Myanmar is battling a sinking local currency amid unprecedented dollar deficits, raising import costs and exacerbating the economy’s fight with the dual challenge of epidemics and post-coup economic isolation.
Kiyat has fallen nearly 50% since the military seized power in February, shutting down parts of Myanmar’s foreign reserves in the United States and suspending multilateral aid – both major sources of foreign exchange. Restrictions on cash withdrawals have raised concerns about the safety of money in banks, prompting people to look for widely used currencies such as the US or Singaporean dollars or Thai baht, analysts said.
Efforts by Myanmar’s central bank to boost foreign exchange and order exporters to return earnings within days have failed to stem the tide of Myanmar’s central bank. According to Jason Yeck, senior Asia country risk analyst at Fitch Solutions, the currency could fall further to 2, 2,400 by the end of this year and to 3,200 by 2022.
The latest crisis is the sale of currency in the country, which has been plagued by street protests since the overthrow of the Aung San Suu Kyi-led civilian government. A nationwide coveted ban and a law-breaking movement by Suu Kyi’s followers have hit normal economic activity, curtailed exports of everything from textiles to agricultural products, another source of foreign exchange.
“It’s really hard to predict when this financial crisis will end,” said Khain Win, a public policy analyst focusing on Myanmar’s economic governance. “Only the restoration of democracy and a legitimate government will unlock the international assistance that Myanmar needs to deal with this crisis, but it is really difficult to see that happen.”
The sinking currency is already affecting Myanmar’s economy, with some businesses shutting down because they are unable to cope with rising costs of imports and raw materials. According to the ASEAN + 3 Macroeconomic Research Office, the economy contracted 18.7% in the fiscal year ended September 30. The official one-dollar exchange rate last week was 1,965 kyat, with local money managers quoting 2,200-2,300 kyat, Fitch Solutions Yek said.
Although the central bank does not disclose the level of its foreign reserves, a recent slide from Qayat indicates that “after trying to raise the currency for several months” it has probably fallen to a lower level.
Win Thao, deputy governor of Myanmar’s central bank, said on Monday that currency instability was expected to ease soon due to recent measures by the authorities and higher export earnings in November and December.
Myanmar’s reserves have plummeted since the US Federal Reserve accumulated 1 1 billion in the New York Federal Reserve just days after the U.S. coup, while the World Bank and the International Monetary Fund have suspended funding for projects. Authorities suspended the import of passenger cars last month to protect foreign currency on the coast and amended the Forex Act last week.
But more control will further erode investor confidence in Myanmar and exporters will find ways to keep the hard currency offshore, says Vicky Bowman, director of the Myanmar Center for Responsible Business.
“The main reason for the Forex crisis is the declining confidence of investors in Myanmar and the suspension of development aid from February,” Baumann said. “Without a political solution that resumes nding and restores confidence in the country, it will be difficult to restore the kit.”
With foreign direct investment declining in Myanmar, multinational companies are becoming increasingly wary of doing business with the military regime, and some are heading for exit. Reversing that trend will be the key to reversing Kit’s fortunes.
“We don’t see any FDI coming and as long as the military is in power, the trend of kit depreciation could be prolonged,” said Khain Win. “It could push more middle-class people below the poverty line.”