Burma economy in ‘artificial deficit’

Gas revenues being banked at the official exchange rate in Burma are causing an artificial deficit, when in fact there should be a 15 percent fiscal surplus, a prominent economist on Burma has said.

A “fresh look” at data of Burma’s economy is “worse than I had long thought, and the regime’s culpability so much worse,” said Sean Turnell, from the Sydney-based Burma Economic Watch (BEW), who released the ‘Dissecting the Data’ report on Burma.

He believes the government is fudging the economic figures: “I had a look at how the regime is recording these earnings from the gas in the public accounts and what is revealed when you look into it is that Burma’s fiscal deficit is artificial,” he said.

“[It’s an] an artifice of the regime itself; if you brought those [gas] revenues into the public account at the proper exchange rate, what is currently a fiscal deficit of about four percent of GDP turns into a fiscal surplus of around 15 percent of GDP.”

The report notes that in 2008/09, official figures showed a fiscal deficit of around 3.5 percent, adding that this was not extraordinary given the global recession. This was added to by a deficit of 1.9 percent from Burma’s state-owned enterprises, representing obviously poor management, particularly when one thinks of the gas revenues earned by the Myanmar Oil and Gas Enterprise (MOGE).

MOGE also uses the official exchange rate of six kyat to the dollar, but the money is “rendered into the accounts at the unofficial [but realistic] exchange rate of around 1000 kyat to the dollar, then these earnings [5,270 billion kyat instead of 24.7 billion kyat] would have an extraordinary impact.”

He added that “those gas revenues are kept offshore where they are used for all sorts of things and, I dare say, as per recent reports by you guys suggest on nuclear activities and so on”.

The report also once again highlighted the junta’s questionable response to cyclone Nargis reconstruction: “The amount of spending on post-Nargis reconstruction was a paltry figure of around $US85 million spent by the government, when the Tripartite Core Group [UN, ASEAN and Burmese government] estimated that $US600 million was required. They would earn more than this every single month from the gas earnings, which really illustrates nicely their priorities.”

He also indicated that Burma’s supposed shift to a ‘market economy’ is a fiction, given that “domestic capital is a mere 15 percent so the state controls 85 percent of the capital. [And] when you compare it to Laos or Cambodia,” the opposite is true,.

There is also an apparent “famine” of credit in the country which is particularly destructive to the agricultural sector, which provides for 70 percent of the population and earned 50 percent of GDP. The sector only received 0.4 percent of the credit created, whilst the overall credit of the private sector has been in steady decline from 19 percent in 2004/05 to 15 percent in 2008/09.

The mismanagement of the economy then leads to massive government borrowing from the central bank. “Persistent annual double-digit percentage increases in central bank advances to the State across the last decade (including an extraordinary 21.8 percent growth in the incomplete 2008/09 financial year),” the report says.

This in turn is the “primary driver of Burma’s high inflation rates [easily the highest in the region], which have seldom been under 25 percent in the last decade”.

The analysis that Turnell presents seems to confirm a complete lack of foresight or people-orientated planning, as privatization continues apace with the recent selling of the national library, and real doubt about Burma’s ability to develop alongside its Asian neighbours is apparent. Even more worrying however is Turnell’s belief that government policy is “actively destructive of Burma’s prospects”.