%–8% every year for an extended–Š‡ ”‡ˆ‘”• –‘ ‹’”‘˜‡ ‘‡–ƒ”› ƒ† ϐ‹•…ƒŽ period. At such growth rates, its GDP per capitamanagement while facilitating trade and foreign would reach $2,000–$3,000 by 20301—moredirect investment (FDI) and removing structural than 3 times the current level—propellingimpediments to growth by establishing physical Myanmar safely into the ranks of the middle-and social infrastructure, building legal and income countries.institutional frameworks, and developing„ƒ‹‰ ƒ† ϐ‹ƒ…‹ƒŽ •‡…–‘”•Ǥ ƒ„Ž‡ ͳ ’”‡•‡–• Myanmar reported impressive GDP growthan overview of Myanmar’s economic, social, rates, averaging 10.2% during 1992–2010 andand environmental features. Understanding 12.2% during 2000–2010 (Figure 1). However,these features and careful analysis of the key –Š‡•‡ ‘ˆϐ‹…‹ƒŽ ‰”‘™–Š ϐ‹‰—”‡• Šƒ˜‡ „‡‡ †‡‡‡††‡˜‡Ž‘’‡– ‹••—‡• ‹• –Š‡ ϐ‹”•– •–‡’ –‘™ƒ”† overstated and rather unreliable given thedesigning and implementing economic and country’s poor statistical capacity and use ofpolicy reforms to foster the country’s growth outdated methodologies (Myint 2009). Theand development. International Monetary Fund (IMF) Article IV Mission of January 2012 estimated GDP growth to be substantially lower, averaging 4.6% during 2002–2010 and picking up to exceed 5.0% inMacroeconomic Performance 2009–2010 (IMF 2012). Various production indicators—presumably correlated with GDPThe near-term outlook for Myanmar’s economy growth—also suggest that Myanmar’s economicis relatively upbeat on the back of strong export ‰”‘™–Š ƒ› Šƒ˜‡ „‡‡ ™‡ƒ‡” –Šƒ ‘ˆϐ‹…‹ƒŽearnings from resource commodities and a pick- government estimates. For example, electricity—’ ‹
  • 12. ϐŽ‘™•Ǥ Š‡ •‹ƒ ‡˜‡Ž‘’‡– ƒ sales (in kilowatt hours) to households and(ADB) forecasts that Myanmar’s gross domestic commercial premises grew on average by 4.5%product (GDP) is likely to grow by about 6.0% per annum during 2002–2009 and cementin 2012 and 6.3% in 2013 (ADB 2012b). sales by 1.8% per annum during 2004–2009
  • 13. ϐŽƒ–‹‘ Šƒ• „‡‡ „”‘—‰Š– †‘™ –‘ ƒ •‹‰Ž‡ (CSO 2010).†‹‰‹– ƒ† ϐ‹•…ƒŽ †‡ϐ‹…‹–• ƒ”‡ „‡‹‰ ‡’– ƒ– ͶΨȂ6% of GDP. With hard-earned macroeconomic 1 ADB staff estimates. The estimates assume thatstability, Myanmar’s growth performance may population grows at 1.3% per year, which is thewell exceed expectations in the foreseeable average for 2009-2011. Verbiest and Naing (2011) estimate that Myanmar’s per capita GDP could reachhorizon. During their high-growth periods, $2,814–$3,361 by 2030, using a scenario of growth atMyanmar’s regional peers grew at 6%–10% 7.5%-9.5% per year with 0.83% population growth. 1
  • 14. Myanmar In Transition: Opportunities and ChallengesTable 1. Myanmar’s Basic Statistics Category Yeara Economic 2007 2008 2009 2010b 2011b GDP ($ billion, current) 20.2 31.4 35.2 45.4 51.9 b GDP per capita ($, current) 351.0 537.3 595.7 759.1 856.8 GDP growth (%, in constant prices) 5.5 3.6 5.1 5.3 5.5 ‰”‹…—Ž–—”‡ǡ Ž‹˜‡•–‘…ǡ ϐ‹•Š‡”›ǡ ƒ† ˆ‘”‡•–”› 8.0 3.4 4.7 4.4 4.4 Industry 21.8 3.0 5.0 6.3 6.5 Services 12.9 4.2 5.8 6.1 6.3 Gross domestic investment (% of GDP) … … … … … Gross domestic saving (% of GDP) … … … … … Consumer price index (annual % change) 32.9 22.5 8.2 7.3 4.2 Liquidity (M2) (annual % change) 20.9 23.4 34.2 36.8 33.3 ˜‡”ƒŽŽ ϐ‹•…ƒŽ •—”’Ž—• ȋ†‡ϐ‹…‹–Ȍ ȋΨ ‘ˆ Ȍ (3.8) (2.4) (4.8) (5.7) (5.5) Merchandise trade balance (% of GDP) 4.6 1.6 2.0 0.8 (0.5) Current account balance (% of GDP) 0.6 (2.2) (1.3) (0.9) (2.7) External debt service (% of exports of goods and services) 4.6 5.1 4.3 3.1 3.9 External debt (% of GDP) 37.5 25.8 24.4 24.8 22.8 Poverty and Social 2000 2011 Population (million) 50.1 60.6 Population growth (annual % change) 2.0 1.3 ȏʹͲͲͻΫ 2011] Maternal mortality ratio (per 100,000 live births) 420.0 [1990] 240.0 [2008] Infant mortality rate (below 1 year/per 1,000 live births) 79.0 [1990] 50.0 [2010] Life expectancy at birth (years) 59.9 62.1 [2009] Adult literacy (%) 89.9 92.0 [2009] Primary school gross enrollment (%) 100.0 [1999] 116.0 [2009] Child malnutrition (% below 5 years old) 34.3 [2005] 32.0 [2010] Population below poverty line (%) 32.1 [2005] 25.6 [2010] Population with access to safe water (%) 62.6 [2005] 69.4 [2010] Population with access to sanitation (%) 67.3 [2005] 79.0 [2010] Environment 2000 2010 Carbon dioxide emissions (thousand metric tons) 4,276.0 [1990] 12,776.0 [2008] Carbon dioxide emissions per capita (metric tons) 0.1 [1990] 0.3 [2008] Forest area (million hectares) 34.9 31.8 Urban population (% of total population) 28.0 33.9… = not available, ( ) = negative, [ ] = latest year for which data are available, ADB = Asian Development Bank, ADF = Asian DevelopmentFund, GDP = gross domestic product, M2 = broad money, OCR = ordinary capital resources.a Fiscal Year (or FY starts 1 April and ends 31 March, such that FY 2010 starts 1 April 2010 and ends 31 March 2011).b Estimates.Sources: ADB 2012a; ADB 2012b; ADB 2012c; ADB 2011a; IMF 2012; MNPED, MOH, and UNICEF 2011; ESCAP, ADB, and UNDP 20122
  • 15. Myanmar in TransitionTable 2. Economic Growth and Poverty Reduction Poverty headcount ratios (at $1.25/day) Average annual economic Country Period growth rate Earliest Mid Latest Cambodia 1994 – 2010 7.8% 48.6 (1994) 37.7 (2004) 22.8 (2008) PRC 1991 – 2010 10.4% 63.8 (1992) 28.4 (2002) 13.1 (2008) Indonesia 1976 – 1990 6.6% 62.8 (1984) 54.3 (1990) Lao PDR 1994 – 2010 6.8% 55.7 (1992) 44.0 (2002) 33.9 (2008) Malaysia 1976 – 1990 7.2% 3.2 (1984) 1.9 (1989) Myanmar 2000 – 2010 12.2% (Government est.) 32.1 (2005)a 25.6 (2010)a 4.7% (IMF est.) Thailand 1976 – 1990 8.0% 21.9 (1981) 11.6 (1990) Viet Nam 1994 – 2010 7.4% 63.7 (1993) 40.1 (2002) 16.9 (2008)PRC = People’s Republic of China, Lao PDR = Lao People’s Democratic Republic.a Figures for Myanmar are from IHLCS 2011 and based on its national poverty line.Sources: ADB-SDBS 2012; IMF-IFS 2012; WB-WDI 2012Figure 1. Myanmar’s Real GDP Growth Rates (1950–2010, %) 20 15 10 5 0 -5 -10 -20 1950 1960 1970 1980 1990 2000 1955 1965 1975 1985 1995 2005 2010GDP = gross domestic product.Sources: 1950-1987 from Myint 2011; 1988-2012 from ADB-SDBS 2012 Indeed, economic activity in Myanmar per capita GDP in purchasing power paritydid not pick up strongly during the 1980s and despite relatively good growth during 2000–1990s. In the 1960s, Myanmar was one of Asia’s 2010 (Figure 2).leading economies. Its per capita income in 1960was about $670—more than three times that Key factors inhibiting Myanmar’s growthof Indonesia, more than twice that of Thailand, rate in the last decades are low investment,and slightly lower than that of the Philippines limited integration with global markets,(Booth 2003). However, the IMF estimates that dominance of state-owned enterprises in keyin 2010, Myanmar had Southeast Asia’s lowest productive sectors of the economy, and frequent 3
  • 16. Myanmar In Transition: Opportunities and Challengesepisodes of macroeconomic instability. In Š‘™‡˜‡”ǡ Š‹†‡ –Š‡ ˆƒ…– –Šƒ– –Š‡ ‹ϐŽƒ–‹‘ ”ƒ–‡ ™ƒ•particular, sluggish economic performance may historically high and variable. The price levelbe attributed to the low levels of investment in in Myanmar nearly quadrupled from 2001 tothe economy. During 2000–2010, Myanmar’s ʹͲͲ͹ ™‹–Š ƒ ƒ˜‡”ƒ‰‡ ƒ—ƒŽ ‹ϐŽƒ–‹‘ ”ƒ–‡gross domestic investment averaged 14.2%, the of 25.3%. By comparison, Viet Nam reportedlowest among ASEAN countries (Table 3). ƒ ƒ˜‡”ƒ‰‡ ƒ—ƒŽ ‹ϐŽƒ–‹‘ ”ƒ–‡ ‘ˆ ͷǤͷΨ and Cambodia had 4.0% in the same period
  • 17. ϐŽƒ–‹‘ •–‘‘† ƒ– ͶǤʹΨ ˆ‘” ʹͲͳͳ ƒ† ‹• ȋ ‹‰—”‡ ͵ȌǤ Š‹Ž‡ ›ƒƒ”ǯ• ‘ˆϐ‹…‹ƒŽ ϐ‹‰—”‡•expected to rise to 6.2% in 2012 as the effect may not be fully reliable, it is clear that theof the recent moderation in food prices fades country has experienced periods of exceedingly(ADB 2012a, 2012b). These single-digit rates, Š‹‰Š ‹ϐŽƒ–‹‘Ǥ Š‡ ‘‡–‹œƒ–‹‘ „› –Š‡Figure 2. Per Capita GDP of Selected ASEAN Countries ($, PPP) 15,000 10,000 5,000 0 Malaysia Thailand Indonesia Philippines Viet Nam Lao PDR Cambodia Myanmar 2000 2010ASEAN = Association of Southeast Asian Nations, GDP = gross domestic product, Lao PDR = Lao People’s Democratic Republic,PPP = purchasing power parity.Source: Economy Watch 2012Table 3. Gross Domestic Investment of Selected ASEAN Countries, 2000-2010 (% of GDP) 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Ave. Cambodia 16.9 18.5 18.1 20.1 16.2 18.5 22.5 21.2 18.6 21.4 17.6 19.1 Indonesia 22.2 22.5 21.4 25.6 24.1 25.1 25.4 24.9 27.8 31.0 32.5 25.7 Lao PDR 13.9 14.1 17.5 16.7 22.7 23.5 25.6 32.5 30.0 30.7 26.1 23.0 Malaysia 26.9 24.4 24.8 22.8 23.0 20.0 20.5 21.6 19.3 14.4 21.4 21.7 Myanmar 12.4 11.6 10.1 11.0 12.0 13.2 13.7 14.8 15.6 18.9 22.7 14.2 Philippines 18.4 22.1 24.5 23.0 21.6 21.6 18.0 17.3 19.3 16.6 20.5 20.3 Singapore 33.2 26.8 23.8 16.1 21.7 20.0 21.0 21.1 30.2 26.4 23.8 24.0 Thailand 22.8 24.1 23.8 25.0 26.8 31.4 28.3 26.4 29.1 21.2 25.9 25.9 Viet Nam 29.6 31.2 33.2 35.4 35.5 35.6 36.8 43.1 39.7 38.1 38.9 36.1ASEAN = Association of Southeast Asian Nations, GDP = gross domestic product, Lao PDR = Lao People’s Democratic Republic.Sources: ADB-SDBS 2012; Lao PDR data from WB-WDI 2012.4
  • 18. Myanmar in TransitionFigure 3. Inflation Rates, 1998–2011 (consumer prices) 60.0 50.0 40.0 30.0 20.0 10.0 0.0 -10.0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Cambodia PRC Myanmar Lao PDR Viet NamLao PDR = Lao People’s Democratic Republic, PRC = People’s Republic of China.Sources: ADB 2006, 2008, 2010a, 2012bCentral Bank of Myanmar (CBM) of government a stable interest rate margin at 5.0%–6.0%. The†‡„– Šƒ• …‘–”‹„—–‡† –‘ –Š‹• Š‹‰Š ‹ϐŽƒ–‹‘Ǥ government issues treasury bonds to domestic „ƒ• –‘ ’ƒ”–Ž› ϐ‹ƒ…‡ –Š‡ ϐ‹•…ƒŽ †‡ϐ‹…‹–ǡ „—– Central bank weakness also exacerbates the there is no corporate bond market.situation. In the absence of interbank markets,the CBM’s function has been largely limited Myanmar’s high public debt level—–‘ ϐ‹ƒ…‹‰ –Š‡ ‰‘˜‡”‡– „—†‰‡– †‡ϐ‹…‹–•Ǥ estimated at 47.6% of GDP in 2010—is aInterest rates are also set administratively. …‘…‡” ȋ
  • 19.  ʹͲͳʹȌǤ ‹•…ƒŽ †‡ϐ‹…‹–• Šƒ˜‡ „‡‡The CBM does not have an independent persistently high, mainly due to poor revenue‘‡–ƒ”› ’‘Ž‹…›ǡ ”‡ϐŽ‡…–‹‰ ‹–• …—””‡– •–ƒ–—• performance. The country’s tax revenues as aas a department within the Ministry of Finance percentage of GDP fell steadily during 1990–and Revenue (MOFR). A new central bank law 2002, before picking up a bit in the mid-2000swas approved on 27 July 2012, which authorizes (Figure 4). The average tax-to-GDP ratio duringCBM’s operational autonomy. The CBM is 2004–2010 stands at 3.6%, among the lowestlaunching a major reorganization that will in Asian countries, even as the revenues frommodernize its operations. natural gas exports have been rising. This is due to the underestimation of revenues, as Like Cambodia, the Lao People’s Democratic foreign currency denominated revenues andRepublic (Lao PDR), and Viet Nam, Myanmar’s expenditures were converted to kyat at theϐ‹ƒ…‹ƒŽ •‡…–‘” ‹• ƒ– ƒ ƒ•…‡– •–ƒ‰‡ ‘ˆ ‘ˆϐ‹…‹ƒŽ ”ƒ–‡ ƒ– ƒ„‘—– ͷȂ͸ ’‡”  †‘ŽŽƒ”2†‡˜‡Ž‘’‡–ǤŠ‡‡ƒ•—”‡†„›ϐ‹ƒ…‹ƒŽƒ••‡–• ˆ‘” ϐ‹•…ƒŽ ’—”’‘•‡• ”ƒ–Š‡” –Šƒ using the foreign–‘ ǡ –Š‡ …‘—–”›ǯ• ϐ‹ƒ…‹ƒŽ •‡…–‘” ‹• ƒ‘‰ ‡š…Šƒ‰‡ …‡”–‹ϐ‹…ƒ–‡ ƒ”‡– ‡š…Šƒ‰‡ ”ƒ–‡ǡdeveloping Asia’s smallest. Banking—mainly which is much higher and more realistic.comprising state-owned banks—dominates ‘™‡˜‡”ǡ ‡˜‡ ™Š‡ –Š‡•‡ ”‡˜‡—‡ ϐ‹‰—”‡• ƒ”‡–Š‡ ϐ‹ƒ…‹ƒŽ •‡…–‘” ƒ† ƒ……‘—–• ˆ‘” ‘•– ‘ˆ ‹–• ƒ†Œ—•–‡† —†‡” –Š‡ ‡™ —‹ϐ‹‡† ƒ”‡– ‡š…Šƒ‰‡assets held outside the CBM. State controls on ”ƒ–‡ ƒ– ƒ„‘—– ͺͲͲ ’‡”  †‘ŽŽƒ” ‹ ϐ‹•…ƒŽ ›‡ƒ”„ƒ• ƒ”‡ ’‡”˜ƒ•‹˜‡ǡ ™Š‹Ž‡ ›ƒƒ”ǯ• ϐ‹ƒ…‹ƒŽ 2sector is suppressed by limited depth and a Š‡ ›ƒ– ™ƒ• ‘ˆϐ‹…‹ƒŽŽ› ’‡‰‰‡† –‘ •’‡…‹ƒŽ †”ƒ™‹‰ rights (SDR) at MK8.5/SDR and therefore variedƒ””‘™ ˆ‘…—• ‘ˆ ϐ‹ƒ…‹ƒŽ ‹–‡”‡†‹ƒ–‹‘Ǥ Š‡ between MK5 and MK6 per US dollar between 2007  ϐ‹š‡• †‡’‘•‹– ƒ† Ž‡†‹‰ ”ƒ–‡• –‘ ƒ‹–ƒ‹ and 2011. 5
  • 20. Myanmar In Transition: Opportunities and ChallengesFigure 4. Myanmar’s Tax Revenue as % of GDP (1990–2010) 7.0 5.0 5.0 % of GDP 4.0 3.0 2.0 1.0 0.0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010GDP = gross domestic product.Sources: ADB-SDBS 2012; data for 2001-2005 from WB-WDI 2012(FY) 2012/13,3 they remain far short of the International reserves climbed to anamount required to support the government’s estimated $6.1 billion in FY2010/11 (equivalentpriority development spending initiatives over to about 9 months of imports) boosted bythe medium term. Consequently, the government ƒ–—”ƒŽ ‰ƒ• ‡š’‘”–• ƒ†
  • 21. ‹ϐŽ‘™• ȋƒ„Ž‡ ͶȌǤborrows from the CBM and commercial banks ‹…‡ ›ƒƒ” ƒ†‘’–‡† ‹–• Dz š’‘”– ‹”•–dz ’‘Ž‹…›–‘ ϐ‹ƒ…‡ ‹–• †‡ϐ‹…‹– ȋ ‹‰—”‡ ͷȌǤ „‘—– Ͷ͸Ψ ‘ˆ ‹ ͳͻͻ͹ǡ ‡š’‘”–• Šƒ˜‡ ‡š’ƒ†‡† •‹‰‹ϐ‹…ƒ–Ž›Ǥ–Š‡ ϐ‹•…ƒŽ †‡ϐ‹…‹– ‹ ʹͲͳͳȀͳʹ ™ƒ• ϐ‹ƒ…‡† However, imports are rising faster, due tothrough bonds; the rest was monetized by the increased imports of capital goods, industrialCBM (IMF 2012). This in turn effectively crowds machinery, and consumer durables. Both tradeout private sector investments because the ƒ† …—””‡– ƒ……‘—– †‡ϐ‹…‹–• ƒ”‡ ‡š’‡…–‡† –‘country’s supply of loanable funds is limited. widen in FY2012/13 from the previous year. Improving revenues is essential for Myanmar announced an overhaul of itsfunding development: public expenditures complex exchange rate system in March 2012on education and health care have been as a part of broad reforms to modernize itsespecially low.4 Myanmar is the only developing economy. Myanmar’s multiple exchange rateAsian country with a defense budget that is ”‡‰‹‡ ‹…Ž—†‡† ‘ˆϐ‹…‹ƒŽǡ •‡‹Ǧ‘ˆϐ‹…‹ƒŽǡ ƒ†greater than the education and health budgets —‘ˆϐ‹…‹ƒŽ ”ƒ–‡•Ǥ Š‡ ‘ˆϐ‹…‹ƒŽ ‰‘˜‡”‡– ”ƒ–‡ǡcombined. The government has substantially ™Š‹…Š ™ƒ• ϐ‹š‡† ƒ– ƒ„‘—– ͷȂ͸ ’‡” increased spending on the social sectors, dollar, was widely ignored, as the running ratebut education and health spending may still on the black market averaged about MK800 peraccount for less than 2.0% of GDP based on its  †‘ŽŽƒ”Ǥ Š‡ ‡™ ƒƒ‰‡† ϐŽ‘ƒ–‹‰ ‡š…Šƒ‰‡FY2012/13 budget. rate regime, which came to effect in April 2012, has a single, market-determined rate.3 IMF (2012) estimated that the impact of adopting a market-based exchange rate on the consolidated public sector budget would be 1.2% of GDP in Poverty and Inequality FY2012/13, driven mainly by an increase in the net transfers from state economic enterprises.4 More details on public expenditure on education and Myanmar has made some progress in poverty Š‡ƒŽ–Š …ƒ”‡ …ƒ „‡ ˆ‘—† ‹ –Š‡ Dz ‘•–”ƒ‹–•dz ’‘”–‹‘ reduction, although there is further room for of Section III.6
