Myanmar under pressure to scale up COVID-19 stimulus measures

• Apr 27, 2020

Daw Aung San Suu Kyi’s government is under pressure to scale up its existing stimulus package to mitigate the economic fallout of the COVID-19 outbreak.

“The emergency fund is merely a drop in the ocean,” said U Win Shein, director of Yangon-based Capital Legal Counsel, referring to the K100 billion (US$72 million) COVID-19 fund. The emergency fund was set up by the administration in March for small businesses as well as the garment and tourism industries.

The fund is part of a raft of economic measures designed to support local businesses. Myanmar has also cut the interest rate from 10 to 8.5 percent, eased the deadlines for some taxes, delayed loan repayments to financial institutions, and waived licence fees. 

But the scale of these policies fails to meet the expectations of the business community, many of whom are already struggling. Investors and executives The Myanmar Times spoke to shared the view that the country urgently needs to step up its fiscal response to the virus. They said the Myanmar economy will not be able to sustain another three months of economic disruption.

For Dr Khin Maung Oo, general secretary of Myanmar Industries Association, the measures taken so far are insufficient to support the plight of businesses. 

He pointed to the huge discrepancy in the provision and demand of the emergency loan. Among the 4000-plus companies which have applied, a mere 88 have been granted the loan as of last week. 

Dr Khin Maung Oo also said the 1.5pc interest rate for the loan should be further reduced as lower rates encourage borrowing and hence boost spending and investment.

While acknowledging that “the government is receptive to the needs of the industry and the challenges,” independent political risk analyst U Nyantha Lin said “the scale of the impact is going to be staggering. [The current measures are] nowhere near enough,” he observed.

Indeed, Myanmar’s $72 million loan programme accounts for less than 0.1pc of the country’s GDP of $70 billion. Cambodia, with a smaller economy, has pledged measures amounting up to $2 billion while Bangladesh’s $8.5 billion stimulus accounts for 3pc of its GDP.

In its April Fiscal Monitor report, the International Monetary Fund (IMF) stated that large-scale and targeted fiscal stimulus are essential to ensure the temporary disruption does not translate into permanent damage to both productivity and the broader society.

More measures ahead

The government is set to announce more measures. Writing in the state paper, investment minister U Thaung Tun said the administration would “soon be” launching a Myanmar COVID-19 Comprehensive Response Plan.

He said the plan will introduce “a broad range of actions and policy reforms focused on facilitating a rapid, wide-ranging, and inclusive recovery” but did not elaborate on the details.

“Importantly, policies enacted shall not come at the expense of hard-fought-for fundamental social and economic freedoms now enjoyed in Myanmar. Nor shall our nation’s economic response involve cuts to social services or raising taxes on labour and investment,” the minister wrote.

Meanwhile, there have been calls to raise the relief measures in the area of tax. The authorities to date have extended income and commercial tax payments deadline, and waived the 2pc advance income tax on exports to the end of September.

European investors in the country want a corporate tax rebate for 2020 to survive the shock, according to a EuroCham Myanmar survey released in early April. 

They also want to see faster import procedures and customs clearance procedures and subsidies and relief for importers and exporters.

U Nyantha Lin said postponing tax payment deadlines are insufficient and the state of the economy is fast approaching a point where tax relief may be necessary.

Patrick Poon, who runs Myanmar Business Investment Platform, a consultancy for foreign investors, said Nay Pyi Taw should also consider waiving import tax.

Wage relief

Another area for policymakers to urgently look into is labour. 

Subsidising the salaries of workers during the shutdown could help prevent factories from closing permanently and allow the workforce to resume quickly when business is back, Mr Poon said.

The manufacturing industry, especially the garment sector, has seen massive lay-offs as a result of factory shutdowns. As of last month, over 25,000 workers from more than 40 factories have been laid off, while 350,000 are at great risk of either being suspended without pay or losing their jobs permanently. The industry, comprising around 600 factories, accounts for the jobs of up to 700,000 predominantly female workers.

Paul Minoletti, a Myanmar-based researcher with the London-based International Growth Centre, echoed the call for worker subsidies, saying that the government should consider daily-wage employment schemes to retain employment.

For now, in the absence of government subsidies, donors are stepping in. The EU set up a €50 million “Myan Ku” cash fund for Myanmar garment workers who have lost their jobs. The Livelihood and Food Security Fund (LIFT) also mobilised US$15.8 million to support migrants, mothers, pensioners and the civil society.

Importantly, the informal sector should not be overlooked. Programmes supporting the large base of workers in the informal sector are also necessary because of Myanmar’s vast informal economy, Mr Minoletti added. By one estimate, informal economic activities are as big as half of the GDP.

In addition, he suggested providing cash or food transfers to vulnerable households.

The authorities have so far moved to provide one-off food supplies for households without a regular income during Thingyan. Families also receive the first 150 units of electricity consumed for free in April.

Although much more fiscal support will be needed for the economy, U Nyantha Lin suggested that the public should realise the government is walking on a tightrope in managing people’s expectations at this critical juncture. 

“This is a very delicate balance for the government … between tackling the enormity of the public health threat the virus itself poses, but also ensuring livelihoods and supply chains and economies keep running, which have a real cost in terms of lives as well,” he told this newspaper. 

Source: https://www.mmtimes.com/news/myanmar-under-pressure-scale-covid-19-stimulus-measures.html