Myanmar's economic changes and challenges in 2023

In the first six months of 2023, there was little potential for economic growth in Myanmar, but in the next six months, the economic situation is declining due to the increase in military attacks and the closure of border trade routes, according to a report by the World Bank.

In the fiscal year that will end in March 2024, Myanmar's economic growth will be only one percent. The World Bank estimates that Myanmar's GDP will decrease by 10 percent compared to five years ago before the covid epidemic and the military coup. The offensive attacks of Operation 1027, which began at the end of October this year, had an impact on Myanmar's economy. Smuggling and illegal activities have grown. This year, the military council's policies are unstable, inflation, power outages; It was a year when Myanmar's economy has yet to recover due to product shortages.

New sanctions

This year, leaders of the Myanmar military and military-owned businesses, New international sanctions have been imposed on those linked to military interests. In June, the U.S. government announced sanctions against the Myanmar Foreign Trade Bank MFTB and the Myanmar Investment and Commercial Bank MICB, preventing them from obtaining foreign currency for the military council and buying fuel.

Similarly, the US government announced in October that it would not provide financial services to Myanmar's oil and gas company MOGE, which is a major source of income for the Myanmar military. Similarly, those who are helping to import weapons for the Burmese army, the United States, Great Britain Canada has joined and announced the imposition of balanced sanctions.

This is the first time MOGE has been sanctioned as an entire organization. Human rights observers welcomed the balanced sanctions imposed by countries that support Myanmar's democracy as a success. Also in December, the British government imposed sanctions on people involved in human trafficking and online fraud in Myanmar.

Increasing crime and illegal activities

Military conflict across Myanmar; Due to the economic crisis and the lack of law and order, opium cultivation, human trafficking Online fraud and smuggling are growing.

According to the United Nations, this year Myanmar has surpassed Afghanistan to become the world's largest producer of opium. This year, Myanmar produced 1080 tons of opium, and the United Nations estimates that the income from opium export will reach 2.5 billion dollars. According to the United Nations Office on Drugs and Crime, opium cultivation has increased due to the unfavorable conditions for legitimate businesses since the military coup.

Internet money laundering operations based on the Thai-Myanmar border and the China-Myanmar border have grown more widely since the military coup, experts said. According to the Chinese government's estimate, there are currently more than 1,000 money laundering centers based in Myanmar, and there may be more than 100,000 people working in these businesses every day, and the annual revenue may reach billions of dollars, according to Chinese media.  

This year, due to the cessation of mining and production in rare earth mines in Myanmar, prices in the global rare earth market have risen. Last year, 22 percent of China's rare earth mineral production came from the rare earth mines in Burma's Kachin State and northern Shan State, and this year there is no change in the status of exports to China, experts said.

Economist Jared Bissinger, an analyst of Myanmar affairs, pointed out to RFA that from January to October of this year, according to the Military Council's statistics, there were 1.9 billion dollars in goods imported from Thailand, and according to the Thai government's statistics, there were 3.6 billion dollars in goods exported to Myanmar.

The effect of the 1027 operation

At the end of October this year, due to Operation 1027 attacks, the two main routes for exporting goods to China in northern Shan State, the Lashio-Muse road and the Lashio-Chin Shwehao road, were cut off. These two routes account for 40 percent of Myanmar's border trade. The World Bank has assessed that imports of consumer goods and the ability of businesses to operate may be affected.

The Military Council said that the value of trade from the two border gates in North Shan region is more than ten million US dollars a day, and since the trade was stopped after the 1027 operation, they have lost more than five hundred million US dollars.

Jared Bissinger, an economist who observes Myanmar affairs, concluded that although the border trade routes will be cut off due to military attacks after October of this year, trade will not stop completely and will continue to be smuggling.

The instability of trade policies  

After the military coup, the US dollar exchange rate was controlled, and on December 5th, it was announced that the US dollar could be traded freely according to the market price. In addition, it was announced on December 6 that 50 percent of the dollars received by foreign exporters must be exchanged for the central bank's set price of 2,100 kyats and then reduced to 35 percent.

Although the central bank's relaxation of the dollar limit may be beneficial for exporters, economists have analyzed that it will make it difficult for importers who have to buy and import dollars at foreign market prices.

Inflation

The World Bank has estimated that Myanmar's inflation rate reached nearly 30 percent this year. On February 1, 2021, when the military seized power, one US dollar was 1,330 kyats. One kyat of gold was around 13,000 kyats, but by the middle of 2023, it has risen to around 3,900 kyats per US dollar, and one kyat of bark gold has risen to 39,000 kyats or more. The prices of basic food products are also rising, and according to the International Food Research Organization, compared to the year 2020, the price of rice in Myanmar has almost tripled. It is said that the price of edible oil has almost quadrupled, and the price of meat, fish and vegetables has doubled.

The military leader, General Min Aung Hlaing, said on August 25 that the high prices the people of Burma are currently facing are due to speculation by fraudsters, but analysts have criticized the military council's misguided policies and poor management.

Twenty thousand Kyats issued

The announcement in July that the military-controlled central bank will start issuing new 20,000 kyat notes this year has had an impact on businesses. After this announcement came out, real estate transactions and gold shops in Yangon were closed. Inflation made the problem worse. Due to the news that 20,000 tons will be published, the price of gold rose from around 31,000,000. It went up to 35,000, and the price of one US dollar went up from 3,100 kyats to 3,400 kyats.

General Zaw Min Tun, spokesman for the Military Council, said that since the new twenty thousand ton notes will be issued in limited quantities, there will be no inflation, but experts believe that the new banknotes are being issued because the Military Council is running out of money.