  • 22. Myanmar in TransitionFigure 5. Lending to Government and Private Sector, 2000–2010 (MK billion) 7000 6000 5000 4000 3000 2000 1000 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Central Bank Lending to Government Commercial Banks Lending to Government Commercial Banks Lending to Private SectorMK = kyat.Source: IMF-IFS 2012Table 4. Balance of Payments Fiscal Year ($ million, unless otherwise indicated) 2010/11 2011/12 2012/13 2007/08 2008/09 2009/10 (Est.) (Proj.) Proja Trade Balance 924 303 72 799 (238) (1,779) Exports 6,446 7,241 7,139 8,980 9,889 10,491 Imports (5,522) (6,938) (7,067) (8,181) (10,127) (12,270) Current Account Balance (excl Grants) 89 (920) (947) (365) (1,385) (2,379) Overall Balance 799 112 619 808 1,729 1,842 ”‘•• ˆϐ‹…‹ƒŽ ‡•‡”˜‡• $ million 3,054 3,629 4,638 6,070 7,903 9,889 Months of total imports 6.6 6.3 7.9 8.9 9.4 9.7a ••—‡• ƒƒ‰‡† ϐŽ‘ƒ–‹‰ ‡š…Šƒ‰‡ ”ƒ–‡•Source: IMF 2012improvement. The latest Integrated Household Income disparities are geographicallyLiving Conditions Survey (IHLCS) indicates that linked. The IHLCS report shows that 84% ofone in every four Myanmar citizens is considered poverty is found in rural areas and disparitiespoor (MNPED et al. 2011). This share is fairly are pronounced across states. The centralcomparable to rates in some of its Asian peers, state of Chin, near the southern borders offor example, Cambodia at 27% and the Lao PDR Bangladesh and northeastern states of India,at 32%, and is well above the People’s Republic has a poverty incidence of 73%. This is in starkof China (PRC) at less than 5% and Viet Nam contrast to the 11% poverty incidence in Kayah,at 13%.5 an eastern state near Northern Thailand, which5 has the lowest poverty incidence of Myanmar’s Caution is required when comparing poverty incidence ϐ‹‰—”‡•Ǥ Š‡ ‡–Š‘†‘Ž‘‰› —•‡† ˆ‘” ›ƒƒ” †‹ˆˆ‡”• states. Other well-off states, with poverty from that used for the other countries. Figures for the incidences below 18%, are Bago, Kayin, Mon, other countries are based on the threshold of $1.25 Sagaing, and Yangon. High poverty rates occur per day. 7
  • 23. Myanmar In Transition: Opportunities and Challenges in the coastal states of Ayeyarwady, Rakhine, mortality rate (U5MR), the maternal mortality and Tanintharyl and the landlocked states of ratio (MMR), and sanitation (Table 5). The food Shan and Kachin bordering the PRC. About one- poverty incidence decreased from 47% in 1990 third of these states’ populations are poor. to less than 5% in 2010. The U5MR fell from 112/1,000 live births in 1990 to 66/1,000 in Wide variations in access to basic services 2010, and the MMR fell from 420/100,000 such as housing, water, and sanitation also live births in 1990 to 240/100,000 in 2008. exist across Myanmar’s states and rural and The share of the population using improved urban areas. From 2005–2010, overall access sanitation facilities increased from 49% in to safe drinking water increased modestly, from 1995 to 79% in 2010. In addition to these 63% to 69%. This is in line with rates of Asian improvements, Myanmar might enhance its nations with similar income levels, such as 64% efforts in order to reach the projected targets in Cambodia and 67% in the Lao PDR. The poor by 2015—the U5MR has been reduced by 45%, …‘–‹—‡ –‘ „‡‡ϐ‹– Ž‡•• ˆ”‘ ƒ……‡•• –Šƒ –Š‡ against the 67% reduction targeted by 2015, ”‹…Šǡ ƒ† —”„ƒ ƒ”‡ƒ• „‡‡ϐ‹– ‘”‡ –Šƒ ”—”ƒŽ and the MMR has been reduced by 43%, toward areas—81% of the urban population had access the 75% targeted by 2015. to safe drinking water in 2010, versus only 65% of rural dwellers (MNPED et al. 2011). Myanmar’s progress toward attaining its MDGs lags behind that of its ASEAN neighbors Access to sanitation and electricity also especially Malaysia and Thailand. Myanmar has vary along economic and geographical lines. ’ƒ”–‹…—Žƒ” †‹ˆϐ‹…—Ž–› ‹’”‘˜‹‰ ‹–• ’‡”ˆ‘”ƒ…‡ About 77% of rural and 84% of urban residents in the health-related MDG targets aside from have access to sanitation. Access to sanitation the U5MR and the MMR. The HIV prevalence is particularly low (54%) in Rakhine state. The remains high, with 0.6% of the population aged gaps in access to electricity between income 15–49 infected in 2009. The malaria incidence groups and across states are large. About 34% of is much higher than in regional neighbors, rural residents have access to electricity versus and the tuberculosis incidence (388/100,000 89% of urban residents (MNPED et al. 2011). population) and prevalence (597/100,000 However, according to the government sources, population) remain higher than regional peers ‡Ž‡…–”‹ϐ‹…ƒ–‹‘ ”ƒ–‹‘• ƒ”‡ —…Š Ž‘™‡”Ǥ6 In 2011, in 2009.7 ƒ‰‘ ‹–› Šƒ† –Š‡ Š‹‰Š‡•– ‡Ž‡…–”‹ϐ‹…ƒ–‹‘ ”ƒ–‹‘ (67%), followed by Nay Pyi Taw (54%), Kayar In some areas, Myanmar’s performance (37%), and Mandalay (31%). matches that of its ASEAN neighbors. For example, the literacy of 15–24 year olds in Myanmar in 2010 is high at 95.8%, which is …‘’ƒ”ƒ„Ž‡ –‘ –Š‡ ͻ͸ǤͻΨ ϐ‹‰—”‡ ’‘•–‡† „› ‹‡– Millennium Development Goals Nam in 2009. The ratio of girls to boys in primary school is 0.93 in 2009, similar to the ratios in Myanmar has made some progress toward the other ASEAN countries. The ratio of girls to achieving its Millennium Development boys in secondary school is also relatively high, Goals (MDGs), but there is room for further at 0.96, compared with the ratios in the other improvement to reach the targets for 2015. ASEAN countries, and is even higher than in Myanmar has made notable progress in areas Indonesia (0.81) and Viet Nam (0.92). such as the food poverty incidence, the under-5 7 Dz
  • 24. …‹†‡…‡dz ”‡ˆ‡”• –‘ –Š‡ —„‡” ‘ˆ ‡™ …ƒ•‡• ‹ –Š‡ 6 The discrepancies may rise from the fact that the reference year and indicates the risk of contracting ‰‘˜‡”‡– ϐ‹‰—”‡• ƒ› ‘– ‹…Ž—†‡ ‡Ž‡…–”‹…‹–› –Šƒ– ‹• ƒ †‹•‡ƒ•‡Ǣ Dz’”‡˜ƒŽ‡…‡dz ”‡ˆ‡”• –‘ –Š‡ —„‡” ‘ˆ made available through private power generators and existing cases, both old and new, and indicates how other off-grid sources. widespread the disease is.8
  • 25. Myanmar in TransitionTable 5. Selected MDG Performance Indicators Myanmar Indonesia Malaysia Thailand Viet Nam Earliest Latest Earliest Latest Earliest Latest Earliest Latest Earliest LatestIndicator Year Year Year Year Year Year Year Year Year YearMDG 1: Eradicate Extreme Poverty and HungerPoverty Incidence (% - no data no 54.3 18.7 1.6 0.0 5.5 0.4 63.7 13.1$1.25 PPP) dataa (1990) (2009) (1992) (2009) (1992) (2004) (1993) (2008)Underweight Children 28.8 29.6 29.8 19.6 no data 16.7 16.3 7.0 36.9 20.2Under 5 (%) (1990) (2003)b (1992) (2007) (1999) (1993) (2005) (1992) (2006)Food Poverty Incidence 47 <5 16 13 <5 <5 26 16 31 11(%) (1990) (2010)c (1990) (2004) (1990) (2004) (1990) (2004) (1990) (2004)MDG 2: Achieve Universal Primary EducationPrimary Level Net 84.7 87.7 98.3 98.4 97.7 94.1 93.2 90.1 95.8 94.5Enrollment (%) (2005) (2010) (2000) (2009) (1990) (2008) (2006) (2009) (1990) (2001)Literacy of 15-24 Year 94.6 95.8 98.7 99.5 97.2 98.5 98.0 98.1 93.9 96.9Olds (%) (2000) (2010) (2004) (2008) (2000) (2009) (2000) (2005) (1990) (2009)MDG 3: Promote Gender Equality and Empower WomenGirls/Boys in Primary 0.95 0.93 0.98 0.97 0.99 0.99 0.98 0.98 0.93 0.95School (Ratio) (1991) (2010) (1991) (2009) (1991) (2008) (1991) (2009) (1991) (2001)Girls/Boys in Secondary 0.97 0.96 0.83 0.81 1.05 1.07 0.99 1.09 0.90 0.92School (Ratio) (1991) (2010) (1991) (2008) (1991) (2008) (1991) (2009) (1999) (2001)MDG 4: Reduce Child MortalityU5 Mortality Rate (per 112 66 86 39 18 6 32 14 55 241,000 live births) (1990) (2010) (1990) (2009) (1990) (2009) (1990) (2009) (1990) (2009)Infant Mortality Rate 79 50 56 30 16 6 27 12 39 20(per 1,000 live births) (1990) (2010) (1990) (2009) (1990) (2009) (1990) (2009) (1990) (2009)MDG 5: Improve Maternal HealthMaternal Mortality Ratio 420 240 620 240 56 31 50 48 170 56(per 100,000 live births) (1990) (2008) (1990) (2008) (1990) (2008) (1990) (2008) (1990) (2008)Births Attended by 56 78 50 75 96 99 99 99 77 88Skilled Personnel (%) (1997) (2010) (1995) (2008) (1995) (2007) (2000) (2009) (1997) (2006)MDG 6: Combat HIV/AIDS, Malaria and Other DiseasesHIV Prevalence (% of 0.2 0.6 <0.1 0.2 0.4 0.5 1.7 1.3 0.3 0.4Population Aged 15-49) (1990) (2009) (2001) (2009) (2001) (2009) (2001) (2009) (2001) (2009)Malaria Incidence (per no data 7943 no data 1645 no data 75 no data 55 no data no data100,000 population) (2008) (2008) (2008) (2008)Tuberculosis Incidence 393 388 88 89 127 83 137 137 204 200(per 100,000 (1990) (2009) (1990) (2009) (1990) (2009) (1990) (2009) (1990) (2009)population)Tuberculosis prevalence 924 597 158 131 227 109 209 189 395 333(per 100,000) (1990) (2009) (1990) (2009) (1990) (2009) (1990) (2009) (1990) (2009)MDG 7: Ensure Environmental SustainabilityImproved Drinking 57 69 71 80 88 100 91 98 58 94Water Source (%) (1990) (2010) (1990) (2008) (1990) (2008) (1990) (2008) (1990) (2008)Improved Facility for 49 79 33 52 84 96 80 96 35 75Sanitation (%) (1995) (2010) (1990) (2008) (1990) (2008) (1990) (2008) (1990) (2008)MDG 8: Develop a Global Partnership for DevelopmentDebt Service as % of 18.2 0.2 25.6 7.3 10.6 3.1 11.4 0.8 3.2 1.7Exports (1990) (2006) (1990) (2009) (1990) (2009) (1990) (2009) (1996) (2009)MDG = Millenium Development Goal.a Based on IHLCS 2011, poverty headcount ratio under national poverty line is 25.6 in 2010.b Based on IHLCS 2011, Severe cases account for 9.1, while moderate cases account for 32% in 2010.c ƒ•‡† ‘
  • 26.   ʹͲͳͳǡ ƒ…–—ƒŽ ϐ‹‰—”‡ ‹• ͶǤͺΨǤSources: ADB 2012b; MDGI 2012; MNPED, MOH, and UNICEF 2011, WB-WDI 2012 9
  • 27. Myanmar In Transition: Opportunities and ChallengesII. Changing External EnvironmentAs Myanmar opens up, it will be subject to Developing Asia has outshined its peers insweeping changes in the global and regional the developing world. The region’s aggregategeopolitical and socioeconomic environment. GDP growth rates since the 1970s haveThis requires Myanmar to strategically plan consistently exceeded those in most other partsits transition to take advantage of the shift in of the developing world. Developing Asia’s sharethe global economic paradigm from North to of world GDP (in purchasing power parity terms)South (the growing power of emerging market increased from 8% in 1980 to close to 30% ineconomies) and from West to East (the rise 2010 (Jha and MacCawley 2011). The center ofof Asia, with a nexus between the PRC and economic gravity in the world is shifting towardIndia). Increased uncertainty for global growth Asia. By 2050, developing Asia could accountprospects underscores the importance of for about half of global output as well as halfsocioeconomic resilience in a country’s growth of global trade and investment, though such anpath and of regional integration as an alternative outcome is not pre-ordained (ADB 2011a).source of growth. The global growth paradigm isƒŽ•‘ •Š‹ˆ–‹‰ ˆ”‘ Dz„”‘™dz –‘ Dz‰”‡‡ǡdz ’”‡•‡–‹‰ Riding on this stellar economic performance,new opportunities for resource rich countries the region has emerged as a new source ofsuch as Myanmar. demand for the world economy. Asia’s fast- growing middle class is becoming a powerful ƒ”‡– ˆ‘”…‡Ǥ Š‹• ‡™ ƒˆϐŽ—‡– …Žƒ•• Šƒ• „‘–Š the willingness and the ability to pay moreMyanmar in the Asian Century for high-quality products, in turn stimulating market innovations and encouraging investmentFour years after the onset of the global particularly in human capital. Consumerϐ‹ƒ…‹ƒŽ …”‹•‹•ǡ ”‡…‘˜‡”› ”‡ƒ‹• ˆ”ƒ‰‹Ž‡Ǥ Ž‘„ƒŽ spending in the region shows a healthyeconomic activity in the major industrialized expansion in sharp contrast to the industrializedeconomies continues to be subdued. Based on countries. By 2030, the region’s consumption isADB projections, the aggregate GDP for Europe, expected to reach $32 trillion, accounting forJapan, and the United States is expected to grow 43% of global consumption (ADB 2010b).1.1% in 2012 and 1.7% in 2013 (ADB 2012b).Risks to the outlook have since tilted further Myanmar has much to gain from the risetoward the downside with the broadening and of emerging market economies in the region.deepening eurozone crisis. With the expectation While some of the opportunities are expectedof prolonged economic doldrums in the North, to emerge naturally with market dynamics, arelatively strong growth momentum in many strong case can be made for the governmentdeveloping countries suggests that the drivers to develop a policy framework designed toof future global growth reside in the South. encourage economic integration with regional markets by expanding trade and investment10
  • 28. Changing External Environmentlinkages. Developing countries often face a ™‹–Š ‹– ’‘˜‡”–› ”‡†—…–‹‘ ƒ† ‹’”‘˜‡† Ž‹˜‹‰host of market imperfections that hamper the standards. It also provides huge opportunities‡ˆϐ‹…‹‡– ƒŽŽ‘…ƒ–‹‘ ‘ˆ ”‡•‘—”…‡•ǡ …—”„ ‡ˆϐ‹…‹‡…› ƒ† ‡™ ƒ”‡–• ˆ‘” –Š‡ ™‘”Ž† ƒ– Žƒ”‰‡Ȅ„—–ƒ† ’”‘†—…–‹˜‹–› ‰ƒ‹•ǡ ƒ† —Ž–‹ƒ–‡Ž› Ž‹‹– ’ƒ”–‹…—Žƒ”Ž› ˆ‘” –Š‡ •—„”‡‰‹‘ ‹–•‡ŽˆǤ ‹–—ƒ–‡†economic growth. The most effective approach „‡–™‡‡ –™‘ ‘ˆ –Š‡ ”‡‰‹‘ǯ• ‰‹ƒ–•Ȅ–Š‡is to design programs that will encourage  ƒ†
  • 29. †‹ƒȄ   ‡„‡”•ǡ ‹…Ž—†‹‰–Š‡ ƒ”‡– –‘ ˆ—…–‹‘ ’”‘’‡”Ž›Ȅ…‘•‹•–‡– ›ƒƒ”ǡ …ƒ ”‡ƒ’ †‹•–‹…– „‡‡ϐ‹–• ˆ”‘ –Š‡‹”™‹–Š ƒ”‡– ’”‹…‹’Ž‡•Ȅ„› ‹’”‘˜‹‰ –Š‡ economic ascent.™ƒ› ‹ ™Š‹…Š ƒ”‡–• ™‘” ƒ† ”‡‘˜‹‰the hurdles that hinder their operations. ‘”‡‘˜‡”ǡ   ‡…‘‘‹‡•ǡ ‹ ’ƒ”–‹…—Žƒ”ǡ”‘ƒ…–‹˜‡Ž› Ž‡˜‡”ƒ‰‹‰ –Š‡ ‡‡”‰‹‰ †›ƒ‹…• …ƒ ‡ˆˆ‡…–‹˜‡Ž› …‘’‡–‡ ™‹–Š –Š‡  ƒ†
  • 30. †‹ƒƒ› Š‡Ž’ ›ƒƒ” –‘ •—•–ƒ‹ Š‡ƒŽ–Š› ‰”‘™–Šǡ ˆ‘”
  • 31. ƒ† ‹†—•–”‹ƒŽ ‹‰”ƒ–‹‘Ǥ ‹…‡ –Š‡ ‡ƒ”Ž›Š‡…‡ …‘–”‹„—–‹‰ –‘ Œ‘„ …”‡ƒ–‹‘ ƒ† ͳͻͻͲ•ǡ –Š‡  Šƒ• ”‡…‡‹˜‡† –Š‡ ƒŒ‘”‹–› ‘ˆ
  • 32. ’‘˜‡”–› ”‡†—…–‹‘Ǥ ϐŽ‘™• ‹–‘ †‡˜‡Ž‘’‹‰ •‹ƒ ȋ ‹‰—”‡ ͸ȌǤ ‘™‡˜‡”ǡ –Š‡ •–”‘‰ —’™ƒ”† –”‡† ‹
  • 33. ϐŽ‘™• –‘   •‹…‡ –Š‡ ‡ƒ”Ž› ʹͲͲͲ• •‹‰ƒŽ• ƒ …Šƒ‰‡ ‹ –Š‡ •…‡‡Ǥ ”‹‘” –‘ –Š‡ ‘•‡– ‘ˆ –Š‡ ‰Ž‘„ƒŽ ϐ‹ƒ…‹ƒŽASEAN and Intraregional Trade …”‹•‹•ǡ
  • 34. ‹   Šƒ† ‡ƒ”Ž› ”‹•‡ –‘ ƒ–…Šand Investment –Š‡ Ž‡˜‡Ž• ‘ˆ ϐŽ‘™• ‹–‘ –Š‡  Ǥ
  • 35.  ˆƒ…–ǡ –Š‡ ϐŽ‘™ of FDI to ASEAN from Japan and the United States had surpassed that to the PRC. ThoughThe rise of ASEAN and its relationship with the –Š‡ ‰Ž‘„ƒŽ ϐ‹ƒ…‹ƒŽ …”‹•‹• †‡ƒŽ– ƒ •‡”‹‘—• „Ž‘™ –‘PRC (and India in a matter of time) presents a –Š‡
  • 36. ϐŽ‘™• –‘  ǡ –Š‡ –”‡† ‹†‹…ƒ–‡• –Šƒ–—‹“—‡ ‘’’‘”–—‹–› ˆ‘” ›ƒƒ”Ǥ –”‡‰–Š‡‹‰ –Š‡› Šƒ˜‡ •—”’ƒ••‡† –Š‡ ’”‡…”‹•‹• Ž‡˜‡Ž• ƒ† ƒ”‡of regional trade and investment ties within set to grow even further.   ƒ† ‡•’‡…‹ƒŽŽ› „‡–™‡‡ ‹– ƒ† –Š‡ Šƒ• „‘‘•–‡† –Š‡ •—„”‡‰‹‘ǯ• ‡…‘‘‹… ’”‘™‡••Ǥ Š‡ ”‹•‹‰ ™ƒ‰‡• ‹ –Š‡  ǡ ™Š‹…Š ƒ›
  • 37.  ʹͲͳͳǡ ƒ„‘—– ʹ͸Ψ ‘ˆ  ǯ• –‘–ƒŽ –”ƒ†‡ ™ƒ• „‡ ‡‰ƒ–‹˜‡Ž› ‹’ƒ…–‹‰ –Š‡ …‘’‡–‹–‹˜‡‡••ƒ‘‰   ‡„‡”•Ǥ8 Trade with the PRC ‘ˆ ‹–• ƒ—ˆƒ…–—”‹‰ •‡…–‘” ȋ ‹‰—”‡ ͹Ȍǡ …ƒŠƒ• ‰”‘™ •‹‰‹ϐ‹…ƒ–Ž›Ȅˆ”‘ Ž‡•• –Šƒ ͶΨ ‹ „‡ ƒ ‹’‘”–ƒ– ˆƒ…–‘” ‹ ”‡‡•–ƒ„Ž‹•Š‹‰ –Š‡ʹͲͲͲ –‘ ‘”‡ –Šƒ ͳͲΨ ‹ ʹͲͳͳǤ
  • 38. †—•–”‹ƒŽ‹œ‡† competitiveness of ASEAN countries. With‡…‘‘‹‡• ™‡”‡ –Š‡ †‡•–‹ƒ–‹‘ ˆ‘” ƒ„‘—– ͵͸Ψ ™ƒ‰‡• ‹ –Š‡  ǯ• …‘ƒ•–ƒŽ …‹–‹‡• ”‹•‹‰ •–‡‡’Ž›ǡ‘ˆ –‘–ƒŽ   –”ƒ†‡ ‹ ʹͲͳͳǡ „—– –Šƒ– ™ƒ• †‘™ ASEAN economies are well positioned to regainˆ”‘ ͷͶΨ ‹ ʹͲͲͲǤ Š‹• ‹…”‡ƒ•‹‰ –”‡† •Š‘™• –Š‡‹” …‘’‡–‹–‹˜‡‡•• ˆ‘”
  • 39. ǡ ™Š‹…Š Šƒ† „‡‡‰”‘™‹‰ ”‡‰‹‘ƒŽ ‹–‡‰”ƒ–‹‘ǡ ‘ˆ ™Š‹…Š ›ƒƒ” •‡˜‡”‡Ž› †‹‹‹•Š‡† ‹ –Š‡ ͳͻͻͲ•Ǥ • ˆ‘”‡‹‰can take full advantage. ‹˜‡•–‘”• —ŽŽ ‘˜‡” ‡™ †‡•–‹ƒ–‹‘•ǡ –Š‡› ƒ› ϐ‹†   ‡…‘‘‹‡• ‘”‡ ƒ––”ƒ…–‹˜‡ ‡˜‡Ž‘’‹‰ •‹ƒǯ• –Š”‡‡ Žƒ”‰‡•– ‡…‘‘‹‡•Ȅ than inland areas of the PRC. During 2000––Š‡  ǡ
  • 40. †‹ƒǡ ƒ†
  • 41. †‘‡•‹ƒȄƒ”‡ Š‘‡ –‘ ‘˜‡” ʹͲͲͻǡ ™ƒ‰‡• ‹ –Š‡  ‰”‡™ „› ƒ ƒ˜‡”ƒ‰‡ʹǤ͹ͷ „‹ŽŽ‹‘ ’‡‘’Ž‡ȄͶͲΨ ‘ˆ –Š‡ ™‘”Ž† –‘–ƒŽǤ ‘ˆ ͳͲΨȂͳͷΨ ƒ—ƒŽŽ› ™Š‹Ž‡ ™ƒ‰‡• ‹  ‘•– ‘—–Š‡ƒ•– •‹ƒ …‘—–”‹‡• Šƒ˜‡ ƒ…Š‹‡˜‡† …‘—–”‹‡• ‰”‡™ ‘Ž› ‘†‡•–Ž›Ǥ
  • 42. ˆ –Š‡ ™ƒ‰‡ ”ƒ–‡•‘‡ ‘ˆ –Š‡ ™‘”Ž†ǯ• Š‹‰Š‡•– ‰”‘™–Š ”ƒ–‡• ‹ increases in the PRC continue to outpace thoseGDP and population in the past few decades. ‡Ž•‡™Š‡”‡ǡ ‹˜‡•–‘”• ƒ› •–ƒ”– Ž‘‘‹‰ ƒ– ‘–Š‡” ‘” –Š‡ ‡š– …‘—’Ž‡ ‘ˆ †‡…ƒ†‡•ǡ ‘—–Š‡ƒ•– •‹ƒǯ• countries in the region to locate or relocate theirconsumption rates are expected to increase investments. ASEAN integration that is set toˆ—”–Š‡” ™‹–Š „‘–Š ”ƒ’‹† ‹†—•–”‹ƒŽ‹œƒ–‹‘ ƒ† commence in 2015 with reduced tariffs on trade—”„ƒ‹œƒ–‹‘Ǥ —•–ƒ‹‡† Š‹‰Š ‰”‘™–Š „”‹‰• within ASEAN is another important attraction for FDI.8 ‡•–‹ƒ–‡• „ƒ•‡† ‘
