Crisis looms as experts warn Myanmar economy will shrink up to 20%

People waiting in Yangon yesterday for a branch of the AYA Bank to open, ahead of a long holiday stretch for the Myanmar New Year. Restrictions on cash withdrawals have led to businesses struggling to pay employees, among other signs of distress in t
People waiting in Yangon yesterday for a branch of the AYA Bank to open, ahead of a long holiday stretch for the Myanmar New Year. Restrictions on cash withdrawals have led to businesses struggling to pay employees, among other signs of distress in the economy. PHOTO: AGENCE FRANCE-PRESSE

YANGON • With a tea shop right next to key protest zones in Myanmar's biggest city, Mr Soe is never quite sure whether he should keep the business open.

If protesters enter to evade the authorities, the 43-year-old risks getting shot, arrested or having his property destroyed as the military and police hunt them down.

But if he turns away fleeing demonstrators, he may face a backlash on Facebook and a boycott of his tea shop, among hundreds in Yangon that have long served as de facto community centres.

"Now we can't open our shop on a daily basis but we have to pay regular rental fees, municipal fees, labour wages," said Mr Soe, using only his first name because of concerns for his personal safety.

"Many tea shop owners in Yangon are not sure how long they'll be able to survive if this crisis continues," he added.

Small businesses like Mr Soe's are on the front lines of an economy now seemingly in free fall after a group of generals seized power on Feb 1.

The junta has killed at least 614 civilians since then, driving away foreign investors as Western nations imposed new sanctions.

Their opponents in the Civil Disobedience Movement, meanwhile, are pushing to tank the economy and deprive the military of financial resources.

Shipping lines have suspended operations as truck drivers strike, leaving cargo containers trapped at the ports. Restrictions on cash withdrawals have businesses struggling to pay employees.

The military has restricted Internet access, making it harder to reach customers.

And thousands of civil servants aligned with the protesters are refusing to work, leaving many areas with limited public services.

Altogether it amounts to a speedy erosion of the economic gains Myanmar reaped after investors rushed in a decade ago following a shift towards democracy. An economy that averaged growth rates of more than 6 per cent over the past 10 years - more than doubling its gross domestic product (GDP) - is now projected by the World Bank to shrink 10 per cent this year, by far the worst in Asia as countries start rebounding from a slump induced by the coronavirus pandemic.

"We are deeply concerned," Mr Aaditya Mattoo, the World Bank's chief economist for Asia, said in an interview. "A 10 per cent contraction in growth for a poor country seems to me disaster enough already. And when I add to it all the other costs, which have an impact on long-term growth, I think we have a pretty dismal scenario."

Some analysts are expecting things to get even worse: Fitch Solutions is projecting a "conservative" 20 per cent contraction for the 2020-21 fiscal year. It said this month that the rising death toll combined with increased social instability means "all areas of GDP by expenditure are set to collapse".

"There is no worst-case scenario on the economy which we can rule out," Fitch said.

At the moment in Yangon, there is still no sign of a humanitarian crisis. Supermarkets, convenience stories and small shops still have plenty of food, and prices of rice and other staples are relatively stable. But signs of distress are popping up, like long queues outside banks and ATMs after some banks capped daily withdrawals from automated teller machines at 200,000 kyat (S$190). Demand for gold and US dollars is rising.

"We understand that only 10 per cent of the total number of branches in Myanmar have reopened, and we are aware of the difficulties to withdraw cash at ATMs," the junta's spokesman, Major General Zaw Min Tun, said last Friday at a news briefing.

The junta is vowing to ride out the storm.

Mr Aung Naing Oo, the regime's investment minister, said last month that the government expects to see a "slight impact" on foreign investment. But even business elites in Myanmar are not convinced that this is merely a temporary blip.

"No one can predict how long it will take to get back to normal," said Mr Maung Maung Lay, senior vice-president of the Union of Myanmar Federation of Chambers of Commerce and Industry. "Frankly speaking, the future of our economy is now uncertain."

Western investors have largely shunned Myanmar since allegations surfaced in 2017 of genocide against minority Rohingya Muslims, prompting the government to focus on attracting capital from Asian countries such as China and Singapore.

But even though China blocked the United Nations Security Council from imposing sanctions on Myanmar after the coup, it remains wary of supporting the country's generals - particularly after several Chinese-owned factories were torched amid the protests.

"Beijing's displeasure 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 rush to invest," the Brussels-based International Crisis Group said in a report this month.

That does not leave the junta with many places to turn to revive growth.

The situation on the ground is likely to turn into a "withering stalemate" as the army seeks to take control of the streets while the civil disobedience campaign keeps much of the country ungovernable, according Myanmar author Mr Thant Myint U "The economy will collapse, destroying the lives of millions of people," he said.

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A version of this article appeared in the print edition of The Straits Times on April 13, 2021, with the headline Crisis looms as experts warn Myanmar economy will shrink up to 20%. Subscribe