Mizzima
Yangon resident May Khine is struggling to support her family through her small clothing shop business. With high inflation and costs going up, it is hard for her to make ends meet in a country at war in dire economic straits and societal crisis.
The Myanmar Economic Monitor Report for June 2024 entitled “Livelihoods Under Threat” delves deep into Myanmar’s economic crisis, providing detailed statistics, its title pointing to the “human cost” of the ongoing crisis.
May could be referred to as the human face of the crisis.
The report has the statistics, as would be expected – but it is necessary to talk to the man or woman on the street in Myanmar to assess the difficulties faced.
May told Mizzima that she has been running a clothing shop in Yangon’s Thein Phyu Market for over 10 years.
“Business is slow these days. When I go home, I wonder whether to buy meat and fish for cooking. I always have to think twice about buying vegetables because their prices are nearly as high as meat. It’s almost impossible to afford both. Even cabbage costs almost 1,000 kyat. This is a tough time, and things have gotten really bad,” she says.
May can see the trend.
“Shops in the market near me have been closing one by one. Those who lose their businesses then start working in other people’s shops,” she says, noting the desperation.
Over the last six months she has seen business drop, with many of the shops nearby having closed.
FAILED STATE?
Is Myanmar’s economy collapsing?
After all, the country on occasion hits the world headlines for all the wrong reasons.
It is tempting for journalists to offer brash headlines when it comes to the state of the economy. But the situation is more nuanced – and the World Bank report offers details that indicate that while people are suffering the economy continues to tick over, at least for now, a crucial factor for the military junta hanging on to power.
On a personal level, the man and woman on the street have been feeling the pain, whether due to the chaos of war, poor pay, unemployment, a depressed business environment, or this year the fear sparked by the Myanmar junta’s conscription drive.
The troubled economic and business situation is not helped by the paranoid military junta that is curtailing freedoms.
There have been arrests of small business owners for posting on Facebook that they had increased their staff’s salary to help them cope with inflation – arrested and charged under Section 505 of Penal Code or
Public Mischief. Well-known businessman Serge Pun was recently called in for questioning, likely due to junta concern over investment in properties in Thailand – money leaving the country. And money changers and gold shop dealers have felt the heat over the rates they charge – prompting the junta to remove licenses and make arrests.
COUNTRY AT WAR
So where does Myanmar’s economy stand? And what is the human cost?
The World Bank Myanmar Economic Monitor provides a useful aerial view of the economic and financial climate of a country at war and in crisis, though it errs on the side of caution when it considers the human cost and who is to blame – hoping, one suspects, to maintain access to the country and communications with the junta.
On a macro scale, Myanmar’s economy is not a basket case. At least not yet. The economy is still functioning. The new report projects gross domestic product will rise by 1 per cent over the year to March 2025, in line with growth estimates for the previous year but down from the December 2023 forecast of 2 per cent growth. Economic output is expected to remain about 9 per cent below 2019 levels, in sharp contrast to the experience of other large economies in the region.
Myanmar is effectively reeling from two key crises – the COVID-19 pandemic restrictions, when they were in play, and now the negative outcome of the 2021 coup, the current civil war, and related issues that are dividing society.
Naturally, when compared to other ASEAN countries, it is the “black dog” of the family – but even then regional countries continue to trade and invest in the country.
CONSCRIPTION DRIVE
Fear pervades Myanmar today. The activation of the military conscription law in February has prompted significant migration out of major urban areas toward rural border areas and to Thailand, with some firms reporting labour shortages as a result.
Firms have reported resignations as employees relocated to rural areas or migrated outside Myanmar to avoid conscription. Results from the April round of the World Bank Firm Survey indicate that the share of firms reporting employee resignations due to migration increased to 28 per cent from 17 per cent in September 2023 and 11 per cent in April 2023, with services and manufacturing firms particularly severely affected.
Even before the conscription announcement, firms had been facing labour shortages caused by the escalation of conflict and declining real wages. A recent survey by the World Bank on the migration intentions of highly skilled graduate youth aged 20 – 40 indicate that more than half (52 per cent) wish to migrate abroad, with East Asian countries such as Japan, Singapore, South Korea, and Thailand being the top preferred destinations.
POVERTY RATE UP
The human cost grabs attention with a growing number of people going hungry and people like Yangon shop owner May finding difficulty in affording food.
The poverty rate topped 32 per cent in early 2024, rising to levels last seen in 2015, while an additional third of the population is classified as economically insecure. At the same time, poverty is becoming increasingly entrenched, with its depth and severity approaching 2015 levels. Myanmar is now estimated to have 7 million more people living in poverty than it did immediately prior to the COVID-19 pandemic.
