Washington, DC: The Executive Board of the International Monetary Fund (IMF) approved a disbursement of SDR 86.1 million (16.67 percent of quota) under the Rapid Credit Facility (RCF), and a purchase of SDR 172.3 million (33.33 percent of quota) under the Rapid Financing Instrument (RFI). This will help meet the urgent balance-of-payments needs arising from the COVID-19 pandemic, especially the government’s recovery measures to ensure macroeconomic and financial stability while supporting affected sectors and vulnerable groups. The IMF emergency financing will also catalyze additional support from the international community.
This is the second IMF emergency financial assistance under the RFI/RCF for Myanmar since the outbreak of the pandemic: on June 26, 2020, the IMF Executive Board approved a disbursement of US$ 356.5 million (see IMF Press Release No. 20/247 ). Today’s additional financing brings the total IMF financial assistance provided to Myanmar to address COVID-19 pandemic to about US$ 700 million.
While the impact of COVID-19 outbreak was less severe than expected, the second wave of the pandemic had hit Myanmar hard, inflicting large economic and social costs and straining the frail healthcare system. Economic growth is projected at 3.2 percent for FY2019/20 (starting October 1), a sharp decline from 6.8 percent in FY2018/19. For FY2020/21, growth is expected to fall to 0.5 percent. The economic fallout will be felt disproportionally by lower income groups, SMEs, and those in conflict regions. Growth is expected to rebound to 7.9 percent in FY2021/22 reflecting the gradual recovery and strong base effects. At the same time, permanent losses in medium-term output are expected, raising concerns of increased poverty.
In response to the second COVID-19 wave, the government is formulating the Myanmar Economic Recovery and Reform Plan (MERRP). The plan builds on last April’s emergency relief measures under the COVID-19 Economic Relief Plan (CERP), which aimed at preserving macroeconomic stability and mitigating the impact of the pandemic on the population. The MERRP extends relief measures while adding macroeconomic and financial stability measures to guide the recovery. The IMF emergency assistance, together with additional external support and the Debt Service Suspension Initiative, would cover higher social spending needs under continued strains on revenues and mitigate the risk of excessive monetary financing.
Following the Executive Board discussion of Myanmar’s request, Mr. Mitsuhiro Furusawa, Deputy Managing Director and Acting Chair, made the following statement:
“Myanmar’s economy is suffering from a second COVID 19 wave, resulting in extensive lockdowns, declines in tourism, and supply chain disruptions.
“The authorities remain committed to protecting the most vulnerable. In this regard, last year they enacted the COVID 19 Economic Relief Plan (CERP) featuring important emergency fiscal, financial, and monetary measures. The CERP will be followed by the Myanmar Economic Resilience and Reform Plan (MERRP). Both plans prioritize increasing healthcare spending, tax relief measures, and transfers to vulnerable households. It is important that these programs are extended equitably across the country, including in conflict regions and ethnic minorities.
“The accommodative monetary policy stance is appropriate and the Kyat is adjusting flexibly, with limited rules-based interventions managing excessive short-term volatility. Once conditions allow, efforts should focus on enhancing the effectiveness of the monetary policy framework and further building external buffers.
“Further strengthening the banking sector’s stability is key to underpin the recovery. The authorities are committed to monitoring non-performing loans (NPLs) and accelerating the preparation of contingency plans to better manage banking sector stresses, should they materialize. They intend to conduct targeted asset quality reviews of systemically important banks, followed by a comprehensive strategy for NPL resolution and bank recapitalization. Addressing remaining gaps in the AML/CFT framework is also crucial.
“The Rapid Credit Facility and Rapid Financing Instrument will help address Myanmar’s urgent financing needs related to the COVID 19 shock. The authorities’ progress in enhancing spending transparency is commendable and they are committed to further enhance governance, transparency, and accountability to ensure the appropriate use of this emergency financing. Moreover, they continue to leverage capacity development and technical assistance from the Fund and other development partners to further their reforms.”