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Project On

Sovereign Risk of Myanmar

Prepared For:
Dr. Shamsuddin Ahmad
Faculty
School of Business Administration

Prepared By:
No Name ID
1 Tahmina Hossain 1530400
2 Onirul Islam Pathan 0920548

Date of Submission: 19 July, 2016

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Table of Content

No Description Page No

1 Introduction 1

2 Background 1

3 Government 2

4 Economy 2

5 Economic Sanction 3

6 Government Stake holders in Business 4

7 Myanmar Imports :Partners 5

8 Myanmar Export Commodities 6

9 Myanmar Imports 7-8

10 Historical Date for Analysis 9

11 Z- Calculated Value 10

12 Comments 11

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Myanmar is a country in Southeast Asia, also known as Burma, its also called the Golden Land.

With an area of 676,578 km the country is almost twice the size of Germany or slightly smaller

than the U.S. state of Texas. Myanmar is bordered in north and northeast by China, in east

by Laos and Thailand, in south by the Andaman Sea and the Bay of Bengal and in west

by Bangladesh and India. With 5,881 m (19,295 ft) Mount Hkakabo Razi in Kachin state on the

border tri-point with China and India is the highest elevation in Myanmar and Southeast Asia's

highest mountain. Main rivers are the Chindwin and the Irrawaddy (Ayeyarwady) river.

Myanmar has a population of 51.4 million people (2014 census). Largest city, former capital, and

the economic center of Myanmar is Yangon, capital is since 2005 the planned city of Naypyidaw.

Spoken languages are Burmese. On this pages you will find comprehensive information about

Myanmar, or Burma in its diversity, its geography, economy, people, culture, environment,

government and history.

Background:

Previously an independent kingdom, Burma was annexed by the British Empire into the colony

of India in 1886. The occupation brought social, economic, cultural and administrative changes

to the once-feudal society. The Japanese Empire invaded and occupied the country during World

War II but it was returned to British control until independence in 1948.

From 1962 to 2011, the country was ruled by a military junta with absolute power. The name of

the country was changed in 1989 by the ruling military government, officially recognized by the

United Nations. Some national governments, such as Canada, the United Kingdom, the United

States, and much of the Burmese population do not recognize this name change, since they do

not recognize the military government. Despite multiparty elections in 1990 that resulted in the

main opposition party winning a decisive victory, the military junta refused to hand over power.

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Key opposition leader and Nobel Peace Prize recipient AUNG San Suu Kyi, has been set under

house arrest from 1989 to 1995, and was again placed under house detention in September 2000;

her supporters are routinely harassed or jailed. In 2011 the military junta was dissolved following

a general election in 2010 and a civilian government has been installed.

Government:

Type: nominally civilian government (since 29th March 2011, when Burma's military handed

over power). The new political system came into effect after an election in November 2010.

Constitution: 3 January 1974 (suspended since 18 September 1988 when latest junta took

power). Burma has been under military authority since 1962.

Economy

Myanmar is one of the poorest nations in Southeast Asia, suffering from decades of stagnation,

mismanagement and isolation. The lack of an educated workforce skilled in modern technology

hinders Myanmar's economy, although recent reforms and developments carried out by the new

government, in collaboration with foreign countries and organizations aim to make this a thing of

the past. Myanmar lacks adequate infrastructure. Goods travel primarily across the Thai border

(where most illegal drugs are exported) and along the Irrawaddy River. Railways are old and

rudimentary, with few repairs since their construction in the late 19th century. Highways are

normally unpaved, except in the major cities. Energy shortages are common throughout the

country including in Yangon and only 25% of the country's population has electricity.

The military government has the majority stakeholder position in all of the major industrial

corporations of the country (from oil production and consumer goods to transportation and

tourism). The national currency is Kyat. Inflation averaged 30.1% between 2005 and 2007.

Inflation is a serious problem for the economy. In 20102011, Bangladesh exported products

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worth $9.65 million to Myanmar against its import of $179 million. The annual import of

medicine and medical equipment to Myanmar during the 2000s was 160 million USD.

In recent years, both China and India have attempted to strengthen ties with the government for

economic benefit. Many nations, including the United States and Canada, and the European

Union, have imposed investment and trade sanctions on Myanmar. The United States and

European Union eased most of their sanctions in 2012. Foreign investment comes primarily from

China, Singapore, the Philippines, South Korea, India, and Thailand.

Natural resources: Timber, tin, antimony, zinc, copper, tungsten, lead, coal, limestone, precious

stones like jade, ruby and sapphires, natural gas, hydropower, and some petroleum.

Agriculture Products: Rice, pulses, beans, sesame, groundnuts, sugarcane, hardwood, fish and

fish products.

