Burma faces currency decline and dollar tightening as economy worsens | Business and Economy News
Myanmar grapples with a plummeting local currency amid an unprecedented dollar shortage, raising the cost of imports and exacerbating the economy’s struggle with the twin challenges of the pandemic and financial isolation post-coup.
The kyat has fallen by about 50% since the military took power in February, triggering the freezing of part of Myanmar’s foreign exchange reserves held in the United States and the suspension of multilateral aid, two key sources of foreign exchange supply. Restrictions on cash withdrawals have fueled concerns about the safety of money in banks, prompting people to seek out more widely used currencies such as the US or Singapore dollar or the Thai baht, analysts said. .
Myanmar Central Bank’s efforts to quell the dollar rush, including increasing the supply of foreign currency and ordering exporters to repatriate profits within 30 days, failed to stem the fall of the kyat. . According to Jason Yek, senior country risk analyst for Asia at Fitch Solutions, the currency could dip further to 2,400 per US dollar by the end of this year and to 3,200 by the end of 2022.
The sale of currencies is the latest crisis to hit the country which is still grappling with street protests after the overthrow of the civilian government led by Aung San Suu Kyi. National Covid restrictions and a civil disobedience movement by Suu Kyi supporters have hit normal economic activities, reducing exports of everything from textiles to agricultural products, another source of foreign exchange.
“It is really difficult to predict when this financial crisis will end,” said Khine Win, public policy analyst specializing in economic governance in Myanmar. “Only the restoration of democracy and a legitimate government will unlock the international aid Myanmar needs to deal with this crisis, but it is really hard to see that happen. “
The falling currency is already wreaking havoc on Myanmar’s economy, with some businesses shutting down because they are unable to keep up with rising import and raw material costs. The economy is estimated to contract by 18.7 percent in the fiscal year ended Sept. 30, according to the ASEAN + 3 Bureau of Macroeconomic Research. While the official exchange rate to the dollar was 1,965 kyat last week, local fund managers were quoting 2,200 to 2,300 kyat, said Yek of Fitch Solutions.
Although the central bank does not disclose its levels of foreign exchange reserves, the recent drop in the kyat suggests that “it has likely fallen to precariously low levels” after trying to support the currency for months, Yek said.
Currency volatility is expected to subside soon due to recent measures taken by the authorities and the increase in export earnings seen in November and December, Win Thaw, deputy governor of the Central Bank of Myanmar, said on Monday.
Myanmar’s reserves declined after the United States froze $ 1 billion held in the New York Federal Reserve days after the coup, while the World Bank and the International Monetary Fund suspended funding for projects. To preserve foreign currency on land, authorities suspended imports of passenger cars last month and amended the forex law last week.
But putting more controls will further undermine investor confidence in Myanmar and exporters will find ways to keep hard currencies abroad, said Vicky Bowman, director of the Myanmar Center for Responsible Business.
“The root cause of the forex crisis is the collapse of investor confidence in Myanmar and the suspension of development aid since February,” Bowman said. “Without a political solution that leads to the resumption of lending and restores confidence in the country, it will be difficult for the kyats to recover.”
Foreign direct investment in Myanmar has declined, as multinational companies become increasingly reluctant to do business with the military regime and some move out. Reversing this trend will be the key to reversing the fortunes of the kyat.
“We do not see any FDI coming in and the kyat depreciating trend may continue as long as the army remains in power,” Khine Win said. “It could drag more middle class people below the poverty line. “