  • 43.  Ǧ  ʹͲͳʹǤ 11
  • 44. Myanmar In Transition: Opportunities and Challenges Figure 6. World Inward FDI Flows to ASEAN and PRC ($ million) 120,000 100,000 80,000 60,000 40,000 20,000 0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 ASEAN PRC ASEAN = Association of Southeast Asian Nations, FDI = foreign direct investment, PRC = People’s Republic of China. Source: UNCTAD Statistics 2012 Figure 7. Growth Rate of Real Wages 25 150 20 120 15 90 10 60 5 30 0 0 -5 -30 -10 -60 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 PRC Indonesia Myanmar Philippines Singapore Thailand Malaysia (rhs)PRC = People’s Republic of China.Source: ILO-LABORSTA 2012 Myanmar’s location in the Greater prosperous by 2022 through investments inMekong Subregion (GMS) can also facilitate both hard and soft infrastructure. Particularits integration with the Southeast Asian focus will be on strengthening transport links,subregional economy. The GMS Economic developing an integrated approach to energyCooperation Program Strategic Framework security, improving telecommunication links,2012–2022, approved in late 2011, aims at promoting sustainable agriculture, facilitatingmaking the subregion more integrated and trade, developing the GMS as a single tourism12
  • 45. Changing External Environmentdestination, enhancing its environmental Despite the region’s spectacular economicperformance, and building human resources performance, poverty persists along withto facilitate the integration. A cross-cutting harmful environmental impacts. Thus,theme of the framework will be to develop Myanmar’s long-term development agendathe major GMS corridors into economic ƒ› „‡‡ϐ‹– ˆ”‘ ’Žƒ…‹‰ •‘…‹ƒŽ ‹…Ž—•‹‘ ƒ†corridors that contribute to faster economic environmental sustainability at its core.growth and poverty reduction. Myanmarmay reap substantial gains through the Stellar growth in developing Asia has beenframework, especially by participating in accompanied by rising inequality. While theconnectivity-related initiatives, including most effective tool for reducing poverty indeveloping electricity grid interconnection recent decades has been growth, it has becomeinfrastructure, and participating in the ASEAN less equitable in fast-growing regional statesgas pipeline initiative. Myanmar also stands than was the case earlier in Japan and theto gain substantially from the tourism- and newly industrialized economies. A recent ADBenvironment-related initiatives, which are study noted that during the 1990s and 2000s,mutually reinforcing. inequality increased in 11 of the 28 major economies in the developing Asia. During this Myanmar’s historic move to a market ’‡”‹‘†ǡ •‹ƒǯ• ‹‹ …‘‡ˆϐ‹…‹‡– ”‘•‡ ˆ”‘ ͵ͻ –‘economy is very timely as it is happening 46 (ADB 2012b). And Asia’s inequality trendagainst the backdrop of ASEAN integration has become less favorable even when comparedtoward one economic community. The process with the trends in other developing regions, suchtoward the ASEAN Economic Community is as Latin America and Sub-Saharan Africa, as thescheduled to be completed by 2015 based on pace of the rich becoming richer far exceeds thefour interrelated and mutually reinforcing pace of the poor escaping the poverty trap.pillars: (1) a single market and productionbase, (2) a highly competitive economic region, The trend of rising inequality in Asia is(3) a region of equitable economic development, worrisome. Enhancing the inclusiveness ofand (4) a region fully integrated into the global Myanmar’s growth is important to maintain‡…‘‘›Ǥ ›ƒƒ” •–ƒ†• –‘ „‡‡ϐ‹– ‹‡•‡Ž› strong growth momentum in the long run.from many opportunities by joining ASEAN’s Increasingly, studies9 suggest that wideningintegration process. No doubt, ASEAN presents income inequality can adversely affect growthan invaluable entry point for Myanmar’s performance by having a negative impact onintegration with the subregional, regional, political stability, social cohesion, human capitaland global economies. Strengthening trade, formation, and other human development.‹˜‡•–‡–ǡ ƒ† ϐ‹ƒ…‹ƒŽ –‹‡• ™‹–Š   …ƒbe effectively leveraged to bring Myanmar into Myanmar relies heavily on natural resourcesthe regional business and production network. for its main exports, and on industries such as agriculture and tourism, which makes a growth pattern that is environmentally sustainableInclusion and Environmental 9 Since the seminal research of Kuznets (1955), suggesting that income inequality tends to increaseSustainability in the early stages of economic development but †‡…”‡ƒ•‡ ‹ –Š‡ Žƒ–‡” •–ƒ‰‡•ǡ ƒ •‹‰‹ϐ‹…ƒ– „‘†› ‘ˆ research has examined the relationship between›ƒƒ” …ƒ „‡‡ϐ‹– ˆ”‘ –Š‡ ƒ› Ž‡••‘• income inequality and economic development andof its neighbors’ development experiences, growth. Both theoretical and empirical studies suggest that income distribution matters for growthespecially to avoid the social instability and sustainability. See Berg and Ostry (2011) for a surveyenvironmental degradation they suffered. of recent studies on this issue. 13
  • 46. Myanmar In Transition: Opportunities and Challengesessential. In this context, Myanmar can take As a resource-rich country, Myanmaradvantage of the global move from brown to is well positioned to set a course of growthgreen growth. Green growth entails decoupling and development that is green, resilient, andeconomic growth from further increases environmentally sustainable. With strong globalin greenhouse gas emissions and resource support, the shift to green growth will generatedegradation. Myanmar’s current growth pattern new jobs and new opportunities for economicis placing huge pressure on its environment and, advancement based on the development ofif continued, will certainly be unsustainable clean technologies and the greening of economicgiven the country’s continued population sectors. Swift action is necessary to capture theincrease, expected rapid industrialization, full potential of green design and technologies,increased consumption of and demand for ƒ† –‘ ƒ˜‘‹† ‹‡ˆϐ‹…‹‡– Dz„”‘™ Ž‘…Ǧ‹•dz –Šƒ–natural resources for food production and trade, can result from continuing the business-as-and increased energy consumption. Myanmar usual growth path without investment in newhas many poor people with low adaptive infrastructure and technologies. The solutionscapacity, and is vulnerable to environmental lie in tapping the synergy in parallel efforts•Š‘…• •—…Š ƒ• †”‘—‰Š–•ǡ ϐŽ‘‘†•ǡ ƒ† ‡š–”‡‡ to address the challenges and turn them intoweather conditions that are expected to new opportunities for green growth. Manyincrease in frequency and intensity as a result of options exist, including, for example, developingclimate change. climate-resilient, green infrastructure and ‹’Ž‡‡–‹‰ ‡‡”‰› ‡ˆϐ‹…‹‡…› ƒ† ”‡‡™ƒ„Ž‡ energy projects, sustainable transport systems, and integrated urban planning.14
  • 47. Strengths, Constraints, Opportunities, and RisksIII. Strengths, Constraints, Opportunities, and RisksEmergence from a long period of relative Strengthsisolation, coupled with a desire for reform andchange, heralds a bright future for Myanmar. A strong commitment to broad-rangingThe country can exploit its strengths, notably reforms, coupled with a rich supply of naturalabundant natural and human resources, and assets—abundant land, water, and energycapitalize on the opportunities available from resources; a youthful, low-cost labor force;an international community that wants it to and Myanmar’s strategic location—providesucceed and from its location at the heart of the a strong foundation for high and inclusiveworld’s most dynamic region. However, there growth.are considerable constraints to surmount. Thissection analyzes the strengths, constraints, Strong Commitment to Reform. Myanmaropportunities, and risks that are evident at the has demonstrated a strong commitment to acurrent, crucial time of change (Box). broad range of reforms. Political reforms thatMyanmar’s Strengths, Constraints, Opportunities and Risks Strengths Constraints 1. Strong commitment to reform 1. Weak macroeconomic management and lack of 2. Large youthful population, providing a low-cost experience with market mechanisms labor force attractive to foreign investment ʹǤ ‹‹–‡† ϐ‹•…ƒŽ ”‡•‘—”…‡ ‘„‹Ž‹œƒ–‹‘ 3. Rich supply of natural resources—land, water, gas, ͵Ǥ †‡”†‡˜‡Ž‘’‡† ϐ‹ƒ…‹ƒŽ •‡…–‘” minerals 4. Inadequate infrastructure, particularly in trans- 4. Abundant agricultural resources to be exploited for port, electricity access, and tele-communications productivity improvement 5. Low education and health achievement 5. Tourism potential ͸Ǥ ‹‹–‡† ‡…‘‘‹… †‹˜‡”•‹ϐ‹…ƒ–‹‘ Opportunities Risks 1. Strategic location 1. Risks from economic reform and liberalization 2. Potential of renewable energy 2. Risks from climate change 3. Potential for investment in a range of sectors 3. Pollution from economic activities ͶǤ ‡•‹‘ ˆ”‘ ‹–‡”ƒŽ ‡–Š‹… …‘ϐŽ‹…–• 15
  • 48. Myanmar In Transition: Opportunities and Challengesdemonstrate the government’s commitments to the other end of the demographic spectrum, thechange are highlighted by (1) the inauguration old age dependency ratio is low, with the shareof a civilian government in 2011, with the of people 65 and over equal to only 7.4% of therelease of political prisoners, the easing of working age population. This is on par withmedia controls, and the institution of a dialogue India, at 7.7%, but substantially lower than inof national reconciliation; and (2) new laws the PRC, at 11.5%, and Thailand, at 12.9%.12that allow assembly, labor rights, and politicalparticipation. Western nations have responded Rich Natural Resources. Myanmar’sto these initiatives by easing, suspending, or natural resources are among its most importantlifting sanctions on trade and investment.10 assets. They are a source of wealth and in someKey economic reforms have followed. State cases, such as energy resources, provide keyenterprises are being privatized. Foreign inputs for wealth creation in other parts of theinvestment is being encouraged by easing economy. Natural resources will continue to berestrictions on the use of private land and the a source of growth if they can be properly and”‡’ƒ–”‹ƒ–‹‘ ‘ˆ ’”‘ϐ‹–•Ǥ Š‡ ‡™ Žƒ™ ‰”ƒ–• –Š‡ sustainably managed. The country is particularlyCBM increased autonomy to set monetary policy. ”‹…Š ‹ ƒ–—”ƒŽ ‰ƒ•ǡ ™ƒ–‡”ǡ ˆ‘”‡•–•ǡ ƒ† ϐ‹•Š‡”‹‡•Ǥ
  • 49.  –Š‡ ϐ‹ƒ…‹ƒŽ •‡…–‘”ǡ …Šƒ‰‡• ƒ”‡ †‡•‹‰‡† –‘ Other resources include petroleum oil andimprove access to credit and intermediation, several minerals, including tin, antimony, zinc,including easing interest rate controls and copper, tungsten, lead, coal, marble, limestone,allowing private banks to expand their branch and precious stones.networks. Reforms in social spending arealso apparent, as the recent large increases in Gas and Oil. Myanmar has a large supply of‡†—…ƒ–‹‘ ƒ† Š‡ƒŽ–Š „—†‰‡–• …‘ϐ‹”Ǥ11 The natural gas. Proven reserves total 7.8 trilliongovernment appears committed to creating a …—„‹… ˆ‡‡– ȋ  ʹͲͳʹȌ ƒ† ‰ƒ•Ǧϐ‹”‡† ’Žƒ–• ƒ……‘—–more inclusive, market-oriented, and private- for 21% of total installed power generationsector-led economy and one that is open to capacity. With hydropower providing the mainincreased foreign investment. source of electricity generation, gas is exported and is now the country’s most important source Young Population. Myanmar’s youthful of export revenue. Moreover, Myanmar is amongpopulation will generate a demographic ‘—–Š‡ƒ•– •‹ƒǯ• ϐ‹˜‡ ƒŒ‘” ‡‡”‰› ‡š’‘”–‡”•Ǥdividend now and in the coming decades. The Žƒ”‰‡ ’‘”–‹‘ ‘ˆ ‰ƒ• ‡š’‘”–• ϐŽ‘™ –‘ Šƒ‹Žƒ†ǡ ƒ†15–28 age cohort currently has 13 million young the PRC will become an increasingly importantpeople who are contributing and will continue consumer when a new (planned) gas pipelineto contribute their effort and skills to enhancing comes on stream. The country also has provenproductivity and competitiveness (Figure 8). oil reserves of 2.1 billion barrels, more thanThis cohort alone accounts for nearly 40% Thailand and Brunei Darussalam although lessof the working age population. People below than half of the reserves in Malaysia (5.9 billion),working age also constitute a large portion of Indonesia (5.8 billion), and Viet Nam (4.4 billion)the population (25%)—higher than in the PRC (BP 2012).13(19%) and Thailand (20%), although lower thanin India (30%). With proper schooling and skillsor professional training, in the years ahead, theywill provide the human capital necessary to 12drive Myanmar’s economic transformation. At Myanmar’s overall dependency ratio (people below 15 or above 64 as a percentage of the working age population) is not particularly low at 44%. While old10 Australia recently lifted sanctions (DFAT 2012). The age dependency is low at 7%, young age dependency European Union suspended nearly all its sanctions for is high at 36% (WB–WDI 2012). 13 1 year (EU 2012). Oil production was 18,900 barrels per day in 2009,11 Discussed further in the Constraints section. down from a peak of 32,000 in 1984 (USEIA 2010).16
  • 50. Strengths, Constraints, Opportunities, and RisksFigure 8. Age and Sex Distribution in Myanmar, 2011 Male 80+ Female 75-79 70-74 65-69 60-64 55-59 50-54 45-49 40-44 35-39 30-34 25-29 20-24 15-19 10-14 05-09 00-04 2.5 2.0 1.5 1.0 0.5 0.0 0.5 0.5 1.0 1.5 2.0 2.5 Population in MillionsSource: ESCAP Online Database 2012 Water. As of 2010, the country’s total hydropower, as well as for irrigation, livestockrenewable water resources stood at 24,352 production, and industry, is substantial.14cubic meters per inhabitant per year, higherthan nearly all other economies in Asia Fisheries. Associated with the country’s(Figure 9). Water is a key energy resource for abundant water resources are substantialMyanmar, with hydropower accounting for ϐ‹•Š‡”‹‡• ‹ –Š‡ ƒŒ‘” ”‹˜‡”•ǡ ’”‘˜‹†‹‰three-quarters of the country’s total installed considerable potential for aquaculturecapacity for electricity. Myanmar uses only 5% development in the low-lying river delta areasof its water resources, of which agriculture in the south and center of the country. Myanmarconsumes 90% and industry and domestic use ƒŽ•‘ Šƒ• •‹‰‹ϐ‹…ƒ– ƒ”‹‡ ϐ‹•Š‡”‹‡• ”‡•‘—”…‡•account for the rest (WEPA 2012). The potential along its 3,000-kilometer (km) coastline andfor further utilization of water resources for in its 382,023 hectares (ha) of mangroves (FAOFigure 9. Total Actual Renewable Water Resources per Inhabitant (2010) 40000 35000 30000 cubic meters per year 25000 20000 15000 10000 5000 0.0 Viet Nam Thailand Philippines Myanmar Malaysia Indonesia Cambodia India BangladeshSource: FAO-Aquastat 2012 14 Hydropower potential is further discussed in the Opportunities section. 17
