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Description: Executive Summary: The State Peace and Development Council (SPDC) military junta claimed a 12.2 % growth in the Burmese economy in 2006 but international sources say differently; they forecast a slim growth of 2 to 3 % rise. Production and exploration in the oil and gas sector is active, but the rest of economy remains weak. Agriculture suffers from poor productivity, with output below potential. Manufacturing is constrained by inadequate quantity and quality of inputs, due to problems of imports and power shortages. Weak Gross Domestic Product (GDP) growth reflects poor prospects for consumption and investment. In October 2005, the SPDC increased eight folds the state-subsidized petrol prices. This prompted higher prices for basic commodities. Inflation returned to double digit rates. Monetary policy has not addressed the inflationary pressures. Interest rates remain unchanged since 2001, despite high inflation. But the SPDC increased the interest rates by two per cent points to 12 per cent on 16 April 2006. Real rates are likely to be negative. Prices for important commodities soared in the wake of junta?s decision to raise public-sector salaries in April 2006. Rice and fuel prices remain high. Official data do not reveal the full extent of inflation reaching 14.3 % in December 2005 and 11 % in early 2006. Based on the official data series, the Economist Intelligent Unit (EIU) estimates the annual inflation to average over 21 % in 2006.The true rate of inflation could be 50 %. Strong growth in both narrow money supply (M1) and quasi-money (comprising time, savings and foreign exchange deposits) contributed to a 26.8 % year-on-year expansion in broad money supply (M2) at the end of May 2006. The junta demands credit from the Central Bank, which it uses to fund its budget deficit. Total outstanding credit of the junta was 2.5 trillion kyat (nearly US$440 billion at the official exchange rate, or US$1.9 billion at the free-market exchange rate) by May 2006, an increase of 28 %. The state budget remained unbalanced with substantial deficits during much of the 1990s. Fiscal deficits are financed automatically by credit from the Central Bank, a source of domestic inflation and instability in the economy. The Junta?s state expenditures are disproportionately allocated on items that deny sustainable development of the people or the nation. Defense, ceremonies and rituals, festivals, inspection tours, meetings and seminars, building physical infrastructure-roads, railways, bridges, dams, monuments, museums, shiny office complexes and fancy airports, represent wasteful consumption or constitute expensive capital outlays, undertaken without proper feasibility studies and environmental impact assessments, and unclear, uncertain and dubious returns on investment. Chronic state budget deficits contribute to rapid monetary growth and everspiraling inflation. In order to recover the budget deficit, the junta-increased taxes and collected money and forced people to labor for developmental projects such as construction of roads, dams, and bridges. The junta continues to control, command, and centralize Burma?s people and the economy. Exchange rate distortions favor a few at the expense of many. Fiscal deficit comes at the expense of social spending which has been reduced far below necessary levels. At the same time, financing the fiscal deficit through central bank credit is one underlying factor of persistent high inflation. The nation?s tax revenue remains buoyant, rising by 28.1 % year on year in nominal terms in the first 11 months of fiscal year 2005/06 (April-March). Total tax revenue reached 292 billion kyat during this period (around US$50 billion at the inflated official exchange rate, or US$225 million at free-market exchange rate). Although revenue is still rising, growth has slowed since 2004/05, when revenue expanded by 77 % year on year for the whole fiscal year. This in part reflects a correction after an increase in average import tariffs, imposed in mid-2004, brought a 424 % year-on-year surge in customs tax fell by 15.1 per cent year on year to 16.2 billion kyat. A clamp-down on corruption among customs officials in recent months may be part of an effort to boost revenue from customs tax. Other sources of tax revenue expanded in the first 11 months of 2005/06. Profit tax jumped by 49 per cent year on year, slightly ahead of commodities and services tax (which rose by 47 per cent) and income tax (11 per cent)1. 2 Total public-sector deficit reached 6 % of GDP for 2004/05. Heavy losses by the state-owned enterprises (SOE) typically accounted for over 60 % of the overall deficit. The SPDC?s fiscal position is also weighted down by high off-budget spending on the country?s huge armed forces. The budget position is unlikely to have improved in 2005/06 and 2006/07 (the current fiscal year), owing to the junta?s expansionary fiscal policy. The junta?s decision to relocate many government offices to a huge new administrative complex at Naypyidaw, 320 km north of Rangoon, imposed heavy costs. In addition, in April 2006 the junta raised salaries for around 1 million civil servants and military officers by between 500 and 1,200 per cent. The black market is estimated to be as big if not bigger than the official economy. Published statistics on foreign trade are greatly understated because of the size of the black market and unofficial border trade. Burma?s trade with Thailand, China, and India is rising. Though the Burmese government has good economic relations with its neighbors, better investment and business climates and an improved political situation are needed to promote foreign investment, exports, and tourism. No new foreign direct investment projects have been approved in recent months. Foreign Direct Investment (FDI) approvals totaled a meager US$35.7 million for the first 11 months of 2005/06, down from US$158.3 million for the whole of 2004/05. It is possible that the data do not capture some small FDI flows, such as those by Thai and Chinese firms in small projects along the border with Burma. International tourist arrivals totaled 320,275 in 2005, up by 5 % year on year, according to data from the Central Statistical Organization (CSO). Although arrivals rose, the pace of growth slowed compared with 2004 (rose 11.6 per cent). The slowdown reflected a 5.6 % year on year drop in arrivals by air, to 145,959, around 46 % total arrivals. Total international reserves reached US$951 million at the end of June 2006, according to data from the IMF. Reserves increased sharply in the first quarter of the year, surpassing US$900 million for the first time, before rising further in the second quarter. The main reason for the improvement in the overall balance-of-payments position and international reserves has been the rise in exports, which have been driven by strong growth in exports of natural gas. The official kyat exchange rate remains artificially inflated. The exchange rate like the rest of the junta system does not reflect the reality of the monetary system. The free-market exchange rate of kyat to US$ was 1,350:US$1 in July-October 2006, having recovered from kyat 1,450:US$1 at the end of April, which also put pressure on prices. There has been a mild appreciation of the kyat since then. The ratio of the parallel rate to the official rate is nearly 200:1. The kyat came under pressure earlier this year owing to fears that a pay rise for civil servants would sharply push up prices. However, strong gas exports have boosted international reserves, thereby helping the kyat to stabilize. The little-used official exchange rate is fixed against the International Monetary Fund?s (IMF) special drawing rights (SDR) unit. The official rate held steady at around kyat 5.9:US$1 by August 2006.
Creator/author: Sein Htay
Source/publisher: Burma Fund (NCGUB)
2007-06-00
Date of entry/update: 2007-06-06
Grouping: Individual Documents
Language: English
Format : pdf
Size: 1.55 MB
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Description: The National Coalition Government of the Union of Burma believes that a free and independent press is crucial for maintaining a healthy democracy. Although we have not yet achieved democracy in Burma, the NCGUB believes that the freedom of the press amongst Burmese exiles should be encouraged and nurtured. In thiscontext, the NCGUB welcomes the editorial in the Irrawaddy magazine in August Vol.8, No.8.
Source/publisher: "The Irrawaddy", Vol. 8. No. 9
2000-09-00
Date of entry/update: 2003-06-03
Grouping: Individual Documents
Language: English
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