Country Analysis – Myanmar

Myanmar is a resource-rich country and also known as the Asian rice bowl suffers from pervasive government controls, inefficient economic policies, corruption, and rural poverty. The economy suffers from serious macroeconomic imbalances including unpredictable inflation, fiscal deficits, multiple official exchange rates that overvalue the Burmese kyat, and unreliable statistics. In trade activity, Myanmar’s main imports are fabric petroleum products and crude oil, fertilizers, plastics, machinery, transport equipment food products and also construction materials.

The major exports of Myanmar are natural gas, wood products, pulses and beans, fish, rice, clothing and jade and gems. On July 2012, the population in Myanmar is said to be 54,584650 people. Several considerations were made in counting and estimating the population including the effects of excess mortality due to AIDS. This can result in lower life expectancy, higher infant mortality, higher death rates, lower population growth rates, and changes in the distribution of population by age and sex than would otherwise be expected.

Most people live in the 40,000-odd villages of the country, while the majority of the urban population resides in the capital city of Rangoon. Among the population engaged in agriculture, 37 percent of the people do not have any land or livestock. Poverty and misery have increased in the past 3 decades. It is estimated in the CIA World Factbook that in1997 23 percent of the Burmese population had incomes that placed them below the poverty line.

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Price Stability

Inflation is the general increase in the level of price. Each and every country’s government has their own targets for the inflation rate in order to achieve price stability.

It is impossible for a certain country to achieve zero level of inflation so an average of 2%-3% inflation is already good enough. The main indicator of price stability is the Consumer Price Index (CPI) which measures the degree of change in price as a whole. Figure 1. 0 The Percentage of Inflation in Myanmar Figure 1. 0 shows the graph of the inflation rate of Myanmar from 2007 to 2011. The year before 2007 shows a very high level of inflation in Myanmar which is around 35%. During that time, Myanmar’s economy is at the peak level. The export of Myanmar at that time was at the highest.

The increase in the exports of rice and agricultural product caused demand pull inflation. This is because export is one of the components of the aggregate demand (AD). The high export rate causes the income of the local citizen becomes higher. A high income results in the increase in consumption. The increase in export and consumption which both are the component of AD causes demand pull inflation. To get a clearer view, refer to the graph below. In the contemporary, both of this component is also injection in the economy and causes the injection to become more than leakage.

This creates a multiplier effect thus expands Myanmar’s economy. Demand-pull Inflation In the year 2007, the basic commodity prices rose from 30 to 60 percent. At this particular time, the workers demand for more wages. The cost of production will increase thus shifting the short run aggregate supply (SRAS) to the left. This causes cost push inflation to the economy of Myanmar. But instead showing the increase in inflation level, the graph shows a slight inclination in the inflation rate. This is because the government implemented a contractionary policy to Myanmar’s economy.

To the worst, the Cyclone Nargis hit Myanmar and this causes a negative growth of inflation to happen at a very high rate. Due to the disaster that happened, the government spending had to be focused on the welfare of the estimated 2. 4 million homeless victims. The money that should be invested on other things had been used for the recovery from the disaster. Meanwhile, Myanmar kept on exporting the rice in order to gain more profit without considering the number of seed that is reduced due to the destruction caused by the cyclone.

This causes the production of rice and other agricultural product to be reduced in a great amount due to the disaster that happened. Besides, the length of production factor also will result on a huge shortage of food supply. This unknowingly converts Myanmar from a net rice exporter to importer. The higher amount of import than the export and added with the decrease in investment, also the government spending causes a shift in the AD to the left and results a decrease in the rate of inflation at a dramatic rate.

The year 2009-2011shows an increasing trend of inflation in Myanmar. This is when Myanmar enters the recovery phase of its economy. Probably during this phase Myanmar had already recovered from the cyclone and starts to increase their economic activity. More people will get employed and the consumption will increase. At the same time the government also spends a lot to bring back the economy of their country. This will shift the AD to the right thus increasing back the inflation rate.

Full Employment

Full employment means that every person in the labor force gets employed.

It has become a significant objective for a country because it is closely related to the efficiency in resource allocation and also in achieving non-accelerating inflationary rate of unemployment (NAIRU). Both efficiency in resource allocation and the NAIRU are important to achieve a stable economy. The Unemployment Rate in Myanmar The unemployment rate of Myanmar peaked at the year 2008. This is probably because the Nargis cyclone that hit Myanmar during that year causes death and destruction. The destruction also includes the farms and fields where most of Myanmar citizen works.

This is called seasonal unemployment. Furthermore, during the financial crisis, the lack of import demand from other country causes many shutting down of shops and factories such as clothing factories, gemstone polishing and carving workshops, rubber factories and also the magazine and the publishing house. As a result, during that period of time, crimes such as theft and prostitution rate were seemed starting to rise. From 2008-2011, the rate of unemployment shows a decreasing trend. This is probably because of the agricultural sector that already recovered after the disaster that happened had opened a lot of job opportunities.

In addition, an economic reform also had been made and training programs also were conducted such as the market opening policy. This increases the availability for the people in the labor force to get employed. The long run aggregate supply (LRAS) curve will shift to the right due to the changes in the government policy and also the education and training that have been made. Shift of Long-run Aggregate Supply In Myanmar, the participation of woman in the work force is still low and does not show any significant change in the labor participation which is majority participated by males.

This is due to the trend in Myanmar where only male works while the female stays at home.

Economic Growth

Reviewing back to the economic problem, wants are unlimited but resources are scares. The objective of the economy is to solve this problem. So, economic growth is very important in order to satisfy more wants. Of course, there are several special consideration placed on the economic growth. One of them is the limitation of usage of resources for the future generation to use.  Myanmar GDP by-year Chart Overall, the economic growth of Myanmar on 2007-2011 shows an increasing trend.