Industries: Agricultural processing; knit and woven apparel; wood and wood products; copper,

tin, tungsten, iron; construction materials; pharmaceuticals; fertilizer; cement.

Economic sanctions

The Government of Myanmar was under economic sanctions by the US Treasury

Department (31 CFR Part 537, 16 August 2005) and by Executive orders 13047 (1997), 13310

(2003), 13448 (2007), 13464 (2008), and the most recent, 13619 (2012). There exists debate as

to the extent to which the American-led sanctions have had more adverse effects on the civilian

population rather than on the military rulers.

From May 2012 to February 2013, the United States began to lift its economic sanctions on

Myanmar "in response to the historic reforms that have been taking place in that country."

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Sanctions remain in place for blocked banks and for any business entities that are more than 50%

owned by persons on "OFAC's Specially Designated Nationals and Blocked Persons list (SDN

list)".

Government stakeholders in business

The military has the majority stakeholder position in all of the major industrial corporations of

the country (from oil production and consumer goods to transportation and tourism).

A proportional representation of Burma's exports.

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Myanmar does not enjoy good trade relations, especially with the western countries. The US

does not import anything from Myanmar. Australia and the European Union have also imposed

sanctions on the country, restricting the import of certain products. Myanmars exports fell

drastically during the global economic crisis of 2008-09. However, Myanmar is a member of the

WTO, ASEAN and BIMSTEC. It shares healthy trade relations with its neighboring countries,

including India, Thailand and China. The countrys poor infrastructure is one of the main

hindrances to international trade. The primary route of trade is across the Thai border, which is

also used to export many illegal drugs through the Ayeyarwady River. Burma has a wealth of

precious stones and gems. However, due to the infamous working conditions in the mines,

international companies refuse to import these stones. Burma has a large trade deficit that has

also crippled its economic growth. In 2007, the country imported 18,250 bbl/day and exported

only 2,200 bbl/day of oil. The total overall imports rose to $3.555 billion in 2009, from $3.388

billion in 2008 (excluding the import of smuggled products). The total overall exports fell to

$6.504 billion in 2009, from $6.677 billion in 2008 (excluding export of smuggled products).

Fabric

Petroleum products and crude oil

Fertilizer

Plastics

Machinery

Transport equipment

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Cement and construction materials

Food products and edible oil

Myanmar Imports: Partners

The share of Myanmars major import partners (as of 2008) is depicted in the following graph:

Myanmar Exports: Commodities

The major commodities exported by Myanmar are as follows:

Natural gas

Wood products

Pulses and beans

Fish

Rice

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Clothing

Jade and gems

Myanmar Exports: Partners

The share of Myanmars major export partners (as of 2008) is depicted in the following graph:

Myanmar Imports

Imports in Myanmar increased to 1732.40 USD Million in November from

1296.10 USD Million in October of 2015. Imports in Myanmar averaged

1001.44 USD Million from 2010 until 2015, reaching an all-time high of

1967.10 USD Million in July of 2015 and a record low of 334.20 USD Million in

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October of 2010. Imports in Myanmar is reported by the Central Statistics

Organization, Myanmar.

Previous Highest Lowest Dates Unit Frequency


Actual

1732.40 1296.10 1967.10 334.20 2010 - 2015 USD Million Monthly

Myanmar mainly imports fuel, vegetable oil, vehicles, pharmaceutical products, construction

equipment, polymers, tires and machinery. Myanmar's main imports partners are China, Japan,

India, Indonesia, Germany, France and Hong Kong. This page provides - Myanmar Imports -

actual values, historical data, forecast, chart, statistics, economic calendar and news. Myanmar

Imports - actual data, historical chart and calendar of releases - was last updated on July of 2016.

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Myanmar Trade Last Previous Highest Lowest Unit

Balance of -914.60 -530.40 593.30 -942.70 USD Million [+]


Trade

Exports 817.80 765.70 1747.30 502.60 USD Million [+]

Imports 1732.40 1296.10 1967.10 334.20 USD Million [+]

Current Account -1128.00 923.90 1961.00 -1128.00 USD Million [+]

Current Account -8.90 -5.90 6.77 -14.77 percent [+]


to GDP

Foreign Direct 381.39 149.53 2443.39 21.82 USD Million [+]


Investment

Tourist Arrivals 429711.00 426669.00 429711.00 125085.00 [+]

Gold Reserves 7.30 7.30 7.30 7.18 Tonnes [+]

Crude Oil 16.00 15.00 23.00 8.01 BBL/D/1K [+]


Production

Terrorism Index 4.08 4.36 4.90 3.45 [+]

