Myanmar crisis tissues with Fitch warning economy will shrink to 20%

With a tea shop directly next to key protest areas in Myanmar’s largest city, Soe is never entirely sure whether he should keep the business open.

When protesters enter to evade authorities, the 43-year-old runs the risk of being shot, arrested or having his property destroyed while the army and police pursue it. But if he rejects fleeing protesters, he could experience a setback on Facebook and a boycott of his tea shop among hundreds in Yangon, which has long served as de facto community centers.

“Now we can not open our shop daily, but we have to pay ordinary rent, municipal fees, labor wages,” Soe said. He only uses his first name because he is concerned about his personal safety. “Many tea shop owners in Yangon do not know how long they will be able to survive if this crisis continues.”

Small businesses like Soe’s are at the forefront of an economy that is apparently in free fall after a group of generals took power on 1 February. killed since then at least 614 citizens, who expelled foreign investors when Western countries imposed new sanctions. Their opponents in the civil disobedience movement, meanwhile, are striving to keep the economy tank to deprive the military of financial aid.

Shipping companies suspended operations while truck drivers struck and trapped cargo containers in ports. Restrictions on cash withdrawals make businesses struggle to pay employees. The military has restricted internet access, making it harder to reach customers. And thousands of civil servants joining the protesters are refusing to work, leaving areas with limited public services behind.

Overall, this amounts to a rapid erosion of the economic gains that Myanmar has made after investors rushed to democracy a decade ago. An economy that has had average growth rates of more than 6% for the past ten years – more than doubling its gross domestic product – will now shrink by 10% in 2021, by far the worst in Asia as countries bounce back from ‘ a slump caused by pandemics.

“We are deeply concerned,” Aaditya Mattoo, the World Bank’s chief economist for Asia, said in an interview. ” A 10% shrinkage in a poor country already seems disastrous to me. And if I add all the other costs, which affect long-term growth, I think we have a pretty bleak scenario. ‘

Some analysts expect things to get worse: Fitch Solutions predicts a “conservative” 20% contraction for the 2020-21 financial year. It said this month that the rising death toll coupled with increased social instability means all areas of GDP are collapsing through spending.

Grim news

Other countries in Southeast Asia plan to recover in 2021, but not Myanmar

Source: World Bank

“There is no worst-case scenario in the economy that we can rule out,” Fitch said.

At present in Yangon, there is still no sign of a humanitarian crisis. Supermarkets, convenience stores and small shops still have a lot of food, and the prices of rice and other staples are relatively stable. But signs of distress appeared, such as long queues outside banks and ATMs after some banks limited ATM withdrawals to 200,000 kyat ($ 135). Demand for gold and the US dollar is rising.

“We understand that only 10% of the total number of branches in Myanmar have reopened, and we are aware of the difficulties in withdrawing cash from ATMs,” Major General Zaw Min Tun said at a news conference on Friday.

Latest developments:

The junta promises to ride out the storm. Aung Naing Oo, the regime’s investment minister, said last month that the government expected to see a ‘slight impact’ on foreign investment.

But even the business elite in Myanmar is not convinced that this is merely a temporary blip.

“No one can predict how long it will take to get back to normal,” said Maung Maung Lay, senior vice president of the Union of Myanmar Federation of Chamber of Commerce and Industry. “To be honest, the future of our economy is uncertain now.”

Western investors have largely shunned Myanmar since allegations of genocide against Rohingya minorities surfaced in 2017, prompting the government to focus on attracting capital from Asian countries such as Singapore and China. But while China has blocked the United Nations Security Council from imposing sanctions on the coup, it remains cautious about supporting the Myanmar generals – especially after several Chinese – owned factories were burnt down amid protests.

“Beijing’s dissatisfaction with the coup and its aftermath, and the attacks on its businesses, mean that neither the Chinese state nor many Chinese companies are likely to try to invest,” the Brussels International Crisis Group said in a report this month. said.

This does not leave the junta many places to grow to revive growth. According to IHS Markit data, Myanmar’s Purchasing Managers’ Index fell further last month to a record low of 27.5 – well below the 48.9 average since the series started in December 2015 for a measure in which 50 is the dividing line between respondents who see an expansion and contraction. in demand.

“The generals had a major miscalculation during the coup,” said Moe Thuzar, a fellow at the ISEAS-Yusof Ishak Institute in Singapore. “They wanted to radiate a more business-friendly attitude – and thought this was where they could have an advantage over the National League for Democracy government – and it gave a big setback.”

The question now is just how bad it can get. The World Bank last month warned of a “sharp rise in poverty”, while the United Nations World Food Program said the crisis would “seriously undermine the ability of the poorest and most vulnerable to put enough food on the family table”.

The situation on the ground could likely turn into a “dwindling stalemate” as the military seeks to control the streets, while the civil disobedience campaign keeps much of the country ungovernable, according to Thant Myint U, author of “The Hidden History of Burma: race, capitalism and the crisis of democracy in the 21st century. “

“The economy will collapse and destroy the lives of millions of people,” he said. “Whatever happens next, it will be impossible for Myanmar for many years to come.”