COVID-19 and the coup were the “one-two punch”.
Weakness in economic activity and labour markets have had significant impacts on household welfare, with the poverty rate estimated to have risen to nearly a third by the end of 2023 and early 2024. The 2023-24 Myanmar Subnational Phone Survey indicates that there has been a substantial increase in the headcount, depth and severity of poverty in Myanmar in recent years.
The poverty rate is estimated to be 32.1 percent in 2023-24, a reversion to levels last seen in 2015, while a further third of the population are at risk of sliding into poverty, with consumption less than 1.5 times that of the poverty line. At the same time, the depth and severity of poverty – indicators of how far the poorest households’ consumption lies from the poverty line – have worsened considerably since 2017, indicating that poverty has become increasingly entrenched.
On the other hand, counterfactual estimates suggest that had Myanmar sustained its pre-pandemic growth trends in recent years, there would have been 8 million fewer poor people in 2023 and the poverty rate would be just 11 percent.
Poverty has risen particularly sharply in conflict-affected states and regions. Sagaing, Kayin and Kayah have seen substantial increases in poverty over the last six years, despite already having among the highest rates of poverty in Myanmar in 2017, while poverty in Mandalay and Tanintharyi has also increased sharply.
On the other hand, there has been a notable decrease in poverty in Ayeyarwady which has seen relatively less conflict and remains one of Myanmar’s leading food producing regions. While the survey data shows a small reduction in poverty in Rakhine, pressures on household consumption have increased markedly in more recent months due to the impacts of conflict and rising prices. The MSPS data show that internally displaced populations (IDPs) are particularly vulnerable, with poverty rates around 50 percent, and unemployment rates of 40-45 percent, almost three times higher than the unemployment rate of non-IDPs.
While poverty is still higher in villages than cities, urban poverty has increased faster between 2017 and 2023-24 than poverty in rural areas. Average household consumption in rural areas is estimated to be 6 percent lower in 2023 than in 2017 (in real terms), while household consumption in urban areas has fallen by almost 20 percent over the same period.
The increase in rural poverty between 2017 and 2023 can in part be explained by job losses afflicting less-educated populations in villages, particularly in agriculture. The share of the rural population employed in agriculture has declined from 43 percent in 2017 to 34 percent in 2023, largely due to poorer and less-educated workers moving out of agricultural employment.
These shifts are likely to have had substantial implications for poverty: poorer and less-educated households are more likely to have reduced spending on food, health, and education to cope with recent shocks, and the MSPS findings indicate that poor households that have no members working in
agriculture are particularly likely to resort to these negative coping strategies, compared to poorer households that have at least one member employed in agriculture.
On the other hand, the significant rise in urban poverty between 2017 and 2023-24 has coincided with a decline in the quality of available jobs. Waged employment has become more restricted among urban populations, with the share of waged employment falling by 8.7 percentage points between 2017-2022 and recovering less than 1 percentage point over the past year. The proportion of waged workers with formal contracts and pension provisions have fallen by 3.6 percentage points in the past year. These declines have been especially pronounced among college graduates.
LABOUR MARKET
Labour market indicators remain weak, despite improvements in participation and employment over the last year. The World Bank’s Myanmar Subnational Phone Survey (MSPS) indicates that following substantial declines in labour force participation between 2017 and 2022, there was a moderate pick-up over the year to end-2023. The labour force participation rate (LFPR) rose 3.6 percentage points over the year to December 2023 but is yet to recover to levels observed in 2017. The employment rate (as a share of the working age population) increased by 2.3 percentage points over the last year but remains around 6 percentage points below 2017 levels.
Meanwhile, the estimated adult unemployment rate rose from 6.7 percent to 8.1 percent over the year to end-2023, up more than 3 percentage points from 2017.
After trending upwards in 2022, the number of job postings – a measure of labour demand – has plateaued since early 2023, and remains well below pre-pandemic levels, consistent with an economy that is yet to fully recover from the earlier contraction in activity. Vacancies remain particularly weak in tourism-related industries; engineering; legal, accounting and finance; and several other professional services. While the number of people not in employment, education, or training (NEET) has declined by 1.5 million over the past year, there are still 2.8 million additional NEET in 2023 compared to 2017, 70 per cent of whom are women.
This ongoing weakness in labour demand has coincided with a more recent reduction in labour supply in some areas and industries, due to labour movements within the country and across borders in response to conflict and fear of conscription.
