Fitch Solutions cuts Myanmar GDP forecast from 5.6% to 2% following military coup

THE political instability in Myanmar could make a "significant impact" on Myanmar's economy, particularly if foreign direct investment (FDI) is delayed or cancelled due to sanctions from the West, says a report by Fitch Solutions.

The research group lowered its real gross domestic product (GDP) growth forecast for financial year 2020/2021 to 2 per cent, down from 5.6 per cent.

It also slashed its economic outlook for FY 2021/2022 to 2 per cent from 6 per cent.

It said: "Myanmar's growth outlook depends heavily on a pipeline of key infrastructure projects and foreign direct investment, which could be delayed or cancelled altogether if sanctions are implemented, and if foreign entities decide to pull the plug amid elevated political risks."

It noted that FDI amounted to an average of 4.5 per cent of GDP in 2018 and 2019, and could thus have a "significant impact on the economy".

"Infrastructure projects, both public and private, even if not cancelled, also face high risks of stalling in the near term due to a combination of lack of funds, social unrest, and further lockdowns due to a renewed outbreak of Covid-19 following mass protests," Fitch said.

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Project cancellations could lead to a loss of jobs, which would impair the recovery of private consumption amid the economic fallout from Covid-19, it added.

Myanmar's military on Monday declared a one-year state of emergency and appointed military commander-in-chief Min Aung Hlaing as acting president, after arresting State Counsellor Aung San Suu Kyi, President Win Myint and other senior officials.

The situation is highly fluid in the near term, but Fitch is expecting a greater clampdown by the military, which would result in increased political unrest and uncertainty.

From an international perspective, Fitch believes Western governments and international could impose sanctions on Myanmar if democracy is not swiftly restored.

"That said, Asia accounting for more than 60 per cent of Myanmar's total exports, with China and Thailand together already accounting for about 50 per cent of total exports, mean that demand from the region could still help to blunt the negative impact of unilateral sanctions by Western countries," Fitch noted.

Nonetheless, the developments have prompted Fitch to cut its short-term political risk index score for Myanmar across several categories to 34.2 out of 100, from 57.1 previously.

The revised score puts Myanmar significantly below the Asean average of 70 out of 100, Fitch noted.

"This is a substantial backtracking of the progress with regard to the democratic process in recent years and will weigh heavily on policymaking, social stability as well as international perceptions of the country," Fitch said.

"We believe that the ability of the authorities to form and enact policy will be weakened."

It added that since the military leadership's attention is likely focused on preserving its power in the near term, little political energy would be directed towards the formation and enactment of reform-oriented economic or social policies, which are "very important" in handling the economic fallout of the pandemic.