  • 51. Myanmar In Transition: Opportunities and Challenges2003). During 1998–2009, the total catch of and enhanced yields. Productivity, despiteˆ”‡•Š™ƒ–‡” ƒ† ƒ”‹‡ ϐ‹•Š ƒŽ‘•– –”‹’Ž‡† ȋ  numerous challenges, has been rising steadily.2012), with expanded aquaculture development Despite the lack of irrigation for most of thebeing the main factor behind this increase. rice, the current yield is about 4.1 tons (t) per • ƒ ”‡•—Ž–ǡ ϐ‹•Š ƒ† •Š”‹’ ƒ”‡ ‘™ ƒŒ‘” hectare (ha) of unmilled rice, up from 3.4 t/export items. ha in 2000 and not far from Viet Nam’s 5.3t/ ha. With irrigation and other inputs, this could Forests. Forests cover about 33 million rise to at least 5.0t/ha (FAO 2012). As a result,ha or just under 50% of the total land area. the opportunity to expand farm output, bothThey constitute one of the largest reserves in at the extensive margin (more land underSoutheast Asia and are still in a reasonably cultivation) and the intensive margin (increasednatural state, with closed forests accounting productivity) remains enormous. With its goodfor 37% of total land area (MAI 2011). Forests weather, abundant water resources, and largegenerate wealth in the form of wood and related rural population, Myanmar could harvest thisproducts, which is used for domestic purposes DzŽ‘™ Šƒ‰‹‰ ˆ”—‹–dz ƒ• ƒ •‘—”…‡ ‘ˆ ‰”‘™–Š ‹ –Š‡and exported. Forestry exports totaled $644 near term and further develop a vibrant exportmillion in FY2011/12 (Lay 2012). The forested sector in farm products.areas are also a major habitat for tropical and•—„–”‘’‹…ƒŽ ϐŽ‘”ƒ ƒ† ˆƒ—ƒǢ –Š—•ǡ ƒ• ™‡ŽŽ ƒ• Livestock production has traditionallybeing a major economic resource, Myanmar’s accounted for about 7.5% of GDP. The livestockforests are an essential source of biodiversity population includes cattle, buffaloes, pigs, andand environmental sustainability for South- poultry. Almost every rural household raiseseast Asia. livestock, and livestock contributes substantially to household nutrition and the farm economy Agriculture. Agriculture is a key sector by providing protein (meat, eggs, and milk);of Myanmar’s economy, accounting for 36% draught power; and byproducts (hides andof output (UNDP 2011a), a majority of the leather). Livestock contributes to householdcountry’s employment (ADB 2011b), and 25%– income and constitutes a sizable portion30% of exports by value (WB–WDI 2012).15 The of household capital. Almost all livestock isabundance of land, water, and low-cost labor raised using backyard methods, although somecontribute to the output of the sector and drive commercial production does occur near majorits contribution to the economy. Only about 18% cities. The growth in livestock numbers seemsof the country’s total land area of 68 million ha to have stagnated in the past decade, althoughis used for crop production and only 18.5% of poultry has seen tremendous growth, withthis is irrigated. the number of birds tripling as a result of the spread of commercial production techniques in Between 1990 and 2010, the areas planted periurban areas (UNDP 2011a).with rice, beans, sesame seed, and vegetableshave expanded and output has increased Tourism. Myanmar’s virgin jungles, snow-considerably (Table 6). For example, the capped mountains, and pristine beaches,area planted to rice has nearly doubled and combined with a rich and glorious heritageproduction has almost tripled, showing the spanning more than 2,000 years, presentimpact of both the expansion of cropped area tremendous potential for tourism. That potential, however, remains highly underexploited. In15 Figures for the percentage of exports in recent years 2010, tourist arrivals reached 791,500, whereas range from 30.5% in 2005 to 25.7% in 2008. However, –Š‡ ʹͲͲͺ ϐ‹‰—”‡ ‹• ’”‘„ƒ„Ž› ƒ‘ƒŽ‘—• „‡…ƒ—•‡ ‹ the Lao PDR—a much smaller country—received 2008 much of the rice crop was destroyed by Cyclone 2.5 million visitors and Thailand received nearly Nargis. The percentage of exports from the sector was 16 million (Figure 10). 27.9% in 2009 (UNDP 2011a).18
  • 52. Strengths, Constraints, Opportunities, and RisksConstraints dampening the quality of human capital, and Ž‹‹–‡† ‹†—•–”‹ƒŽ †‹˜‡”•‹ϔ‹…ƒ–‹‘ǤKey constraints to sustaining growth includea weak macroeconomic management Weak Macroeconomic Management.framework devoid of market mechanisms, Myanmar’s weak macroeconomic managementŽ‹‹–‡† ƒ……‡•• –‘ ϔ‹ƒ…‡ǡ †‡ϔ‹…‹‡– ƒ† —†‡”†‡˜‡Ž‘’‡† ϐ‹ƒ…‹ƒŽ •‡…–‘” …‘—Ž†infrastructure, inadequate social services –Š”‡ƒ–‡ †‘‡•–‹… ‡…‘‘‹… ƒ† ϐ‹ƒ…‹ƒŽTable 6. Increase in Food Crop Area and Production, 1990–2010 Year Crop 1990 1995 2000 2005 2010 1. Rice Paddy Area (‘000 ha) 4,760 6,032 6,302 7,384 8,051 Production (‘000 metric tons) 13,971 17,956 21,323 27,683 33,204 2. Beans Area (‘000 ha) 433 1,104 1,762 2,184 2,745 Production (‘000 metric tons) 263 752 1,285 2,175 3,029 3. Sesame Seed Area (‘000 ha) 924 1,131 964 1,337 1,570 Production (‘000 metric tons) 206 304 295 503 722 4. Vegetables Area (‘000 ha) 136 167 207 238 277 Production (‘000 metric tons) 163 226 280 336 371ha = hectare.Source: FAO-FAOSTAT 2012Figure 10. Tourist Arrivals (‘000) 18000 16000 14000 12000 10000 8000 6000 4000 2000 0 2007 2008 2009 2010 Cambodia Lao PDR Myanmar Thailand Viet NamLao PDR = Lao People’s Democratic Republic.Source: ASEAN 2012 19
  • 53. Myanmar In Transition: Opportunities and Challenges •–ƒ„‹Ž‹–›Ǥ Š”‘‹… ϐ‹•…ƒŽ †‡ϐ‹…‹–• ƒ† Š‹‰Š to a relatively high threshold of income above ‹ϐŽƒ–‹‘ †—‡ –‘ ‘‡–‹œƒ–‹‘ ‘ˆ –Š‡ †‡ϐ‹…‹– which the top marginal personal income tax have been serious concerns, and are currently rate applies. Moreover, unclear tax legislation, being addressed by major reforms in the the lack of an advance ruling system, and the MOFR and CBM. With the absence of a formal broad discretionary powers afforded by the monetary policy framework, uncertainty about tax authorities (for example, with respect monetary stability may hamper investment and to applying tax treaties) are also likely to ƒ‡ ‹– †‹ˆϐ‹…—Ž– ˆ‘” ’”‹˜ƒ–‡ ϐ‹”• –‘ ‘’‡”ƒ–‡ ‹ discourage investment and business activity the economy. and therefore inhibit tax collection. Limited Resource Mobilization. A strong Underdeveloped Financial Sector. The tax system is essential to create adequate ϐ‹ƒ…‹ƒŽ •‡…–‘” ”‡ƒ‹• Žƒ”‰‡Ž› —†‡”†‡˜‡Ž‘’‡†ǡ ϐ‹•…ƒŽ •’ƒ…‡ ƒ† ‡•—”‡ ϐ‹•…ƒŽ •–ƒ„‹Ž‹–› ˆ‘” –Š‡ hampering effective mobilization of domestic country. Government operations are hampered •ƒ˜‹‰ ˆ‘” ‹˜‡•–‡–Ǥ ……‡•• –‘ ϐ‹ƒ…‡ ‹ „› …Š”‘‹… „—†‰‡– †‡ϐ‹…‹–• –Šƒ– •–‡ ˆ”‘ Myanmar is limited, particularly in rural areas. ‹•—ˆϐ‹…‹‡– ”‡˜‡—‡Ǥ ‘‰ ǯ• †‡˜‡Ž‘’‹‰ The number of commercial bank branches members, Myanmar has one of the lowest ratios per 1,000 square kilometers was only 0.85 in of government revenues and tax collection 2010 and some areas had no bank branches. In to GDP (Figure 11). Low levels of personal comparison, the branch density ratio was 2.2 and commercial income tax collection can be in Cambodia, 27.2 in the Philippines, 11.6 explained by factors including weak institutions, in Thailand, and 7.0 in Viet Nam (IMF–FAS a relatively small tax net, and substantial tax 2012). Pervasive government controls and concessions for companies. Low revenue from interventions have contributed to the sector’s personal income tax may be attributed in part underdevelopment. Both the real interest Figure 11. Revenue and taxes as percent of GDP (2010 or latest available) 70 60 50 40 30 13.9 20 3.0 10 0 lom Mo uva ti on ng lu Az Isla lia ok ai s ist MIslan n Re ald ds bli es Ky Ne Geo oa ng Rep Bhu an f t F gyz Gu rgia M a R e e p u ea Tu all blic c e n nds Ko ub tan ep ap a Uz ubl ore rat Mrme an ed a nia at ia ub ga Th Pal u Ind aila au on nd Ka Lao esia kh R Sr Nep n i L al M akis ka Ph yan tan C ipp ar Ba amb ines Ta ngla odia i,C sh gh In na an dia an r k m Isla o f Sa c of A ist f ple S g, C ic of ep on f nu f be ic o , R T es o Va lic o Co erb nd rsh p u b l i ’s R ing hin za PD at ja sta T a St lays pu iv il m o ipe de P an he iji, R in m ist hi ist ib n l Kir k r w Af Ho a, an a re pu So ial de ist Ko eo oc Pa Fe jik ,P ,S Ta ia, co ina am es bli Ch on tN pu icr Vie Re M Revenue as % of GDP Taxes as % of GDP GDP = gross domestic product. Sources: ADB 2011b and CSO 201020
  • 54. Strengths, Constraints, Opportunities, and Risks(lending) rate and the interest rate spread are Inadequate Infrastructure. Myanmar lags…‘’ƒ”ƒ–‹˜‡Ž› Š‹‰Šǡ ”‡ϐŽ‡…–‹‰ ‹‡ˆϐ‹…‹‡…› ‹ behind many of its regional neighbors in both thethe sector (Figures 12 and 13). Myanmar can availability and quality of key infrastructure andalso pay more attention to scaling up domestic related services (Figure 14). The country scoressaving to ensure stability and sustainability of more or less on par with Cambodia and the Lao†‡˜‡Ž‘’‡– ˆ—†‹‰ ‡˜‡ ƒ• ‡š–‡”ƒŽ ϐ‹ƒ…‹‰ PDR but worse than other countries in the regionϐŽ‘™ ‹• ‹…”‡ƒ•‹‰Ǥ for both logistics performance and the quality ofFigure 12. Real Interest Rates of Selected ASEAN Countries, 2000–2010 (%) 30.0 25.0 20.0 15.0 10.0 5.0 0.0 -5.0 -10.0 -15.0 -20.0 2000 2002 2004 2006 2008 2010 Indonesia Myanmar Philippines Viet NamASEAN = Association of Southeast Asian Nations.Source: WB-WDI 2012Figure 13. Interest Rate Spread of Selected ASEAN Countries, 2000–2010 (%) 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0 2000 2002 2004 2006 2008 2010 Indonesia Myanmar Philippines Viet NamASEAN = Association of Southeast Asian Nations.Note: Interest rate spread is lending rate minus deposit rate.Source: WB-WDI 2012 21
  • 55. Myanmar In Transition: Opportunities and ChallengesFigure 14. Logistics Performance Index and Quality of Infrastructure, 2012 4.0 3.5 3.0 2.5 2.0 1.5 1.0 Cambodia Indonesia Lao PDR Malaysia Myanmar Philippines Viet Nam Logistics Performance Index Quality of Infrastructure Lao PDR = Lao People’s Democratic Republic. Note: The Logistics Performance Index (LPI) is a multidimensional assessment of logistics performance that compares the trade logistics ’”‘ϐ‹Ž‡• ‘ˆ ͳͷͷ …‘—–”‹‡• ƒ† ”ƒ–‡• –Š‡ ‘ ƒ •…ƒŽ‡ ‘ˆ ͳ ȋ™‘”•–Ȍ –‘ ͷ ȋ„‡•–ȌǤ ‡ …‘’‘‡– ‘ˆ 
  • 56. ‹• –Š‡ “—ƒŽ‹–› ‘ˆ ‹ˆ”ƒ•–”—…–—”‡ ™Š‹…Š refers to trade- and transport-related infrastructure (e.g., ports, railroads, roads, information technology). Among 155 countries, Myanmar is ranked 129th (with a score of 2.37) in terms of LPI, and 133rd (with a score of 2.10) in terms of quality of infrastructure. Source: World Bank 2012. Figure 15. Access to Electricity (% of population) 100 90 80 70 % of Population 60 50 40 30 20 10 0 Cambodia Indonesia Lao PDR Malaysia Myanmar Philippines Viet Nam Lao PDR = Lao People’s Democratic Republic. Note: The graph plots 2009 data, except for Myanmar, 2011. Source: WB-WDI 2012 and data provided by MOEP-1 to the September 2011 ADB mission.infrastructure. Areas such as transport, access to electricity in 201116 and even then they facedto electricity, and telecommunication merit frequent power outages (Figure 15). Similarly,particular attention. The national transport –‡Ž‡†‡•‹–› ȋ„‘–Š ϐ‹š‡† ƒ† ‘„‹Ž‡Ȍ ƒ† ‹–‡”‡–networks, including road, railway, and inland access are among the lowest in the region: for™ƒ–‡”™ƒ›•ǡ ƒ”‡ ‘—–†ƒ–‡† ƒ† ”‡ƒ‹ ‹•—ˆϐ‹…‹‡– every 100 people in Myanmar, only 1.26 haveto support growing economic activity. Onlyabout 26% of Myanmar’s population had access 16 A higher percentage has access to electricity due to access to off-grid supply sources.22
  • 57. Strengths, Constraints, Opportunities, and RisksFigure 16. Communications Indicators 20 18 16 No. per 100 people 14 12 10 8 6 4 2 0 Cambodia Indonesia Lao PDR Malaysia Myanmar Philippines Viet Nam Fixed Telephone Lines Fixed Broadband InternetLao PDR = Lao People’s Democratic Republic.Source: WB-WDI 2012ƒ……‡•• –‘ ϐ‹š‡† –‡Ž‡’Š‘‡ Ž‹‡• ƒ† ͲǤͲ͵ Šƒ˜‡ (4) lack of a planning function, includingbroadband internet subscriptions (Figure 16). supply and demand projections and analysis of alternative supply options; (5) government- Power. Myanmar produced 7,543 million controlled pricing; (6) an absence of energykilowatt hours of electricity in 2010, the bulk of ‡ˆϐ‹…‹‡…› ƒ† …Ž‹ƒ–‡ …Šƒ‰‡ ’‘Ž‹…‹‡•Ǣ ƒ†which was from hydropower (68%), followed by (7) an absence of legal safeguard requirements.‰ƒ•Ǧϐ‹”‡† ȋʹ͵ΨȌ ƒ† –Š‡”ƒŽ ȋͻΨȌ ‰‡‡”ƒ–‹‘(CSO 2012). Although the country’s installed Transport. The transport subsector iscapacity exceeds the peak load (by about 130% considerably underdeveloped, which hampers‹ ʹͲͳͳȌǡ –Š‡ ƒ˜ƒ‹Žƒ„Ž‡ …ƒ’ƒ…‹–› ‘ˆ ‰ƒ•Ǧϐ‹”‡† the movement of goods and people andplants is low due to inadequate maintenance constrains economic activity. Investment inand lack of compression in the gas pipeline, the sector during the last 20 years has focused™Š‹…Š ”‡†—…‡• –Š‡ ϐŽ‘™ ‘ˆ ‰ƒ•Ǥ ‘”‡‘˜‡”ǡ †—”‹‰ largely on major highways and new railways,the dry season, the hydropower plants receive with much less attention on operations and‹•—ˆϐ‹…‹‡– ™ƒ–‡” –‘ ‰‡‡”ƒ–‡ ƒ– ˆ—ŽŽ …ƒ’ƒ…‹–›Ǥ maintenance and improvements in lower ‡…‡ǡ –Š‡ ‰”‹† ‡š’‡”‹‡…‡• •‹‰‹ϐ‹…ƒ– Ž‘ƒ† level networks. A key challenge now is toshedding during the dry season of up to 500 improve the lower level networks and linkmegawatts (MW). The network also suffers them to the major networks to increase accessfrom high transmission and distribution losses. for regional towns, local communities, andThe demand for power has not been projected, rural areas through lower transport costs andand Myanmar does not have a comprehensive, wider service. Further, to take advantage of itsleast-cost generation plan. The main issues and strategic location and improve connectivityconstraints facing the power subsector include with its neighboring economies, MyanmarȋͳȌ –Š‡ Ž‘™ ‡Ž‡…–”‹ϐ‹…ƒ–‹‘ ”ƒ–‡ǡ ™‹–Š ’‡”•‹•–‡– might develop and improve border crossingspower supply shortages in Yangon; (2) high and put in place the essential software changestechnical and nontechnical losses (27%) due necessary to facilitate the movement of peopleto poor maintenance of transmission and and goods across the borders. (Hardware anddistribution systems (Thein and Myint 2008); software changes might include those set out in(3) lack of technical capacity among staff; the GMS Trade and Transit Agreement.) 23