Results from the April 2024 round of the World Bank Firm Survey indicate that over half of the firms with job vacancies reported difficulty in filling these vacancies, due to a lack of applicants, a lack of skills, and-or demands for higher wages than could be offered by the firm.
This combination of weakness in demand and supply has meant that real-time indicators of employment have deteriorated in recent months: the April 2024 manufacturing purchasing managers’ employment index fell to its lowest level since 2021, with employment in the manufacturing sector contracting for each of the last 10 months.
The quality of jobs has also declined over the last year. The share of wage work in overall employment and the share of formal employment among wage workers have fallen by 2.6 and 3.6 percentage points respectively over the last year. Workers with more education are experiencing particularly marked
deteriorations in job quality, which has affected their consumption levels and raised the likelihood of them falling into poverty.
Aung Naing is a 21-year-old phone shop employee in Yangon’s Yuzaan Plaza who is feeling the pinch. He currently receives a 180,000 Kyat salary, recently put up by 3,000 Kyat. “But the money has already run out by day fifteen of the month,” he says.
He notes that people no longer crowd the market as much as before, and “for those of us who depend on a single salary, the money is low and the price of goods is high”.
Aung Naing tells Mizzima he is overwhelmed. And there are days when he cannot afford to put food in his lunchbox.
FARMING SECTOR
That said, the agriculture sector remained comparatively resilient in 2023-24. The latest round of IFPRI’s Myanmar Agricultural Performance Survey (MAPS) indicates that rice yields increased by 7 percent in the 2023 monsoon season, following consecutive declines in 2021 and 2022. Fertilizer use on paddy rose as fertilizer prices moderated. MAPS survey results also showed farmers benefiting from an increase in nominal and real profits reflecting higher farmgate prices. Compared to April last year, sales and profits of agricultural firms in the World Bank Firm Survey increased by 3 percent and 4 percent, respectively, explained largely by favorable global prices and strong regional demand especially for rice and beans and pulses.
However, conflict and insecurity remained a major challenge to farmers across the country. About 26 percent of surveyed agricultural firms in the World Bank Firm Survey reported challenges with conflict in April (up from just 4 percent in April last year). In the MAPS survey, farmers in insecure areas reported particular challenges in accessing agricultural inputs and fuel, as well as higher input costs.
It is noticeable that the World Bank report tends to ignore the plight of farmers in conflict zones – such as Sagaing, Magway, Chin and Rakhine states – where planting and harvesting has been badly affected by junta military attacks and their “scorched earth” policies.
MANUFACTURING
The manufacturing purchasing managers’ index (PMI) indicated that the sector expanded in May 2024, but this was off a low base after several months of decline. After seven consecutive months of contraction, factory orders increased in April and May. The rise in new orders in turn supported an increase in manufacturing output in May for the first time since August 2023, with food processors in particular appearing to have benefited from substitution away from imported goods. On the other hand, the garment sector remains under pressure with exports down almost a quarter in the six months to March 2024, compared with the same period a year earlier.
Results from the April 2024 World Bank Firm Survey indicate that the manufacturing activity remains constrained by power outages, conflict, import restrictions and foreign currency shortages. The average operating capacity of manufacturing firms was 61 percent in April 2024, 7 percentage points lower than a year ago. While conflict has exacerbated supply chain disruptions, delays in obtaining import licenses have been the main driver of longer supplier delivery times, while the high cost of imported inputs remains a major constraint.
Labour shortages have reportedly become an increased challenge for the sector in recent months due to falling real wages and the threat of conscription.
GROWTH IN CONSTRUCTION
Indicators of construction activity have improved in FY2023-24. Permits for residential construction in Yangon, representing approximately half of total construction activity, grew steadily until the end of 2023 before easing in the first half of 2024. Construction of small-scale government projects, including roads, bridges, public buildings, and bus stations, has also picked up. Reflecting these trends, the volume of imported construction materials from China rose in FY2023-24 compared with the previous year. However, major foreign funded infrastructure projects like the planned China CITIC deepwater port in Kyaukphyu and the Indian Kaladan project, which aims to connect India with the Sittwe port in Rakhine State, have faced ongoing delays.
The price of construction materials has risen sharply since mid-2023, reducing margins and constraining activity in the sector.
GAS PRODUCTION
Natural gas production and exports declined on a year-on-year basis. Gas exports to Thailand and China declined by 23 percent in six months to March 2024 reflecting lower production volumes following the temporary closure of the Yadana pipeline for repairs.