Fuel shortages

Starting around the first week of December this year, Yangon, Mandalay In Nay Pyi Taw and other cities, there is a shortage of fuel at petrol stations, some of them have been closed, and hundreds of cars have to queue up to buy cars at petrol stations that are open. Fuel prices are also rising. On the 12th of December, fuel in big cities, An average of more than four thousand to five thousand per liter. There are military conflicts, In some townships in Rakhine state blocked by the military council, the price of one liter of gasoline was up to 30,000 kyats.

On the military council's side, despite frequent announcements that oil ships are constantly arriving at Yangon's Thilawa port, oil companies say that they are unable to extract oil because they cannot buy dollars to pay for it.

On December 5th, the Foreign Exchange Supervision Committee of the Military Council decided to stop selling fuel at the central bank's fixed price of 2,100 kyats to the dollar, instead of allowing it to be sold at the external market price.

Efforts to collect taxes from migrant workers

The military council, which is short of money this year, has to pay wages and salaries from expatriate Myanmar nationals and migrant workers. They started trying to collect taxes from salaries.

In September of this year, the Military Council issued new regulations requiring Burmese migrant workers to repatriate at least 25 percent of their wages, and expatriate Burmese must deduct 2 percent of their total income or expenses and pay 25 percent of the remaining income as income tax. It is also specified that when the passport is renewed, it will be renewed only if proof of income tax can be shown.

Because of this new rule, Myanmar citizens from Singapore and some other countries had to pay taxes at the Myanmar embassy. Burmese migrant workers in Thailand are against the new rules of the military council.  

Real estate and construction sector

Since the military coup, the country's unrest and the devaluation of the kyat have pushed up real estate prices as more people buy real estate as a solid investment. A real estate agency told RFA that real estate prices have risen by 40 to 60 percent this year.

What used to be the majority of buyers to actually live in? This year, real estate prices in the cities of Yangon and Mandalay have fluctuated rapidly due to the new 20,000 kyat issue and speculators entering to make a profit. Real estate experts said that house prices in some places in North Dagon Township, Yangon Region, have gone up more than ten times.

at the same time, In Thailand and some neighboring countries, the purchase of real estate by Myanmar citizens is on the rise. According to figures from the Bangkok Real Estate Information Center this year, foreigners have been among the top buyers of condos in Thailand. Despite the rise in real estate prices, Analysts told RFA that construction activity has stalled as the price of construction materials has risen along with rising land prices and the dollar.

Almost all large-scale construction projects in Yangon have stopped, and Dagon Township, The Y Complex project, which is being built at the site of the Military History Museum, The Yankin PPP Redevelopment project being built in Yanking Township and the Peninsula Hotel project being built near the Yangon Central Railway Office Building are all at a standstill. Nikkei Asia reported that the Peninsula Hotel project has been suspended due to economic conditions.

As for the Yangon-Dala Bridge project, which is being built with a loan from South Korea, some construction work continued in March this year. Local news media reported that the project is scheduled to be completed by the end of 2024.

World travel industry

In the first six months of 2023, 460,000 tourists entered Myanmar, which is a 50 percent increase over last year's arrival. According to the World Bank, the arrival of more than 1300,000 tourists in the six months of 2019 before the Covid-19 pandemic is much lower. Most of the tourists who come are from Asian countries and they only stay in Myanmar for a short time, so they don't get much income. Although the military council has tried to attract tourists from some Asian countries by issuing visas on arrival, it has been reported that the number of tourists has not increased. Many hotels that were closed due to the covid epidemic have not yet been able to reopen, and there have been mass sales of loss-making hotels this year.

Agriculture sector

In the agricultural sector, which is important for Myanmar, cultivation is declining due to the situation of rural people fleeing the war across the country. In addition, the fertilizers used in agriculture, Crop production has decreased this year due to rising prices of inputs such as pesticides.

Experts in the agricultural sector told RFA that after the coup, only 60 percent of the total acreage of spring and rainy rice in the country can be cultivated. Economist Jared Bissinger said the temporary ban on rice exports earlier this year and restrictions on mandatory transfer of export earnings have also affected the agricultural sector.

In Irrawaddy, which produces the most rice, farmers are delaying their cultivation due to fuel shortages this year.

Hope for the garment sector

Although there is hope to pull the country's economy from the growth of the garment industry due to the advantage of cheaper labor than neighboring countries, it will continue to face many challenges, according to the World Bank.

Many electricity outages; It is difficult to get permission and license. Due to the instability, it is difficult to transport raw materials and there is no free exchange of foreign currency. As skilled workers are leaving for neighboring countries, Myanmar's garment industries are facing labor shortage difficulties rather than improving. According to the World Bank report, they are struggling to avoid losing.

A review for the new year

Next year, military conflict attacks, access to electricity, Depending on the circumstances of foreign demand and high commodity prices, Myanmar's economy can grow by two percent. The World Bank estimates that inflation will continue to be around 20 percent. The trade of the military council Due to various changes in financial policies and lack of transparency, business and manufacturing industries are vulnerable and losses will continue, he said. It is also considered that if the trade routes with China in the North Shan region continue to be interrupted, the export of agricultural products will be affected and the agricultural sector will be affected the most.

Economist Jared Bissinger has considered that the main problem is that the military leaders who seized power are making policies with the aim of controlling the country's economy so that the military and the military council can continue to survive rather than allowing the country's economy to recover and benefit the people of Burma.