Myanmar’s trade outlook still positive despite dearer exchange rate: officials

The Myanmar kyat has hit its strongest level against the US dollar since 2018, with the Central Bank’s reference exchange rate on September 24 reaching K1309 per dollar.

This is despite the Central Bank of Myanmar (CBM) continuously purchasing US dollars in the market in attempts to stabilise the exchange rate. The strengthening kyat comes amid a second wave of COVID-19 cases in the country, which has damaged trade and demand.

The CBM has scooped up a total of US$23.7 million between K1326 and K1314 per dollar this month so far. Last month, it purchased US$35.6 million at an exchange rate between K1361 and K1347 per dollar.

U San Win, a local analyst in the foreign exchange market, told the Myanmar Times earlier this month that the CBM has never purchased such an amount before.

But local currency watchers said the CBM has to purchase more dollars to stabilise the exchange rate. The US dollar continues to weaken after the Federal Reserve on September 2 announced a new strategy to boost employment and let inflation rise higher for longer than in the past.

Under its new policy, inflation should be above 2 percent for “some time” before the Fed would raise interest rates. The Fed’s key interest rate is now already near zero and its new policy has led to a steady weakening of the dollar against other currencies, including the kyat.

The strengthening local currency will make Myanmar exports dearer to international buyers, and comes amid slower global demand for Myanmar goods due to the pandemic.

During the current 2019-20 fiscal year, export revenues from animal products and manufactured goods declined significantly. With a sharp contraction in the garment industry due to COVID-19, manufacturing exports in the first three quarters of the year dropped by 4.4 percent from the same period a year earlier, data from the Commerce Ministry showed.

But U Min Min, Director General of Trade Department under the Ministry of Commerce, said both exporters and importers are still in a good position to continue trading at the current exchange rate.

According to data from the Commerce Ministry for the current fiscal year up to August 21, total trade value was about US$33 billion for the current fiscal year, with exports valued at over US$15 billion and imports valued at over US$17 billion. Imports for the period increased by 9.2pc, driven by demand for capital and investment goods for government infrastructure projects.

The trade deficit for the year is estimated to be over US$ 1.5 billion.

In comparison, total trade amounted to US$35 billion with the trade deficit at just over US$1 billion in fiscal 2018-19.

U Min Min said the trade situation is not too bad considering the spread of COVID-19 in the country.

“We are estimating that the total trade volume will reach around US$35 billion by the end of the fiscal year. Despite the difficulties in trade due to COVID – 19 in the country, the government is prioritising trade facilitation,” he said.

“In the current fiscal year, agricultural exports have been supported by strong domestic and foreign demand, and exports of rice and pulses have shown strength. In the next fiscal year, we are working to strengthen the agricultural export sector and the animal export sector,” U Min Min said.