Myanmar’s Shadow Government Flags Deepening Economic Turmoil

(Bloomberg) -- Myanmar’s collapsing currency, plummeting dollar reserves and soaring inflation are pushing the economy deeper into crisis, estimates by the shadow National Unity Government show.

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The kyat has plunged almost 70% against the dollar since 2021, foreign-currency reserves have dropped to about $3.8 billion or lower, and inflation has stayed at double digits, according to Tin Tun Naing, the shadow government’s minister for planning, finance and investment.

Junta spokesman Major General Zaw Min Tun said the information is baseless and released with the aim of destabilizing the economy. “It’s necessary to observe only the statistics officially released by government organizations,” he said.

The NUG’s estimates provide a more recent update on Myanmar’s economic conditions than official figures. The military regime last provided data in January for the fiscal year ended March 2023, saying that gross domestic product growth was 3.4% for the period, dollar reserves were at $12.1 billion and inflation was 24.4%.

Myanmar’s military regime has resorted to printing money to finance its defense operations, spurring inflation, the NUG’s Tin Tun Naing said at a briefing late Monday that was attended by foreign media and United Nations officials. Remittances from nationals working overseas have declined by about 50% in recent months from a monthly average of about $100 million, he said. A possible full sanction by the Financial Action Task Force later this month would increase pressure on the junta’s finances, he said.

The shadow group, mainly composed of lawmakers who escaped after the 2021 coup against a civilian government led by Aung San Suu Kyi, is aligning itself with ethnic armed forces fighting against the junta, the NUG official said. The military regime has been losing ground in the past year, hit by defections.

Escalating clashes risk extending the state of emergency that the ruling junta has imposed since 2021, and further derailing its pledge to hold an election.

Instability is “partly driving the collapse in the exchange rate and it’s driving the country’s inflation rates, which are dramatically higher than any other country,” said Sean Turnell, who previously advised the jailed ex-leader Suu Kyi and remains an economic consultant to the shadow government. He said 70% of the budget deficit was financed by money printing, taking its toll on the currency.

He blamed the junta’s creation of multiple exchange rates for the kyat’s plunge, boosting gold prices as citizens opt to buy the precious metal and the dollar, if they can.

While the Central Bank of Myanmar has kept the exchange rate at 2,100 kyat per dollar, it’s using an average rate of 3,340 kyat on its online trading platform and has allowed an average rate of 3,520 kyat for remittances. At the same time, gold prices are 16% higher than the official reference rate of 487,100 kyat per tical, a unit of measurement used in Myanmar.

“The market certainly won’t collapse but it could be forced underground,” Turnell said of the foreign-currency market.

The junta announced on Tuesday it’s taking action against those who made dollar and gold prices unstable by arresting manipulators and issuing arrest warrants to some money changers and gold shop owners.

(Updates with junta spokesman’s comment in third paragraph.)

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