By Mao Lwin
Yangon, Myanmar, March 12, 2017
Myanmar has tremendous potential for development and the government is on the right track. These are the comments of Stephen Groff, Asian Development Bank’s vice president for East Asia, Southeast Asia and the Pacific. In an exclusive interview at Yangon office on March 7, he discusses importance of implementation, infrastructure investment and meetings with top government officials with The Myanmar Times Deputy Editor-in-Chief, Myo Lwin.
Meetings with President and State Counsellor
I had very fruitful discussions with both the President U Htin Kyaw and State Counsellor Daw Aung San Suu Kyi. Both welcomed ADNLDB’s country strategy with its focus on access and connectivity, human capital and economic reform. Both stressed the importance of infrastructure, particularly transport and energy, as well as education and skills for the country’s development. We agreed that the development of rural areas, where the majority of the people reside, as critical to achieve inclusive growth that benefits all.
ADB’s infrastructure investment focus in Myanmar
Given the importance for the country’s development, ADB has a strong focus on infrastructure development in Myanmar.
In the transport sector, ADB has been privileged to support the government in preparing a comprehensive transport sector assessment and reform strategy and action plan. In terms of financing, ADB is helping to develop rural–urban and regional transport networks to enhance access and connectivity to markets and services for poor and rural communities. So for example ADB is financing the rehabilitation and improvement of the East West Corridor, linking Myanmar with Thailand and Greater Mekong Subregion, as well as the improvement of road transport in the Delta area, to facilitate transportation of agricultural goods to markets. We are also supporting the Government in developing and implementing a rural roads strategy, to improve rural and rural-urban connectivity and enhance the positive impacts of road networks on rural communities.
In energy sector, ADB is emphasizing power transmission and distribution through its sovereign lending operations, and power generation through its private sector lending window, in support of the government’s vision of achieving universal electrification. We are working closely with the government on policy reforms and capacity building, and support for public–private partnerships.
ADB’s new country strategies and operations in Myanmar?
ADB is now well established in Myanmar. Following reengagement with Myanmar in 2012, ADB has undertaken a range of capacity-building initiatives and knowledge work; and made investments in energy, transport, education and training, and urban and rural development. ADB knowledge and capacity building support has contributed to government reforms and strategies. The ADB Myanmar Resident Mission, with its offices in Nay Pyi Taw and Yangon, has worked closely with the government, development partners, and other key stakeholders to deliver effective development solutions.
On poverty eradication
ADB is now finalising its new country partnership strategy for Myanmar (2017~2021), which aims to support the government in laying the foundations for sustainable and inclusive economic development, and job creation for poverty reduction. Under the strategy, ADB operations will focus on: (i) improving access and connectivity to connect rural and urban areas and markets, and to link Myanmar with the regional and global marketplace; (ii) strengthening human capital to promote a skilled workforce and increased employment, and enable the poor and disadvantaged to benefit from economic growth; and (iii) promoting structural and institutional reform to support the modernization of the economy.
In implementing these priorities, infrastructure (energy, transport and urban development) will remain the mainstay of ADB operations; to enhance inclusiveness, this focus will be complemented by support for rural development, and education and training. To help accelerate Myanmar’s transformation process, ADB will intensify its focus on capacity development and governance; private sector development; environment and climate change, and disaster risk management; regional cooperation; and gender equity.
Concerns about projects currently under development
ADB is now well established in Myanmar, with close partnerships and networks with government, private sector, civil society and development partners.ADB knowledge and capacity building support has contributed to government reforms and strategies.
So far, we have approved about $1.2 billion in concessional (below market) lending to the government (energy, transport, education, urban, irrigation), and about $1 billion in private sector lending on commercial terms (power generation, telecoms, logistics). Overall, we are quite happy with the quality and speed of project approvals and implementation.
When we arrived here and through the first couple of years since reengagement, we found the absorptive capacities in both public and private sectors relatively low due to the relative isolation previously. At the same time, ADB’s capacity (country knowledge generally, and regarding government workings in particular) was low as we were absent for over 20 years. That said, capacities (government and ADB) have gone through a steep learning curve and picked up enormously. So we are now quite happy with how our projects are going.