Last Reference Previou Highest


All Trade
s

Imports 1732.40 USD Nov/15 1296.10 1967.10 [+]


Million

Exports 817.80 USD Nov/15 765.70 1747.30 [+]

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Million

Historical Data for Analysis:

2007- 2008- 2009- 2010- AV


2008 2009 2010 2011 G
Debt (M) 2.10 2.30 4.70 2.7
4.7
Export (B) 3.7 4.3 5.7 5.3 5
Import (B) 4.7 5.9 6.1 9
Fx reserve (B) 14.45 14.86 13.38 15.85
real investment (T) 3.028 2.443 1.361 1.882
GNP (B) 20.18 31.37 35.23 45.38
% change in money
supply 0.62 3.79 10.95 1.55
initial supply
Varience 19.53 19.53 19.53 19.53

2010 2011 2012 2013


0.567 0.534 0.824 0.509
debt service ratio ( DSR) 57 884 561 434
0.325 0.397 0.455 0.567
Import Ratio (IR) 26 039 904 823
0.150 0.077 0.038 0.041
Investment Ratio (INVR) 05 877 632 472
Domestic Money Supply
Growth (MG)
Varience of export
revenue (VAREX) 19.53 19.53 19.53 19.53
4.175 4.175 4.271 4.205
Z 59 07 98 763

Z = 0.30 (DSR) + 0.25 (IR) + 0.12 (INVR) + 0.05 (MG) + 0.20 (VAREX)

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Z
4.28
4.26
4.24
4.22 Z
4.2
4.18
4.16
4.14
4.12
2010 2011 2012 2013

Figure: Z Value

From the trend of these four years, comment on:

(a) which variable has changed the most in this period;

(b) whether the sovereign risk is increasing or decreasing; and

(c) what the country can do to reduce the Z score (the probability of rescheduling).

Finally, give your view about whether an international FI would be willing to give a sovereign

loan to the country, the reasons for the decision, and if yes, at what rate over LIBOR.

Answer

A) Change in money supply has a great impact on trend. If we look at the chart we can see in

2012 z was higher than other years. The main reason of this change is change in money supply,

import of goods as well as GNP

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B) From the trend we can say in 2010 and 2011 was almost same. But in 2012 it jumped to 4.27

where as it 4.17559 and 4.17507 in 2010 and 2011. In 2013 dramatically trend plunged to 4.20.

C) Burma should maintain their money supply in market. Government must take necessary

action to control money supply. If they do not do that inflation rate and interest rate will be

affected. Which will have a great adverse on economy.

Analyzing all relevant data, we come to a decision that Burman that it is safe to give loan for FI.

Because GNP of Burma is upward trend. Gradually real investment is rising. Import is also

increasing day by day. So Burma needs foreign money to do import and real investment. On the

other hand, GNP almost increased by 10 Billion.

Reference:

1. https://knoema.com/atlas/topics/Economy/Financial-Sector-Monetary-
holdings-liabilities/M2-as-percent-of-GDP
2. http://www.tradingeconomics.com/myanmar/indicators
3. http://data.worldbank.org/data-catalog/world-development-indicators
4. https://knoema.com/WBWDIGDF2015Aug/world-development-
indicators-wdi-september-2015?tsId=2086480
5. http://www.cbm.gov.mm/content/central-bank-myanmar-mandalay-
branch
6. https://www.quandl.com/data/ADB/MF_GRMSM2_MMR-Myanmar-
Growth-Rates-of-Money-Supply-M2

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7. http://atlas.media.mit.edu/en/visualize/tree_map/hs92/import/mmr/all/s
how/2012/
8. http://atlas.media.mit.edu/en/profile/country/mmr/#Imports
9. http://atlas.media.mit.edu/en/visualize/line/hs92/import/mmr/all/show/2
007.2012/
10. http://www.economywatch.com/economic-
statistics/country/Myanmar/
11. http://data.worldbank.org/indicator/FI.RES.TOTL.MO?
end=2015&start=2001
12. http://data.worldbank.org/indicator/FM.LBL.MQMY.GD.ZS?
end=2012&start=2004
13. http://data.worldbank.org/indicator/FM.LBL.MQMY.GD.ZS?
end=2012&start=2006
14. https://en.wikipedia.org/wiki/Myanmar
15. http://data.un.org/CountryProfile.aspx?crName=MYANMAR
16. http://www.tradingeconomics.com/myanmar/foreign-direct-
investment
17. http://data.worldbank.org/indicator/FI.RES.TOTL.MO?
end=2015&start=2007
18. http://data.worldbank.org/indicator/FI.RES.TOTL.MO

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