  • 58. Myanmar In Transition: Opportunities and Challenges To enhance its transport sector, Myanmar 82% of total vehicles are motorcyclesmay wish to consider removing constraints (Kyaw 2011).by (1) rationalizing institutional structuresthat are responsible for the sector but are % Railways. The railway networkfragmented and overlapping; (2) developing expanded from about 2,000 km in 1988and implementing an overall transport sector to about 3,500 km in 2010. Most of thestrategy; (2) instituting a rigorous approach expansion has been in the more remoteto deciding which infrastructure investments regions, to provide transport services–‘ —†‡”–ƒ‡ǡ —•‹‰ ‡…‘‘‹… „‡‡ϐ‹– ƒ• ”‡ϐŽ‡…–‹‰ –Š‡ ‰‘˜‡”‡–ǯ• ’‘Ž‹…› –‘an input into the decision-making process; connect all parts of the country. Most of(3) further developing capacity, building, at the the new lines, several of which parallelsubsector level at least, on existing reasonably ‡™ ”‘ƒ†•ǡ …ƒ””› Ž‹––Ž‡ –”ƒˆϐ‹… ƒ† ™‡”‡”‘„—•– ƒ† …‘‹––‡† ‹•–‹–—–‹‘• ƒ† ‘ˆϐ‹…‹ƒŽ•Ǣ very expensive to construct, as they are(4) expanding the role of the private sector; typically in mountainous terrain, leavingand (5) extending the lower level road network limited funds to maintain and improvefor local communities that have inadequate the core network. Thus, the network’saccess to the core road network and, hence, to infrastructure is in very poor condition.basic services. To illustrate the situation, the railways carried about 3 million tons of freight % Roads. The country has a total road in 2011, the same as in 1993, despite a network of about 130,000 km and roads •‹‰‹ϐ‹…ƒ– ‹…”‡ƒ•‡ ‹ –Š‡ –‘–ƒŽ ˜‘Ž—‡ are the dominant transport subsector. of freight (rail and non-rail).18 The road density is low, at 40 km per 1,000 square kilometers, compared % Inland Waterways. Myanmar has about with 480 in Viet Nam, 350 in Thailand, 5,000 km of navigable waterways, of 200 in Cambodia, and 60 in the Lao PDR which about 2,400 km make up the (ADB 2011b). In addition, only 20% primary inland waterway network. of the roads are paved to all-weather The state enterprise Myanmar Inland standard. The core road network of Water Transport (MIWT) has about 240 38,000 km provides access to most of powered vessels available, with a total the country’s regions and about 46% of capacity of about 70,000 tons. Many of the core roads have a paved all-weather these vessels are old. In 2011, the MIWT surface. By comparison, only 13% of carried about 28 million passengers the noncore secondary and local roads and 5 million tons of freight. Most have some form of all-weather surfacing river ports are little more than landing and they are in rather poor condition beaches where vessels are loaded over in other respects.17 The country has 18 a simple gangplank. Some locations vehicles per 1,000 people versus 250 for provide specialized cargo handling Indonesia and 370 for Thailand (UNDP facilities for bulk commodities such as 2011c). Despite the low vehicle ratio and petroleum, cement, and fertilizer. MIWT a relatively small road network, fatality –ƒ”‹ˆˆ• ƒ”‡ ϐ‹š‡† „› –Š‡ ‰‘˜‡”‡– ƒ† rates are high (nearly 16 fatalities per set below cost, for both passenger and 10,000 vehicles versus 6 in Viet Nam, freight operations. River channels and 5 in Thailand, and 1 in Australia [WHO navigation aids for safe vessel operations 2012]). This may be partly because need improving.17 18 Ž‡•• ‘–Š‡”™‹•‡ ‹†‹…ƒ–‡†ǡ ϐ‹‰—”‡• ‹ –Š‹• ’ƒ”ƒ‰”ƒ’Š The information in this paragraph and the next is based ƒ”‡ „ƒ•‡† ‘ ’”‡Ž‹‹ƒ”› ϐ‹†‹‰• ˆ”‘ ƒ ‘ ’”‡Ž‹‹ƒ”› ϐ‹†‹‰• ˆ”‘ ƒ …‘•—Ž–ƒ–‹‘ consultation mission to Myanmar in June 2012. mission to Myanmar in June 2012.24
  • 59. Strengths, Constraints, Opportunities, and Risks % Ports and Civil Aviation. The Myanmar been chronic underinvestment, particularly in Port Authority is responsible for the water supply and environmental infrastructure, port in Yangon and eight coastal ports— including drainage, wastewater, and solid four on the west coast and four on the waste management. As a result, water supply southeast coast. The facilities at the eight and environmental conditions are often below ports are simple, typically pontoon- acceptable standards. The public sector is based, and lack mechanized handling the key player in infrastructure and service ˆƒ…‹Ž‹–‹‡•Ǥ ‘•– …‘ƒ•–ƒŽ –”ƒˆϐ‹… ‹• „‡–™‡‡ provision, but the lack of a strong private sector the coastal ports and Yangon (ASEAN in urban areas contrasts with many Southeast 2005). The port subsector currently Asian countries where private business is a key does not face major constraints, but stakeholder in urban development. Myanmar could usefully prepare for Š‡‹‰Š–‡‡† –”ƒ†‡ ϐŽ‘™• ”‡•—Ž–‹‰ ˆ”‘ Low Education and Health Attainment. economic liberalization and growth. Improvements in education and health will help Improving the coastal ports would to relieve the human capital constraint that allow for more effective use of coastal currently inhibits Myanmar’s economy from shipping as part of the country’s overall ˆ—Žϐ‹ŽŽ‹‰ ‹–• ˆ—ŽŽ ’‘–‡–‹ƒŽǤ ‡ƒŽ–Š›ǡ •‹ŽŽ‡†ǡ ƒ† transport mix. Myanmar’s civil aviation knowledgeable workers are essential to improve subsector consists of three international the performance of farms and businesses, as airports at Yangon and Mandalay, and well as the government’s operations. Recent Nay Pyi Taw (which opened in 2011) government action to review and improve the and over 70 local airports (ICAO 2006). performance of the education sector, as well as Domestic air services are provided by a recent and substantial increase in budgetary Myanma Airways, a state enterprise commitment to education and health care, under the Ministry of Transport. Its demonstrate the increased importance placed ϐŽ‡‡– …‘•‹•–• ‘ˆ ƒ ˆ‡™ Œ‡– ƒ† –—”„‘’”‘’ on human capital, a key ingredient for economic aircraft that typically are very old by growth and structural transformation. aircraft standards. Other airlines also provide domestic services, including Air Education. The education sector has made Mandalay (a joint venture of Myanma important progress in recent years, notably in Airways and Singaporean interests). primary education (grades 1–5) with the gross Myanmar Airways International, primary completion rate reaching 103% in the a subsidiary of Myanma Airways, school year ending in 2010 (WB–WDI 2012). provides some international services However, progress has lagged in post-primary to regional destinations, using more education, with net enrollment estimates for modern aircraft such as the Airbus secondary education ranging from 53% (MNPED, A320 and A321 (Myanmar Airways MOH, and UNICEF 2011) to 58% (MNPED et International 2012). al. 2011) and much lower for technical and vocational education and training (TVET) and Urban Development. The urban sector is higher education. Moreover, despite progress,dominated by the two largest cities, Yangon there is evidence that secondary education,with about 4.6 million people and Mandalay TVET, and higher education face challenges inwith about 1 million. Large parts of the two terms of education quality and management.cities consist of resettlement areas resulting Sustained progress in the education sector is alsofrom relocations in the 1960s and early 1990s, constrained by low government expenditure.with estimated populations in the hundreds ofthousands. The core constraint to Myanmar’s Household surveys suggest that nearly halfurban development is inadequate infrastructure of the secondary school age children are out ofand poor quality of services. A key cause has school or considerably lagging in their studies. 25
  • 60. Myanmar In Transition: Opportunities and ChallengesExit from the school system is particularly „ƒ•‡† …—””‹…—Žƒ ƒ† ƒ††”‡•• †‡ϐ‹…‹‡…‹‡• ‹marked at the transition from primary to (1) relevance of curricula, materials,middle school: cohort analysis suggests that methodologies, and program designs;up to 1 in 4 primary school completers never (2) alignment across TVET, higher education,enter middle school. Extension of post-primary and secondary education; (3) quality controlschools (adding early middle school grades and accreditation, particularly given theto existing primary school sites) has helped proliferation of institutions and programs ofexpand access. Geographic and socioeconomic ˜ƒ”›‹‰ “—ƒŽ‹–›Ǣ ȋͶȌ ˆƒ…—Ž–› “—ƒŽ‹ϐ‹…ƒ–‹‘• ƒ†gaps are sizable, and appear much larger in professional support systems; and (5) links tosecondary education than at the primary level.19 labor market demand, especially in emergingKey issues, particularly in poor and ethnic sectors and skill areas.21areas, include (1) disparities in completionrates and degrees of preparedness from the Financing has been an overarchingprimary level; (2) demand-side factors such as constraint on education, which the governmentϐ‹ƒ…‹ƒŽ ƒ† ‘’’‘”–—‹–› …‘•–•ǡ Žƒ‰—ƒ‰‡ǡ ‘–Š‡” has made positive steps to overcome in recentcultural factors, and disabilities; and (3) supply- years. In FY2011/12, only 3.74% of the nationalside factors such as gaps in school networks budget was allocated to education, which is still‹ ”‡‘–‡ ƒ”‡ƒ•ǡ Ž‹‹–‡† ϐ‹ƒ…‹ƒŽ ƒ† Š—ƒ very low by international standards.22 However,resources, and low quality of education services. the new government’s focus on education appears to be translating into increased Systemic data on the quality and relevance resourcing. The budget for education more thanof secondary (and other levels) of education doubled in nominal terms in FY2012/13, withare lacking but anecdotal evidence suggests education’s share of the national budget risingchallenges in terms of teaching (still largely by a similar magnitude to 6.26%.23 The sharerote-based) and learning outcomes. On the of the education budget in GDP is expectedwhole, grade repetition at the secondary level is to double from 0.69% to a projected value ofˆƒ‹”Ž› Ž‘™ǡ „—– ‹– ”‹•‡• ‹ –Š‡ ϐ‹ƒŽ ›‡ƒ” ‘ˆ ‹††Ž‡ 1.4%–1.5%.24school (grade 9) and remains particularlyproblematic in high school (grades 10–11). In addition to increased resources,The latter, combined with high failure rates on the government took a critical decision inthe matriculation exam for higher education, early 2012 to embark on a Comprehensivesuggest problems in students’ mastery ofsubject content.20 21 Starting in school year 2013, the Ministry of Education plans to allow registration of private schools, but only TVET and higher education can play a key for grades 1–11. 22role in accelerating the country’s socioeconomic —†‰‡– ϐ‹‰—”‡• ”‡’‘”–‡† Š‡”‡‹ ƒ”‡ „ƒ•‡† ‘ †ƒ–ƒ kindly provided to the May 2012 ADB mission bytransformation. To do so effectively, both the MOFR. In recent years, nearly 90% of educationsubsectors will require more fully competency- budget has gone to teacher/staff salaries and other recurrent expenditures, leaving scarce resources19 Based on household surveys, 52.4% of 10–15 year- for capital investments (e.g., school construction) olds from households in the poorest wealth quintile or nonsalary recurrent costs that may be critical to are already out of school, versus only 9.5% in the enhancing quality and equity (e.g., teacher training, richest quintile (MNPED, MOH, and UNICEF 2011). provision of free textbooks, etc.) (UNESCO 2006).20 23 This exam is taken at the end of grade 11 and is Figures are based on data provided to ADB in May …—””‡–Ž› –Š‡ „ƒ•‹• ˆ‘” „‘–Š …‡”–‹ϐ‹…ƒ–‹‘ ‘ˆ Š‹‰Š •…Š‘‘Ž 2012 by the MOFR. 24 completion and selection into higher education. •–ƒˆˆ ‡•–‹ƒ–‡•Ǥ Š‡ ϐ‹‰—”‡• …‘’ƒ”‡ ʹͲͳͳȀͳʹ In school year 2010, 65.7% of test takers failed, –‘ ʹͲͳʹȀͳ͵Ǥ   ϐ‹‰—”‡• ƒŽŽ‘™ ˆ‘” ƒ †‹”‡…– —†‡”‹‹‰ –Š‡ „‡‡ϐ‹–• ‘ˆ Š‹‰Š •…Š‘‘ŽǤ ‹‰—”‡• ƒ”‡ calculation of the Ministry of Education budget as a based on Education Management Information System share of total government budget for FY2012/13, but data provided by the Ministry of Education to the ADB the denominator for the GDP share is only MOFR’s mission in May 2012. estimate of likely GDP, hence the range given.26
  • 61. Strengths, Constraints, Opportunities, and RisksEducation Sector Review. The Review, currently account for local government expenditures andbeing led by the Ministry of Education, is it excludes private donations. Low spendingcoordinating inputs from relevant ministries has translated into low coverage in terms ofand development partners. It will include an health care professionals and health facilities.in-depth review and assessment of legislation On average, Myanmar has only 1 physician perand policies; will seek to identify challenges, 2,188 people and 1 hospital bed per 1,667 peoplepriority areas, and strategic options for the (WB–WDI 2012). On the positive side, publicsector; and will culminate in the development expenditure on health has been increasing inof a costed education sector plan for future recent years. In FY2012/13, combined spendingsector investments. on health and education is expected to rise to 7.5% of total government expenditure, up Health. Health indicators remain weak and from 5.4% a year earlier (IMF 2012). Recent‹ϐŽ—‡…‡ –Š‡ “—ƒŽ‹–› ‘ˆ Š—ƒ …ƒ’‹–ƒŽǤ • ‘–‡† increases can help to improve access to healthearlier, one in three children is malnourished, services and thereby improve health outcomesand more than 10% of children under age 5 and human capital development.are wasting (i.e., low weight relative to height)which impairs their physical and mental ‹‹–‡† …‘‘‹… ‹˜‡”•‹ϐ‹…ƒ–‹‘Ǥdevelopment. Maternal mortality is 240 deaths Myanmar’s production structure is heavily’‡” ͳͲͲǡͲͲͲ Ž‹˜‡ „‹”–Š•ǡ •‹‰‹ϐ‹…ƒ–Ž› ƒ„‘˜‡ –Š‡ focused on primary commodities—naturalrate for neighboring Thailand at 48 (WB–WDI resources, notably gas and wood, along with2012). Life expectancy is 62 years, one of the ˆƒ” ƒ† ϐ‹•Š ’”‘†—…–•Ǥ —‡ –‘ –Š‡ Žƒ… ‘ˆlowest in the region (WB–WDI 2012). Such †‹˜‡”•‹ϐ‹…ƒ–‹‘ǡ –Š‡ …‘—–”› ‹• •—•…‡’–‹„Ž‡ –‘low health outcomes are partly the result of a †‡ƒ† ƒ† ’”‹…‡ ϐŽ—…–—ƒ–‹‘•Ǥ „”‘ƒ†‡‹‰legacy of low expenditure on health care but are of the productive base would provide addedalso caused by malnutrition, which is strongly stability and a source of employment for thelinked to household poverty. Health spending many people who are currently engaged as‡“—ƒŽ‡† ‘Ž› ͲǤʹΨ ‘ˆ  ‹ ʹͲͲͻǡ •‹‰‹ϐ‹…ƒ–Ž› surplus rural workers or involved in low-payinglower than in other countries in the region informal activities.ȋ ‹‰—”‡ ͳ͹Ȍǡ ƒŽ–Š‘—‰Š –Š‡ ϐ‹‰—”‡ ƒ› ‘–Figure 17. Government Expenditure on Health, 1995–2009 (% of GDP) 3.0 2.5 2.0 1.5 1.0 0.5 0.0 1995 2000 2005 2009 Viet Nam Cambodia Lao PDR MyanmarGDP = gross domestic product, Lao PDR = Lao People’s Democratic Republic.Sources: For Cambodia, staff estimates using ADB 2011b data; for Lao PDR, Myanmar, and Viet Nam, staff estimates using UNESCAP OnlineDatabase 2012. 27
  • 62. Myanmar In Transition: Opportunities and Challenges Myanmar has experienced some structural for over 40% of total exports. The mainchange during the last 4 decades, although manufacturing industry is garments, whichthis has taken place mostly between industry emerged in the 1990s and was the top exportand services and within industry. In 1965, among all goods in 2000. The industry declinedagriculture contributed 35% of GDP, and this over the following decade due in large part towas relatively unchanged in 2010 at 36%. The sanctions imposed by the United States, a majorremaining portion of GDP has shifted away from export market (compare the green areas inservices toward industry. In 1965, industry Figure 19). Nonetheless, garment exports offercontributed 13% of GDP, rising to 26% by 2010, ƒ ™‡Ž…‘‡ †‹˜‡”•‹ϐ‹…ƒ–‹‘ ˆ”‘ ƒ –”ƒ†‹–‹‘ƒŽwhereas the contribution of services fell from reliance on primary commodities and remain52% to 38% during the same period (Figure an important source of employment generation.18). Much of this change may have been due tothe development of resource-based industrial The development of light manufacturing,activity in energy and mining, given the sharp agro-processing, and tourism, along with a moreexport increases in such sectors. conductive environment for small- and medium- sized enterprises, can help to create more quality The narrow structure of production is seen jobs and absorb part of the workforce still in‘•– …Ž‡ƒ”Ž› ‹ –Š‡ …‘—–”›ǯ• ‡š’‘”– ’”‘ϐ‹Ž‡Ǥ agriculture and the several million migrantsGas, logs, and legumes account for just over waiting to return to the country.two-thirds (68%) of total exports (Figure 19,right side). The country’s export structure haschanged considerably in the last 4 decades withthe rise and decline of industries. In the 1960s Opportunitiesand 1970s, the main exports were agriculturalcommodities, notably rice, along with wood Myanmar’s recent reforms open up a wideproducts. The 1980s witnessed the emergence range of economic opportunities (including‘ˆ ’‡–”‘Ž‡— ƒ† ϐ‹•Š‡”‹‡• ‡š’‘”–•Ǥ ‡–”‘Ž‡— foreign investment in key sectors that aresubsequently declined and then vanished as an outdated due to decades of isolation), with itsexport commodity but was replaced by natural strategic location playing a key role.gas in the 1990s and 2000s and now accounts Figure 18. Sector Shares in Myanmar’s GDP, 1965–2010 (%) 00 90 80 70 60 % 50 40 30 20 10 0 1965 1980 1990 2000 1970 1975 1985 1995 2005 2010 Agriculture Industry Services GDP = gross domestic product Sources: ADB-SDBS 2012 and WB-WDI 201228
