YANGON – Myanmar State Counsellor Aung San Suu Kyi is scrambling to roll out Covid-19 relief measures in a race to prevent businesses and banks from collapsing under the weight of the global pandemic.
In late April, her government issued a 15-page “Covid-19 Economic Relief Plan” which broadly outlined its responses to the pandemic, though without committing to an overall cost or details on how the plan will be implemented.
So far the impact of the pandemic has been mostly economic in Myanmar. As of May 14, the country had recorded only 181 Covid-19 cases and six deaths, though there is widespread skepticism about the figures due to a lack of testing. The government was earlier widely criticized for claiming there were no cases in the country.
Deputy Finance Minister Set Aung indicated the relief package would inject the kyat equivalent of around US$2 billion into the local economy, representing between 3-4% of gross domestic product (GDP).
The stimulus package will be funded by budget reallocations, central bank financing and assistance from international financial institutions, authorities said.
Set Aung also said the government is in talks with development partners to secure foreign aid assistance in order to help finance the relief plan.
Senior officials are now consulting with the private sector, including foreign chambers of commerce in Yangon, as well as the World Bank and other financial institutions on how best to implement the inchoate plan.
The program seeks to “mitigate the inevitable economic impact posed by Covid-19 while establishing foundations that will facilitate Myanmar’s rapid economic recovery,” said Suu Kyi in the document’s foreword.
“By acting now, decisively” Myanmar can ease the economic burden of individuals and households, strengthen the healthcare capacity and emerge post-pandemic “from a position of strength,” the former Nobel laureate added.
Shortly before the stimulus package was announced, the International Monetary Fund (IMF) projected Myanmar would be among only 10% of economies worldwide to post positive economic growth this year amid a coronavirus-caused global recession.
In April, the IMF slashed Myanmar’s 2020 growth outlook to 1.8% from 6.4%, which would be the weakest growth rate recorded since the military junta transferred power to president Thein Sein’s quasi-civilian administration in 2011.
That’s being felt at the grass roots. As of May, over 60,000 workers have lost their jobs after more than 150 factories were forced to shut down as a result of cancelled orders and supply chain disruptions, according to Myo Aung, the labor ministry’s permanent secretary.
Government data suggests close to 46,000 migrant workers returned from abroad up to mid-April, most with worse job prospects than when they first left the country. Thousands more are believed to have crossed by unofficial border crossings.
Whether the relief package will address their needs is uncertain. Suu Kyi’s plan includes business-promoting commercial and income tax deferrals, waivers and credits and interest rate cuts of some 3%.
The government will also expand existing emergency funds for affected small and medium-sized enterprises (SMEs) in mainly garment manufacturing and tourism from 100 billion kyat ($72 million) to a maximum of 500 billion kyat ($360 million) and set up a 100 billion kyat ($72 million) fund to support trade financing.
The Covid-19 emergency program, however, is already coming under fire for a perceived lack of transparency and uneven implementation, including in regard to who qualifies for and actually receives benefits.
Few businesses have secured significant financial support, observers say. According to the Investment and Foreign Economic Relations Ministry, only 310 companies nationwide have secured relief package loans.
“Even among the selected sectors, hotels and factories are not getting the support they are supposed,” commented businessman Zaw Naing, who owns an IT firm in Yangon.
“The authorities should urgently change the way they run the fund because many businesses are barely surviving,” he said.
Other outlined measures include cash transfers, food rations and electricity tariff exemptions for vulnerable households, as well as a limited expansion of social welfare benefits for workers. Details on how those funds will be disbursed have not yet been released, however.
It is also unclear if all of the outlined assistance programs can be carried out realistically across the country given Myanmar’s still raging civil wars, general lack of a social welfare system and a largely unbanked population.
Myanmar’s military, the Tatmadaw, has entered a limited ceasefire but excluded the restive states of Rakhine and southern Chin after last month rejecting domestic and international calls for a comprehensive ceasefire so as to better combat the Covid-19 pandemic.
Senior corporate executives say that the timing of relief package disbursals is crucial and that authorities should ensure the support announced reaches businesses, workers and vulnerable households before it’s too late.
“The government understandably drafted the plan in a hurry. They must provide more details before we know whether the relief measures can be implemented effectively. Right now, implementation is a big question mark,” commented Zaw Naing.
For James Owen, Yangon-based policy adviser of the Asia Foundation, Naypyidaw is trying to balance “a set of very difficult trade-offs” that include the immediate public health needs, economic activity, policy reach and policy targeting, as well as fiscal sustainability.
“The document is a helpful summary of the policy levers the government intends to pull, showing some real creativity in places and clever connections to longer-term reform priorities. Yet it’s hard to see which trade-offs it considers more important,” he said.
Suu Kyi’s administration is right not to rely on tax measures given that Myanmar has one of the lowest tax takes in the world, Owen added. “If most SMEs don’t pay commercial tax, or pay far below what is actually due, then the fiscal impact for many of those most in need will be limited.”
Foreign investors have welcomed many of the measures but want to see more details, according to EuroCham Myanmar executive director Marc de la Fouchardiere. For example, the finance ministry has yet to release any guidelines on tax credit stimulus measures, he said.
“It would be prudent to extend the tax credits to Myanmar and foreign firms alike. The garment sector, for instance, supports a sizable workforce. If foreign manufacturers decide to close the shop there’d be a direct impact on the economy and employment.”
Fouchardiere urged authorities to communicate their containment measures effectively with businesses and leave sufficient time for them to prepare for shutdowns.
With limited access to cheap loans on international financial markets, and with domestic banks not in a position to lend to the government, Myanmar-based public finance specialist Andrew Bauer says that central bank deficit financing will be necessary in the short-run.
“There is no worry that this will lead to inflation; the bigger challenge is overcoming deflation,” he told Asia Times.
As part of the plan, authorities have suspended Myanmar’s commercial banks’ international financial reporting obligations and have established a new “bad bank” for distressed assets.
Some analysts view this as an implicit admission that the banking sector would fail if such measures were not implemented. But it’s not clear to many that the package will be enough to stave off an economic and financial collapse.
Covid-19’s economic shockwave is only the latest blow to buffet the country’s already flagging economic outlook. The tourism and retail industries, still recovering from massive setbacks caused by the Rohingya refugee crisis, have by all accounts been devastated.
The European Union last week added Myanmar to its list of states that pose high risks to the bloc’s financial system because of perceived as persistent money laundering as well as terrorism financing. The move followed a similar decision made by the Paris-based Financial Action Task Force watchdog in February.
While the designation will not be official until October 1, owing to the pandemic, financial institutions in Europe are expected to strengthen their due diligence and scrutiny when transacting in Myanmar, further increasing the cost and risk of doing business.