Going forward, “we expect the economy to rebound to 6.8 percent in 2018-19 and to 7.1pc in the following year, supported by the resumption of reforms and higher fiscal spending,” said AMRO Lead Economist Dr. Jae Young Lee.

Myanmar is expecting to be K7 billion short of state funds to support development in fiscal 2019-20, a projected fiscal deficit of 5.9 percent GDP compared to the 5.4pc budgeted for the current year, President U Win Myint said during a meeting with the Finance Commission on June 18.

The Finance Commission is projecting that Myanmar’s GDP will grow by 7pc in fiscal 2019-20, with K25.3 trillion in revenue and expenditure of K32.3 trillion, or 5.9pc of GDP.

U Win Myint warned that the gap between revenue and expenditure estimates needed to narrow. “The wide deficit gap indicates poor budget estimation,” he said, adding that past fiscal years’ performance would be analysed to improve on the 2019-20 budget.

According to the World Bank, the budget deficit for 2018-19 is projected to be considerably lower than the target of 5.4 percent of GDP. Indicative data suggests that actual spending was nearly 2pc less than the half-year spending target, with capital spending just above half of the half-year target in 2018-19, it said.

As such, enhancing tax revenue should continue to be a top priority in fiscal policy for the coming year. While strengthening efforts to direct resources towards priority areas is commendable, fiscal sustainability and spending efficiency should also be ensured, AMRO said.

“In this regard, the recent announcement of electricity tariff adjustment is commendable, as this will help enhance fiscal sustainability and free up fiscal resources away from electricity subsidies towards crucial government priorities such as health, education, and infrastructure spending,” AMRO said.

Meanwhile, financing sources for the fiscal deficit have also become more diversified.

The share of Central Bank financing has declined from a high of 61pc of total domestic financing in 2015-16 to almost zero during the transition period between April and September last year and the first two months of 2018-19, data showed.

During the period, sovereign T-bill and T-bond auctions almost fully met the domestic financing needs. Central Bank financing of the fiscal deficit will be capped at 20pc this fiscal year.

U Soe Thein, deputy governor of the Central Bank of Myanmar, said the fiscal deficit would mainly be financed by bonds in the coming years. For fiscal 2018-19, half of the K4.7 trillion deficit will be financed through bonds, he said.

Although the government has increased bond and bill auctions to K3.8 trillion from October 2018 to February 2019 compared to K3.6 trillion October 2017 to February 2018, market participation has remained below potential due to negative interest rates.

To help spur participation in the bond market, the World Bank said that more attractive coupon rates reflective of market conditions are needed.

Meanwhile, observers said that for Myanmar to better develop its debt markets, speedier reforms are needed. Daw Sandar Oo, chair of Myanmar Insurance Association, said a more mature local insurance industry can help by buying these bonds and bills.

“Everybody benefits, the government because it gets to sell its bonds, the insurance firms as it gets to hedge its premiums with more stable government debt and the people as they get to have more choice in financial products,” she said.

Member of Parliament Daw Thet Thet Khine said expenses needed to be monitored as the government implements its development programme. “Improve on the implementing infrastructure and speed up the reforms,” she said.

Source: https://www.mmtimes.com/news/bond-market-deepen-higher-fiscal-deficit-growth-levels-expected.html