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COVID-19 Threatens Myanmar’s Economy

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COVID-19 Threatens Myanmar’s Economy

Myanmar looks to East Asian states to support an ailing economy amid the pandemic.

COVID-19 Threatens Myanmar’s Economy
Credit: Pixabay

Myanmar has seen a moderate domestic impact from the global COVID-19 outbreak, recording just 85 cases as of April 17. However, the country’s reliance on international trade, investment, and technology means it will face near- and medium-term economic challenges that it is inadequately equipped to deal with alone.

Export volumes for simple manufactured goods have seen the biggest impact. The garment sector, which employs over 700,000 workers and accounts for $4.6 billion in export revenue — or 10 percent of all exports — has faced both supply and demand shocks. China supplies 90 percent of raw materials for the sector; however, exports to Myanmar were halted between January and March. Just as supplies were returning to normal in April, demand for Myanmar garment products collapsed.

Myanmar exports 70 percent of such products to European countries, most of which have been enforcing lockdowns and closing nonessential retail stores. As a result, 25,000 workers from over 40 garment factories have been laid off in Myanmar so far. Recognizing the hardship this is causing, the European Union on April 9 announced a 5 million euro ($5.46 million) aid package for garment workers.

In dealing with such headwinds, Myanmar has limited fiscal capacity to stimulate the economy. Indeed, in financing the measures to tackle COVID-19, State Counsellor Aung San Suu Kyi has called on businesses and citizens to donate to a public fund. The government has also allocated 100 billion kyats ($72 million) to support small- and medium-sized enterprises (SMEs) and the garment and tourism sectors. The sum, however, is paltry when compared to neighboring Thailand’s $76 billion stimulus package. Moreover, Myanmar’s fund only deals with immediate hardships, while there is no plan to support the economy in the coming months.

Myanmar is therefore looking abroad to support its economy. Yet early indications show the foreign private sector may be unable to provide the desired investment flows. Outbreaks in key investment partners have already caused delays to projects valued in the billions of dollars.

In March, the Request for Proposal deadline for the $1 billion Yangon Elevated Expressway was extended to April 30. Bidders from China, Japan, and South Korea requested an extension due to domestic COVID-19 outbreaks, while the Wuhan-based China Gezhouba/Great Genesis Gems Consortium withdrew from bidding. Further delays to getting construction underway appear inevitable.

Furthermore, the development of the $8-10 billion Dawei Special Economic Zone (SEZ) and $137.1 million Dawei-Htee Kee Road linking the zone to Ratchaburi in Thailand has been delayed. The zone’s developer, Bangkok-based conglomerate Italian-Thai Development, has been suffering financial losses due to the outbreak and is scaling back on all projects.

With such domestic and international private sector constraints, investment flows from state-backed East Asian agencies or enterprises will now be vital. While acknowledging projects will see disruption, foreign officials have been reiterating their commitment to getting developments underway or overseeing ongoing ones to completion in Myanmar.

Japan International Cooperation Agency’s Myanmar Chief Representative Sakakura Noriji said on March 25 that the agency would move ahead with infrastructure, urban, sewerage, and power distribution projects, for which a 120.9 billion yen ($1.1 billion) loan agreement was signed for in January. The loan is part of the 800 billion yen ($7.3 billion) pledged by Japanese Prime Minister Shinzo Abe during his November 2016 visit to Myanmar.

In early April, the Chinese Foreign Ministry announced $6.78 million would be provided for 22 Myanmar projects under the Beijing-led Mekong-Lancang Cooperation Initiative. Regarding projects under the China-Myanmar Economic Corridor and Belt and Road Initiative, Chinese Ambassador to Myanmar Chen Hai said the 33 agreements signed during President Xi Jinping’s visit in January would continue to progress from the planning to implementation stage.

Major projects include the $1.3 billion Kyaukphyu deep-sea port and SEZ developed by the CITIC consortium, which comprises four Chinese state-owned enterprises in addition to Thai-based Charoen Pokphang Group.

South Korean Ambassador to Myanmar Lee Sang-hwa also reiterated his country’s support for infrastructure projects, saying “as soon as we overcome [COVID-19], we will expedite all cooperation projects to bring them back on track.” Notable South Korean state-backed projects include the $154 million Yangon-Dala Bridge, Dala New City, $125 million Mandalay-Myitkyina Railway upgrade, and South Korea-Myanmar Industrial Complex.

Looking ahead, the Myanmar government may look to expedite projects funded by foreign state-backed agencies or enterprises to keep investment flowing in. In any scenario, however, such investments are unlikely to be enough to shore up the entire economy and the country must formulate a medium-term economic plan to deal with the uncertainty in the months ahead.

Shah Suraj Bharat is a Yangon-based transport infrastructure analyst for FMR Research and non-resident fellow for Policylab Indonesia. The views expressed are his own.