YANGON — Myanmar’s government is pushing ahead with an economic stimulus package that from one vantage point looks to be unprecedented but from another does not appear to be up to the job of combating the economic impact of the novel coronavirus.
If the government fails to properly handle the crisis, the ruling National League for Democracy, led by State Counselor Aung San Suu Kyi, could suffer a setback in general elections coming up in November.
The NLD government is now facing the daunting challenge of dealing with the deteriorating economic situation while reining in the spread of the virus.
The package includes the creation of a fund worth 100 billion kyat ($69 million) for low-interest loans and comes after the central bank’s first rate cuts in eight years.
The move would put the government’s coffers under pressure as Myanmar’s fiscal deficit was 5.6 trillion kyat last fiscal year, accounting for about 6% of GDP.
The pandemic has brought much of Myanmar’s business to a standstill. The garment industry, the country’s leading exporter, has taken an especially severe blow. Its factories, which employ about half a million people, have been forced to close or scale back operations one after another due to decreasing orders from Europe.
The Global New Light of Myanmar, a state-run newspaper, reported on April 9 that more than 120 garment factories, or at least one-fifth the total, had halted operations.
According to a World Bank report release at the end of March, growth in Myanmar’s economy is expected to slow to 2% to 3% for the fiscal year ending in September, down from 6.3% for the previous 12 months.
Suu Kyi, Myanmar’s de facto leader, is attempting to tackle the issue. She delivered a televised address about COVID-19, the disease caused by the new virus, on March 31.
“There could be consequences from the outbreak of COVID-19, which would make an impact on the economy, and the government has, therefore, taken precautionary measures so that the people would have to suffer as little as possible,” she said.
Suu Kyi’s government unveiled the economic assistance package in mid-March, even before the country’s first COVID-19 case was confirmed. Myanmar had confirmed only 41 coronavirus cases as of April 13. But the global impact was already huge, and the government made a swift move to try to ensure economic stability.
The centerpiece of the package is the creation of a 100 billion kyat fund to extend loans to businesses at interest of 1%.
Loans from the fund are to target the garment and tourism industries as well as small and medium-size companies.
The number of applications for loans reached more than 1,600 by the April 9 deadline.
Myo Kyaw, who operates a rice mill and has applied for a loan from the fund, told the Nikkei Asian Review that the loan would enable Myo Kyaw’s business to stay open.
Many small and midsize enterprises in Yangon applied for the loans to survive the crisis. (Photo by Yuichi Nitta)
To help the private sector, the government also extended the deadline for three to six months to pay corporate income and commercial taxes.
Moreover, Myanmar’s central bank has twice announced rate cuts. The cap on commercial banks’ lending rates, which are linked to the central bank’s policy rates, was lowered to 11.5% on April 1. Before the two rate cuts, it was 13%. The last time the central bank cut rates was in 2012.
The pandemic differs from other global crises that Myanmar has lived through. During the 1997-1998 Asian financial crisis and the 2008 global financial crisis, the country was under military rule, largely isolated and immune to external economic shocks.
But since its transition to civilian rule in 2011, Myanmar has opened up its economy to the outside world, making it vulnerable to global downturns.
The spread of the new coronavirus is the first large-scale crisis Myanmar has faced since private companies emerged as a leading player in its economy. The question is how the Suu Kyi-led government will respond to it.
Across the border, Thailand’s government cobbled together a stimulus package worth $76 billion, or 15% of the country’s gross domestic product, that dwarfs Suu Kyi’s.
A 100 billion kyat stimulus may not have a large impact on its budget or economy, and some in Myanmar’s private sector are advocating for more.
“Large companies are likely to seek more loans,” said another applicant for a loan from the new fund. “The fund will not be large enough.”