Myanmar’s Economic Turmoil: Trends and Prospects for 2024 and Beyond
Economic Overview: A Decline Unprecedented in Southeast Asia
Myanmar’s economy in 2024 has faced significant challenges, including slow growth, high inflation, increasing poverty, and declining real wages. The country’s economic performance has been the weakest in Southeast Asia since the 2021 coup, with real GDP estimated to decline by 1% in FY24/25. This decline follows an 18% drop in GDP post-coup. The agricultural sector has been hit the hardest, with a projected -4% growth in FY24/25, compared to 2% growth the previous year. Both industry and services have stagnated, showing no projected growth.
Poverty rates, which had steadily decreased in the 2010s, have now risen significantly under the State Administration Council (SAC). According to the UNDP, 77% of Myanmar households are poor or near-poor, a rise from 58% in 2017. This increase is attributable to the combined effects of COVID-19 and the coup, with poverty rates continuing to climb even after the pandemic ended.
Why Inflation is Surging
Increasing poverty rates are exacerbated by inflation, which has soared due to the SAC’s high level of money printing and other factors. The opposition National Unity Government (NUG) reported in June 2024 that the regime had printed 30 trillion kyat since the coup. The SAC’s data shows inflation peaking at 35% in Q4 2022, averaging 28% in 2023. Food items and transport costs have particularly skyrocketed. The cost of a typical diet has nearly tripled, rising from 875 kyat per person per day in June 2020 to 2,280 kyat per person per day in March 2024. Rice prices, for example, have increased by 220% between January 2021 and June 2024.
The Impact on Workers
Wage workers have borne the brunt of the post-coup economic decline. Inflation-adjusted wages for urban construction workers fell by 14 percent, and by 4 percent for rural agricultural workers. In the garment sector, nominal monthly wages at H&M factories increased by 22% from January 2021 to December 2023, but this did not keep up with high inflation. This financial strain has left households of wage workers extremely vulnerable to hunger and poor diet.
Financial Sector in Disarray
Myanmar’s financial sector remains frail, with low confidence in the currency and banks. Bank runs post-coup led to withdrawal limits, which returned in July 2024, restricting withdrawals to between 1 and 2 million kyat ($208 to $416 USD). Banks are also struggling with forced conversion of forex into kyat and below-inflation interest rates. These factors have led to a decline in inflation-adjusted deposits and credit as a percentage of GDP. The microfinance sector has also contracted, losing about one million clients in 2023, although there is significant unmet demand for loans.
Rise of Informal and Illicit Economic Activities
While Myanmar’s formal economy struggles, informal and illicit economic activities have surged. Informal activities, such as beverage imports, do not necessarily pose security threats but reflect the coping mechanisms of the people. However, illicit activities, including the production of opium and synthetic drugs, pose significant threats. Myanmar is now one of the world’s largest bases for illicit activities, contributing to a $39 billion loss in stolen funds.
| Economic Indicators for Myanmar (2024) | Data |
|---|---|
| Real GDP Growth (FY24/25) | -1% |
| Inflation Peak (2022 Q4) | 35% |
| Average Inflation (2023) | 28% |
| Poverty Rate Increase (2017-2024) | 58% to 77% |
| Cost of a Typical Diet (2020 vs. 2024) | 875 kyat to 2,280 kyat (260% increase) |
Economic Governance: New Actors, New Motivations
The coup brought significant changes in governance, with the military taking over from the elected National League for Democracy (NLD). Since Operation 1027, SAC’s control has shrunk, while non-state groups have expanded their administrative control. In Rakhine State, for instance, the SAC has cut essential services, while the Arakan Army’s territorial control has grown.
Did you know? Myanmar has transitioned from a civilian democratic governance to a military regime after February 2021 coup!
The SAC’s primary motivation is resource extraction to ensure its survival, effectively turning Myanmar into a "war economy." This approach is often reactive and unpredictable, marked by frequent policy changes. A prime example is the repeated use of blockades in Rakhine State, aimed at restricting essential goods from reaching civilian populations. However, this approach has weakened the SAC’s governance capability.
Foreign Businesses Since the Coup
New investment in Myanmar has drastically declined, largely due to the unstable political situation. Approved FDI fell from $5 billion in FY19/20 to $662 million in FY23/24. The majority of post-coup investment is in the power sector, though many projects remain unimplemented. New manufacturing investments have also decreased, with their average size dropping from $8.88 million under the NLD to $3.66 million under the SAC. A significant portion of new investments is incremental, coming from existing investors with trapped capital.
Despite these challenges, businesses, including foreign investors, have shown resilience. Adaptations include changes in business models, expansion to new markets, and offshoring of some back-office functions. For example, some businesses have started outbound investment, offering goods and services to Myanmar’s migrant community in neighboring countries. Business sentiment, though relatively resilient initially, hit an all-time low by August 2024, as recorded in the monthly Performance of Manufacturing Index.
Pro tip : Even with unfavorable conditions, foreign investors have shown adaptability by expanding markets, adapting business models and offshoring. The investor community should monitor the Index closely to judge the risk involved with their venture.
Prospects for Inclusive Growth
Myanmar’s near-term economic prospects remain weak, constrained by conflict, outmigration, uncertainty, and SAC policies. The SAC’s control, including public compliance, is eroding. There is growing uncertainty over economic policies and regulations, as well as the authority of various governance actors.
In SAC-controlled parts of Myanmar, the economy will continue to underperform. Economic instability and conflict instability are likely to persist, making a return to economic growth unlikely. Former Deputy Minister Winston Set Aung notes, “True economic development requires political stability and public confidence, both of which were lacking in Myanmar after the military coup on 1 February 2021.”
SAC rule is creating long-lasting economic distortions while discouraging investment and driving outflows of capital. Distortions stem from regime policies aimed at controlling prices, foreign exchange, and trade. For example, selling forex to some importers at preferential rates subsidizes these imports, undermining domestic industries. These distortions are likely to accumulate over time, summoning significant political changes to address them.
External Pressures on Myanmar’s Economy
Myanmar’s economy faces increasing external pressure, including a potential call for countermeasures from the FATF. These countermeasures, if implemented, could significantly affect the country’s economy. There are also calls for greater sanctions, particularly on key entities like the Myanmar Economic Bank and the Myanmar Oil and Gas Enterprise. While broader sanctions such as trade embargoes have been limited, their proliferation will have effects, raising transaction costs and contributing to negative perceptions of Myanmar.
Economic Prospects in Non-State-Controlled Areas
Economic prospects in non-state-controlled areas are constrained by conflict, uncertainty, and lack of economic governance experience. Non-state groups, unable to access international economic systems, face significant challenges. However, those that formalize economic governance and develop trade and financial links may see improved prospects. Myanmar’s trajectory will be significantly influenced by the economic governance evolution in these areas, impacting the country’s conflict, politics, and economy.
FAQs
Q: What are the main contributors to Myanmar’s economic decline?
A: The main contributors include slow growth, high inflation, increasing poverty, and the regime’s extraction policies.
Q: How has the SAC’s governance affected the economy?
A: The SAC’s governance has led to a "war economy" approach, characterized by resource extraction and conflict-oriented policies, resulting in economic distortions and reduced investment.
Q: What are the prospects for Myanmar’s economy in 2024 and beyond?
A: The near-term economic prospects are weak, with high inflation and low growth likely to continue. Significant political changes are needed for economic recovery.
Reader Questions: Which economic sectors are most affected by the SAC’s governance and how are local businesses coping?
For a deeper dive into Myanmar’s economic future, explore our related articles and subscribe to our newsletter for the latest updates.
