Time to Collect: The SAC’s Actions Come to Bite Myanmar’s Economy

In the June 2023 issue of its biannual Myanmar Economic Monitor, the World Bank predicted a “fragile recovery”, noting that Myanmar’s GDP “is expected to increase to 3% in the year to September 2023, still around 10% lower than in 2019”. Recent actions by the SAC, which have been compounded by the escalation in fighting since October 2023, suggest significant hurdles to this predicted tepid performance.

Corruption charges against Lieutenant-General Moe Myint Tun belie the State Administration Council (SAC)’s claims to competent and clean governance. Moe Myint Tun, once considered Senior General Min Aung Hlaing’s potential successor, along with his deputy, received in early October 2023 a 20-year “equivalent to life” jail sentence on charges of high treason, bribery, the illegal possession of foreign currency, and failure to take action against commodity price gougers. Their arrests and sentencing followed reported interrogations of businesspeople, including cooking oil importers who had leveraged their connections and access to a scarce key commodity to sell it at market prices above the SAC’s official rate.

Given the weak governance environment and rent-seeking incentives, it is not surprising that Moe Myint Tun extorted businesses seeking official approval for essential trade activities. He took over the chairmanship of the Myanmar Investment Commission after the February 2021 coup and was given charge of two other bodies established after the coup: the Central Trade Facilitation Committee in 2021 and the Foreign Exchange Supervisory Committee in 2022. Through these bodies, the SAC attempted to control parts of the economy by regulating the issuance of import/export permits and access to foreign currencies at official rates for trade purposes. Facing reduced inflows of aid, investment, and other funds after the coup, the SAC tried to promote import substitution, secure foreign currency earnings, and artificially fix prices using non-market tools to create an appearance of controlling inflation.

The escalation in fighting since October 2023, including in the main border trade corridor between Myanmar and China, will further challenge the SAC’s ability to turn the economy around.

In September 2023, Min Aung Hlaing appointed General Myat Tun Oo, SAC Deputy Prime Minister and Minister of Transport and Communications, a former rising star, to head all three committees. It is however unlikely that the SAC can bring inflation under control and stop the kyat’s further weakening in the face of external pressures compounding structural flaws in the post-coup economy. The escalation in fighting since October 2023, including in the main border trade corridor between Myanmar and China, will further challenge the SAC’s ability to turn the economy around.

Myanmar’s post-coup foreign currency crunch epitomises this challenge. The U.S. announced sanctions in June 2023 against two Myanmar state-owned banks handling the SAC’s foreign currency transactions. Aimed at restricting the SAC’s access to foreign earnings to fund military actions against civilians, the U.S.’ sanctions led to a Bangladeshi bank freezing funds held in correspondent accounts by those Myanmar state-owned banks. New sanctions added in late October include a directive prohibiting financial services by U.S. persons to the Myanma Oil & Gas Enterprise.

Separately, sanctions, rising compliance costs following the Financial Action Task Force’s blacklisting of Myanmar in October 2022, and mounting reputational risks contributed to Singapore’s United Overseas Bank restricting offshore transactions with Myanmar.

On the demand side, the sanctions have heightened concerns over the future scarcity of US dollars, causing an overall increase in demand and rate. Since June, the SAC has attempted to secure more foreign currency inflows by taxing migrant workers and requiring that remittances use registered money transfer channels. As these registered entities apply conversion rates (at below market rate) set by the Central Bank, workers’ earnings are affected by exchange losses. These measures, highly unpopular with Myanmar overseas workers, will further compel Myanmar’s business community to structure transactions and payments offshore and to restrict their in-country exposure to foreign currency risks.

The exchange rate differences (the SAC set the official exchange rate at 2,100 kyat/USD in August 2022 but the actual, volatile market rate is at or above 3,000 kyat/USD) also mean that individuals with access to US dollars at the official rate will seek arbitrage and financial gains from reselling at the market rate. The SAC has threatened legal action to stop such abuses. Regardless, such abuses are intrinsic to Myanmar’s multiple exchange rate system and will continue. Arbitrage was common prior to exchange rate reforms in the 2010s, including in relation to gas export earnings.  

Other post-coup dynamics also affect Myanmar’s economy. In September 2023, the World Bank’s report on the power sector highlighted that Myanmar’s ongoing conflict has impacted the transmission infrastructure. Most power investments planned pre-coup are now either on hold or cancelled. Prolonged electricity blackouts, a daily occurrence countrywide, affect households and businesses, and will further increase.

In October 2023, the International Labor Organisation (ILO) published the report of its Commission of Inquiry’s findings, including one indicating that “the actions taken by the military authorities since February 2021 have resulted in far-reaching restrictions on the exercise of basic civil liberties and trade union rights”. The SAC has three months to review the findings and take action, failing which the ILO would refer the matter to the International Court of Justice. Labour rights violation concerns had led to European companies H&M and Zara announcing in August that they would stop sourcing from Myanmar, while the European Union is weighing whether to keep or cut trade privileges for Myanmar under the “Everything but Arms” or EBA scheme. This decision will affect tens of thousands of manufacturing jobs in Myanmar.

Three years into the coup, Myanmar’s faltering economy shows the extent to which the SAC’s actions have consequences other than those intended by a regime that is ineptly seeking to coerce market forces into submission.

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