  • 63. Strengths, Constraints, Opportunities, and RisksFigure 19. Changing Structure of Myanmar’s Exports, % of total 2000 2009 4.7% 4.5% 8.1% 1.5% 0.95% Worked Other knitted knitted Manga- wood of outerwear under- nese Sawlogs non- 6.3% coniferous garments 8.8% Fresh, and veneer 17% Knitted of cotton Petroleum 0.45% Un- chilled, wrought logs of jerseys, gases 0.66% Electric frozen or 0.32% Not non- current pullovers and 3.8% 2.6% Knitted 2.3% salted 43% Petroleum coniferous cardigans Other under- Men’s crustaceans women garments under- 2.7% gases 1.6% Not 1.6% Other of shirt Unwrought 1.4% mounted outerwear synthetic Not precious women 1.2% 1.2% Men’s Men’s fibers copper and mounted stones outerwear precious trousers under- copper stones 1.5% Other shirt 1.9% 0.80% alloys 1.3% men 0.42% Corsets Frozen fish, 5.3% Men’s excluding outerwear Men’s 0.64% 0.62% fillets Other men trousers Women’s Other 1.3% 0.38% Women’s coats coal 0.91% Footwear outerwear Footwear 0.53% Luggage 3.6% 1.2% Non 2.6% Fresh, 1.2% 1.0% 1.1% Worked Dried of 1.2% 1.7% Semi chilled, metal- bearing 4.4% Sesame or wholly Frozen 9.7% Sawlogs Worked Sheets of wood of plywood conifer- shelled seeds 17% Dried or milled rice frozen or fish, salted excluding fillets sands ous legumes 0.44% veneer logs of wood of 0.65% 0.31% shelled legumes crustaceans Lenses non-coniferous non- Furniture Chairs parts 1.1% Natural 1.2% Fresh or .97% Natural 0.54% coniferous 0.58% rubber, latex Oil rubber, latex and chilled fish, Sawlogs and gums seeds gums excluding fillets‘–‡ǣ Š‡ …Šƒ”– †‡’‹…–• ‡š’‘”–• ‘ˆ •’‡…‹ϐ‹… …‘‘†‹–‹‡• ƒ• ƒ ’‡”…‡–ƒ‰‡ ‘ˆ –‘–ƒŽ ‡š’‘”–•Ǥ Š‡ …‘Ž‘” …‘†‹‰ ƒŽŽ‘™• ˆ‘” ƒ “—‹… ƒ† ‡ƒ•›comparison of product groups in 2000 and 2009.Source: Simoes and Hidalgo 2011 Strategic Location. Myanmar’s strategic a regional trade and production hub. Thoughlocation between the region’s two emerging ‡•–‹ƒ–‡• ‘ˆ –Š‡ „‡‡ϐ‹–• –‘ ›ƒƒ” ˆ”‘economic superpowers and between Asian improved connectivity with the region are not yetsubregions provides enormous opportunities to ƒ˜ƒ‹Žƒ„Ž‡ǡ ‹– ‹• ƒ–‹…‹’ƒ–‡† –Šƒ– –Š‡•‡ „‡‡ϐ‹–• ™‹ŽŽ„‡‡ϐ‹– ˆ”‘ ”‡‰‹‘ƒŽ ‡…‘‘‹… ƒ…–‹˜‹–›Ǥ ‹•‹‰ be substantial in terms of increased economicSouth–South trade and increased connectivity activity and employment opportunities.within the region will make Myanmar’s Studies indicate that the Asian Highway cangeographic position increasingly important in help increase interregional trade by about $90the years ahead. The country links Southeast billion per annum (Parpiev and Sodikov 2008).Asia and the PRC with South Asia through its part Trade to, from, and through Myanmar mayin the ASEAN and Asian highway networks, the ‹…”‡ƒ•‡ •‹‰‹ϐ‹…ƒ–Ž›ǡ ‰‹˜‡ ‹–• ‡› Ž‘…ƒ–‹‘Greater Mekong Subregion highways, and roads between major economies and subregions. Thebetween Myanmar and the PRC, as Myanmar potential for opportunities is reinforced by theaccounts for vital segments of these regional fact that trade between the PRC and India alonetransport networks (Figure 20). The combined reached nearly $85 billion in 2011, up 84% fromlength of segments of these international $46 billion 2 years earlier (IMF–DOTS 2012).highways passing through Myanmar is an In addition, there is considerable potential forestimated 5,000 km. Other road segments expanding trade between South and Southeastprovide important trade links with neighboring Asia, which remains at a low level.countries, including a 427 km road segment inthe north that can link the PRC and India. Potential of Renewable Energy. Myanmar has abundant renewable energy potential from Land transport links with its neighbors hydro, biomass, wind, and solar resources.provide an opportunity for Myanmar to become Among these, only hydropower is being 29
  • 64. Myanmar In Transition: Opportunities and ChallengesFigure 20. Major International Road Links Passing through Myanmar o o 94 00’E Puta-O 100 00’E AH1 = 1,665 km AH2 = 807 km MYANMAR AH3 = 93 km Lahe KACHIN STATE MAJOR INTERNATIONAL AH14 = 453 km AH111 = 239 km INDIA ROAD LINKS Hkamti AH112 = 1,145 km Myitkyina AH123 = 141 km Kanibiketi R3 = 257 km Dali R4 = 175 km Homalin Tengchong Baoshan R7 = 660 km ICD(1)-C.Y. = 700 km AH1 o Ruili o 24 00’N Tamu 24 00’N Muse SAGAING R7 PEOPLES REPUBLIC DIVISION AH14 OF CHINA BANGLADESH Lashio Thibaw Hakha AH14 Sagaing AH111 Jinghong Gangaw C.Y. AH1 Mandalay SHAN STATE Mong La CHIN STATE R4 AH3 MANDALAY AH2 Kengtung R3 DIVISION Meiktila Loilen AH2 LAO PEOPLES Taunggyi Tachileik AH2 DEMOCRATIC Magway REPUBLIC Sittwe RAKHINE AH1 STATE NAY PYI TAW Pyinmana Chiang Rai MAGWAY Loikaw DIVISION KAYA H Ramree Island STATE Taungoo Man-Aung Island National Capital AH1 Division/State Capital BAGO City/Town DIVISION Bay of Bengal Border Trade Post Asian/Asean Highway AH1 AH1 Bago Asean Highway Hpa-an Thaton Greater Mekong Subregion Highway Pathein Myawaddy Yangon ICD-1 Mottama Mae Sot Trilateral Highway AYEYARWADDY YANGON DIVISION River DIVISION Mawlamyine Division/State Boundary Gulf of Martaban KAYIN STAT E International Boundary MON STAT E Boundaries are not necessarily authoritative. Ye THAILAND AH112 o Maosameepass o 14 00’N Dawei 14 00’N AH123 N TANINTHARYI STAT E 0 100 200 Myeik Kilometers AH14 Myeik (Mergui) This map was produced by the cartography unit of the Asian Development Bank. Archipelago AH112 The boundaries, colors, denominations, and any other information shown on this map do not imply, on the part of the Asian Development Bank, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries, colors, denominations, or information. Kawthoung o 94o00E 100 00’E AH = Asian Highway/ASEAN Highway, R = GMS Highway. Note: The map shows existing and future links. Source: ADB. Roads on the map are based on information provided by the Myanmar Port Authority, Ministry of Transport.30
  • 65. Strengths, Constraints, Opportunities, and Riskscommercially exploited, while the others remain new cost-effective platform for light assemblyat the research and development or pilot test as a means for diversifying their productionstages. The hydropower potential from the four locations and supplying an expandingmain river basins—the Ayeyawaddy, Chindwin, domestic market. Investment is also urgentlySittaung, and Thanlwin—is estimated at more needed in almost all types of infrastructure,than 100,000MW (Thein and Myint 2008). By from roads and water supply to energy andcontrast, the country’s installed hydropower telecommunications. The increasing trend incapacity was only 1,781MW in 2012 (Kya-Oh Asia is to structure investments through public–2012). The Ministry of Electric Power – 1 has private partnerships, which can help to engage‹†‡–‹ϐ‹‡† ͻʹ Žƒ”‰‡Ǧ•…ƒŽ‡ Š›†”‘’‘™‡” ’”‘Œ‡…–• foreign private investors by reducing theirwith an estimated capacity of 46,100MW.25 The perceived risks.Žƒ… ‘ˆ ϐ‹ƒ…‹‰ ’”‘’–‡† –Š‡ ‰‘˜‡”‡– –‘express the desire for technological transfer in Easing of economic sanctions imposed onthe renewable energy sector during the 2011 Myanmar by Western countries will lead toGreen Economy and Green Growth Forum in higher levels of trade and investment. Over theYangon (Lwin 2011). ’ƒ•– •‡˜‡”ƒŽ ›‡ƒ”•ǡ ϐ‹”• ˆ”‘ ‘•ƒ…–‹‘‹‰ …‘—–”‹‡• ‹˜‡•–‡† •‹‰‹ϐ‹…ƒ–Ž› ‹ ‡› •‡…–‘”•ǡ Potential for Investment in a Range of ™‹–Š –‘–ƒŽ
  • 66. ‹ϐŽ‘™• ”‡ƒ…Š‹‰ Œ—•– —†‡”Sectors. As it modernizes and liberalizes its $3.8 billion since FY2005/06 (Table 7). Three-economy, Myanmar offers opportunities for quarters of that investment ($2.9 billion) hasinvestors, both foreign and domestic, in virtually gone into the oil and gas sector.26 Investment hasall sectors. The services sector, in particular, ƒŽ•‘ ϐŽ‘™‡† ‹–‘ –Š‡ ‹‹‰ ȋ̈́ͶͷͲ ‹ŽŽ‹‘Ȍ ƒ†‹• ”‹’‡ ˆ‘” ‹˜‡•–‡– ƒ† ‘ˆˆ‡”• DzŽ‘™ Šƒ‰‹‰ power ($390 million) sectors. Manufacturingˆ”—‹–dz –Šƒ– …‘—Ž† ’”‘˜‹†‡ ƒ “—‹… „‘‘•– –‘ –Š‡ ƒ† –‘—”‹• Šƒ˜‡ ‘– ›‡– ƒ––”ƒ…–‡† •‹‰‹ϐ‹…ƒ–economy. Telecommunications, including mobile ‹ϐŽ‘™• „—– Š‘Ž† ‡‘”‘—• ’‘–‡–‹ƒŽǡ ‘–ƒ„Ž›telephony, is in urgent need of investment. as (1) the Government is actively promotingSimilarly, the travel and tourism sector possesses foreign investment, and (2) trade sanctions arehuge potential given the country’s natural and being eased, so that investors might now becultural features and sites, coupled with the tempted to take advantage of low-cost labor topent-up interest of travelers after decades produce and export from Myanmar to a broaderof Myanmar’s relative isolation. A tourism range of destinations.boom can generate investment in transport,hotels, restaurants, arts and culture, and travel.Agriculture offers considerable potential inbasic production and agro-processing, including Risksfor export. Complementary areas of marketing,storage, transport, logistics, and the provision of Risks associated with economic reforminputs such as machinery and fertilizers are also and liberalization, climate change andripe for investment. environmental degradation, and internal …‘ϔŽ‹…–• …‘—Ž† „‡ •‹‰‹ϔ‹…ƒ–Ǥ In manufacturing, the abundance of low-cost labor presents an opportunity to expand 26 Total FDI approvals in the oil and gas sector reachedinto labor-intensive and export-oriented $10.8 billion from FY2005/06 to September 2010. ‘™‡˜‡”ǡ ϐ‹‰—”‡• ˆ‘”
  • 67. ƒ’’”‘˜ƒŽ• •Š‘—Ž† „‡ –”‡ƒ–‡†manufacturing, including the garment sector. with caution, as many approved projects may not •‹ƒ ƒ† ‡•–‡” ϐ‹”• ƒ› ϐ‹† ›ƒƒ” ƒ result in actual investment (as in Table 7). Figures for approved FDI are from data provided by the Directorate25 Figures were provided to ADB by the Ministry of of Investment and Company Administration, Ministry Electric Power – 1. of National Planning and Economic Development. 31
  • 68. Myanmar In Transition: Opportunities and ChallengesTable 7. FDI Inflows by Sector (US$ million) Fiscal Year Sector 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2005-2010 Oil and Gas 229.9 417.2 478.4 743.2 750.0 287.9 2,906.6 Mining 2.2 2.6 3.2 46.6 200.1 160.3 415.0 Power 0 0 220.0 170.0 0 0 390.0 Manufacturing 1.1 1.6 13.2 14.2 11.6 1.5 43.2 Hotel and Tourism 2.7 6.3 0.1 1.0 0 0.3 10.4 Livestock and Fisheries 0 0 0 0.6 1.6 0.2 2.4 Total 235.9 427.7 714.9 975.6 963.3 450.2 3,767.6FDI = foreign direct investment.‘–‡ǣ ‹‰—”‡• †‡‘–‡ ƒ…–—ƒŽ
  • 69. ‹ϐŽ‘™•Ǥ ‹‰—”‡• ƒ› ‘– –‘–ƒŽ ‡šƒ…–Ž› †—‡ –‘ ”‘—†‹‰Ǥ ƒ–ƒ ˆ‘” ʹͲͳͲȀͳͳ …‘˜‡” ’”‹ŽǦ‡’–‡„‡” ʹͲͳͲonly. No FDI was received in agriculture, construction, industrial estate, real estate, transport and other services during the period.Source: Directorate of Investment and Company Administration, Ministry of National Planning and Economic Development, Myanmar (dataprovided to ADB). Risks from economic reform and ȋ͵Ȍ •Šƒ”’ †‡’”‡…‹ƒ–‹‘ ƒ† Žƒ”‰‡ …ƒ’‹–ƒŽ ‘—–ϐŽ‘™•liberalization. Myanmar is undertaking a with even small negative shocks that impairrange of economic reforms, which entail a –Š‡ …‘ϐ‹†‡…‡ ‘ˆ ˆ‘”‡‹‰ ‹˜‡•–‘”• ȋ’‘•‹‰ ƒgreater use of the market mechanism to allocate considerable challenge for the young centralresources and manage such key aspects as bank in managing foreign reserves and volatileinvestment, interest rates, and foreign exchange. ‡š…Šƒ‰‡ ”ƒ–‡•ȌǢ ƒ† ȋͶȌ ϐ‹ƒ…‹ƒŽ †‡”‡‰—Žƒ–‹‘Without adequate regulation, supervision and that could lead to excessive credit growth andrisk mitigation, the pace and sequencing of the bubbles, given the weak regulatory system andreforms and liberalization may undermine the capacity. The PRC may provide an instructive‡š’‡…–‡† „‡‡ϐ‹–•Ǥ case of how gradual and cautious approaches –‘ Ž‹„‡”ƒŽ‹œ‹‰ –Š‡ ϐ‹ƒ…‹ƒŽ •‡…–‘” ƒ† …ƒ’‹–ƒŽ Š‡ •‹ƒ ϐ‹ƒ…‹ƒŽ …”‹•‹• ‘ˆ ͳͻͻ͹Ȃͳͻͻͺ ƒ† account can help maintain stability when thesimilar crises in Latin America much earlier economy is not fully adapted to the marketŠ‹‰ŠŽ‹‰Š– –Š‡ ”‹• ‘ˆ ϐ‹ƒ…‹ƒŽ Ž‹„‡”ƒŽ‹œƒ–‹‘ ƒ† mechanism and market functions are impaired˜‘Žƒ–‹Ž‡ …ƒ’‹–ƒŽ ϐŽ‘™• ™Š‡ ƒ…”‘‡…‘‘‹… by lack of transparency and weak governance.management and regulatory capacity are weakin a country. As Myanmar integrates into the Myanmar stands to gain enormously fromglobal economy, it also faces a number of key the rise of Asia and from increased regional”‹•• –Šƒ– ”‡“—‹”‡ …ƒ”‡ˆ—Ž ‘‡–ƒ”› ƒ† ϐ‹•…ƒŽ integration. There is, however, a risk that themanagement, particularly in the realm of reserve ongoing global slowdown and looming recessionmanagement and exchange rate stability. The may impact regional growth and demand in the”‹•• ‹…Ž—†‡ ȋͳȌ Š‹‰Š ‹ϐŽƒ–‹‘ ƒ† ‡š…Šƒ‰‡ near term. Slowing global and regional demandrate instability due to ineffective sterilization; may dampen Myanmar’s economic activity,(2) consequences of an overvaluation and while weaker foreign investment could delaypossible overshooting of the currency27 the development process for Myanmar’s key…‘—’Ž‡† ™‹–Š Žƒ”‰‡ ˆ‘”‡‹‰ …ƒ’‹–ƒŽ ‹ϐŽ‘™•Ǣ industry sectors, such as energy.27 "Overshooting" refers to an economic phenomenon where the foreign exchange rate temporarily Risks from Climate Change. Myanmar overreacts to changes in monetary policy given …ƒ ’”‘ϐ‹– ˆ”‘ Ž‡••‘• –Š‡ ”‡‰‹‘ǯ• ‡ƒ”Ž› the stickiness of domestic prices and explains high transformers learned when they overlooked the exchange rate volatility in the short run. importance of environmental sustainability. The32
  • 70. Strengths, Constraints, Opportunities, and RisksBerlin-based climate watchdog, Germanwatch, has made international commitments underranked Myanmar as the second worst country the United Nations Framework Conventionaffected by extreme weather events caused by on Climate Change (UNFCCC) and the relatedclimate change from 1990 to 2008 (Harmeling ›‘–‘ ”‘–‘…‘Žǡ ™Š‹…Š ›ƒƒ” ”ƒ–‹ϐ‹‡† ‹ ʹͲͲ͵2010). The report also ranked Myanmar as the (UNFCCC 2012).globe’s worst-hit country in 2008—in earlyMay of that year Cyclone Nargis devastated Pollution from Economic Activities.the Irrawaddy delta and resulted in economic Increased economic activity threatens thedamage estimated at $4.1 billion and deaths environment due to mining-related pollution,of more than 138,000 people (ESCAP 2011). reservoir clearing, and industrial wasteMore recently, in October 2010, Cyclone Giri and sewage discharge near urban areas. Ifhit the western coast of Arakan State. Giri is unregulated and unmonitored, major negativeconsidered the second most damaging cyclone impacts on the environment can be expected,on record, after Nargis. Cyclone Giri, which notably as FDI concentrates on energy andpacked winds over 200 km per hour, killed at extractive industries.least 45 people, left over 200,000 in need ofemergency assistance, and destroyed more Within Myanmar, awareness ofthan 300 schools and countless homes (Epatko environmental disturbance caused by2010). Although varying in nature and degree, mining is increasing but has not yet beenclimate change will impact both rural and urban accompanied by a substantive regulatoryareas in Myanmar. response. While the country lacks a national policy target for environmental improvement Myanmar’s vast forests currently help in the mining sector, some relevant sectorto support regional and global ecosystems policies exist, including the 1994 Mines Law,that are increasingly under threat. There is which is intended to protect the public anda risk, however, that the country’s efforts to the environment from mining activities thatindustrialize and leverage its natural resources may be detrimental to them. Attention is nowin an early stage of development could weaken being devoted to enhancing environmentalits attention to environmental sustainability. monitoring in mining areas. Demands are alsoThis might make the country more vulnerable being made on the mining industry to acquireto environmental shocks and their impacts on and report environmental data, comply withhuman health, agriculture and food security, applicable industry standards, and adopt theand biodiversity. Deforestation is of particular best environmental practices.concern, with decreasing forest cover andquality leading to reduced adaptive capacity to
