Myanmar crisis approaching with Fitch warning economy to shrink by 20%

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

If protesters enter to evade the authorities, the 43-year-old risks being shot, arrested or his property destroyed while the army and police hunt him down. But if he returns from fleeing protesters, he could face a backlash on Facebook and a boycott of his tea shop, among hundreds in Yangon that have long served as de facto community centers.

“Now we can’t open our store every day, but we have to pay regular rent, municipal taxes, wages,” Soe said, using only her first name because of concerns for her personal safety. “Many Yangon tea shop owners are not sure how long they will be able to survive if this crisis continues.”

Small businesses, such as Soe’s, are at the forefront of a now-free-fall economy after a group of generals took power on February 1st. murdered at least 614 civilians since then, driving away foreign investors as Western nations impose new sanctions. Meanwhile, their opponents in the Civil Disobedience Movement are working to shoot the economy to deprive the military of financial resources.

Shipping lines have suspended operations while truck drivers strike, leaving cargo containers stuck in ports. Restrictions on cash withdrawals have companies struggling to pay employees. The military has restricted access to the internet, making it difficult for customers to access it. Thousands of civil servants aligned with the protesters also refuse to work, leaving areas with limited public services.

Overall, this equates to a rapid erosion of Myanmar’s economic gains after investors rushed a decade ago in a shift to democracy. An economy that has seen an average growth rate of over 6% in the last 10 years – more than doubling gross domestic product – is now projected by the World Bank to shrink by 10% in 2021, by far the worst in Asia, as countries recover from a pandemic-induced decline.

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

Some analysts expect things to get worse: Fitch Solutions is projecting a 20% “conservative” contraction for fiscal year 2020-21. This month, the rising death toll, combined with increased social instability, means that “all areas of GDP in terms of spending are about to collapse”.

Grim Tidings

Other Southeast Asian nations are preparing for a recovery in 2021, but not Myanmar

Source: World Bank

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

At this time, there are still no signs of a humanitarian crisis in Yangon. Supermarkets, convenience stores and small shops still have a lot of food, and the prices of rice and other commodities are relatively stable. But there are signs of danger, such as long queues outside banks and ATMs, after some banks capped daily withdrawals from ATMs to 200,000 kyat ($ 135). Demand for gold and US dollars is rising.

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

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The junta promises to get out of the storm. 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 Myanmar’s business elites are not convinced that this is just a temporary blip.

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

Western investors have largely avoided Myanmar since allegations of genocide against Rohingya Muslim minorities emerged 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 after the coup, it remains cautious in supporting Myanmar’s generals – especially after several Chinese-owned factories were set on fire amid protests.

“Beijing’s displeasure with the coup and its consequences, as well as the attacks on its business, means that neither the Chinese state nor many Chinese companies will rush to invest,” the international crisis group in Brussels said in a statement. report this month.

That doesn’t leave much room for the junta to return to growth. Myanmar’s purchasing managers’ index fell further to a record 27.5 last month, according to IHS Markit – well below the 48.9 average since the series began in December 2015 for a measure of 50 is the line separation between respondents who saw an extension and a contraction on demand.

“The generals made a big mistake when it came to the coup,” said Moe Thuzar, a member of the ISEAS-Yusof Ishak Institute in Singapore. “They wanted to design a more business-friendly attitude – and they thought they could have an advantage over the National League for Democracy government here – and it worked out.”

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

The situation on the ground is likely to turn into a “wilting stalemate” as the military tries to take control of 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, destroying the lives of millions of people,” he said. “Whatever happens next will make it impossible for Myanmar to recover for many years.”