Myanmar Growth Forecast Cut by World Bank on Fuel Shock

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(Bloomberg) — The World Bank cut its annual growth forecast for Myanmar to 2% from 3%, saying a fuel shock linked to the Middle East conflict has raised costs and intensified strains on the war-torn and isolated Southeast Asian country.

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The economy remains under significant pressure, with inflation accelerating to 24.6% year-on-year in April, according to the latest bi-annual Myanmar Economic Monitor released Tuesday. 

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The bank’s outlook, for the current fiscal year through March 2027, compares with the military-backed government’s projection for 3.4% growth over the same period. The economy contracted 2% last fiscal year, according to the World Bank.

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“Recent shocks continue to expose deep structural vulnerabilities, and without sustained improvements in the operating environment, recovery is likely to remain fragile,” Melinda Good, the World Bank’s division director for Thailand and Myanmar, said in a statement accompanying the report. 

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The downgrade underscores Myanmar’s continued fragility, with higher fuel costs adding to existing pressures from domestic instability, weak demand and foreign-exchange constraints. Higher fuel costs threaten to deepen inflationary pressures, erode purchasing power and further delay a broader economic recovery.

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A coup in 2021 plunged the country into crisis, reversing a brief period of democracy and openness to foreign direct investment. Min Aung Hlaing — former junta chief installed as president this year after widely criticized elections — has pledged to address the country’s spiraling economic crisis.

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His government faces US-led sanctions over its jailing of former leader Aung San Suu Kyi and alleged human rights abuses as it fights pocket of pro-democracy and ethnic-aligned forces. That isolation from the West, along with its strategic location and critical minerals resources, have led Russia and India to engage with Min Aung Hlaing’s government, as has China, where he held talks with President Xi Jinping on Tuesday.

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Meanwhile, several members of the Association of Southeast Asian Nations are seeking to reintegrate Min Aung Hlaing’s government, which has become increasingly reliant on remittances from the regional diaspora to help stabilize the kyat and build foreign exchange reserves. 

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Myanmar’s economy was showing tentative signs of stabilization before the Middle East conflict, helped by post-earthquake recovery and resilient manufacturing, construction and services, the World Bank said. 

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Risks to the country’s outlook include continued conflict, disruptions to trade and logistics, weaker export earnings and volatility in global energy prices, according to the report. 

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“One of the many reasons why Myanmar’s economy hasn’t fully recovered since the pandemic is the very intense and escalated conflict we have seen,” World Bank Senior Economist Kemoh Mansaray said in a briefing Tuesday. “Conflict remains as an issue, and if conflict situation improves, then it may improve overall economic prospects.”

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Mansaray also said the central bank should move toward a unified exchange rate instead of maintaining multiple rates while keeping its reference rate at 2,100 kyat per dollar, about half the open-market rate. A unified rate would help businesses price goods more effectively, improve resource allocation and support investment, he said.

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The World Bank projected average inflation to remain high at 20% in the forecast year and expected the fiscal deficit to stay elevated at 5.2% of gross domestic product.

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“If fuel supply disruptions persist or global energy prices rise further, inflation could accelerate more than projected, foreign exchange shortages could intensify, and import compression could deepen,” the World Bank warned in the report.

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(Updates with comments from a World Bank economist in the 11th and 12th paragraphs.)

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