Taking a longer-term perspective, gas reserves at existing fields are diminishing rapidly and the medium-term outlook is for a pronounced decline in production in the absence of investment in exploration to develop new gas fields. However, international sanctions on Myanma Oil and Gas Enterprise – in conjunction with challenges in the broader business environment – have amplified risks and financial uncertainty, hastening the exit of existing investors and deterring new foreign investment.
MINERAL MINING
Mineral production trended downwards in the six months to March 2024, mainly due to reduced mineral exports to China amid conflicts in northern Myanmar. Overall, mineral exports to China and Thailand fell by 14 percent reflecting disruptions caused by conflict. Rare earth exports also fell by 29 per cent December and March and by 18 per cent year-on-year. However, copper and aluminum production improved as operations in the Wa region likely resumed in January 2024 after a five-month halt, reflecting strong demand for copper from China and Thailand.
Informal or illicit mining activities have increased significantly over the past few years and could increase further due to the recent escalation of conflict across the country, posing serious social and environmental risks.
TOURISM CRISIS
Not surprisingly, tourism is in the doldrums. After a relatively strong recovery in international arrivals in 2023, tourism has seen a downturn since the beginning of 2024 due largely to the escalation of conflict. International arrivals have declined by 11 percent since December, to be less than a quarter of pre-pandemic levels in March 2024.
The slump in international visitors has shifted the focus to domestic tourism in non-conflict areas, which has seen modest growth, with Myanmar people accounting for the large majority of hotel guests in Yangon and Mandalay.
At the same time, some conflict-affected regions have experienced a surge in air travel as passengers sought to avoid insecurity risks associated with land transportation. Domestic arrivals at airports such as Tachilek, Myitkyina, and Lashio exceeded 2019 levels in 2023 – but arrivals at previously popular tourist destinations such as Bagan are less than 5 per cent of 2019 levels.
WHOLESALE & RETAIL
The wholesale and retail sector continues to face supply and demand side challenges, with some evidence of a shift of sales toward locally produced goods. Import restrictions have led to a shortage of imported consumer goods, resulting in an increased reliance on domestically produced goods, which now account for over half of retail sales.
With high inflation and weak nominal incomes driving consumers to prioritize essential items, retailers have responded by offering smaller package sizes and substituting premium imported products with more affordable but lower quality domestic alternatives.
However, retailers continue to grapple with stock shortages as supply from domestic manufacturers is also hindered by limited access to imported raw materials and other constraints. Compared with firms in other sectors, in the April 2024 World Bank Firm Survey retail and wholesale firms reported challenges related to the availability and cost of intermediate inputs, as well as weaker demand and reduced sales.
EXPORTS & IMPORTS
Goods exports and imports experienced sharp declines in the six months to March 2024 (or the second half of FY24 – H2 FY24), by 13 per cent and 20 per cent respectively compared with the same period last year.
The declines were primarily associated with disruptions in land border trade. Compared to the same period last year, exports through land borders decreased by 27 per cent. Excluding natural gas exports, this decline reached 44 per cent. Likewise, imports through land borders fell by 50 percent. Exports via sea routes were comparatively stable, declining by 3 per cent, while imports via sea routes declined by 15 per cent.
Besides border disruptions, import and foreign exchange restrictions, weaker domestic demand, and the domestic production of substitute items also contributed to the decline in imports. The relatively large decline in imports resulted in a sharp narrowing of the merchandise trade deficit in the six months to March 2024.
The largest contributor to the overall reduction in exports in the six months to March was the decline in manufacturing exports, which fell 19 per cent compared to the same period last year.
Garment exports to major international markets – the EU, Japan, Korea, the UK, and the US – experienced a 24 per cent decline due to sustained weak global demand throughout 2023 and the withdrawal of global brands from Myanmar. The value of Myanmar’s gas exports to China and Thailand also saw a 23 per cent decline (or approximately US$475 million) in the past six months compared to the same period last year.
Myanmar’s gas exports have steadily declined since the second half of FY23.
Agricultural exports were relatively stable in the past six months compared to the same period last year. Data from the Myanmar Rice Federation indicates that Myanmar rice exports increased by 25 per cent in value terms but decreased by 4 per cent in volume terms – suggesting that the increase is mainly due to the global rice price upturn, which increased by 17 per cent in the past six months to March 2023 compared to the same period last year.
However, the 4 per cent decline in volume terms reflects lower production levels in recent years and the impact of trade restrictions (including a temporary export ban to curb domestic rice prices and frequent changes in foreign currency surrender requirements). Myanmar’s bean and pulse exports declined by 8 per cent in value terms and 19 per cent in volume terms, driven primarily by land border disruptions (primarily to China, which is the second major destination for Myanmar beans and pulses and accounts for about 30 per cent of total beans and pulses exports). Bean and pulse exports through land border declined by 73 per cent (or US$81 million).
