Myanmar has embarked on a course of political and economic reforms, and though it is one of Asia’s poorest countries, its real economic growth is strong. Analysts at Australia's ANZ believe the economy will be an attractive frontier market.

Myanmar has embarked on a course of political and economic reforms, and though it is one of Asia’s poorest countries, its real economic growth is strong. Analysts at Australia'sANZ believe the economy will be an attractive frontier market for canny investors, with traits similar to neighbouring Vietnam and Thailand.

The economy remains small at $52 billion, but in the short term growth is likely to remain solid, driven by foreign investment into and exports from the gas and power sectors. Increased imports of construction materials and machinery last year will likely be translated into higher gas and power exports. Unification of exchange rates and further import liberalisation are likely to boost imports further and contribute to a wider current account deficit this year and the next.

Meanwhile, inflation will likely pick up again in the first half of this year as food price deceleration fades out, and as accommodation and property prices continue to increase.

Development and infrastructure spending will likely add to the Myanmar’s growing external deficits and increasing dependence on official loans. However, rising investment flows and a reasonably comfortable foreign reserve position will offset any near-term liquidity and FX market pressures.

Further improvements on the political front will also likely allow more funding from international organisations for development projects.

The cost of government’s debt servicing will likely increase higher going forward, as central bank’s deficit monetisation falls and more of the total borrowing requirement will be in the form of treasury bonds.

Myanmar’s longer-term growth prospects hinge on political and economic reforms. The next step of
key macroeconomic policy changes include establishment of a formal interbank market, development of monetary instruments, de-monetisation of fiscal deficits, and relaxation of exchange restrictions on current international payments and transfers.

In addition, the CBM is expected to have operational autonomy and adopt a reserve money targeting mechanism as its nominal anchor going forward. The development of policy instruments to manage liquidity and shift toward a market-based allocation of credit is crucial. These will boost absorption capabilities against expectedly large inflows which could otherwise undermine financial stability.

In view of the underdeveloped market institutions, management of the evolving economic reforms and
liberalisation processes will need to proceed cautiously. Nonetheless, economic reforms and the country’s integration with the global economy are expected to raise sizable business and investment opportunities.

In a positive scenario where structural policy reforms are carried out, we expect foreign investment will continue to play a key role in driving growth. A large and low cost workforce coupled with abundant natural resources and favourable geographic location provides Myanmar with a strategic opportunity to emerge as a contender for intra-regional FDI in low-wage manufacturing activities. Besides strong investment inflows from China, anecdotal evidence suggests that investors from Japan, Korea and the US have started to seek out business opportunities in the country.

If political reforms continue, sanctions will likely be rolled back further, enabling investment to expand more quickly.

As one of the last underdeveloped Asian economic economies, Myanmar stands to benefit from a sustained shift in domestic activity towards industry and services—these shifts are likely to be accompanied by greater urbanisation, property development, and tourism.

In short, we think Myanmar’s likely development path looks similar to those of neighbouring countries such as Vietnam and Thailand. However, much depends on its ongoing political and economic reform progress, and much more need to be done before long-term structural changes can be sustained.