Thailand
Myanmar: Government to repay debt of US$600 million in 2017-18
Debts accumulated under Myanmar’s previous Union Solidarity and Development Party are now due, 2 years after the current National League for Democracy government came into power.
Despite debt relief provided by Paris Club countries during former President Thein Sein’s USDP administration, Myanmar still owed US$8.98 billion in outstanding foreign debt as at 31 December 2016, according to the government’s 2017 mid-term debt management strategy.
Of its creditors, Myanmar owes China some US$3.96 billion, or 44pc of its total foreign debt. The country owes a total of US$3.3 billion to countries under the Paris Club, including US$1.99 billion to Japan and US$683 million to Germany. It owes a total of US$1.36 billion to international organizations like the Asia Development Bank and the World Bank.
In 2018-19, the first year of repayment, the country will need to pay back a total of US$600 million, which includes its highest interest payment of US$200 million.
By 2020-2021, the NLD government’s final year under its current term, it will pay back a total of US$750 million in debt including interest, the largest repayment by the Myanmar government in 36 years.
“It is likely that the NLD government will have to pay back the loans taken by previous governments in the last 36 years,” political and economic analyst U Than Soe said.
However, as the payback amount is based on the debt balance, repayments in the later years will be less, Permanent Secretary from the Ministry of Planning and Finance Tun Tun Naing said.
Mounting debt
Repaying debt will be a challenge for the government given that economic momentum has slowed in Myanmar. “One thing to be worried [about] is whether we can pay back the debts or not,” U Than Soe said.
For one, Myanmar’s trade deficit has widened with the price of exports such as oil, gas and other natural resources under pressure. Meanwhile, internal debt at the end of December 2016 amounted to more than K16 billion, according to statistics from the Department of Treasury, Ministry of Planning and Finance. That could rise, with the return of migrant workers from Thailand and the lack of jobs available.
In addition, with the current amount in the government’s foreign currency reserves now unknown, capital movements such as foreign direct investments and exports under the Myanmar Investment Law could take at least six more months to quantify. During this time, repaying debts will be a challenge for the current government, economist Dr Aung Ko Ko said.
“When repaying debts, the foreign reserve currency may dwindle. It may lead to an economic crisis,” U Than Soe said.
Dr Thaung Han, chief operating officer at Max Myanmar Group of Companies agrees. “Good or bad economy, there [may not be] enough money to pay back its debts when they fall due. There may be a crisis. So, [the government] needs to negotiate wisely and skillfully with creditors,” he said
Payback plan
The government can also take steps to avoid a debt crisis. To facilitate the state’s repayments, the respective ministry can come up with an efficient and effective repayment plan that is in line with the state budget, said Permanent Secretary Tun Tun Naing.
Going forward, an effective loan utilization and debt management framework must also be included in the state’s economic policy and Central Bank’s policy a decade in advance to avoid repayment problems, the economists suggest.
Avoiding future loans with high interest rates can also help the government manage its interest repayments. Currently, the majority of Myanmar’s debt is owed to China, which has some of the highest interest rates.
In addition, Myanmar can study the financial and debt management processes of similar countries to learn from their best practices and avoid their mistakes. Likewise, checks and balances between the Hluttaw and the government are also necessary.
Source: http://www.mmtimes.com/index.php/business/26773-government-to-repay-debt-of-us-600-million-in-2017-18.html