Imports declined significantly in the past six months, attributable to a combination of import restrictions, border disruptions, and lower domestic demand. All import categories declined in the past six months compared to the same period last year. The value of capital imports fell by 31 per cent, while imports of intermediate goods and consumer products each declined by 17 per cent. Myanmar’s diesel and gasoline imports through Yangon seaport, in volume terms, declined by 3 per cent and 13 per cent, respectively – reflecting frequent fuel shortages in recent years with reportedly the worst shortage in December 2023, due to difficulty in access to the US dollar and unpredictable policy changes.
Available data indicated that major consumer products, except palm oil, continued to decline. Palm oil is a staple commodity for most Myanmar households, so imports of it remained strong in volume terms in the past six months. However, prepared food and pharmaceutical imports through the Yangon seaport declined by 23 per cent and 41 per cent, respectively, due to lower demands and import restrictions.
CHINA & INVESTMENT
Foreign direct investment (FDI) commitments fell to US$177 million in the six months to March 2024, a 56 percent decline from the same period last year. The manufacturing sector dominated total FDI commitments by industry, accounting for 50 per cent (US$88 million across 34 projects). Following this, the power sector comprised 32 per cent (US$57 million), while the “other services” and real estate sector accounted for 12 and 6 per cent, respectively.
China was the top investor in the past six months to March 2024, accounting for 51 per cent of the total commitments, followed by Thailand (14 per cent) and Hong Kong (11 per cent). The trajectory of actual FDI flows is expected to have broadly followed the trajectory of commitments in FY2023-24, although the relationship is by no means precise, including because of lags in implementing commitments.
DROP IN CONSUMPTION
Declines in consumption have also been particularly significant among more educated workers with more work experience. In 2017, households with greater endowments—such as better education, more
assets, smaller household sizes, and service sector jobs—exhibited lower poverty levels. However, consumption has substantially declined among these groups, leading to a rise in poverty. For example, individuals with college or higher levels of education had a poverty rate of 4 per cent in 2017, but the poverty rate among this group increased to 18 per cent in 2023-24. Workers in manufacturing and services have also experienced sharper reductions in consumption and increases in poverty than workers in agriculture.
Some of Myanmar’s most educated workers are turning to typically lower-productivity farming activities as a result of the current economic and security conditions, a reversal of the normal structural transformation process.
CURRENCY CRISIS
The market kyat exchange rate has depreciated rapidly and inflationary pressure persists, putting pressure on household consumption and retail sales. The kyat depreciated by about 28 per cent against the US dollar on parallel markets over the year to May 2024, while foreign currency shortages remain prevalent.
Combined with conflict-related logistics disruptions, border post closures, and restricted access to import licenses, exchange rate depreciation has seen inflation persist at high levels.
As the owner of a Yangon drug store told Mizzima, medicine prices are going up due to the exchange rate.
“The dollar plays an important role in the drug market. All medicines are imported. The rising dollar price results in increasing medicines prices. Currently, household medicines like Decolgen cost over 500 Kyat per tablet. Previously, this medicine was only around 150 Kyat,” he said.
POWER CUTS
Electricity generation has continued to decline due to a downturn in gas-powered supply and conflict-related disruptions of transmission and distribution lines. Lower gas-powered supply has led to increased reliance on hydropower and the overutilization of aging dams, which in turn has accelerated wear and tear and increased safety risks. At least four major hydropower plants have experienced operational disruptions. In major urban residential areas, power outages have ranged from 5 to 20 hours per day in recent months, while industrial zones (where manufacturing firms are located) generally have been hit by even longer-lasting outages. The decline in electricity provision has significantly raised operating costs for businesses, many of whom have been forced to run expensive diesel-powered generators as a substitute for grid-based power.
A third of firms surveyed by the World Bank in April reported power outages as their primary challenge, up from 12 per cent in September, while 68 per cent of firms reported that they had invested in diesel generators and 17 percent in off-grid solar power.
DESPERATE STRAITS
For garment shop owner May Khine, it is clear that Myanmar’s economy is in dire straits but there is an element of normality on the streets of Yangon. Significant elements of the economy continue to turn over, even though many citizens like May are feeling the pinch. Several areas of the country are in survival mode as the junta battles the resistance, many people forced to flee their homes, adding to the calls for humanitarian aid.
Given the Myanmar junta’s economic mismanagement, it is no surprise that the man and woman on the street is finding life difficult. But the country has not yet become a failed state.
Reporting: Mizzima, World Bank