  • 71. –‡”ƒŽ ‘ϐŽ‹…–•Ǥ Political and socialfuture environmental changes and potential to tension within Myanmar remains a potentiallyƒ„•‘”„ ‰”‡‡Š‘—•‡ ‰ƒ•‡•Ǥ ‘”‡•– ϐ‹”‡• ’”‡•‡– destabilizing factor, as long-running ethnican additional climate change pressure (due …‘ϐŽ‹…– …‘—Ž† ‡•…ƒŽƒ–‡Ǥ Š‡ …‘—–”› Šƒ• ͳ͵ͷto increased temperature), especially in the ‘ˆϐ‹…‹ƒŽŽ› ”‡…‘‰‹œ‡† ‡–Š‹… ‰”‘—’•Ǥ Š‡ ƒƒ”dry forests that dominate the central part of comprises 68% of the population; the nextthe country. largest groups are the Shan (9%) and Karen (7%) (Ekeh and Smith 2007). Creating a The Government is currently responding harmonious society provides a foundationto climate change risk and vulnerability, and for inclusive and sustainable growth. Thein 2009 quickly put in place a 7-year national government can help create such a societyplan for disaster risk reduction (MSWRR 2009). by promoting understanding of the country’sAlthough there is currently no national policy different cultures; by engaging in efforts attarget for climate change measures, Myanmar national reconciliation; by ensuring that 33
  • 72. Myanmar In Transition: Opportunities and Challengesmembers of ethnic groups have equal accessto public services, jobs, and other economicopportunities; and by building the infrastructurenecessary for increased connectivity betweenrich and poor areas.34
  • 73. Implications for Myanmar’s Economic TransitionIV. Implications for Myanmar’s Economic TransitionIn moving forward, Myanmar can chart a ƒ• ‹– …ƒ †‹•…‹’Ž‹‡ „‘–Š ϐ‹•…ƒŽ ƒ† ‘‡–ƒ”›course that takes into account its strengths authorities not to run and monetize excessiveand constraints, while leveraging the available †‡ϐ‹…‹–•Ǥ ‘‡–ƒ”› ’‘Ž‹…› …ƒ ƒŽ•‘ •—’’‘”– –Š‡opportunities and avoiding the potential risks. government’s objectives of high growth and fullThis also means that Myanmar can position employment.itself strategically in the rapidly changing globalƒ† ”‡‰‹‘ƒŽ ‡˜‹”‘‡– –‘ „‡‡ϐ‹– ˆ”‘ ‹–• Fiscal prudence, in conjunction withadvantages. Thus, the development strategy for monetary policy reform, is key to maintainingthe medium to long run will help to fast track macroeconomic stability, especially duringMyanmar’s economic integration into the region, economic transition. Increasing investmentimprove inclusiveness of economic growth, and demand during the transition could easily leadmake growth environmentally sustainable. –Š‡ ‰‘˜‡”‡– –‘ ”— Žƒ”‰‡ „—†‰‡– †‡ϐ‹…‹–•ǡ ™Š‹…Š ‰‘˜‡”‡–• ƒ”‡ ‘ˆ–‡ –‡’–‡† –‘ ϐ‹ƒ…‡ The course of Myanmar’s successful through printing money. However, monetizingtransition to a modern industrial economy „—†‰‡–ƒ”› †‡ϐ‹…‹–• ™‹ŽŽ ™‘”•‡ ‹ϐŽƒ–‹‘ ™Š‹Ž‡ –Š‡can be guided by three complementary country’s young central bank has yet to establishdevelopment strategies—growth with focus an effective monetary policy framework andon regional integration, inclusiveness, lacks capacity for designing and implementingenvironmental sustainability. The following policy in administration and operations. In 2009,illustrates key priority areas of policy that the government issued and sold treasury bondsMyanmar can consider in moving toward a –‘ †‘‡•–‹… „ƒ• ˆ‘” –Š‡ ϐ‹”•– –‹‡ –‘ ϐ‹ƒ…‡ ƒsuccessful transition. ’ƒ”– ‘ˆ ‹–• †‡ϐ‹…‹–Ǥ ‡•’‹–‡ –Š‡ ’”‘‰”‡•• ‹ „‘† ϐ‹ƒ…‹‰ǡ ™‡ƒ ”‡˜‡—‡ …‘ŽŽ‡…–‹‘• …‘–‹—‡ to create funding gaps, which continue to be monetized. The new central bank law providesManaging Macroeconomic Stability the CBM with the autonomy to run monetary policy to anchor macroeconomic stability.Establishing macroeconomic stability is the Meanwhile, the government can strengthen theϐ‹”•– •–‡’ ‹ ‰‡ƒ”‹‰ ƒ ‡…‘‘› ˆ‘” Ž‘‰Ǧ–‡” treasury function in the MOFR and shift to bondgrowth. Key elements of sound macroeconomic ϐ‹ƒ…‹‰ ˆ”‘ ‘‡–‹œƒ–‹‘ ‘ˆ –Š‡ ϐ‹•…ƒŽ †‡ϐ‹…‹–Ǥ’‘Ž‹…‹‡• ‹…Ž—†‡ Ž‘™ ƒ† ’”‡†‹…–ƒ„Ž‡ ‹ϐŽƒ–‹‘”ƒ–‡•ǡ •—•–ƒ‹ƒ„Ž‡ ϐ‹•…ƒŽ ’‘•‹–‹‘•ǡ ƒ† ƒ ƒ”‡–Ǧ Strong growth potential and expectations„ƒ•‡† ƒ† ϐŽ‡š‹„Ž‡ ‡š…Šƒ‰‡ ”ƒ–‡Ǥ for amelioration of the political situation and foreign relations are attracting large Effective monetary policy is key to ensuring ȋƒ† ’‘–‡–‹ƒŽŽ› •’‡…—Žƒ–‹˜‡Ȍ …ƒ’‹–ƒŽ ϐŽ‘™• –‘ƒ Ž‘™ ƒ† •–ƒ„Ž‡ ‹ϐŽƒ–‹‘ ‡˜‹”‘‡–Ǥ ›ƒƒ”Ǥ —††‡ ‹…”‡ƒ•‡• ‹ …ƒ’‹–ƒŽ ϐŽ‘™•Targeting reserve money may be considered, ’”‡•‡– •‹‰‹ϐ‹…ƒ– …ŠƒŽŽ‡‰‡•ǡ ‰‹˜‡ ›ƒƒ”ǯ• 35
  • 74. Myanmar In Transition: Opportunities and Challengesweak macroeconomic management system and ›ƒƒ” …‘—Ž† „‡‡ϐ‹– ˆ”‘ ƒ •‘—† ”‡•‡”˜‡—†‡”†‡˜‡Ž‘’‡† ϐ‹ƒ…‹ƒŽ •‡…–‘” ƒ† ƒ”‡–•Ǥ management system to increase its overallThe government recognizes these risks to resilience to external shocks. With large capitalthe macroeconomy and major reforms are ‹ϐŽ‘™• ’”‘Œ‡…–‡† ˆ”‘ ƒ–—”ƒŽ ‰ƒ• ‡š’‘”–•ǡ—†‡” ™ƒ› ‹…Ž—†‹‰ –Š‡ —‹ϐ‹…ƒ–‹‘ ‘ˆ ‘ˆϐ‹…‹ƒŽ FDI, and remittances, the CBM’s role is to‡š…Šƒ‰‡ ”ƒ–‡• ƒ† ƒ†‘’–‹‘ ‘ˆ ƒ ƒƒ‰‡† ϐŽ‘ƒ–ǡ ensure that these assets are properly managedloosening of foreign currency restrictions such by establishing a well-functioning reserveƒ• –Š‡ Dz š’‘”– ‹”•–dz ’‘Ž‹…›ǡ —†‡” ™Š‹…Š ’”‹˜ƒ–‡ management system. Sound management ofparties were allowed to import only when reserves can assure that adequate foreignthey had corresponding export earnings, and assets are under control at all times to supportmonetary policy reforms highlighted by the new the currency, manage liquidity, underpincentral bank law. ƒ”‡– …‘ϐ‹†‡…‡ǡ ƒ† ‡‡– ‘–Š‡” ’‘Ž‹…› objectives. The importance of sound reserve Even as a more autonomous central bank management practices is underscored by thethat adopts a reserve targeting monetary experience of developing countries where weakˆ”ƒ‡™‘” ƒ† ƒ ƒƒ‰‡† ϐŽ‘ƒ–‹‰ …—””‡…› ”ƒ–‡ reserve management systems have resulted inis established, maintaining currency stability •‹‰‹ϐ‹…ƒ– Ž‘••‡• ƒ† •‘‡–‹‡• Ž‡† –‘ …—””‡…›ƒ† …‘–ƒ‹‹‰ ‹ϐŽƒ–‹‘ …ƒ „‡ …ŠƒŽŽ‡‰‹‰ ‹ ƒ† ϐ‹ƒ…‹ƒŽ …”‹•‡•Ǥ  ‡ˆˆ‡…–‹˜‡ ˆ”ƒ‡™‘”–Š‡ ˆƒ…‡ ‘ˆ ˜‘Žƒ–‹Ž‡ ƒ† Žƒ”‰‡ …ƒ’‹–ƒŽ ‹ϐŽ‘™•Ǥ and policy would allow for sound managementThe possibility of a sudden cessation of foreign of the country’s portfolio, including the‡š…Šƒ‰‡ ‹ϐŽ‘™• ƒ† ƒ •—††‡ ‘—–ϐŽ‘™ǡ …ƒ‘– composition of reserve currencies, choice ofbe ignored in the process of liberalization, and investment instruments, and duration of thehas been experienced by many transitioning reserve portfolio.and developing countries. While interventions–‘ Dz•–‡”‹Ž‹œ‡dz ˆ‘”‡‹‰ ‡š…Šƒ‰‡ ‹ϐŽ‘™• ƒ”‡possible under the current law, the CBM canestablish mechanisms to effectively manage Mobilizing Domestic Resourcesdomestic demand conditions and keep theexchange rate within levels that do not impede Myanmar’s economic transition will requirethe economy’s competitiveness. Allowing the substantial investment in physical and socialdomestic currency to appreciate could of course infrastructure, development of human capital,‡ƒ•‡ ‹ϐŽƒ–‹‘ƒ”› ’”‡••—”‡•ǡ „—– ‹– Š—”–• –Š‡ and improvement of social services. Given the‡š’‘”– •‡…–‘” ƒ† ”ƒ‹•‡• –Š‡ •’‡…–‡” ‘ˆ Dz —–…Š considerable funding needs over the medium to†‹•‡ƒ•‡dz ‡ˆˆ‡…–•ǡ ‹Ǥ‡Ǥǡ ‹…”‡ƒ•‡† ‡š’Ž‘‹–ƒ–‹‘ ‘ˆ long run, effective mobilization of both foreignnatural resources while industrialization slows. and domestic savings is crucial. While externalThe tradeoffs facing policy makers in Myanmar ϐ‹ƒ…‹‰ –Š”‘—‰Š ˆ‘”‡‹‰ „‘””‘™‹‰ ƒ†
  • 75. ƒ”‡ ƒ• †‹ˆϐ‹…—Ž– ƒ• –Š‘•‡ ˆƒ…‹‰ ’‘Ž‹…› ƒ‡”• is essential, excessive reliance on externalelsewhere. Indeed, many emerging economies funding sources could subject the economy to a(including some in Asia) have deemed it prudent wide range of external shocks and unexpectedto introduce some capital controls to gain a swings in international investor sentiment.degree of freedom in monetary policy in the face Thus, fostering domestic sources of funding‘ˆ Žƒ”‰‡ …ƒ’‹–ƒŽ ‹ϐŽ‘™•Ǥ ‹„‡”ƒŽ‹œƒ–‹‘ ‘ˆ …ƒ’‹–ƒŽ is very important to maintain stability and‘—–ϐŽ‘™•ǡ ƒ• ›ƒƒ” Šƒ• ”‡…‡–Ž› ‹–”‘†—…‡†ǡ sustainability. To mobilize domestic resources,can also help ease the pressure of currency substantial increases in government revenuesappreciation and the burden of sterilizing are essential, and developing the domestic–Š‡ ‹ϐŽ‘™•Ǥ ϐ‹ƒ…‹ƒŽ •‡…–‘” ƒ† ƒ”‡–• ‹• ‹’‘”–ƒ– –‘ ‹’”‘˜‡ ϐ‹ƒ…‹ƒŽ ‹–‡”‡†‹ƒ–‹‘Ǥ36
  • 76. Implications for Myanmar’s Economic TransitionCreating Fiscal Space compliance costs by reducing opportunitiesMyanmar is strengthening its tax system to for tax evasion and avoidance. The commercialgenerate adequate revenue and to ensure future tax in Myanmar, a turnover tax levied on a wide‡…‘‘‹… ‰”‘™–ŠǤ  ‡ˆϐ‹…‹‡–ǡ ‡“—‹–ƒ„Ž‡ǡ ƒ† range of goods and services, is too complicated.–”ƒ•’ƒ”‡– –ƒš •›•–‡ ‹• –Š‡ ˆ‘—†ƒ–‹‘ ‘ˆ ϐ‹•…ƒŽ –—”‘˜‡” –ƒš –‡†• –‘ „‡ Ž‡•• ‡ˆϐ‹…‹‡– ƒ†•–ƒ„‹Ž‹–›Ǥ ‡…—”‹‰ ϐ‹•…ƒŽ •–ƒ„‹Ž‹–› ƒ– ƒ ‡ƒ”Ž› •–ƒ‰‡ more distorting in general than a general saleswill allow the government to have the resources tax or value-added tax (VAT), as a turnover taxto support the private sector’s development creates multiple layers of tax. Simplifying the(e.g., by providing the necessary infrastructure tax structure by converting commercial taxesand social services). Fiscal stability can also into a general sales tax with a single rate or VATensure that social spending in human capital is ƒ› Š‡Ž’ ‹…”‡ƒ•‡ –Š‡ ‡ˆϐ‹…‹‡…› ‘ˆ –ƒš …‘ŽŽ‡…–‹‘not compromised. and lessen the burden of tax administration. Any regressive effects of the VAT may then be Clearly, there is an urgent need to increase addressed from the spending side, for example,government revenues to support high priority by linking increased tax revenue to targeteddevelopment spending initiatives. Poor revenue expenditures for the poor such as pro-poor’‡”ˆ‘”ƒ…‡ …ƒ „‡ ƒ––”‹„—–‡† –‘ –Š‡ ‹•—ˆϐ‹…‹‡– infrastructure and direct transfer payments.–ƒš …‘ŽŽ‡…–‹‘ǡ ”‘‘–‡† ‹ –Š‡ ‹‡ˆϐ‹…‹‡– –ƒšsystem. Total national budget revenues are Developing the Financial Systemestimated at 10%–15% of GDP in the last 5 ‘†‡”‹œ‡† ϐ‹ƒ…‹ƒŽ •›•–‡ ™‘—Ž† ˆƒ…‹Ž‹–ƒ–‡years or so, of which tax revenues account for effective intermediation of domestic saving toless than one-third. The rest comprises transfers investment and support broad-based growth.from state enterprises and other non-tax ›ƒƒ”ǯ• ϐ‹ƒ…‹ƒŽ •‡…–‘” ‹• ˜‡”› •ƒŽŽ ƒ†revenues. Mobilization of government revenues kept under tight control. Little private credit‹• Ž‘™ǡ ƒ‹Ž› ”‡ϐŽ‡…–‹‰ Ž‹‹–‡† •‘—”…‡• ‘ˆ is available in Myanmar: at under 25% of GDPbudget revenues, the complicated tax structure (Figure 21), it is below that in most developingand weak tax administration that encourage Asian peers. By comparison, in Viet Nam privatetax avoidance, and generous tax incentives that credit exceeded 120% of GDP in 2010.are eroding the tax base. There is also lack oftransparency in recording revenue collection ”ƒ†—ƒŽ ϐ‹ƒ…‹ƒŽ Ž‹„‡”ƒŽ‹œƒ–‹‘ ‹• –ƒ‹‰in the consolidated budget (the combined place as some restrictions have been eased incentral budget and budgets of state economic recent months. While the CBM continues to setenterprises). both deposit and loan rates, it allowed private banks to set interest rates (within a limited In recent years, the government has range) on savings accounts. In response, somebolstered its tax collection, particularly on banks have raised interest rates on savingscommodities, services, and custom duties. accounts to attract customers. The CBM has ‘ŽŽ‡…–‹‘• Šƒ˜‡ „‡‡ ‹’”‘˜‹‰ ™‹–Š •‹‰‹ϐ‹…ƒ– also lowered the interest charged on loans bynatural gas revenues. Higher tax revenues could a cumulative 4 percentage points to 13% sincebe collected by improving tax policies and September 2011. Further improvements insimplifying tax structures and administration. ϐ‹ƒ…‹ƒŽ ‹–‡”‡†‹ƒ–‹‘ …‘—Ž† „‡‰‹ „› ’Šƒ•‹‰Š‡ ‰‘˜‡”‡– ƒ› „‡‡ϐ‹– ˆ”‘ „”‘ƒ†‡‹‰ out deposit-to-capital ratios and expanding thetax bases by eliminating tax incentives and list of collateral beyond landed property to allconcessions. The tax legislation might be crops (IMF 2012).ƒŽ•‘ …Žƒ”‹ϐ‹‡† ƒ† •‹’Ž‹ϐ‹‡†Ǥ ”‘ƒ†‡‹‰ –Š‡corporate tax base and simplifying the tax code ‡˜‡Ž‘’‹‰ –Š‡ ϐ‹ƒ…‹ƒŽ ƒ”‡–ǡ ‡•’‡…‹ƒŽŽ›(e.g., by reducing the number of taxes and rates) a functional interbank market, is important towould in turn lower tax administration and enhance the effectiveness of monetary policy 37
  • 77. Myanmar In Transition: Opportunities and ChallengesFigure 21. Credit to the Economy (% of GDP) 160 140 120 100 80 60 40 20 0 Viet Nam Nepal Bangladesh Sri Lanka PNG Mongolia Lao PDR Myanmar Cambodia 2001 2010GDP = gross domestic product, Lao PDR = Lao People’s Democratic Republic, PNG = Papua New Guinea.Source: ADB-SDBS 2012and mobilize domestic savings for productive that will sketch out short, medium, and longerinvestments. The recent steps to lessen term reforms. The strategy might envisageadministrative controls on interest rates are the development of a sound, market-basedwelcome, and will allow the CBM to be able to ϐ‹ƒ…‹ƒŽ •›•–‡ ‘˜‡” –Š‡ ‡†‹— –‘ Ž‘‰ ”—use the interest rate as its policy instrument that will enhance resource mobilization andand allow transmission of monetary policy. support broad economic growth. In conjunctionThis will also help strengthen the CBM’s with the development of monetary policy andreserve management. increased autonomy of the central bank, the ”‡ˆ‘”• …ƒ Š‡Ž’ –‘ ‹–‹‰ƒ–‡ ”‹•• ‘ˆ ϐ‹ƒ…‹ƒŽ Š‡ ’”‘‘–‹‘ ‘ˆ ϐ‹ƒ…‹ƒŽ ƒ……‡•• ˆ‘” •‡…–‘” ‹•–ƒ„‹Ž‹–› –Šƒ– ƒ› …‘‡ ™‹–Š ϐ‹ƒ…‹ƒŽtraditionally underserved sectors, such as the liberalization.poor and small- and medium-sized enterprises,is also a high priority. Banks need to extend Strengthening the regulatory andtheir reach to the broader public, especially in supervisory framework is particularly important”—”ƒŽ ƒ”‡ƒ• ™Š‡”‡ ƒ……‡•• –‘ ϐ‹ƒ…‡ ‹• ‡š–”‡‡Ž› for developing economies with a relatively weak†‹ˆϐ‹…—Ž–Ǥ ‘ ‡Šƒ…‡ ϐ‹ƒ…‹ƒŽ ƒ……‡•• ™‹ŽŽ ‡–ƒ‹Ž ϐ‹ƒ…‹ƒŽ ƒ”‡– ‹ˆ”ƒ•–”—…–—”‡ –‘ •—’’‘”– …”‡†‹–strong policy intervention and support, legal and risk assessment and effective risk management.regulatory reforms, and capacity building for It is critical that the minimum capitalϐ‹ƒ…‹ƒŽ ‹•–‹–—–‹‘• –‘ ’”‘˜‹†‡ ‘”‡ ‡ˆϐ‹…‹‡– ”‡“—‹”‡‡–• ƒ”‡ ‡– ˆ‘” ”‡‰—Žƒ–‡† ϐ‹ƒ…‹ƒŽ‹…”‘ϐ‹ƒ…‡ •‡”˜‹…‡•Ǥ institutions and a rigorous supervisory review process is implemented to ensure that banks The government has introduced a series maintain sound balance sheets and exercise dueof measures to improve access to credit and vigilance in their risk management practices.ϐ‹ƒ…‹ƒŽ ‹–‡”‡†‹ƒ–‹‘Ǥ ‘” ‡šƒ’Ž‡ǡ –Š‡ —– ‘”‡ ‹’‘”–ƒ–Ž›ǡ „—‹Ž†‹‰ „ƒ•‹… ϐ‹ƒ…‹ƒŽgovernment has allowed private banks to infrastructure is critical, such as (1) establishingexpand their branch networks and has increased legal and institutional frameworks concerningthe list of collateral to lessen impediments to creditor rights, prudential regulations, andaccess to credit. Much more can be done. The insolvency regimes; (2) building information  ‹• †”ƒˆ–‹‰ ƒ ϐ‹ƒ…‹ƒŽ •‡…–‘” ”‘ƒ†ƒ’ and governance structures such as credit38