The year 2007-2008 shows the drop in economic growth and afterwards, the years after that show recovery. The world economy crisis that happened in the year 2008 really gave a huge impact on Myanmar economy because Myanmar is highly dependent on trading activities. The GDP of Myanmar that decreases to 1. 2% was not only caused by the economic crisis but also because of the Nargis cyclone that hit Myanmar in middle 2008. The “Lehman shock” that happened which causes a huge bankruptcy at Japan which is one of the main importer from Myanmar in the same year really affected the GDP of Myanmar.

This results a decrease in economic growth of Myanmar due to the decreased size of natural resources caused by the Nargis cyclone, the uncontrolled inflation rate which is also relatively high in 2008 and also the political condition that was not so stable at that particular time. However, Myanmar shows an increased economic growth trend the year afterwards which is from 1. 2% to 5. 6%. This is because the export in Myanmar increases during these years. Due to some political tension, Korea increased their import share towards Myanmar and it became the third largest importer after Japan and Germany.

As a result the combined export share for Korea and Japan reached 51. 5% and this trend seems to have become stronger in 2010. For the next year, it kept on growing on a steady rate due to no serious problem occurred.

External Balance

An economy that practices import and export is known as the open economic system. This means there are money going out and also coming in into a certain country. External balance means a balance between money inflow and outflow resulting from a country’s transactions with the rest of the world. It is a record of a country’s transaction in goods, services and assets with the rest of the world.

There are three components of external balance which are the current account deficit as a percentage of GDP, net foreign debt as a percentage of GDP and the exchange rate. It is one of the macroeconomic objectives and its target is to achieve enough inflow from foreign country to buy imports and also being able to meet its financial obligation to other country. Current account deficit as a percentage of GDP. The current account measures the inflows and outflows of a country. It is divided to two categories which are the current flows and also the capital flows.

The current flow consist of the export and the receipts of income payment as the inflow and the import and the income paid to overseas as the outflow. For the capital flows, the inflow is the foreign investment and the borrowing. The outflows are loan repayment and investment made overseas. Current Account Balance in Myanmar The figure above shows the current account balance of Myanmar as a percentage of GDP. Over the years, it shows a decreasing trend from 2007-2011. However in 2009, it shows a sharp increase until 2010 and it falls back.

It is certainly not highly affected by the export and import because referring to the graph below (graph 4. 1 and 4. 2) there is not much difference in the export and imports around these five years. The low value of the current account balance is due to Myanmar’s spending to meet its debt from other country. Graph 4. 3 shows the amount of Myanmar’s debt with other foreign country.

A stable exchange rate indicates that the economy of a country is healthy and promotes investor to see that the country’s production is a worthwhile investment. The factors affecting the currency are highly related to the supply and demand for the currency.  The Graph of Supply and Demand for Currency In Myanmar, of course fluctuations of the Burmese Kyat (BK) happen from time to time. The exchange rate for BK is the price or value of one BK expressed in terms of foreign currency. The figure below shows the fluctuating BK throughout the five years period.

Myanmar Official Exchange Rate per US($) Over the five years the exchange rate of Myanmar shows a decreasing trend. A great depreciate if BK in the year 2007-2008 is due to the high inflation rate. The increase of the commodity prices decreases Myanmar’s export. Being a country that is very dependent on trading business, the decrease in the demand for Myanmar’s currency causes the AD shifts at a great amount to the left thus depreciating the currency. The depreciating of the currency will probably cause the current account deficit (CAD) of Myanmar to worsen.

On the contemporary, the unemployment gap will also become bigger indicating the increasing in the unemployment rate.  In the year 2008-2009, Myanmar’s currency shows appreciation. This is due to the rate of inflation in Myanmar that is relatively low at the particular time. The low inflation means the price of local product is cheaper. The cheaper local product will make the local product price to be internationally competitive thus increases the export. The increase in demand for Myanmar’s currency will shift the AD to the right thus appreciate Myanmar’s exchange rate.

People will also starting to get employed as the unemployment gap has become smaller. The CAD will expected to improve. Prospect Based on all analysis done, I estimated that Myanmar economic growth would continue growing if the government is very aware and carefully observing the fluctuating rate of inflation. The government must know the right time to implement whether a cotractionary or expansionary policy at the right time. For the full employment, it is the responsibility of the government to distribute and if necessary provide training for the population in order to achieve the full employment target.

New rules and regulation and also policy must be implemented so that hard core unemployment, frictional unemployment, hidden unemployment and all other types of unemployment could be reduced. The economic growth of Myanmar is now in quite good position. However, it is unpredictable for something unwanted to happen such as global recession, increase in commodity price and natural disaster. So, economist and the government must take a serious consideration on planning a preparation for the economy to face unwanted situations to happen.

For the exchange rate, it is better for Myanmar to maintain the value of Burmese kyat than trying to appreciate or depreciate it due to certain circumstances such as a cold diplomatic relationship with other countries and the unstable political condition inside the country itself. If any action is taken it is worried that a riot or the hampering of foreign investment from other country would happen. However, Myanmar should broaden their vision and observing how other country’s economy works. This is in order for Myanmar to improve its economy and foster a harmonious relationship with other countries abroad.

If this could be achieved and be done, it is not impossible for Myanmar to leap up to the first rank in the world for the most high income country but with a low rate of inflation. Conclusion To wrap up, it is quite hard to say whether Myanmar have achieved or not achieved even any of the macroeconomics objectives. Although the economic growth and price stability keeps on fluctuating due to unwanted and also uncontrollable events, Myanmar still manage to overcome the problem or crisis even though still consumes a huge amount of time.

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