Saving Myanmar’s Post-coup Economy: Strategic and Pragmatic Solutions

When the Myanmar military seized power on 1 February 2021, its earliest commitments included post-pandemic business recovery “as quickly as possible”. However, hopes for business recovery or turnaround have been swept away by consequences of the coup — security concerns, sanctions, poor business environment, and isolation arising from reputational risk. The State Administration Council (SAC) regime has been unable to stem continuous economic woes; its assertions of stability and legitimacy are negated by political and economic realities.

Forces resisting the SAC have called for the isolation of the military regime on both these fronts. However, concerned political stakeholders, especially those operating from the parallel National Unity administration, should support the democratic movement while being mindful of the economic pain borne by the Myanmar people.

The breadth and depth of Myanmar’s crises should be recognized. Almost immediately after the coup, Myanmar faced a bank run. Public trust in the banking industry, never high to begin with, plummeted further after the coup as individuals and businesses scrambled for access to cash. The steady depreciation of the Myanmar kyat (MMK) against the dollar since the coup, compounded by rising global crude oil prices, led to fuel prices doubling since September 2021. Inflation has also soared since the coup, and foreign currency reserves have dipped. After a small trade surplus during October 2021-March 2022 following adjustments to the budget, the trade balance has turned negative. The currency and fuel shortages have also escalated overall production costs, particularly in agriculture, a fundamental sector for the nation’s food security and sufficiency. The SAC formed a committee in June 2023 to manage the issue, but food prices in Myanmar continue to increase, while incomes decline.

Grappling with foreign currency shortages in the formal sector, in April and July 2022 the SAC issued a series of policy measures aimed at shoring up foreign currency reserves. These measures included freezing foreign currency in banks, forced conversion to MMK, and a new Foreign Exchange Supervisory Committee tightly controlling import permits.

The reputational risks of doing business in Myanmar since the coup have caused several withdrawals of large foreign investments. In August 2022, financial institutions with clients from or based in Myanmar placed curbs on transactions involving Myanmar account holders. In October 2022, the Financial Action Task Force (FATF) placed Myanmar on its blacklist citing high risks of money laundering, terrorist financing, and proliferation financing from Myanmar, and urging enhanced “customer due diligence (CDD) measures” to mitigate these risks. More recently, the US announced sanctions in June 2023 against two Myanmar state-owned banks, Myanmar Investment and Commercial Bank (MICB) and Myanmar Foreign Trade Bank (MFTB).

The SAC’s latest efforts to replenish depleting foreign exchange reserves target wider swathes of the population. In September 2023, the SAC amended the 2023 Union Tax Law, requiring Myanmar migrant/expatriate workers to pay (progressive) percentages of their salaries in foreign currency as income tax.

Myanmar’s political crisis presents some starkly different challenges from other conflict-prone Asian countries such as Sri Lanka. The SAC not only lacks international standing; its legitimacy is also seriously contested domestically. International financial institutions require a stable administration in place before considering loans. The World Bank and Asian Development Bank have suspended funds and projects since the coup. Post-coup Myanmar is entrapped in a chicken-and-egg situation: the country requires international assistance to restore confidence in its steadily deteriorating economy, but the government must restore legitimacy and confidence first in order to receive international assistance.

Helping steer Myanmar’s economy toward a recovery path is the empathetic, strategic and pragmatic course of action.

While political change is difficult and even seems intractable, it is urgent to arrest the economic decline that affects all layers of society. Indeed, both the SAC and the democratic forces resisting it feel the detriments. Myanmar nationals from all walks of life at home and abroad have been funding the resistance against the military, but the crumbling economy has affected people’s ability to sustain such financial support. The parallel National Unity Government’s focus on disrupting foreign currency flows to the SAC — for instance, by imposing broader sanctions — would make some political sense, but comes at the expense of workers in key exports such as the labour-intensive garment sector.

Is there room to influence Myanmar’s economic trajectory? The SAC commands the military and still controls the bureaucracy, including the Central Bank of Myanmar. Helping Myanmar survive and cope with the economic consequences of the coup, and build capacities for future reconstruction, may now require a blend of support for Myanmar’s democratic struggle for a federal democratic state based on an agreed Federal Democracy Chapter, and advocacy of policies that ameliorate the wellbeing of Myanmar households – including measures that may be aligned with the SAC’s interest in improving economic conditions.

Helping steer Myanmar’s economy toward a recovery path is the empathetic, strategic and pragmatic course of action. This requires a balanced approach of lobbying the SAC to ease the current financial burden on the Myanmar people, and preparing for future reconstruction which will entail large investments and international assistance. Some problems require immediate attention, saliently, the evolving security risks in many parts of Myanmar preventing easy transport of goods. Resolving these logistical troubles — in both SAC-controlled or “liberated” areas — will facilitate commodity flows across the country.

Amidst uncertainties, Myanmar’s complex political and economic woes can only be resolved in tandem, and without punishing the people intentionally or otherwise. While the SAC holds power, and the Unity government operates in parallel, all concerned political stakeholders must plan for both immediate strategic needs and longer-term objectives to ensure economic recovery. It is not too early to plan ahead with a view to strengthening the Myanmar economy as much as possible under the current trying circumstances, and preparing the country to eventually receive the international support needed for economic reconstruction.

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