ECONOMIC DEVELOPMENTS AND OUTLOOK
3. Growth has stabilized in FY2010/11 . Driven by higher fiscal spending before the elections and buoyant commodity exports, real GDP growth is estimated to have picked up to 5.3 percent in FY2010/11. Inflation declined to 6.4 percent (y-o-y) in October 2011, from 8 percent a year earlier, mainly due to lower food prices and less deficitmonetization. Gross international reserves rose to an estimated US$6.1 billion in FY2010/11 (about nine months of imports) due to natural gas exports and foreign direct investment (FDI) inflows
This Article IV Consultation reports that Myanmar’s authorities are moving forward with reforms of the exchange rate system. Priorities are establishing the market infrastructure for the planned move to a managed float, and monetary and foreign exchange policy capacity to complement plans to unify the exchange rates. Financial sector modernization remains essential to support the reform process and improve financial intermediation. Fiscal policy priorities include ending deficit monetization, reprioritizing spending, and increasing nonresource revenues for development spending within a medium-term fiscal framework.
improved business confidence. CPI inflation, at 6.4 percent (year-on-year) in October 2011, is projected to decline to 4.2 percent in FY2011/12, from 8.9 percent in FY2010/11, mainly due to lower food prices and less deficitmonetization. Inflation is expected to pick up in FY2012/13 to 5.8 percent as the recent drop in food prices phases out.
The parallel market exchange rate of the kyat has appreciated by 29 percent in nominal effective terms since end-FY2009/10, primarily due to large inflows, which cannot find an outlet due to the ‘export-first’ policy that
government agencies, broader consultation with stakeholders, and using best international practices distilled from other countries’ experiences through substantial capacity building efforts.
• Monetary policy and deficit financing . The recent adjustments of the fixed interest rate structure have appropriately placed deposit rates below Treasury bond rates, helping reduce projected deficitmonetization. Pending the introduction of treasury bond auctions to fully bond finance the deficit, expanding retail sales of treasury bonds, and lifting restrictions on state banks
fiscal deficits and substituting deficitmonetization with bond financing.
The overall fiscal deficit in terms of GDP is expected to narrow from about 5½ percent in 2011 to 1¼ percent in 2017, before gradually reaching a broadly balanced budget by 2031. Revenue would be the main driver of consolidation and is expected to rise to over 20 percent of GDP in the medium term owing to the positive budgetary impact of exchange rate unification and substantial increase in gas export revenues with the completion of Shwe and Zawtika projects. Revenue is expected to stay over