Myanmar crisis approaching with a Fitch alert economy will be reduced to 20%

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

If protesters come in to evade authorities, the 43-year-old runs the risk of being shot, arrested or destroyed his belongings while the military and police chase them. But if he moves away from the 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.

“We can’t open our store on a daily basis now, but we have to pay regular rental rates, city taxes, labor wages,” Soe said, using only his first name out of concern for his personal safety. “Many tea shop owners in Yangon are not sure how long they will be able to survive if this crisis continues.”

Small businesses like Soe are at the forefront of an economy that seems to be falling free now after a group of generals took power on February 1st. dead at least 614 civilians since then, alienating foreign investors while Western nations imposed new sanctions. Meanwhile, his opponents in the Civil Disobedience Movement are pushing to shut down the economy to deprive the military of financial resources.

Shipping lines have suspended operations when truck drivers attack, leaving cargo containers trapped in ports. Restrictions on cash withdrawal cause companies to have trouble paying employees. The military has restricted Internet access, making it harder to reach customers. And thousands of officials lined up with protesters refuse to work, leaving areas with limited public services.

Taken together, it amounts to a rapid erosion of the economic gains Myanmar made after investors rushed a decade ago after a shift to democracy. The World Bank projects an economy that has promoted growth rates of more than 6% in the last ten years (more than double the gross domestic product) which will fall by 10% in 2021, by far the worst in Asia when countries they bounce back from a pandemic-induced fall.

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

Some analysts expect things to get even worse: Fitch Solutions projects a 20% “conservative” contraction for fiscal year 2020-21. He said this month that the increase in the number of deaths combined with the increase in social instability means that “all areas of GDP by expenditure have collapsed.”

Grim Tidings

Other Southeast Asian countries are slated for the 2021 recovery, but not Myanmar

Source: World Bank

“There’s no worse scenario in the economy that we can rule out,” Fitch said.

At the moment, in Yangon, there is still no sign of a humanitarian crisis. Supermarkets, convenience stores and small shops still have a lot of cooking and the prices of rice and other commodities are relatively stable. But there are signs of distress, such as long queues outside banks and ATMs after some banks limited 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 has reopened and we are aware of the difficulties in withdrawing cash at ATMs,” board spokesman General Zaw Min Tun said in a session on Friday. informative.

Latest developments:

The board 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 mistake.

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

Western investors have largely shunned Myanmar since allegations of genocide against minority Rohingya Muslims arose in 2017, prompting the government to focus on raising capital from Asian countries such as Singapore and China. But while China has blocked the UN Security Council from imposing sanctions after the coup, it remains wary of supporting Myanmar generals, especially after several Chinese-owned factories caught fire amid the protests.

“Beijing’s dissatisfaction with the coup and its aftermath, and attacks on its businesses, make neither the Chinese state nor many Chinese companies likely to rush to invest,” the Crisis Group said this month. Brussels-based international.

This does not leave the board many places to go to reactivate growth. Myanmar’s purchasing managers index last month fell to a record low of 27.5, according to IHS Markit data, well below the 48.9 average since the series began in December 2015 for a measure where 50 is the dividing line between respondents experiencing expansion and contraction. in demand.

“The generals had a big miscalculation when it came to continuing the coup,” said Moe Thuzar, a fellow at ISEAS-Yusof Ishak Institute in Singapore. “They wanted to project a more business-friendly attitude, and they thought they could have advantages here over the National League for Democracy government, and it made a big failure.”

Now the question is what things can go wrong. The World Bank warned last month of a “sharp rise in poverty”, while the UN World Food Program said the crisis would “severely undermine the ability of the poorest and most vulnerable to eat enough”. on the family table “.

The situation on the ground is likely to turn into a “marked stalemate” as the army seeks 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 and destroy the lives of millions of people,” he said. “Whatever happens next it will be impossible for Myanmar to recover for many years.”