The second wave of the Covid-19 pandemic will delay the recovery of the Myanmar economy, leading to growth of just 1.7 percent in fiscal 2019-2020, according to the World Bank’s Myanmar Economic Monitor 2020 released December 16.
This is down from growth of 6.8% in fiscal 2018-2019, mainly due to a contraction in manufacturing and construction, which accounts for a third of Myanmar economy. This was as result of disruptions to supply chains, site closures and reduced demand on the back of Covid-19.
Recovery in the services sector will also be delayed due to pandemic restrictions, which had a severe impact on tourism and domestic mobility, incomes and employment. That, in turn, has weighed on retail trade, food and accommodation services across the country.
The poor has been the most affected as a result of pandemic’s impact on the economy, with ongoing restrictions rolled out under the second wave putting more household at rosk of poverty.
With limited savings, many households are being forced to reduced their food and non-food consumption in order to cope with income and job losses. Between August and October, the share of households experiencing moderate to severe food insecurity increased from 12% to 25%. Being unable to service their debts is also an emerging issue for poorer households.
Due to the slowdown in economic growth, poverty rates are forecast to increase from 22.4% in fiscal 2018-19 to 27% in fiscal 2020-21. “In the absence of a substantial policy response, poverty is expected to return to its pre-crisis level in fiscal 2021-22 at the earliest,” the World Bank report said.
Things look brighter over the long term through, with growth estimated to recover to 7%, supported by new investments in constructions and industry and road transport and communications infrastructure, better access to power supply and the increased use of digital technology, which could boost productivity across a broad range of sectors, the World Bank said.
Still, risks to that outlook are high given continued uncertainty arising from the pandemic. In the absence of a widely distributed vaccine or treatment, new waves of the pandemic could result in prolonged and potentially more severe restrictions and continue to dampen domestic activity.
Meanwhile, financial risks could heighten as borrowers in the most affected sectors face debt servicing challenges, which would impact the asset quality and loan portfolio of the banking system.
Myanmar needs to act fast in implementing its Covid-19 response plans to support the economy and mitigate increases in poverty,” said Mariam Sherman, World Bank Country Director for Myanmar, Cambodia and Lao DPR.
In the short term, the government should focus on measures that slow the spread of the virus, provide relief and food security to the poor and most vulnerable, and support economic activity. Over the long term, public investments in infrastructure and digital technologies can increase domestic demand and employment, while boosting the productive capacity of the economy,” she added.
Over the long term, there are several steps the government could take to create fiscal space, spend better, and ensure fiscal sustainability. These include widening the tax base with more progressive taxation and a review of tax holidays, improving budget planning processes, enhancing budget flexibility and widening social protection and monitoring the debt burden and fiscal risks.