  • 78. Implications for Myanmar’s Economic Transitioninformation systems, accounting and disclosure and transport) is particularly important as itrules, and internal and external auditing increases agricultural productivity and in turnsystems; and (3) strengthening the CBM’s role will have a direct impact on poverty reduction.to properly monitor the economy, formulate For irrigation, the two equal focuses can be onand conduct appropriate monetary policy, rehabilitating and improving maintenance ofand effectively supervise banks. Strengthened the existing infrastructure, and developing newcapacity will allow regulators to evaluate irrigation systems.banking soundness against the rapidly evolvingϐ‹ƒ…‹ƒŽ ‡˜‹”‘‡– ƒ† –‘ ƒ••‡•• –Š‡ ‹’ƒ…– High priority may be also given to energy.of new developments on the micro- and macro- The potential for generating energy through’”—†‡–‹ƒŽ •‘—†‡•• ‘ˆ ϐ‹ƒ…‹ƒŽ ‹•–‹–—–‹‘•ǡ hydropower has been estimated at over 100,000risk management, investor protection, and MW, of which perhaps less than 5% is being•›•–‡‹… ϐ‹ƒ…‹ƒŽ •–ƒ„‹Ž‹–›Ǥ exploited currently. To develop its renewable ‡‡”‰› •‘—”…‡•ǡ ›ƒƒ” ™‘—Ž† „‡‡ϐ‹– ˆ”‘ (1) an institutional and legal framework to support development and deployment of theseBuilding Development Foundations •‘—”…‡•Ǣ ȋʹȌ ‹…”‡ƒ•‡† ϐ‹ƒ…‡ –‘ •—’’‘”– research and development, private investment,Investing in Infrastructure and physical infrastructure developments;Structural impediments in Myanmar cloud (3) an enhanced human resource capacity;the prospect of strong and inclusive growth. and (4) appropriate market-based power andThe most important impediments relate to petroleum prices. As Myanmar opens up to aeducation, health, and infrastructure. Many changing world, developing a green growthindicators of physical and social infrastructure strategy is necessary for driving the country’sare lagging in Myanmar. Of particular importance goal of sustainable development, and creatingis low connectivity both within and beyond the a more robust and lasting economic prosperity.national border. Investments in infrastructure If Myanmar were to successfully harness itsand connectivity can be scaled up to promote renewable energy potential, it could positiongrowth and attract private investment, especially itself to be the regional supplier of clean andas the country is integrating into the regional affordable energy.economy. Investments to develop infrastructureand connectivity will help Myanmar to reap the Development of different types offull potential gains from regional integration, infrastructure entails different challenges, butthrough stimulating economic activity and there are common themes: (1) coherent sectorinvestment in Myanmar, and by raising revenues strategies and master plans, (2) strengthenedfrom transit trade. ‹•–‹–—–‹‘• ƒ† “—ƒŽ‹ϐ‹‡† Š—ƒ …ƒ’‹–ƒŽǡ (3) removal of hurdles to private sector Improved connectivity helps to promote ’ƒ”–‹…‹’ƒ–‹‘ǡ ƒ† ȋͶȌ ƒ…“—‹•‹–‹‘ ‘ˆ ϐ‹ƒ…‹ƒŽinclusion and social equality. For example, the resources for developing and maintaininglack of roads to schools or hospitals in rural and the infrastructure.remote areas may prevent people, particularlyethnic minorities living in these areas, from Developing Human Capitalgoing to school or seeking health care even Investing in broad human capital developmentwhen these services are already available. is fundamental for Myanmar to develop into aSimilarly, the economic activity will stay limited modern industrialized economy. An equitable,to urban areas if the rural communities do not effective, and good quality education system ishave reliable access to markets. Thus, improving essential to ensure that workers have the basicrural infrastructure (such as irrigation, storage, skills to integrate innovation and technology 39
  • 79. Myanmar In Transition: Opportunities and Challengesinto production. Along with secondary and country’s exposure to regional communicablehigher education, expanded excess to high diseases and its export of drug-resistant malariaquality TVET may be particularly important and other communicable diseases to otherto equip the economy with a skilled and countries. Myanmar could usefully work oncompetitive labor force for sustained and high building capacity to monitor, treat, and containgrowth. Linking knowledge and skills taught in endemic and epidemic diseases by enhancingthe classroom with the needs of the labor market regional health cooperation.and industries may ensure that workers can besuitably employed. Coordination between theeducation sector and industrial policies andbetween training institutions and the private Improving the Investment Climate forsector is critical to ensure that the country has Industry and Businessadequate human capital for development andthat problems with skills mismatch are avoideddown the road. For the last several decades, growth in ASEAN and other East Asian countries has been Myanmar can strengthen its planning for propelled by their structural transformationhuman resources development to help realize into manufacturing and services activitiesthe country’s economic potential. The basic of increased diversity and complexity.infrastructure for primary education is in place, Manufacturing and quality services can generateand further attention and investment would jobs and high productivity and therefore areimprove the quality of secondary education, critical for raising economy-wide output and perTVET, and tertiary education, with priority given capita income, as well as providing opportunitiesto upgrading schools, universities, and teacher for earning critically needed foreign exchange.training. Emphasis on training demobilizedsoldiers might also be considered. Former Currently, Myanmar’s growth draws largelyarmy engineering and medical personnel could from exploiting its natural resources (gas, gems,be given access to programs and courses that wood); agriculture (legumes, cereals); andprepare them to provide infrastructure and ϐ‹•Š‡”‹‡•Ǥ —”–Š‡” †‡˜‡Ž‘’‡– ‘ˆ ‹–• ‡…‘‘›ǡservices in rural areas. however, requires broadening its base beyond these primary industries while enhancing the Any successful strategy for inclusive growth value addition in the primary sector. The currentshould address augmenting human capital and level of technological sophistication, the depthproviding adequate social protection. Education of entrepreneurship, and the human capital baseand health directly improve the quality of life suggest that Myanmar may start from producingand are critical for broader human development. and exporting simple manufactured goods›ƒƒ” Šƒ• ƒ ˆƒ‹”Ž› ‡ˆϐ‹…‹‡– ’—„Ž‹… Š‡ƒŽ–Š and low-skilled services, and build graduallyservice system given its income level, but it is to increase complexity. Luckily, the abundant•‡”‹‘—•Ž› —†‡”ˆ—†‡†Ǣ ’”‘˜‹†‡• ‹•—ˆϐ‹…‹‡– supply of low-cost labor and the proximity to…‘˜‡”ƒ‰‡Ǣ ƒ† Šƒ• •‹‰‹ϐ‹…ƒ– ‰ƒ’• ‹ –‡”• the large markets of the PRC, India, and Thailand‘ˆ •–ƒˆϐ‹‰ǡ ‡“—‹’‡–ǡ ƒ† ƒ‹–‡ƒ…‡Ǥ Š‡ would work to Myanmar’s advantage.design of the overall health system is basicallysound, but requires administrative reform, and The importance of agriculture cannot beincreased government investment will help overemphasized, given the country’s geographyto improve public health services. In addition, and climate. The economy could diversifysome issues require regional attention. With by building on its current assets, notably bythe opening up of the economy, the movement expanding agro- and resources processing,of people and goods is expected to increase the and by promoting its rich cultural, historical,40
  • 80. Implications for Myanmar’s Economic Transitionand architectural heritage to develop its buildings; factories that produce textiles,ϐŽ‡†‰Ž‹‰ –‘—”‹• •‡…–‘”Ǥ Šƒ…‹‰ ƒ‰”‹…—Ž–—”ƒŽ consumer goods, and electronic and electricalproductivity is also important to enhance food goods; warehouses; and cinemas. Furthersecurity for the growing population in Myanmar, privatization and deregulation of public utilitiesand agricultural exports can be an important can be considered given the government’ssource of foreign exchange earnings in the early limited resources and capacity. This will alsostage of transition. These developments will facilitate foreign investment in these segmentsnot occur naturally but will require supporting ƒ† ”‡†—…‡ –Š‡ „—”†‡ ‘ ’—„Ž‹… ϐ‹ƒ…‡Ǥinfrastructure, complementary inputs, access Strengthening capacity building in public sector–‘ ϐ‹ƒ…‡ǡ ƒ’’”‘’”‹ƒ–‡ Š—ƒ …ƒ’‹–ƒŽǡ ƒ† ƒ management is of paramount importance toconducive institutional environment. ensure successful reform. Establishing an appropriate institutional The reform of the public sector is a long-termˆ”ƒ‡™‘” ˆ‘” ƒ Ž‡˜‡Ž ’Žƒ›‹‰ ϐ‹‡Ž† ƒ† ‰‘‘† challenge, requiring full political commitment.governance is also essential for private sector The government may wish to consider focusingdevelopment and a vibrant economy. This will „‡ ‘ ȋͳȌ ’”‘‘–‹‰ ‡ˆϐ‹…‹‡– ƒ† ‡ˆˆ‡…–‹˜‡ —•‡also promote accountability, transparency, and of public resources, (2) ensuring transparencyrespect for the rule of law, hence fostering an in the management and decision makingenabling environment for businesses. pertaining to its resources, and (3) providing adequate public services and infrastructure for the poor.Expediting Public Sector ReformMyanmar’s public sector is overextended, Building Planning and Statisticalcovering a wide range of economic activities Capacitybeyond many of the traditional realms including‡†—…ƒ–‹‘ǡ ‡‡”‰›ǡ ϐ‹ƒ…‡ǡ ˆ‘”‡•–”›ǡ Š‡ƒŽ–Š …ƒ”‡ǡand telecommunications. The organization and Myanmar faces an extensive list of developmentgovernance structure is weak, leaving it open challenges and the resources required toto mismanagement of staff and resources as overcome them remain limited. Prioritizing thewell as corruption. Lack of transparency and development issues and sectors is essential,accountability in decision making often leads to „ƒ•‡† ‘ ‡ˆˆ‡…–‹˜‡ …‘•–Ǧ„‡‡ϐ‹– ƒƒŽ›•‹• ƒ†poor design of public programs and hence poor an overarching framework for medium- anddelivery of public services. long-term national development goals. The prioritization will help identify and sequence Myanmar has been undertaking major reforms and investments so as to maximizereforms in the public domain, including the dividends. Developing an overarching’—––‹‰ ‹–• ’—„Ž‹… ϐ‹ƒ…‡ ‹ ‘”†‡” „› ‹’”‘˜‹‰ framework requires analysis at the macro levelrevenue management and tax collection and and prioritizing themes and sectors. Themeadministration. The second round of reform and sector studies can also help in preparingmight focus on the state economic enterprises. medium-term strategies and investment plans.Š‡ ’—„Ž‹… •‡…–‘” ™‘—Ž† „‡‡ϐ‹– ˆ”‘ ˆ—”–Š‡”rationalization and downsizing by reducing the Such a comprehensive exercise requiresstate’s role in many sectors. The government, a strong planning agency/body within thethrough its Privatization Commission, has government that will guide and coordinate thealready begun privatizing a number of effort and translate it into a cohesive medium-state economic enterprises, including many term development plan. Other transitional 41
  • 81. Myanmar In Transition: Opportunities and Challengeseconomies in the region have institutionalized For evidence-based development strategies,development planning through medium-term ›ƒƒ” …‘—Ž† „‡‡ϐ‹– ˆ”‘ „—‹Ž†‹‰ ‹–•development plans that typically coordinate statistical capacity. This can be achieved byand guide their development activities for a developing the technical capacity to produceperiod of 5–6 years. For example, a cornerstone statistics in line with internationally acceptedof Viet Nam’s development planning is its Five- standards and methodologies, and developingYear Socio-Economic Development Plan, which the institutional, organizational, and strategichas helped the country maintain an impressive capacity to produce national strategiesrate of economic growth and poverty reduction. for statistics, and strengthening statistical coordination mechanisms, statistics law, and Effective policymaking, planning, organization. In doing so, the country willimplementation, and monitoring will require have the opportunity to draw lessons fromreliable, timely, and relevant information other transition countries in the region (suchon the country’s social, economic, and as Cambodia and Viet Nam, which initiatedenvironmental conditions. Most government reforms in the 1990s and began buildingministries are endowed with some statistical statistical institutions and technical capacityabilities to meet the data requirements in to meet the information needs of a markettheir sector; however, the absence of adequate economy). Investing in statistical capacityinstitutional arrangements poses profound building requires short-term and medium- tochallenges in coordinating statistical activities long-term commitment.and maintaining uniform statistical standardsacross ministries.42
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  • 89. Myanmar in Transition: Opportunities and ChallengesMyanmar, which is emerging from decades of isolation, is poised to accelerate its economicgrowth on the back of its abundant labor force, rich natural resources, and geographicallocation. But the country faces many development challenges to achieve strong and inclusivegrowth. To take advantage of its rich potential and endowments, Myanmar can also use itsstrategic location between the People’s Republic of China and India, and act as a conduitbetween South and Southeast Asia. In order to sustain its growth momentum in the long run, Myanmar should aim for agrowth trajectory that is inclusive, equitable, and environmentally sustainable. This specialreport assesses the country’s strengths and weaknesses and highlights the challenges and risks.The key lies in prioritizing the actions to surmount the challenges and introducing the requisitereforms.About the Asian Development BankADB’s vision is an Asia and Pacific region free of poverty. Its mission is to help its developingmember countries reduce poverty and improve the quality of life of their people. Despite theregion’s many successes, it remains home to two-thirds of the world’s poor: 1.8 billion peoplewho live on less than $2 a day, with 903 million struggling on less than $1.25 a day. ADB iscommitted to reducing poverty through inclusive economic growth, environmentally sustainablegrowth, and regional integration. Based in Manila, ADB is owned by 67 members, including 48 from the region. Its maininstruments for helping its developing member countries are policy dialogue, loans, equityinvestments, guarantees, grants, and technical assistance.Asian Development Bank6 ADB Avenue, Mandaluyong City1550 Metro Manila, PhilippinesTel +63 2 632 4444Fax +63 2 636 2444Website: www.adb.org/economicsEmail address: information@adb.org Printed on recycled paper.