Myanmar remains fundamentally damaged by the military coup that took place in 2021. Nearly half of the population has been forced below the poverty line. Meagre growth of 2 to 3 per cent in 2023 does little to claw back the double-digit economic contraction inflicted by the junta.
Many factors are impeding a more robust recovery, including weak consumer demand due to low employment and high prices. Businesses suffer from perpetual shortages because of foreign currency constraints, depressing exports and hiking inflation.
International asset freezes and sanctions, such as the United States’ designation of two state-owned banks in mid-2023, are designed to impede the military and its close associates. The blacklisting of Myanmar by the Financial Action Task Force in October 2022 has disrupted regime access to the international financial system, damaged Myanmar’s reputation and deterred investment.
Sanctions on state-owned banks have also caused further monitoring and restrictions of banking services involving Myanmar, potentially convincing some institutions to cease processing any regime-related transactions or to be more vigilant involving transactions in and out of Myanmar. For instance, Singapore’s United Overseas Bank Limited took a decision to stop relationships with Myanmar banks in August 2023.
Taxation revenues have fallen and gas exports have declined due to reduced output and disruptions associated with conflict in border areas. There was also a 70 per cent decline in rental income between 2021 and 2022 in the Thilawa Special Economic Zone.
The junta’s Foreign Exchange Supervisory Committee forces most importers to convert Myanmar kyat to foreign currency at the official exchange rate, causing huge losses given the difference between official and market rates. Exporters are also required to surrender foreign currency earnings at the unfavourable official rate. So restrictive are these controls that ordinary people are reportedly unable to withdraw or buy foreign currency.
Junta price controls, issued to stop inflation, are handicapping supplies of everything from cooking oil to rice. By early 2023 there was a near-total halt of rice exports to China because of the currency conversion requirements and a suspension of new export licenses.
Currency controls and policy measures also hampered imports of fertilisers and agricultural production equipment, with the potential for worsening food production and consumption shortages. More broadly, consumer goods imports have declined since the coup, but overall imports remained stable due to an increase in the import of refined mineral oil and fuel.
Since 2021 the regime government has struggled to control surging inflation and the declining value of the kyat. The black market rate of the Myanmar kyat has moved from a pre-coup value of K1300 to US$1 to K3900 by September 2023, aided little by issuances of high-denomination bank notes.
Myanmar’s garment manufacturing industry has been an exception to the crisis and mayhem caused by the junta, with exports increasing since 2022 and now reaching beyond the pre-coup mark.
On the one hand, international buyers and brands are drawn to Myanmar because of low labour costs and the EU’s decision to maintain trade preferences for the industry despite the coup. The decision to retain these trade preferences has been criticised by national and global trade unions and high-profile brand buyers have been under pressure to exit the country as labour rights violations have mounted.
Garment workers numbered around half a million workers in 2022 and are predominantly migrant women from rural areas. But employment in the industry is well below pre-pandemic levels and the World Bank estimated that real wages declined by 15 per cent between 2017 and 2022.
That garment exports have increased while employment has decreased could suggest some level of productivity improvement. But this surge is more likely associated with increased production orders in the context of low production costs and adverse employment conditions including excessive working hours, unpaid overtime, penalties for falling behind targets and insecure employment.
Like other businesses in Myanmar, garment makers face difficulties in accessing foreign currency and production inputs, managing currency exchange, unreliable power supply and transport infrastructure and political risks, making the prospects for sustained growth uncertain.
Evidence of Myanmar’s deteriorating economy is clear across a variety of social indicators. Public spending on health and education has declined since the coup, as have wages and income. Most of the population have significant humanitarian needs and the situation in rural areas impacted by poor agricultural yields and returns is especially dire with nearly half of all rural households in a 2023 survey reporting concern about insufficient access to food and nutrition.
Cyclone Mocha in May 2023 hit coastal regions hard and highlighted once again Myanmar’s environmental vulnerability and the difficulties of providing disaster assistance and aid in conflict zones.
In late 2023 the military suffered their biggest losses since the coup. Reliable predictions for the country’s economic prospects and policy settings are now almost irrelevant in the context of escalating conflict and speculation on the collapse or survival of the regime government.
Myanmar cannot rebuild under a federal democracy inclusive of a more robust and equitable economy until the military regime is gone. Until such a time, economic hardships will continue to be the daily reality for nearly everyone in Myanmar.
Htwe Htwe Thein is Associate Professor of International Business at the School of Management, Curtin University.
Michael Gillan is Associate Professor at the UWA Business School, The University of Western Australia.
This article is part of an EAF special feature series on 2023 in review and the year ahead.