Myanmar's Economic Crisis: Conflict, Inflation, and a Struggle for Survival

Myanmar's economy faces severe challenges in 2024, including conflict, inflation, and economic stagnation. Key sectors suffer, with rising poverty and a bleak economic outlook for the near future, according to the World Bank's "Myanmar Economic Monitor: Livelihoods Under Threat" report.

CoE-EDP, VisionRICoE-EDP, VisionRI | Updated: 22-06-2024 23:28 IST | Created: 22-06-2024 23:28 IST
Myanmar's Economic Crisis: Conflict, Inflation, and a Struggle for Survival
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Myanmar's economic landscape in 2024 is marred by conflict, macroeconomic instability, and a challenging business environment, according to the World Bank's "Myanmar Economic Monitor: Livelihoods Under Threat" report. Conflict has been a significant disruptor, affecting land border trade with China and Thailand and disturbing domestic supply chains. The introduction of mandatory conscription in February 2024 has exacerbated labor shortages in various industries. Since October 2023, over a million people have been displaced, increasing the total number of internally displaced persons (IDPs) to 3.1 million by early June.

The depreciation of the kyat, coupled with restricted access to foreign currency and import licenses, has led to persistent inflation and shortages of essential imported goods. Electricity outages have worsened, compelling businesses to rely on costly diesel generators, further increasing production costs.

Economic Activity Stalls

Myanmar's GDP is estimated to have risen by just 1% in the year ending March 2024, remaining about 10% below pre-pandemic levels. By April 2024, firms were operating at an average of 65% capacity, an improvement from September 2023 but still below previous years. The services sector, particularly retail and tourism, has been hit hard by high inflation and reduced consumer spending power.

The manufacturing sector saw a six-month contraction in the purchasing managers’ index (PMI), although there were improvements in April and May. Agriculture showed some resilience due to increased input use and better crop yields. However, limited access to credit and conflict-related disruptions continue to impact agricultural production negatively.

Labor Market Weakness

The labor market remains frail, with only partial improvements observed by the end of 2023. The employment rate rose by 2.3 percentage points between the end of 2022 and the end of 2023 but is still 7.4 percentage points below 2017 levels. The adult unemployment rate increased from 6.7% to 8.1% over the same period. Job vacancies have plateaued well below 2020 levels, and labor movements within the country, driven by conflict and conscription fears, have led to labor shortages in some areas and industries.

Trade and Exchange Rate Pressures

Trade has seen a significant decline, with merchandise exports falling by 13% and imports by 20% in the six months leading to March 2024 compared to the previous year. Exports through land borders dropped by 44%, and imports via land borders accounted for 71% of the overall import decline. Trade with China and Thailand has been restricted at border posts controlled by resistance groups, though some redirection towards alternative land gates and sea trade has occurred.

The kyat has depreciated sharply, losing about 20% against the US dollar on parallel markets since the end of 2023. The spread between the official fixed reference rate and the parallel market rate has tripled over the year to May 2024. Measures such as foreign currency surrender requirements and import license restrictions have further reduced foreign currency availability, exacerbating depreciation pressures.

Persistent Inflation and Rising Poverty

Inflation remains high, driven by rising food and fuel prices. Headline consumer price inflation rose to 30.4% year-on-year in September 2023. Fuel and transport prices have further increased due to global oil price hikes and the depreciating kyat. Food inflation is driven by higher export prices, trade and logistics constraints, and disruptions in domestic production.

The fiscal deficit is expected to widen, reaching 5.7% of GDP in FY2023/24, and projected to increase to 6.1% of GDP in FY2024/25. Public debt is expected to reach 63.0% of GDP by FY2024/25.

The cumulative impact of subdued economic activity, high prices, and weak labor markets has increased poverty levels. The poverty rate is estimated to be 32.1% in 2023-24, reverting to levels last seen in 2015. Urban poverty has risen more quickly than rural poverty over the past six years.

Bleak Economic Outlook

The economic outlook for Myanmar remains very weak. GDP is expected to grow by only 1% again in FY2024/25, indicating that Myanmar's GDP will remain about 9% below FY2018/19 levels. Persistent high inflation and constraints on labor, foreign exchange, and electricity access are expected to have significant impacts on economic activity. Agricultural activity is expected to continue expanding, driven by higher export and farmgate prices.

Consumer price inflation is expected to remain high, moderating to 18% in FY2024/25 from 26.5% in FY2023/24. The outlook for poverty reduction and household living standards is bleak, with households facing ongoing economic pressures and limited growth prospects.

Myanmar's economy is struggling under the weight of conflict, inflation, and economic stagnation. With a challenging business environment and a bleak economic outlook, the path to recovery appears uncertain. The World Bank's "Myanmar Economic Monitor: Livelihoods Under Threat" highlights the urgent need for comprehensive economic and social policies to address these multifaceted challenges.

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