- Basic data
- Public finances and the state budget
- Banking system
- Tax system
Myanmar is the poorest country in the ASEAN Community, however, due to its relatively large population, it is the 7th largest economy of this Association. In the calendar year 2020, the country maintained economic growth despite the pandemic, but in the following year 2021, there was a deep drop in GDP by 17.9% and a significant increase in inflation. The main reason was the military coup carried out on February 1, 2021, which was followed by the ongoing crisis and de facto civil war. Supply chain disruptions, financial sector crippling and international sanctions combined mean that negative growth will last until at least October 2022. Under optimistic scenarios, moderate growth should come in the following years, and after 2026 Myanmar’s economy could reach its 2019 volume. Probably the only seemingly positive change since the military regime began is the achievement of a positive trade balance,
According to cheeroutdoor.com, the expected modest growth will be driven mainly by agriculture, which was less affected by the economic shocks of 2021, especially if Myanmar succeeds in its plans to develop downstream food production. The military regime also plans to strengthen the mining sector. This development may be undermined by the ongoing armed conflict. On the other hand, the long-term growing demand for gas, oil and other raw materials and energies may cause interest in mining in the country despite significant security, legal, reputational and economic risks.
|GDP growth (%) *||2.9||-17.9||-3.8||2.4||2.3|
|GDP/population (USD/PPP) *||5,348.10||4,423.80||4,370.00||4,560.00||4,750.0|
|Unemployment (%) *||3.9||12||11.7||10.5||10.2|
|Export of goods (billion USD)||18.1||20.2||12.3||13.7||15.4|
|Import of goods (billion USD)||18.6||16.7||10.2||13.3||16.5|
|Trade Balance (Billion USD)||-2.9||-1.4||1||-0.3||-1.4|
|Industrial production (% change)||ON||ON||ON||ON||ON|
|OECD export risk||06.VII||06.VII||07.VII||07.VII||ON|
Source: EIU, OECD, IMD. Data marked with * always refer to the period from 1 October of a given year to 30 September of the following calendar year.
Public finance and state budget
|State budget balance (% of GDP)||-9.3|
|Public debt (% of GDP)||59.3|
|Current account balance (billion USD)||-2.6|
|AFTER||1 to 25%|
|F.O||1 to 25%|
The military regime is facing a significant reduction in revenue due to sanctions and a reduced ability to collect taxes from the population. The most important source of income for the state is now fees from the extraction of mineral resources. The regime reacts to this situation mainly by limiting “necessary expenses”, which it considers to be mainly education, healthcare and social services. In addition, the regime has significantly accelerated the printing of new banknotes since the last quarter of 2021. Only the growing closure of the economy, draconian control over cross-border transfers and restrictions on the holding of foreign currencies are likely to prevent a dramatic decline in the value of the local currency (Myanmar kyat).
For the future development of the country, the fact that due to international sanctions the current regime has only limited possibilities to increase the state’s debt is at least partly good news. The view of the state of foreign exchange reserves, which after the first year of the military regime’s rule, decreased from USD 7.6 billion to USD billion, is less joyful. The reason is mainly the repeated subsidies to fuel suppliers, to whom the central bank provides USD at a preferential rate, in order to achieve fuel price stability (which is not working anyway, between February 2021 and May 2022, the price of gasoline increased by more than five times).
The banking sector in the country is regulated by the Central Bank of Myanmar, which in the post-military coup period applies increasingly strict supervision over the operations of domestic and foreign banks established in the country. As part of the supervision of the financial sector, we can talk about the abuse of AML legislation to limit the access of the political opposition (and by extension also companies associated with opposition activities) to financial resources. The degree of control, especially of the international payment system, has reached such proportions that companies engaged in import and export must apply in advance to the central bank for permission to send or receive money from abroad.
A total of 27 domestic commercial banks operate in the country, the largest of which are KBZ, ADG, Yoma, AYA and CB. The system also includes four state-owned banks, including the military-run Myanmar Economic Bank, which has been sanctioned by the EU and other jurisdictions. There are also 3 banks operating in the country that are subsidiaries of foreign banks (subsidiary banks), and 17 foreign banks have their branches in Myanmar. Branch services of foreign banks are probably the least risky choice for foreign companies and organizations, as these banks are able to implement international transactions through their headquarters even in the event of restrictions on the access of Myanmar financial institutions to international payment systems. At the same time, it is true that foreign banks are less proactive in implementing various restrictive regulations and rather tend to look for the most feasible solutions for the benefit of clients.
The country’s financial sector also includes a relatively vibrant ecosystem of non-banking companies from the fields of FinTech and microfinance. Microcredit providers and mobile applications for non-bank transfers are particularly popular. The strongest player in this field is the non-bank transaction provider Wave Money.
A distinctive feature of the country’s banking system is stable but relatively high interest rates. The reference interest rate of the central bank was kept at the level of 10% for years, while from March 2020 it was reduced to 7% as part of measures to protect the economy from the consequences of the coronavirus pandemic, and this rate is still valid today.
The military regime proceeded to reduce the tax burden for the majority of the population (especially by increasing deductions and the non-taxable minimum), thereby de facto legalizing the fact that a significant number of natural persons refuse to pay taxes. In addition, the Government of National Unity has come up with a mechanism for voluntary tax contributions to its budget, while there is strong social pressure on companies and higher income earners to make these voluntary contributions. In fact, there has been an increase in tax progression, when a significant part of the tax burden from both “collectors” rests on the corporate sector and individual taxpayers with above-average incomes.
The Myanmar tax system includes a total of 15 types of taxes in 4 basic categories:
Corporate profit tax – a rate of 30% (for companies established under the Foreign Investment Act and the Companies Act).
Income tax – progressive tax with a rate from 1 to 25%. 20% (up to a maximum of 10 million kyats) can be deducted from the tax base as a tax credit. Furthermore, the tax base can be reduced by up to 25% by deducting donations to registered charitable and religious institutions. Income from non-dependent activities up to million kyats will not be taxed at all.
Taxes collected by withholding – eg 10% tax on interest.
Business tax – partly similar to VAT. 3-5% is applied to most goods. However, services are not burdened with this tax and, compared to VAT, the possibilities of deducting input tax are significantly limited, so the subject of taxation is usually the total value of the goods, not just the added value. Gasoline, diesel, alcohol, cigarettes, pearls, gems and semi-precious stones have a special tariff, where the rate ranges from 30% to 200% and is roughly equivalent to our VAT and excise tax combined into one item.