Crisis in Myanmar threatens with Fitch warning Economy will shrink by up to 20%

With a tea shop right next to major protest zones in Myanmar’s largest city, Soe is never quite sure whether to keep the business open.

If protesters come in to evade authorities, the 43-year-old risks being shot, arrested or having his property destroyed while the military and police track them down. But if he turns away fleeing protesters, he could face a backlash on Facebook and a boycott of his tea shop, among hundreds in Yangon who have long served as de facto community centers.

“Now we can’t open our store daily, but we do have to pay fixed rent, council fees and labor,” said Soe, using only his first name out of concern for his personal safety. “Many tea shop owners in Yangon are unsure how long they will be able to survive if this crisis continues.”

Small businesses like Soe’s are at the forefront of an economy that now appears to be in free-fall after a group of generals seized power on Feb. 1. killed at least 614 citizens since then, chasing away foreign investors when Western countries imposed new sanctions. Their opponents in the civil disobedience movement, meanwhile, are pushing to fuel the economy to deprive the military of financial resources.

Shipping companies have suspended operations while truck drivers are on strike, leaving freight containers stuck in ports. Restrictions on cash withdrawals have made companies struggle to pay employees. The military has restricted internet access, making it more difficult to reach customers. And thousands of officials who join the protesters refuse to work, leaving areas with limited public services.

All told, it boils down to a rapid erosion of the economic benefits Myanmar has gained after investors rushed a decade ago after a shift to democracy. An economy with average growth of more than 6% over the past 10 years – more than doubling its gross domestic product – will now shrink 10% by 2021, according to the World Bank, by far the worst in Asia as countries recover from a pandemic caused breakdown.

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

Some analysts expect things to get worse: Fitch Solutions expects a “conservative” contraction of 20% for fiscal year 2020-21. It said this month that the rising death toll coupled with increased social instability means that “all areas of GDP by spending are on the verge of collapse.”

Grim tidings

Other Southeast Asian countries are on track to recover in 2021, but not Myanmar

Source: World Bank

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

At present, there is still no sign of a humanitarian crisis in Yangon. Supermarkets, convenience stories and small shops still have plenty to eat, and the prices of rice and other commodities are relatively stable. But signs of distress are emerging, such as long lines outside banks and ATMs after some banks have limited daily ATM withdrawals to 200,000 kyat ($ 135). The demand for gold and US dollars is on the rise.

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

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The junta vows to weather the storm. Aung Naing Oo, the regime’s investment minister, said last month that the government expects a “slight impact” on foreign investment.

But even business elites in Myanmar are not convinced that this is just a temporary disturbance.

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

Western investors have largely shunned Myanmar since allegations of genocide against minority Rohingya Muslims surfaced in 2017, prompting the government to focus on raising 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 reluctant to back Myanmar’s generals – especially after several Chinese factories burned down during the protests.

“Beijing’s dissatisfaction with the coup and its aftermath, and the attacks on its companies, means that neither the Chinese state nor many Chinese companies will rush to invest,” the Brussels-based International Crisis Group said in a statement this month. report.

That doesn’t leave the junta many places to revive growth. Myanmar’s purchasing managers index fell further to a record depth of 27.5 last month, according to data from IHS Markit – well below the average of 48.9 since the series began in December 2015 for a measure where 50 is the dividing line between respondents reporting growth. and see shrinkage. wanted.

“The generals were very miscalculated when they went through the coup,” said Moe Thuzar, a fellow at the ISEAS-Yusof Ishak Institute in Singapore. “They wanted to show a more business-friendly attitude – and thought they could have a head start on the National League for Democracy government here – and they failed massively.”

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

According to Thant Myint U, author of ‘The Hidden History of Burma: Race, Capitalism and the Democracy Crisis in the 21st Century. “

“The economy will collapse and destroy the lives of millions of people,” he said. “Whatever happens next, it will be impossible for Myanmar to recover for years to come.”