On project implementation
Project implementation is key! Myanmar’s investment gap is substantial given decades of underinvestment and neglect. Infrastructure (rural and urban) and education are fundamental priorities for the government and for the people. ADB has a portfolio of sovereign projects of about $1.2 billion, and together with JICA, and WB we have a joint portfolio of about $5 billion. These projects are ready for implementation. Delivery of these projects takes on average 5-8 years, if implemented smoothly per plan. So a special focus on the timely delivery of the existing portfolio can make a very big difference in terms of improving the lives of the people in a relatively short period.
While Myanmar ranks low on international corruption benchmarks, it has launched a number of significant reform initiatives, including in procurement and public financial management, to improve the track record. ADB has a zero tolerance for corruption and financial safeguards and processes in place to prevent corruption to occur on ADB projects. We are supporting the government in its anti- corruption efforts and reforms.
Assessment on economy
Following the historic transition to a democratically elected government in April 2016, we observe a positive sentiment for the future of Myanmar’s economy.
We commend the government on its focus on macroeconomic management, which is critical to sustain high growth and job creation.
However, Myanmar’s economic growth slowed in FY 2016 mainly due to weak domestic and export demands, slow recovery of agriculture from floods in 2015, and low international commodity prices. Inflation started to recede in late 2016. Both fiscal and current account deficits widened which contributed to depreciating the Kyat.
With the improved external environment as well as greater clarity in the government’s economic policy direction, the economy will likely to start showing faster growth in FY2017 while inflation may edge up and the current account deficit will remain reflecting stronger demand.
The government commitment to accelerating the structural reforms in key areas is critical, particularly initiatives to increase infrastructure investments through public-private partnerships. The passing of the new Companies Law will send strong positive signals to investors, both local and foreign, and ADB is glad to have supported the preparation of the Law.
On Myanmar’s growth potential
Myanmar has tremendous potential for sustainable and inclusive economic growth and development. With the ongoing transition process and momentum, the country has an unprecedented opportunity to leverage the country’s strengths, including abundant natural resources, a large and youthful population, and a sizable and largely untapped market.
Myanmar’s strategic location at the crossroads of Asia, with 40% of the world’s population living in neighboring countries, offers substantial benefits for Myanmar and the region.
Myanmar in ASEAN
Myanmar is of course one of the largest countries by landmass in ASEAN, and it has a very strategic location bordering on two economic powerhouses, People’s Republic of China and India.
Due to its isolation and neglect in the past, Myanmar is one of the less developed members of ASEAN by many measures. It is now catching up rapidly, and if it can maintain its high growth path, Myanmar should reach middle income country status in the not so distant future.
During the early stage of economic integration, ASEAN would continue to be major trading market of Myanmar, and this trend would continue for at least the next 10 years. During this early stage, it is important for Myanmar to timely implement its commitments in the ASEAN Economic Community. Major challenges for Myanmar are to maintain a right balance between promoting domestic industries and allowing greater competition of firms from ASEAN in Myanmar.
Generally, for competitiveness it will be important for Myanmar to make rapid progress in developing its infrastructure, its human capital, and the business enabling environment. With deep seaports, long land borders, and a network of rivers, Myanmar has great potential to develop cross-border multimodal transport system, which can turn the country into a regional transport logistic center in the future, if the country’s infrastructure, the human capital and the enabling business environment can be developed rapidly and effectively.
Comment on AIIB. Competitor or strategic partner?
ADB sees the AIIB as a strategic partner. We know that existing multilateral development banks, including ADB, cannot fully meet all the financing needs of emerging economies. We estimate that Asian nations must spend $26 trillion by 2030 on infrastructure to boost economic growth, battle poverty and address climate change. So the emergence of new development finance institutions, such as the AIIB, offers expanded opportunities for collaboration. ADB and AIIB have an MOU in place, and in fact worked closely together in cofinancing of projects in the region.
What is ADB’s funding level for the region and Myanmar?
In 2016, ADB operations in Asia totaled about $30 billion, of which about $17 billion was for sovereign and nonsovereign project approvals financed by ADB, and about $13 billion by cofinancing partners.
For Myanmar, ADB has mobilized a significant resource envelope for the implementation ofits forthcoming new country partnership strategy (2017-2021): $2 billion, or $400 million per year, in concessional (below market) resources for sovereign lending. ADB nonsovereign investments alongside private sector partners is on average around $200 million per year. We also provide technical assistance grants (for technical advice and capacity building) of around $4 million plus per year.